UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period
ended
or
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(Exact Name of Registrant as Specified in Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
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number, including area code:
Securities registered under Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate by check mark
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S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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APPLICABLE ONLY TO CORPORATE ISSUERS:
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TABLE OF CONTENTS
| Page | ||
| CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS | ii | |
| PART I | 1 | |
| ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED) | 1 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 32 |
| ITEM 4. | CONTROLS AND PROCEDURES | 32 |
| PART II | 33 | |
| ITEM 1. | LEGAL PROCEEDINGS | 33 |
| ITEM 1A. | RISK FACTORS | 33 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 33 |
| ITEM 6. | EXHIBITS | 34 |
| SIGNATURES | 35 | |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements in this Quarterly Report on Form 10-Q that address events, developments, or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “project,” “forecast,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “seeks,” “scheduled,” or “will,” and similar expressions are intended to identify forward-looking statements. These statements relate to future periods, future events or our future operating or financial plans or performance, are made on the basis of management’s current views and assumptions with respect to future events, including management’s current views regarding the impacts of the COVID-19 pandemic, supply chain constraints from current economic conditions, high inflation and the conflict in Ukraine. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. We operate in a changing environment where new risks emerge from time to time and it is not possible for us to predict all risks that may affect us, particularly those associated with the COVID-19 pandemic and the conflict in Ukraine, which have had wide-ranging and continually evolving effects. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, without limitation:
| ● | Our future capital requirements; |
| ● | our ability to raise capital and utilize sources of cash; |
| ● | our ability to generate sufficient revenue to cover our operating expenses and to continue to operate with a working capital deficiency; |
| ● | our ability to service our obligations and to obtain funding for our operations; |
| ● | the ongoing conflict between Ukraine and Russia has affected and may continue to affect our business; |
| ● | competition and our ability to counter competition, including changes to the algorithms of Google and other search engines and related impacts on our revenue and advertisement expenses; |
| ● | the impact on our business of macro-economic factors including discretionary spending pressure due to inflation and low savings rates that impact consumer sentiment; |
| ● | the impact of health epidemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto; |
| ● | disruptions in the supply chain and associated impacts on demand, product availability, order cancellations and cost of goods sold including the economic impacts of record inflation; |
| ● | difficulties in managing our international business operations, particularly in Ukraine, including with respect to enforcing the terms of our agreements with our contractors and managing increasing costs of operations; |
| ● | changes in our strategy, future operations, financial position, estimated revenue and losses, product pricing, projected costs, prospects and plans; |
| ● | the outcome of actual or potential litigation, complaints, product liability claims, or regulatory proceedings, and the potential adverse publicity related thereto; |
ii
| ● | the implementation, market acceptance and success of our business model, expansion plans, opportunities, and initiatives, including the market acceptance of our planned products and services; |
| ● | developments and projections relating to our competitors and industry; |
| ● | our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others; |
| ● | our ability to maintain and enforce intellectual property rights and our ability to maintain our technology position; |
| ● | changes in applicable laws or regulations; |
| ● | the effects of current and future U.S. and foreign trade policy and tariff actions; |
| ● | disruptions in the marketplace for online purchases of aftermarket auto parts; |
| ● | costs related to operating as a public company; and |
| ● | the possibility that we may be adversely affected by other economic, business, and/or competitive factors. |
See also the section titled “Risk Factors” (refer to Part I, Item 1A of this report), and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission (the “SEC”), for further discussion of certain risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements. Readers of this report are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This cautionary note is applicable to all forward-looking statements contained in this report.
iii
PART I
Item 1. Financial Statements
Index to Condensed Consolidated Financial Statements
| Page | ||
| Unaudited Condensed Consolidated Financial Statements | ||
| Condensed Consolidated Balance Sheets | 2 | |
| Condensed Consolidated Statements of Operations | 3 | |
| Condensed Consolidated Statements of Changes in Shareholders’ Deficit | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to Condensed Consolidated Financial Statements | 6 |
1
PARTS iD, INC.
Condensed Consolidated Balance Sheets
As of June 30, 2023 and December 31, 2022
| June 30, 2023 (Unaudited) | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets | ||||||||
| Right-of-use assets | ||||||||
| Security deposits | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Customer deposits | ||||||||
| Accrued expenses | ||||||||
| Other current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Convertible notes payable, net | ||||||||
| Warrants liability | ||||||||
| Total current liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Operating lease, net of current portion | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 7) | ||||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
| 1,000,000 shares authorized and | - | - | ||||||
| 10,000,000 Class F shares authorized and 0 issued and outstanding | - | - | ||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
PARTS iD, INC.
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2023 and 2022 (Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Advertising | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ||||||||||||||||
| Change in fair value of warrants | ( | ) | ||||||||||||||
| Interest expense | ||||||||||||||||
| Loss before income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PARTS iD, INC.
Condensed Consolidated Statements of Changes in Shareholders’ Deficit
For the three and six months ended June 30, 2023 and 2022 (Unaudited)
| Additional | Accumulated | Total | ||||||||||||||||||
| Class A Common Stock | Paid-In | Deficit | Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Amount | Deficit | ||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||
| Share-based compensation | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Vesting of RSUs | ( | ) | ||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Note payable allocated to warrants | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PARTS iD, INC.
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2023 and 2022 (Unaudited)
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Deferred tax benefit | ( | ) | ||||||
| Amortization of right-of-use assets | ||||||||
| Share-based compensation expense | ||||||||
| Change in fair value of warrants | ( | ) | ||||||
| Loss on extinguishment of debt | ||||||||
| Write-off of debt issuance costs due to extinguishment of debt | ||||||||
| Accretion of discount on convertible note | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Accrued expenses | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of intangible asset | ||||||||
| Website and software development costs | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Repayment of note payable | ( | ) | ||||||
| Proceeds from convertible notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental non-cash disclosure: | ||||||||
| Issuance of convertible warrants related to notes payable | $ | $ | ||||||
| Supplemental disclosure of cash flows information: | - | |||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
PARTS iD, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – Organization and Description of Business
Description of Business
PARTS iD, Inc., a Delaware corporation (the “Company,”
“PARTS iD,” “we,” “our” or “us”), is a technology-driven, digital commerce company focused
on creating custom infrastructure and unique user experience within niche markets.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The unaudited condensed consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Results for interim periods should not be considered indicative of results for any other interim period or for the full year.
The unaudited condensed consolidated financial statements include the accounts of PARTS iD, Inc. and its wholly owned subsidiary, PARTS iD, LLC. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements include revenue recognition, return allowances, allowance for credit losses, depreciation, inventory valuation, valuation of deferred income tax assets and the capitalization and recoverability of software development costs.
Stock Compensation
Compensation expense related to stock option awards and restricted stock units granted to certain employees, directors and consultants is based on the fair value of the awards on the grant date. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date is based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost is adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the fair value previously used at the service inception date or any subsequent reporting date. Forfeitures are recorded as they occur. The Company recognizes compensation cost related to time-vested options and restricted stock units with graded vesting features on a straight-line basis over the requisite service period. Compensation cost related to performance-vesting options and performance-based units, where a performance condition or a market condition that affects vesting exists, is recognized over the shortest of the explicit, implicit, or defined service periods. Compensation cost is adjusted depending on whether the performance condition is achieved. If the achievement of the performance condition is probable or becomes probable, the full fair value of the award is recognized. If the achievement of the performance condition is not probable or ceases to be probable, then no compensation cost is recognized or amounts previously recognized are reversed.
6
Concentration of Credit Risk
Financial instruments that expose the Company
to a concentration of credit risk principally include cash and accounts receivable balances. The Company has significant cash balances
at financial institutions which throughout the year regularly exceed the federally insured limit of $
Going Concern
These condensed consolidated financial statements
have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates
the realization of assts and satisfaction of liabilities in the normal course of business. We have operated with a negative working capital
model since our inception. The Company has a working capital deficiency of approximately $
The accompanying condensed consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not reflect any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.
To address liquidity concerns, the Company is pursuing additional financing
and continues to restructure and optimize its operations including moderating capital investments, improving gross margin, reducing expenses,
and renegotiating vendor payment terms. In addition, to address its liquidity needs, the Company recently obtained an aggregate of $
PARTS iD has also retained Canaccord Genuity Group, Inc. (“Canaccord”) as its financial advisor and DLA Piper LLP (US) as its legal counsel to assist in evaluating potential strategic alternatives.
There can be no assurance that the evaluation of strategic alternatives will result in any potential transaction, or any assurance as to its outcome or timing. PARTS iD has not set a timetable for completion of the process and does not intend to disclose developments related to the process unless and until PARTS iD executes a definitive agreement with respect thereto, or the Board of Directors otherwise determines that further disclosure is appropriate or required.
Accounts Receivable
Accounts receivable balances include amounts due from customers. The Company periodically reviews its accounts receivable balances to determine whether an allowance for credit losses is necessary based on an analysis of past due accounts, historical occurrences of credit losses, existing economic conditions, and other circumstances that may indicate that the realization of an account is in doubt. As of June 30, 2023 and December 31, 2022, the Company determined that an allowance for credit losses was not necessary.
7
Inventory
Inventory consists of purchased goods that are
immediately available-for-sale and are stated at the lower cost or net realizable value, determined using the first-in, first-out method.
Merchandise-in-transit directly from suppliers to customers is recorded in inventory until the product is delivered to the customer. As
of June 30, 2023, and December 31, 2022, merchandise-in-transit amounted to $
Other Current Assets
Other current assets include advances to vendors
amounting to $
Website and Software Development
The Company capitalizes certain costs associated with website and software developed for internal use in accordance with ASC 350-50, Intangibles – Goodwill and Other – Website Development Costs, and ASC 350-40, Intangibles – Goodwill and Other – Internal Use Software, when both the preliminary project design and the testing stage are completed and management has authorized further funding for the project, which it deems probable of completion and to be used for the function intended. Capitalized costs include amounts related to website and software development such as contractors’ fees, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project. Capitalization of such costs ceases when the project is complete and ready for its intended use. Capitalized costs are amortized over a three-year period commencing on the date that the specific module or platform is placed in service. Costs incurred during the preliminary stages of development and ongoing maintenance costs are expensed as incurred.
Intangible Assets
Intangible assets consist of indefinite-lived domain names and are stated at cost less impairment losses, if any. The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. The Company has determined that there were no triggering events in the six months ended June 30, 2023 and 2022, and no impairment charges were necessary.
During the first quarter of 2023, the Company
sold its Onyx.com domain name for $
Property and Equipment
| Asset Class | Estimated useful lives | ||
| Video and studio equipment | |||
| Website and internally developed software | |||
| Computer and electronics | |||
| Vehicles | |||
| Furniture and fixtures | |||
| Leasehold improvements |
Accounts Payable
Accounts payable as of June 30, 2023, consisted
of amounts payable to vendors of $
8
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard replaced all previous accounting guidance on this topic, eliminated all industry-specific guidance and provided a unified model to determine how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires companies to use more judgment and make more estimates than under prior guidance. Judgments include identifying performance obligations in the contract, estimating the amount of consideration to include in the transaction price, and allocating the transaction price to each performance obligation.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies contracts with customers; (ii) identifies performance obligation(s); (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligation(s); and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.
The Company recognizes revenue on product sales through its website as the principal in the transaction as the Company has concluded it controls the product before it is transferred to the customer. The Company controls products when it is the entity responsible for fulfilling the promise to the customer and takes responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in establishing prices, and selects the suppliers of products sold.
Sales discounts earned by customers at the time
of purchase and taxes collected from customers, which are remitted to governmental authorities, are deducted from gross revenue in determining
net revenue. Allowances for sales returns are estimated and recorded based on historical experience and reduce product revenue, inclusive
of shipping fees, by expected product returns. Allowances for sales returns at June 30, 2023 and December 31, 2022, were $
The Company has two types of contractual liabilities:
(a) amounts received from customers prior to the delivery of products are recorded as customer deposits in the accompanying condensed
consolidated balance sheets and are recognized as revenue when the products are delivered, which amounted to $
Cost of Goods Sold
Cost of goods sold consists of the cost of product sold to customers, plus shipping and handling costs and shipping supplies, net of vendor rebates.
Advertising Costs
Advertising costs are expensed as incurred. The
Company incurred $
Income Taxes
The Company is a C corporation for U.S. federal income tax purposes. Accordingly, the Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates for years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding allowance is established. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on the Company’s various income tax returns for the reporting year.
9
ASC 740 also provides guidance on the accounting for uncertain tax positions recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on the Company’s evaluation, management concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements. The Company files U.S. federal and State of New Jersey state tax returns and had no unrecognized tax benefits at June 30, 2023 and December 31, 2022.
The Company’s policy for recording interest and penalties associated with audits is to record such expenses as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the six months ended June 30, 2023 and 2022. Management is currently unaware of any issues under review that could result in significant payments, accruals, or material deviations from its filing positions.
Loss Per Share
For the three and six months ended June 30, 2023 and 2022, basic net loss per common share was determined by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For purposes of calculating diluted net loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include performance-based stock units and unvested restricted stock units using the treasury stock method. For all periods presented, there is no difference in the number of shares used to compute basic and diluted net loss per common share due to the Company’s net loss.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. This ASU is effective for smaller reporting companies for years beginning January 1, 2023. The Company adopted Topic 326 on January 1, 2023, and the adoption of this guidance did not have a material impact on the condensed consolidated financial statements.
Certain Significant Risks and Uncertainties
In February 2022, the Russian Federation launched a full-scale invasion against Ukraine, and sustained conflict and disruption in the region is ongoing. The Company’s engineering and product data development team as well as back office and part of its customer service center are in Ukraine. The Company’s ability to maintain adequate liquidity for its operations is dependent upon several factors, including its revenue and earnings, the impacts of COVID-19 and Russian-Ukraine conflict on macroeconomic conditions, and its ability to take further cost savings and cash conservation measures if necessary. The Russian-Ukraine conflict could have a material adverse effect upon the Company.
Significant Accounting Policies
There have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”).
10
Note 3 – Property and Equipment
| June 30, 2023 | December 31, 2022 | |||||||
| Website and software development | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Computers and electronics | ||||||||
| Vehicles | ||||||||
| Leasehold improvements | ||||||||
| Video and equipment | ||||||||
| Total - Gross | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total - Net | $ | $ | ||||||
Depreciation of property and equipment for three
months ended June 30, 2023 and 2022 was $
Note 4 – Leases
Operating Leases
| As of and for the Three and Six Months Ended June 30, 2023 | ||||
| Operating Lease Expense – 3 months ended June 30, 2023 | $ | |||
| Operating Lease Expense – 6 months ended June 30, 2023 | $ | |||
| Additional Lease Information: | ||||
| Weighted average remaining lease term-operating leases (in years) | ||||
| Weighted average discount rate-operating leases | % | |||
| Future minimum lease payments under non-cancellable leases as of June 30, 2023, were as follows: | ||||
| July 1, 2023 to December 31, 2023 | $ | |||
| January 1, 2024 to December 31, 2024 | ||||
| January 1, 2025 to September 30, 2025 | ||||
| Sub-total | ||||
| Less: Portion representing interest | ||||
| Total future minimum lease payments | ||||
| Less: Current portion of lease obligations | ||||
| Long-term portion of lease obligations | $ | |||
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Note 5 – Debt
On October 21, 2022, the Company entered into a Loan and Security Agreement with JGB Collateral, LLC (as amended, the “JGB Loan Agreement”), a Delaware limited liability company (“JGB”), in its capacity as collateral agent (the “Agent”) and the several financial institutions or entities that from time to time become parties to the JGB Loan Agreement as lenders (collectively, the “Lender”).
The loan agreement provided for term loans in
an aggregate principal amount of up to $
In connection with the entry into the loan agreement,
with respect to the Initial Term Loan Advance, the Company issued to the Lender a warrant (the “Warrant”) to purchase
The effective interest rate on the Initial Term
Loan Advance of $
On February 22, 2023 the Company and the
Agent executed an amendment to the Loan Agreement (the “First Amendment”), which, among other things, (i) the Company
agreed to repay the principal amount of the term loan to the Agent in the following installments: (A) $
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In connection with the First Amendment, the Company and the Agent entered into an Amended and Restated Intellectual Property and Security Agreement (the “A&R Security Agreement”) which amended and restated that certain Intellectual Property and Security Agreement, dated as of October 21, 2022. The A&R Security Agreement removed the exclusion of the Volkswagen Trademark Claims from the Agent’s security interest in the Company’s intellectual property.
The First Amendment was accounted for as a debt extinguishment
in accordance with ASC 470, which resulted in the Initial Term Loan Advance being derecognized and the convertible notes that were issued
as a result of the First Amendment being recorded at fair value with the difference resulting in a $
On March 6, 2023 (the “Initial Closing Date”),
PARTS iD, Inc., a Delaware corporation (the “Company”), entered into a Note and Warrant Purchase Agreement (the “March
Purchase Agreement”) whereby the Company agreed to issue and sell to certain investors (collectively, the “Investors”),
in a private placement, (a) an aggregate principal amount of up to $
The March Convertible Notes accrue interest at
The March Convertible Notes are strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement; and (ii) the Permitted Litigation Indebtedness (as defined in the JGB Loan Agreement).
Subject to the subordination provisions described above and more fully described in the March Convertible Notes, the March Convertible Notes are secured by a junior security interest in all the Company’s rights, title, and interest in and to all the Company’s assets. The March Convertible Notes mature on March 6, 2025.
The March Warrants will
expire after 5 years from the date of issuance and may not be exercised on a cashless basis.
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The Company intends to use the proceeds from the issuance of the March Convertible Notes and the March Warrants for working capital purposes and the repayment of current indebtedness.
The March Convertible Notes and the March Warrants were issued by the Company in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and have not been registered under the Securities Act.
As of June 30, 2023,
the Company had $
On May 19, 2023, the
Company issued to certain investors, in a private placement (i) unsecured convertible promissory notes in the aggregate principal amount
of $
The Company allocated the proceeds from the private
placement between the May Convertible Notes and the May Warrants by applying the relative fair value methodology. The Company allocated
$
The May Convertible
Notes accrue interest at
The May Convertible Notes are strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement and (ii) Permitted Litigation Indebtedness (as defined in the JGB Loan Agreement).
The May Warrants will
expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The warrants provide that a holder of May
Warrants will not have the right to exercise any portion of its warrants, if such holder, together with its affiliates, and any other
party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would
beneficially own in excess of
On June 14, 2023, the
Company entered into a Note and Warrant Purchase Agreement whereby the Company agreed to issue and sell to an investor in a private placement,
(i) an unsecured convertible promissory note in the aggregate principal amount of $
The Company allocated the proceeds from the private
placement between the June Convertible Note and the June Warrants by applying the relative fair value methodology. The Company allocated
$
The June Convertible Note is strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement and (ii) Permitted Litigation Indebtedness (as defined in the Loan Agreement).
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On June 16, 2023, the
Company entered into a Second Amendment to the JGB Loan Agreement (the “Second Amendment”). Pursuant to the Second Amendment,
the Company borrowed an additional $
As of June 30, 2023,
the Company had approximately $
On July 13, 2023, the Company repaid in full the indebtedness owed under the JGB Loan Agreement and the JGB loan Agreement was terminated in accordance with its terms. See “Subsequent Events” below for more information.
Note 6 – Shareholders’ Deficit
Preferred Stock
As of June 30, 2023,
the Company had authorized for issuance a total of
Common Stock
As of June 30, 2023,
and December 31, 2022, the Company had
| Nature of Reserve | As of June 30, 2023 | As of December 31, 2022 | ||||||||
| a. | Indemnification reserve: Upon the expiration of the indemnification period of two years as described in the Business Combination agreement, subject to the payments of indemnity claims, if any, the Company will issue up to | |||||||||
| b. | EIP reserve: Shares reserved for future issuance under the stockholder approved Parts iD, Inc. 2020 Equity Incentive Plan | |||||||||
| c. | ESPP reserve: Shares reserved for future issuance under the stockholder approved Parts iD, Inc. 2020 Employee Stock Purchase Plan | |||||||||
| Total shares reserved for future issuance | ||||||||||
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Note 7 – Commitments and Contingencies
As of June 30, 2023, there were no material changes to the Company’s legal matters and other contingencies disclosed in Note 7 of the “Notes to Consolidated Financial Statements” included in our Annual Report on 2022 Form 10-K for the year ended December 31, 2022.
Note 8 – Share-Based Compensation
During the three months ended June 30, 2023 and
2022, selling, general and administrative expenses included $
During the three months ended June 30, 2023 and
2022, the Company capitalized $
Equity Incentive Plan
In October 2020, in connection with the Business
Combination, the Company’s stockholders approved the Parts iD, Inc. 2020 Equity Incentive Plan (the “2020 EIP”). The
2020 EIP became effective immediately upon the closing of the Business Combination. As of June 30, 2023, of the
The 2020 EIP provides for the grant of stock options, restricted stock, restricted stock units (“RSUs”), PSUs, stock appreciation rights, other stock-based awards, and cash awards (collectively, “awards”). The awards may be granted to employees, directors, and consultants of the Company.
Restricted Stock Units
| Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
| Unvested balance on January 1, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Unvested balance on June 30, 2023 | $ | |||||||
As of June 30, 2023, approximately $
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Performance-Based Restricted Stock Units
| PSU Type | Balance at January 1, 2023 | Granted | Forfeited | Balance at June 30, 2023 | ||||||||||||
| Net revenue based | - | |||||||||||||||
| Weighted average grant date fair value | $ | $ | - | $ | $ | |||||||||||
| Cash flow based | - | |||||||||||||||
| Weighted average grant date fair value | $ | $ | - | $ | $ | |||||||||||
| Total | - | |||||||||||||||
As of June 30, 2023, the performance criteria
included in the PSUs plan are unlikely to be achieved, and accordingly, the Company has no accrual of share-based compensation expenses
associated with the outstanding PSUs. The weighted average period of
Employee Stock Purchase Plan
In October 2020, in connection with the Business
Combination, the Company’s stockholders approved the Parts iD, Inc. 2020 Employee Stock Purchase Plan (the “2020 ESPP”).
There are
Note 9 – Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences in financial statements and income tax carrying values using rates in effect for years such differences are to reverse. Due to uncertainties surrounding the Company’s ability to generate future taxable income and consequently realize such deferred income tax assets, a full valuation allowance has been established.
The disclosures regarding deferred tax assets included in our 2022 Form 10-K continue to be accurate for the three and six months ended June 30, 2023.
The Company does not currently anticipate any significant increase or decrease in the total amount of unrecognized tax benefits within the next twelve months.
None of the Company’s U.S. federal or state income tax returns are currently under examination by the Internal Revenue Service (the “IRS”) or state authorities. However, fiscal years 2017 and later remain subject to examination by the IRS and respective states.
Note 10 – Subsequent Events
Convertible Notes and Warrants
On July 13, 2023, the
Company entered into a Note and Warrant Purchase Agreement (the “July Purchase Agreement”)
whereby the Company agreed to issue and sell to certain investors affiliated with certain directors, officers and beneficial owners
of the Company, in a private placement (i) an aggregate principal amount of up to $
The July Convertible Notes
issued to the non-insider purchaser accrues interest at
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The July Warrants will
expire after 5 years from the date of issuance and the July Warrants issued to the non-insider Purchaser may be exercised on a cashless
basis. The July Warrants provide that a holder of July Warrants will not have the right to exercise any portion of its July Warrants,
if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes
of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of
On July 13, 2023, the Company used proceeds
from the July Convertible Notes and the Lind Financing (as described below) to repay the Lenders and the JGB Loan Agreement was thereby
terminated upon the receipt by the Lenders of a payoff amount of $
Lind Financing
On July 14, 2023 (the “Initial Lind Closing Date”), the Company
entered into a Securities Purchase Agreement (the “Lind Purchase Agreement”) with Lind Global Partners II, L.P. (“Lind”)
and one other external investor. The agreement provides for loans in an aggregate principal amount of up to $
At any time while the Lind Note is outstanding, the Company may deliver
a written notice requesting an increase in the amount of funding equal to no less than $
The Lind Note was issued
at a discount and matures on July 14, 2024. Following the date that is sixty (60) days after the earlier to occur of (A) the date the
Registration Statement is declared effective by the SEC or (B) the date that any shares issued pursuant to the Lind Note may be immediately
resold under Rule 144 of the Securities Act, the Company may repay all, but not less than all, of the then outstanding principal amount
of the Lind Note, subject to a
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As collateral for the obligations under the Lind Purchase Agreement, the Company has granted to Lind a senior security interest in all of Company’s right, title, and interest in, to and under all of Company’s property (inclusive of intellectual property), subject to certain exceptions.
The Lind Warrant expires 5 years from the date of issuance and may
be exercised on a cashless basis. The Lind Warrant provides that Lind will not have the right to exercise any portion of the warrant,
if, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section
13(d) or Section 16 of the Securities Exchange Act of 1934, as amended, would beneficially own in excess of 4.99%, of the number of shares
of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”);
provided, however, that the Beneficial Ownership Limitation shall automatically increase to 9.99% if Lind, together with its affiliates,
owns in excess of
The Lind Warrant provides for customary shelf and piggyback registration rights with respect to the shares of Common Stock underlying the Lind Note and the Lind Warrant.
Placement Agent Warrant
On July 14, 2023, in consideration for its services in respect of the
Lind Financing described above, the Company also issued to Titan Partners Group LLC, a division of American Partners, LLC (the “Placement
Agent”) warrants to purchase
Management has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q and believes that all material subsequent events have been disclosed.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements, together with the related notes thereto, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”).
The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in the section “Risk Factors” included in our 2022 Form 10-K. See also the “Cautionary Note Regarding Forward-Looking Statements” set forth at the beginning of this Quarterly Report on Form 10-Q.
Overview
PARTS iD, Inc. (the “Company”) is a technology-driven, digital commerce company on a mission to transform the U.S. automotive aftermarket and the adjacent complex parts markets we serve by providing customers a differentiated customer experience with advanced product search capabilities, proprietary product options, exclusive shop by service type functionality, visually inspired browsing, easy product discovery, rich custom content, an exhaustive product catalog and competitive prices.
The Company delivers this customer experience vision using our purpose-built technology platform and user interface (UI), proprietary parts and accessories fitment data with more than fourteen billion product and fitment data points powered with machine learning, and a comprehensive product catalog spanning approximately eighteen million parts and accessories, when fully available, from over one thousand suppliers we partner with across eight verticals.
The Company’s technology platform integrates software engineering with catalog management, data intelligence, mining, and analytics, along with user interface development which utilizes distinctive rules-based parts fitment software capabilities. To manage the ever-growing need for accurate product and parts data, we use cutting-edge computational and software engineering techniques, including Bayesian classification, to enhance and improve data records and product information, and ultimately to contribute to the overall development of a rich and engaging user experience. Furthermore, our technology platform is designed to support much more than just car parts and accessories. We believe that we have demonstrated the flexibility and scalability of our technology by launching seven adjacent verticals, including BOATiD.com, MOTORCYCLEiD.com, CAMPERiD.com, and others in August 2018, all of which leverage the same proprietary technology platform and data architecture.
There are several key competitive strengths that management believes highlight the attractiveness of the Company’s platform business model and underscore how PARTS iD, Inc. is differentiated from its competition, including:
| 1. | The Company’s distinctive technology, customer-first UI, and proprietary fitment data enables a differentiated shopping experience for the automotive parts consumer. Unlike any other consumer product category, we believe that the success or failure of selling automotive parts, and especially aftermarket accessories at scale, comes down to rich and comprehensive fitment data. We believe that the Company has been successful at developing its own proprietary fitment database which is not licensed for use to any other person or entity. |
| 2. | We believe that the Company’s product catalog of approximately eighteen million products, when fully available, and approximately forty-five hundred brands is unrivaled. Our comprehensive catalog is enriched with approximately fourteen billion data points, advanced 3D imagery, in-depth product descriptions, customer reviews, installation, and fitment guides, as well as other rich custom content specifically catering to the needs of the automotive aftermarket industry and is further complemented by our highly trained and specialized customer service. |
| The Company’s proprietary and asset-light fulfillment model is enabled by a network of hundreds of suppliers with whom we have cultivated relationships with and integrated over the last fifteen years. This has enabled us to further scale our catalog size and to add adjacent verticals which allows us to offer a broader array of product lines over our competitors. Furthermore, our geo-sourcing fulfillment algorithm factors in real-time inventory when available, customer proximity, shipping cost, and profitability to optimize product sourcing. This algorithmic approach allows us to increase fill rate and delivery speed. |
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| 3. | The Company’s differentiated customer experience is a result of rich content, wide product range with ease of selection, proprietary fitment data, and highly trained customer service representatives, providing a data-driven engagement platform for discovery and inspiration. This is demonstrated by: |
| a. | the Company’s Net Promoter Score continues to be between 60 – 70 despite the global supply chain disruptions (primarily due to the COVID-19 pandemic) which began in 2021 and continues today; |
| b. | the Company’s overall product return rate across all eight verticals is consistently within the range of 5 - 6%; and |
| c. | repeat customer revenue was 34% of total revenue for the fourth quarter of 2022. |
The Company has invested sixteen years in building its proprietary platform and we believe that our investment in technology and data has allowed us to expand into adjacent verticals, leveraging a capital-efficient just-in-time inventory model to offer our consumers an extensive selection and customer experience.
During 2022, we took several measures to reduce operating costs, including reducing advertising expenses, general and administrative overhead, and capital expenditures. In June 2022, we took steps to reduce our costs by reducing our employment base in the United States, and reducing our independent contractors in Ukraine, the Philippines, and Costa Rica, and by reducing other operating expenses. The employees and independent contractors affected by this reduction were informed of the Company’s decision beginning in June 2022. The annualized savings from the measures described above were approximately $12 million. Additionally, in October 2022, the Company successfully negotiated a new shipping contract that will yield more than 15% in lower outbound shipping rates. The shipping cost reduction is expected to reduce shipping losses and the cost of delivery to customers.
In the first quarter of 2023, the Company took additional reductions in its advertising expense by approximately 77%, its US-based salaries by approximately 55%, and outside contractor costs by approximately 35%. These reductions were made in order to bring the cost structure of the Company in line with the current business environment.
In the second quarter of 2023, the Company further reduced SG&A to $5.1 million from $9.9 million compared to the same quarter in 2022. Discretionary spending such as salaries and support costs were reduced significantly. Net loss decreased from $6.5 million in the first quarter of 2023 to $3.8 million in the second quarter of 2023. Gross margin for the three months ended June 30, 2023 increased to 25.2% from 19.7% in the same quarter last year as the Company is focused on increasing gross margins. Gross margin for the six months ended June 30, 2023 increased to 23.2% from 19.6% for the same period last year.
Russian-Ukrainian Conflict
The Russian invasion of Ukraine and resulting response from several nations have impacted, and are expected to continue to impact, our business in the near term. Russia’s invasion of Ukraine has elevated global geopolitical tensions and security concerns as well as having recently created some inflationary pressures. Our engineering and product data development team as well as back office and part of its customer service center are in Ukraine. Therefore, the conflict in Ukraine could have a material adverse effect on our business, financial condition, and results of operations. While the conflict has not caused significant disruptions to our operations to date, it could have a material adverse effect upon the Company in future periods.
Since the onset of the active conflict in February 2022, most of our contractors have been able to continue their work, although at a reduced capacity and/or schedule.
Our websites and call centers have continued to function but could be more negatively impacted in the future. Many of our contractors have moved outside of Ukraine to neighboring countries where they continue to work remotely. Some of our contractors who have remained in Ukraine have moved to other areas in Ukraine, but their ability to continue work is subject to significant uncertainty and potential disruptions.
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The situation in Ukraine is complex and continues to evolve. We cannot provide any assurance that our outsourced teams in Ukraine will be able to provide efficient and uninterrupted services, which could have an adverse effect on our operations and business. In addition, our ability to maintain adequate liquidity for our operations is dependent on several factors, including our revenue and earnings, which could be significantly impacted by the conflict in Ukraine. Further, any major breakdown or closure of utility services, any major threat to civilians or any international banking disruption could materially impact the operations and liquidity of the Company. We will continue monitoring the military, social, political, regulatory, and economic environment in Ukraine and Russia, and will consider further actions as appropriate.
Key Financial and Operating Metrics
We measure our business using financial and operating metrics, as well as non-GAAP financial measures. See “Results of Operations – Non-GAAP Financial Measures” below for more information on non-GAAP financial measures. We monitor several key business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions, including the following:
Traffic and Engagement Metrics
For the Three Months Ended June 30,
| 2023 | 2022 | Change | % Change | |||||||||||||
| Number of Users | 12,562,591 | 30,162,993 | (17,600,402 | ) | (58.4 | )% | ||||||||||
| Number of Sessions | 16,252,141 | 50,312,238 | (34,060,097 | ) | (67.7 | )% | ||||||||||
| %Number of Pageviews | 69,376,287 | 189,340,557 | (119,964,270 | ) | (63.4 | )% | ||||||||||
| Pages/Session | 4.27 | 3.76 | 0.51 | 13.6 | % | |||||||||||
| Average Session Duration | 0:02:29 | 0:02:59 | (0:00:30 | ) | (16.8 | )% | ||||||||||
For the Six Months Ended June 30,
| 2023 | 2022 | Change | % Change | |||||||||||||
| Number of Users | 28,200,684 | 61,312,113 | (33,111,429 | ) | (54.0 | )% | ||||||||||
| Number of Sessions | 37,536,743 | 105,417,225 | (67,880,482 | ) | (64.4 | )% | ||||||||||
| %Number of Pageviews | 169,897,676 | 399,344,224 | (229,446,548 | ) | (57.5.4 | )% | ||||||||||
| Pages/Session | 4.50 | 3.79 | 0.71 | 18.7 | % | |||||||||||
| Average Session Duration | 0:02:35 | 0:02:59 | (0:00:24 | ) | (7.8 | )% | ||||||||||
We use the metrics above to gauge our ability to acquire targeted traffic and keep users engaged. This information informs us of how effective our proprietary technology, data, and content is, and helps us define our strategic roadmap and key initiatives.
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Results of Operations
For the Three Months Ended June 30,
| Three months ended June 30, | Change | |||||||||||||||||||||||
| 2023 | % of Rev. | 2022 | % of Rev. | Amount | % | |||||||||||||||||||
| Net revenue | $ | 16,119,809 | $ | 104,257,478 | $ | (88,137,669 | ) | (84.5 | )% | |||||||||||||||
| Cost of goods sold | 12,059,825 | 74.8 | % | 83,674,247 | 80.3 | % | (71,614,422 | ) | (85.6 | )% | ||||||||||||||
| Gross profit | 4,059,984 | 25.2 | % | 20,583,231 | 19.7 | % | (16,523,247 | ) | (80.3 | )% | ||||||||||||||
| Gross margin | 25.2 | % | 19.7 | % | ||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Advertising | 423,153 | 2.6 | % | 9,437,657 | 9.1 | % | (9,014,504 | ) | (95.5 | )% | ||||||||||||||
| Selling, general & administrative | 5,128,823 | 32.0 | % | 9,940,889 | 9.5 | % | (4,812,066 | ) | (48.4 | )% | ||||||||||||||
| Depreciation | 1,978,114 | 12.3 | % | 2,142,433 | 2.1 | % | (164,318 | ) | (7.7 | )% | ||||||||||||||
| Total operating expenses | 7,530,090 | 46.9 | % | 21,520,979 | 20.6 | % | (13,990,889 | ) | (65.0 | )% | ||||||||||||||
| Loss from operations | (3,470,106 | ) | (21.5 | )% | (937,748 | ) | (0.9 | )% | (2,532,358 | ) | 270.0 | % | ||||||||||||
| Loss on extinguishment of debt | - | - | - | - | - | - | ||||||||||||||||||
| Change in fair value of warrants | 15,000 | 0.1 | % | - | - | 15,000 | - | |||||||||||||||||
| Interest expense | 522,861 | 3.2 | % | - | - | 522,861 | - | |||||||||||||||||
| (Loss) before income tax | (4,007,967 | ) | (24.9 | )% | (937,748 | ) | (0.9 | )% | (3,070,219 | ) | 327.4 | % | ||||||||||||
| Income tax benefit (expense) | (1,000 | ) | 0.0 | % | 38,037 | (0.0 | )% | (39,037 | ) | ( | )% | |||||||||||||
| Net loss | $ | (4,008,967 | ) | (24.9 | )% | $ | (899,711 | ) | (0.9 | )% | $ | (3,109,256 | ) | 345.6 | % | |||||||||
For the Six Months Ended June 30,
| Six months ended June 30, | Change | |||||||||||||||||||||||
| 2023 | % of Rev. | 2022 | % of Rev. | Amount | % | |||||||||||||||||||
| Net revenue | $ | 32,320,813 | $ | 199,149,626 | $ | (166,828,813 | ) | (83.8 | )% | |||||||||||||||
| Cost of goods sold | 24,829,288 | 76.8 | % | 160,072,167 | 80.4 | % | (135,242,879 | ) | (84.5 | )% | ||||||||||||||
| Gross profit | 7,491,525 | 23.2 | % | 39,077,459 | 19.6 | % | (31,585,934 | ) | (80.8 | )% | ||||||||||||||
| Gross margin | 23.2 | % | 19.6 | % | ||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Advertising | 1,567,293 | 4.8 | % | 19,138,949 | 9.6 | % | (17,571,656 | ) | (91.8 | )% | ||||||||||||||
| Selling, general & administrative | 11,157,741 | 34.6 | % | 21,613,616 | 10.9 | % | (10,455,875 | ) | (48.4 | )% | ||||||||||||||
| Depreciation | 3,977,030 | 12.3 | % | 4,096,895 | 2.1 | % | (119,865 | ) | (2.9 | )% | ||||||||||||||
| Total operating expenses | 16,702,064 | 51.7 | % | 44,849,460 | 22.5 | % | (28,147,396 | ) | (62.8 | )% | ||||||||||||||
| Loss from operations | (9,210,539 | ) | (28.5 | )% | (5,772,001 | ) | (2.9 | )% | (3,438,538 | ) | 59.6 | % | ||||||||||||
| Loss on extinguishment of debt | 879,045 | 2.7 | % | - | - | - | - | |||||||||||||||||
| Change in fair value of warrants | (541,000 | ) | (1.7 | )% | - | - | (541,000 | ) | - | |||||||||||||||
| Interest expense | 939,166 | 2.9 | % | - | - | 939,166 | - | |||||||||||||||||
| Loss before income tax | (10,487,750 | (32.4 | )% | (5,772,001 | ) | (2.9 | )% | (4,715,749 | ) | 81.7 | % | |||||||||||||
| Income tax expense (benefit) | 1,000 | 0.0 | % | (919,013 | ) | (0.5 | )% | 920,103 | (99.9 | )% | ||||||||||||||
| Net loss | $ | (10,488,750 | ) | (32.5 | )% | $ | (4,852,898 | ) | (2.4 | )% | $ | (5,635,852 | ) | 116.1 | % | |||||||||
Revenue
Revenue for the three months ended June 30, 2023, decreased by $88.1 million, or 84.5%, compared to the same prior year period, primarily attributable to supply chain disruptions and the lack of product availability coupled with a decrease in advertising spend because of our liquidity squeeze which peaked in early February and led to vendors not giving us access to their full product catalog. Compared to the same prior year period, traffic declined by 58.4% in the three-month period ended June 30, 2023, the site conversion rate decreased by 47.4% and average order value decreased by 9.3%.
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For the six months ended June 30, 2023, revenue decreased by $166.8 million, or 83.8 %, compared to the same prior year period, also attributable to supply chain disruptions and the lack of product availability coupled with a decrease in advertising spend due to our liquidity squeeze which peaked in early February and led to vendors not giving us access to their full product catalog. Compared to the same prior year period, traffic declined by 54.0% in the six-month period ended June 30, 2023, the site conversion rate decreased by 50.7% and average order value decreased by 9.0%.
We believe that the decrease in traffic and the site conversion rate was primarily attributed to lower orders because of product unavailability, supply chain interruptions, reduction in discretionary spending and a significant reduction in advertising spending by the Company.
Cost of Goods Sold
Cost of goods sold is composed of product cost, the associated fulfillment and handling costs charged by vendors, if any, and shipping costs. In the three months ended June 30, 2023, cost of goods sold decreased by $71.6 million, or 85.6%, compared to the same prior year period. This decrease in the cost of goods sold was primarily driven by decreases in the number of orders or products sold and related shipping costs.
For the three months ended June 30, 2023, cost of goods sold was 74.8% compared to 80.3% of revenue in the respective prior year period. The 5.5% decrease in cost of goods sold as a percentage of revenue was primarily attributable to changes in product mix, as well as ongoing supply chain disruptions and the lack of product availability as a result of our liquidity squeeze which peaked in early February.
For the six months ended June 30, 2023, cost of goods sold was 76.8% compared to 80.4% of revenue in the respective prior year period. The 3.6% decrease in cost of goods sold as a percentage of revenue was primarily attributable to changes in product mix, as well as ongoing supply chain disruptions and the lack of product availability as a result of our liquidity squeeze which peaked in early February.
Gross Profit and Gross Margin
Gross profit decreased by $16.5 million, or 80.3%, for the three months ended June 30, 2023, compared to the same prior year period, primarily due to an 84.5% decrease in revenue.
Gross profit decreased by $31.6 million, or 80.8%, for the six months ended June 30, 2023, compared to the same prior year period, primarily due to an 83.8% decrease in revenue.
Gross margin of 23.2% for the six months ended June 30, 2023, was higher than the gross margin of 19.6% for the six months ended June 30, 2022, primarily attributable to a change in the product category revenue mix as discussed above and shipping cost savings which was partially offset by increases in product costs.
Operating Expenses
Advertising expense decreased $9.0 million, or 95.5%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to reduction in discretionary spending which led to lower traffic and number of clicks. As a percentage of revenue, advertising expenses were 2.6% and 9.1% for the three months ended June 30, 2023 and 2022, respectively. The decrease in percentage was primarily attributable to a significant reduction in advertising expenditures.
Advertising expense decreased $17.6 million, or 91.8%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, also due to reduction in discretionary spending which led to lower traffic and number of clicks. As a percentage of revenue, advertising expenses were 4.8% and 9.6% for the six months ended June 30, 2023, and 2022, respectively. The decrease in percentage was also attributable to a significant reduction in advertising expenditures.
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Selling, general and administrative (“SG&A”) expenses decreased $4.8 million, or 48.4%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. This decrease was primarily attributable to a decrease in outsourced sales and customer service expenses of $1.1 million, inhouse direct sales expenses of $0.4 million, research development expenses of $0.6 million, professional fees of $0.4 million, insurance costs of $0.3 million and various other immaterial decreases. Selling, general and administrative (“SG&A”) expenses decreased $10.5 million, or 48.4%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. This decrease was primarily attributable to a decrease in payroll costs of $1.5 million, outsourced costs of $1.2 million, research and development costs of $0.9 million, office costs of $0.4 million, professional fees of $0.4 million public company costs of $0.3 million and various other immaterial decreases.
Depreciation expense decreased $0.2 million or 7.7% for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. Depreciation expense decreased $0.1 million or 2.9% for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.
Interest Expense
Interest expense was $522,861, an increase of $522,861 for the three months ended June 30, 2023, compared to $0 for the three months ended June 30, 2022. Interest expense for the six months ended June 30, 2023 was $9399,166 an increase of $939,166, compared to the $0 for the three months ended June 30, 2022 of which $615,451 was related to JGB debt and $299,478 was related to other loans plus accretion of discount
Income Tax Benefit
Income tax expense was $1,000 for the three and six months ended June 30, 2023, compared to a benefit of $38,037 for the three months ended June 30, 2022 and a benefit of $919,103 for the six months ended June 30, 2023. For the three months ended June 30, 2023, the effective income tax rate was 0.0%, compared to (4.1)% for the three months ended June 30, 2022. For the six months ended June 30, 2022, the effective tax rate was (15.9)%. The Company incurred a loss for the quarter and six months ended June 30, 2023 and elected a full valuation allowance for the deferred tax asset.
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
This report includes non-GAAP financial measures that differ from financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). These non-GAAP financial measures may not be comparable to similar measures reported by other companies and should be considered in addition to, and not as a substitute for, or superior to, other measures prepared in accordance with GAAP. Management uses non-GAAP financial measures internally to evaluate the performance of the business. Additionally, management believes certain non-GAAP measures provide meaningful incremental information to investors to consider when evaluating the performance of the Company.
To this end, we provide EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA consists of net income (loss) plus (a) interest expense; (b) income tax provision (or less benefit); and (c) depreciation expense. Adjusted EBITDA consists of EBITDA plus costs, fees, expenses, write-offs, and other items that do not impact the fundamentals of our operations, as described further below following the reconciliation of these metrics. Management believes these non-GAAP measures provide useful information to investors in their assessment of the performance of our business. The exclusion of certain expenses in calculating EBITDA and Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis as these costs may vary independent of business performance. Accordingly, we believe that EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.
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EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
| ● | Although depreciation is a non-cash charge, the assets being depreciated may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
| ● | EBITDA and Adjusted EBITDA do not reflect changes in our working capital; |
| ● | EBITDA and Adjusted EBITDA do not reflect income tax payments that may represent a reduction in cash available to us; |
| ● | EBITDA and Adjusted EBITDA do not reflect depreciation and interest expenses associated with the lease financing obligations; and |
| ● | Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. |
Because of these limitations, you should consider EBITDA and Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table reflects the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for each of the periods indicated.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | (4,008,967 | ) | $ | (899,711 | ) | $ | (10,488,750 | ) | $ | (4,852,898 | ) | ||||
| Interest expense | 522,861 | - | 939,166 | - | ||||||||||||
| Income tax expense (benefit) | 1,000 | (38,037 | ) | 1,000 | (919,103 | ) | ||||||||||
| Depreciation | 1,978,114 | 2,142,433 | 3,977,030 | 4,096,895 | ||||||||||||
| EBITDA | (1,508,993 | ) | 1,204,685 | (5,571,554 | ) | (1,675,106 | ) | |||||||||
| Share compensation expense included in statement of operations | 458,981 | (180,529 | ) | 1,114,568 | 686,841 | |||||||||||
| Legal & settlement expenses (1) | 102,426 | 316,743 | 102,426 | 596,385 | ||||||||||||
| Adjusted EBITDA Total | $ | (945,585 | ) | $ | 1,340,899 | $ | (4,354,560 | ) | $ | (391,880 | ) | |||||
| % of revenue | -5.9 | % | 1.3 | % | -13.5 | % | -0.2 | % | ||||||||
| (1) | Represents legal and settlement expenses related to significant matters that do not impact the fundamentals of our operations, pertaining to: (a) causes of action between certain of the Company’s shareholders and which involves claims directly against the Company seeking the fulfillment of alleged indemnification obligations with respect to these matters, and (ii) trademark and IP protection cases. We are involved in routine IP litigation, commercial litigation, and other various litigation matters. We review litigation matters from both a qualitative and quantitative perspective to determine if excluding the losses or gains will provide our investors with useful incremental information. Litigation matters can vary in their characteristics, frequency, and significance to our operating results. |
Net loss increased by $3.1 million for the three months ended June 30, 2023, as compared to the same prior year period, primarily driven by a decrease in gross profit of $16.5 million partially offset by a decrease in operating expenses of $14.0 million, The year-over-year decrease in Adjusted EBITDA for the three months ended June 30, 2023, as compared to the same prior year period, was primarily attributable to an increase in net loss, interest of $0.3 million partially offset by a decrease in non-cash share compensation expense, as noted in the reconciliation table above.
Free Cash Flow
To provide investors with additional information regarding our financial results, we have also disclosed free cash flow, a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less capital expenditures (which consist of purchases of property and equipment and website and software development costs). We have provided a reconciliation below of free cash flow to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure.
We have included free cash flow in this report because it is an important indicator of our liquidity as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.
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Free cash flow has limitations as a financial measure, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results.
The following table presents a reconciliation of net cash used in operating activities to free cash flow for each of the periods indicated.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net cash used in operating activities | $ | (1,440,8612 | ) | $ | (6,741,471 | ) | $ | (5,148,214 | ) | $ | (12,263,036 | ) | ||||
| Purchase of property and equipment | (2,893 | ) | (29,160 | ) | (2,893 | ) | (45,360 | ) | ||||||||
| Website and software development costs | (595,654 | ) | (1,739,802 | ) | (1,477,297 | ) | (3,577,764 | ) | ||||||||
| Free cash flow | $ | (2,139,399 | ) | $ | (8,510,433 | ) | $ | (6,628,404 | ) | $ | (15,886,160 | ) | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net cash from profit and loss account | $ | (1,078,160 | ) | $ | (967,683 | ) | $ | (4,158,185 | ) | $ | (796,347 | ) | ||||
| Net cash used in working capital changes | (462,692 | ) | (7,709,154 | ) | (990,029 | ) | (11,466,689 | ) | ||||||||
| Total net cash used in operating activiteis | $ | (1,540,852 | ) | $ | (6,741,471 | ) | $ | (5,148,214 | ) | $ | (12,263,036 | ) | ||||
Liquidity and Capital Resources
The Company’s cash was $0.3 million as of June 30, 2023. We have operated with a negative working capital model since our inception. The Company has a working capital deficiency of approximately $47.3 million as of June 30, 2023. We continue to face macro-economic headwinds, liquidity issues and the resulting declining revenue and profitability, which increased the working capital deficit in the current year and resulted in the use of approximately $5.1 million in cash from operating activities, of which $1.0 million was attributable to changes in working capital during the quarter ended June 30, 2023. With this, substantial doubt exists about the Company’s ability to continue as a going concern within one year after filing this Quarterly Report on Form 10-Q.
We obtained additional financing for $1.25 million, from certain investors and our Chief Executive Officer, from the sale and issuance of convertible notes and warrants on May 19, 2023 and June 14, 2023 and additional borrowing of $0.7 million from JGB on June 16, 2023.
Additionally, on July 14, 2023, the Company entered into a Securities Purchase Agreement (the “Lind Purchase Agreement”) with Lind Global Partners II, L.P.(“Lind”). The Lind Purchase Agreement provides for loans in an aggregate principal amount of up to $10.0 million under various tranches. As a result, the Company received funding in the amount of $3.75 million and pursuant to the terms of the Lind Purchase Agreement. Lind agreed to fund an additional $1.0 million upon (i) the effectiveness of a registration statement filed with the SEC for the registration of the shares of Common Stock underlying the notes and warrants issued to Lind and (ii) the receipt of Stockholder Approval (as defined in the Lind Purchase Agreement). In consideration for the $4.75 million, the Company issued and sold to Lind, in a private placement, (a) a senior secured convertible promissory note in the aggregate principal amount of $5,367,500 and (b) 12,837,838 warrants to purchase the Company’s Common Stock at an exercise price of $0.50 per share. This note was issued at a discount and matures on July 14, 2024. The warrants expire 5 years from the date of issuance and may be exercised on a cashless basis.
The Company can borrow additional amounts of no less than $1.0 million and shall not exceed $5.25 million in which the lender has discretion as to whether or not to lend the additional amounts.
Our ability to meet our obligations as they become due is dependent upon the degree of the success of our plans. Our ability to meet our obligations as they become due is dependent upon increased and stabilized revenue and profitability and additional funding. The Company believes that the operational adjustments that have been implemented, and the funds raised, will improve the financial position.
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See Item 1A of Part I, “Risk Factors” for a discussion of the factors that may impact our ability to maintain adequate liquidity, included in our 2022 Form 10-K.
Cash Flow Summary
The change in cash was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net cash used in operating activities | $ | (1,440,861 | ) | $ | (6,741,471 | ) | $ | (5,048,214 | ) | $ | (12,263,036 | ) | ||||
| Net cash used in investing activities | (598,548 | ) | (1,768,962 | ) | (1,230,190 | ) | (3,623,124 | ) | ||||||||
| Net cash provided by financing activities | 1,850,000 | - | 2,750,000 | - | ||||||||||||
| Net change in cash | $ | (189,400 | ) | $ | (8,510,433 | ) | $ | (3,528,404 | ) | $ | (15,886,160 | ) | ||||
Cash Flows from Operating Activities
The net cash used in operating activities consists of net loss, adjustments for certain non-cash items, including depreciation, and the effect of changes in working capital and other activities. Operating cash flows can be volatile and are sensitive to many factors, including changes in working capital and our net income (loss). We have a negative working capital model where current liabilities exceed current assets. Any profitable growth in revenue results in incremental cash for the Company. We receive funds when customers place orders on the website, while accounts payable are paid over a period. Vendor terms range on average from one week to eight weeks.
Net cash used in operating activities in the three months ended June 30, 2023, was $1.4 million, and was driven primarily by the impact of a net loss of $4.0 million, and a negative net change in operating assets and liabilities of $0.5 primarily comprising of a decrease in prepaids of $0.5 million decrease in customer deposits $0.4 million, accounts payable of $0.2 million which was partially offset by non-cash depreciation and amortization expense of $2.0 million.
Net cash used in operating activities in the six months ended June 30, 2023, was $5.1 million, and was driven primarily by the impact of a net loss of $10.3 million, and a negative net change in operating assets and liabilities of $1.0 million primarily comprising of an increase in accounts payables and non-cash depreciation and amortization expenses of $4.3 million and other non-cash charges of $1.8 million.
Cash Flows from Investing Activities
Net cash used in investing activities was $0.6 million for the three months ended June 30, 2023, compared to $1.8 million for the three months ended June 30, 2022, which primarily consisted of website and software development costs in both periods. The current year amount was partially offset by the proceeds from the sale of the Onyx.com domain name. Cash used in investing activities varies depending on the timing of technology and product development cycles.
Cash Flows from Financing Activities
Net cash provided from financing activities for the three months ended June 30, 2023, was $2.0 million, compared to $0 in the three months ended June 30, 2022 as the Company issued convertible notes of $1.3 million and a non-convertible note for $0.7 million.
Net cash provided by financing activities for the six months ended June 30, 2023, was $2.9 million compared to $0 in the six months ended June 30, 2022, due to borrowings from the issuance of convertible notes of $4.2 million and $0.7 million of non-convertible note offset by repayment of $2.0 million of the JGB note.
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Operating Leases
The Company has several non-cancelable lease arrangements for office spaces and an equipment lease that expire at various dates through 2025. Rental expense for operating leases was $98,426 for the three months ended June 30, 2023.
Future minimum lease payments under non-cancelable operating leases as of June 30, 2023, are as follows:
| July 1, 2023, to December 31, 2023 | $ | 359,322 | ||
| January 1, 2024 to December 31, 2024 | 276,358 | |||
| January 1, 2024 to September 30, 2025 | 197,940 | |||
| Total future minimum lease payments | $ | 833,620 |
Warrants
In connection with the entry into the JGB Loan Agreement, with respect to the Initial Term Loan Advance, the Company issued JGB a warrant (the “Warrant”) to purchase 1,000,000 shares (the “Warrant Shares”) of the Company’s Class A Common Stock.
The Company received funding of $5,000,000 in cash on October 21, 2022. The warrant was valued at $799,000 at issuance using the Black-Scholes model. The Company paid approximately $0.2 million in costs in connection with the loan. The loan calls for thirty monthly payments of $183,333 beginning April 30, 2023, with the last payment due on September 30, 2025. On February 22, 2023 the Company and the Agent executed an amendment to the Loan Agreement (the “Amendment”), which, among other things, the Company agreed to repay the principal amount of the term loan to the Agent in the following installments: (A) $2 million on February 23, 2023, (B) $1 million on August 22, 2023 and (C) the entire remaining principal balance and all accrued but unpaid interest which remained at the original loan rate of 8.0% (including the Original Issue Discount, as defined in the Amendment) on August 22, 2024.
In addition, the Company issued convertible notes on March 6, 2023 for an aggregate principal amount of $2.9 million and the Company issued the investors warrants to purchase 580,000 shares of common stock. These warrants were valued at approximately $158,000 at issuance using the Black-Sholes model.
During the second quarter 2023 the Company issued convertible notes in the aggregate principal amount of $1.25 million and warrants to purchase 2,777,777 shares of the Common Stock. These warrants were valued at approximately $911,000 at issuance using the Black-Scholes model. The Company accounted for the warrants by allocating approximately $527,000 as a discount on the debt and this discount will be amortized over the life of the loans. In addition, the Company recorded amortization of approximately $24,000 to interest expense.
The warrants liability balance includes the values of warrants issued in connection with issuance of convertible debt issued by the Company. The Company periodically reviews the values of these warrants based on the historical and future values of the Company’s stock, it’s volatility and the risk-free rate using the Black-Scholes model. As of June 30, 2023 and December 31, 2022 the liability was $168,000 and $551,000, respectively. A change in any of the aforementioned factors over time could result in a material adjustment to this liability.
The Company continues to evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, obtain finance and operating lease arrangements, and/or enter into financing obligations for strategic reasons or to further strengthen our financial position. The sale of additional equity or convertible debt securities would be dilutive to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to secure additional financing, or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all.
Capital Expenditures
Capital expenditures consist primarily of website and software development, and the amount and timing thereof vary depending on the timing of technology and product development cycles.
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Dividends
The Company has never paid dividends on any of our capital stock and currently intends to retain any future earnings to fund the growth of our business. Any determination to pay dividends in the future will be at the discretion of the Board and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that the Board may deem relevant.
Cash Taxes
The Company paid $1,000 in taxes in cash for the six months ended June 30, 2023, and $2,608 for the six months ended June 30, 2022. As of December 31, 2022, the Company had $17,034,462 in federal net operating losses (“NOL”), all remaining from 2019 and onwards and accordingly may be available to offset future taxable income indefinitely. However, the NOL’s are subject to an 80% taxable income limitation for all periods after January 1, 2021. The Company does not currently anticipate any significant increase or decrease in the total amount of unrecognized tax benefits within the next twelve months.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operation of the registrant. These items require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing our consolidated financial statements in accordance with GAAP, management has made estimates, assumptions and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
In preparing these condensed consolidated financial statements, management has utilized available information, including our history, industry standards and the current and projected economic environments, among other factors, in forming its estimates, assumptions and judgments, considering materiality. Because the use of estimates is inherent in GAAP, actual results could differ from those estimates. In addition, other companies may utilize different estimates, which may impact comparability of our results of operations to those of companies in similar businesses.
A summary of the accounting estimates that management believes are critical to the preparation of our condensed consolidated financial statements is set forth below. See Note 2 of the Notes to Consolidated Financial Statements included in this report and in our 2022 Form 10-K for our other significant accounting policies and accounting pronouncements that may impact the Company’s consolidated financial position, earnings, cash flows or disclosures.
Revenue Recognition
Our revenue recognition is impacted by estimates of unshipped and undelivered orders at the end of the applicable reporting period. As we ship a large volume of packages through multiple carriers, actual delivery dates may not always be available, and as such we estimate delivery dates based on historical data. If actual unshipped and undelivered orders are not consistent with our estimates, the impact on our revenue for the applicable reporting period could be material. Unshipped and undelivered orders as of June 30, 2023 and December 31, 2022, were $0.9 million and $3.1 million, respectively, which are reflected as customer deposits on our condensed consolidated balance sheets.
The outstanding days from the order date of our unshipped and undelivered orders were, on average, estimated at 11.1 days as of April 30, 2023.
Sales discounts earned by customers at the time of purchase and taxes collected from customers, which are remitted to governmental authorities, are deducted from gross revenue in determining net revenue. Allowances for sales returns are estimated and recorded based on historical experience and reduce product revenue, inclusive of shipping fees, by expected product returns.
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If actual sales returns are not consistent with our estimates, or if we must make adjustments, we may incur future losses or gains that could be material. Adjustments to our estimated net allowances for sales returns over the three and six months ended June 30, 2023 and 2022 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Balance at beginning of period | $ | 1,210,692 | $ | 883,653 | $ | 549,250 | $ | 738,465 | ||||||||
| Adjustment | (997,157 | ) | (127,546 | ) | (335,715 | ) | 17,642 | |||||||||
| Balance at closing of period | $ | 213,535 | $ | 756,107 | $ | 213,535 | $ | 756,107 | ||||||||
Website and Software Development
We capitalize certain costs associated with website and software development (technology platform including the product catalog) for internal use in accordance with Accounting Standards Codification (“ASC”) 350-50, Intangibles — Goodwill and Other — Website Development Costs, and ASC 350-40, Intangibles — Goodwill and Other — Internal Use Software, when both the preliminary project design and the testing stage are completed and management has authorized further funding for the project, which it deems probable of completion and to be used for the function intended. Capitalized costs include amounts related to website and software development such as contractors’ fees, payroll and payroll-related costs for employees who are directly associated with and who devote time to our internal-use software. Capitalization of such costs ceases when the project is substantially complete and ready for its intended use. Capitalized costs are amortized over a three-year period commencing on the date that the specific module or platform is placed in service. Costs incurred during the preliminary stages of development and ongoing maintenance costs are expensed as incurred. Determinations as to when a project is substantially complete and what constitutes ongoing maintenance require judgments and estimates by management. We periodically review the carrying values of capitalized costs and make judgments as to ultimate realization. The amount of capitalized software costs for the six months ended June 30, 2023 and 2022 were as follows:
| Six months ended June 30, | Capitalized Software | |||
| 2022 | $ | 3,577,764 | ||
| 2023 | $ | 1,477,297 | ||
Stock-Based Compensation
Compensation expense related to stock option awards and restricted stock units granted to certain employees, directors and consultants is based on the fair value of the awards on the grant date. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date is based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost is adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the fair value previously used at the service inception date or any subsequent reporting date. Forfeitures are recorded as they occur. The Company recognizes compensation cost related to time-vested options and restricted stock units with graded vesting features on a straight-line basis over the requisite service period. Compensation cost related to performance-vesting options and performance-based units, where a performance condition or a market condition that affects vesting exists, is recognized over the shortest of the explicit, implicit, or defined service periods. Compensation cost is adjusted depending on whether the performance condition is achieved. If the achievement of the performance condition is probable or becomes probable, the full fair value of the award is recognized. If the achievement of the performance condition is not probable or ceases to be probable, then no compensation cost is recognized or amounts previously recognized are reversed.
Changes in expectations and outcomes different from estimates (such as the achievement or non- achievement of performance conditions) may cause a significant adjustment to earnings in a reporting period as timing and amount of expense recognition is highly dependent on management’s estimate.
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Deferred Tax Assets
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates for years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding allowance is established. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on the Company’s various income tax returns for the reporting year.
Allowance for Credit Losses
Accounts receivable balances include amounts due from customers. The Company periodically reviews its accounts receivable balances to determine whether an allowance for credit losses is necessary based on an analysis of past due accounts, historical occurrences of credit losses, existing economic conditions, and other circumstances that may indicate that the realization of an account is in doubt. As of June 30, 2023 and December 31, 2022, the Company determined that an allowance for credit losses was not necessary. As circumstances change, it could result in material adjustments to the allowance for credit losses.
Recent Accounting Pronouncements
See Note 2 of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this report for information on how recent accounting pronouncements have affected or may affect our financial position, results of operations or cash flows.
Off-Balance Sheet Arrangements
PARTS iD is not a party to any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of June 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Item 1. Legal Proceedings
We are routinely involved in several legal actions, proceedings, litigation, and other disputes arising in the ordinary course of our business. See Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding legal matters and proceedings, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes to our risk factors from those previously disclosed in our 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
The information required by this Item 2 related to the issuance of convertible notes and warrants to purchase shares of the Company’s Common Stock issued to certain investors is contained in the Current Reports on Form 8-K filed with SEC on May 22, 2023, June 20, 2023 and July 17, 2023.
Issuer Purchases of Equity Securities
During the three months ended June 30, 2023, the Company did not repurchase any of its securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
33
Item 6. Exhibits
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PARTS iD, INC. | ||
| August 15, 2023 | By: | /s/ Lev Peker |
| Lev Peker | ||
| Chief Executive Officer | ||
| August 15, 2023 | By: | /s/ James Doss |
| James Doss | ||
| Chief Financial Officer | ||
35
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lev Peker, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of PARTS iD, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Lev Peker | |
| Lev Peker | |
| Chief Executive Officer |
Date: August 15, 2023
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Doss, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of PARTS iD, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ James Doss | |
| James Doss | |
| Chief Financial Officer |
Date: August 15, 2023
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of PARTS iD, Inc. (the “Company”) for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Lev Peker, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Lev Peker | |
| Lev Peker | |
| Chief Executive Officer |
Date: August 15, 2023
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of PARTS iD, Inc. (the “Company”) for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, James Doss, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ James Doss | |
| James Doss | |
| Chief Financial Officer |
Date: August 15, 2023
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Class F Common Stock | ||
| Common stock, par value per share (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 10,000,000 | 10,000,000 |
| Common stock, shares issued | 0 | 0 |
| Common stock, shares outstanding | 0 | 0 |
| Class A Common Stock | ||
| Common stock, shares authorized | 100,000,000 | 100,000,000 |
| Common stock, shares issued | 35,102,553 | 34,825,971 |
| Common stock, shares outstanding | 35,102,553 | 34,825,971 |
Condensed Consolidated Statements of Operations (unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Net revenue | $ 16,119,809 | $ 104,257,478 | $ 32,320,813 | $ 199,149,626 |
| Cost of goods sold | 12,059,825 | 83,674,247 | 24,829,288 | 160,072,167 |
| Gross profit | 4,059,984 | 20,583,231 | 7,491,525 | 39,077,459 |
| Operating expenses: | ||||
| Advertising | 423,153 | 9,437,657 | 1,567,293 | 19,138,949 |
| Selling, general and administrative | 5,128,823 | 9,940,889 | 11,157,741 | 21,613,616 |
| Depreciation | 1,978,114 | 2,142,433 | 3,977,030 | 4,096,895 |
| Total operating expenses | 7,530,090 | 21,520,979 | 16,702,064 | 44,849,460 |
| Loss from operations | (3,470,106) | (937,748) | (9,210,539) | (5,772,001) |
| Loss on extinguishment of debt | 879,045 | |||
| Change in fair value of warrants | 15,000 | (541,000) | ||
| Interest expense | 522,861 | 939,166 | ||
| Loss before income tax benefit | (4,007,967) | (937,748) | (10,487,750) | (5,772,001) |
| Income tax benefit (expense) | (1,000) | 38,037 | (1,000) | 919,103 |
| Net loss | $ (4,008,967) | $ (899,711) | $ (10,488,750) | $ (4,852,898) |
| Loss per common share | ||||
| Loss per share (basic and diluted) (in Dollars per share) | $ (0.11) | $ (0.03) | $ (0.3) | $ (0.14) |
| Weighted average number of shares (basic and diluted) (in Shares) | 35,007,018 | 33,983,680 | 34,991,580 | 33,974,791 |
Condensed Consolidated Statements of Operations (unaudited) (Parentheticals) - $ / shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Loss per share (basic and diluted) | $ (0.11) | $ (0.03) | $ (0.29) | $ (0.14) |
| Weighted average number of shares (basic and diluted) | 35,007,018 | 33,983,680 | 34,991,580 | 33,974,791 |
Condensed Consolidated Statements of Changes in Shareholders’ Deficit (Unaudited) - USD ($) |
Class A
Common Stock
|
Additional Paid-in Capital |
Accumulated Deficit |
Total |
|---|---|---|---|---|
| Balance at Dec. 31, 2021 | $ 3,396 | $ 6,973,541 | $ (20,682,657) | $ (13,705,720) |
| Balance (in Shares) at Dec. 31, 2021 | 33,965,804 | |||
| Share-based compensation | 1,291,480 | 1,291,480 | ||
| Net loss | (3,953,187) | (3,953,187) | ||
| Balance at Mar. 31, 2022 | $ 3,396 | 8,265,021 | (24,635,844) | (16,367,427) |
| Balance (in Shares) at Mar. 31, 2022 | 33,965,804 | |||
| Balance at Dec. 31, 2021 | $ 3,396 | 6,973,541 | (20,682,657) | (13,705,720) |
| Balance (in Shares) at Dec. 31, 2021 | 33,965,804 | |||
| Net loss | (4,852,898) | |||
| Balance at Jun. 30, 2022 | $ 3,406 | 8,516,706 | (25,535,555) | (17,015,443) |
| Balance (in Shares) at Jun. 30, 2022 | 34,062,616 | |||
| Balance at Mar. 31, 2022 | $ 3,396 | 8,265,021 | (24,635,844) | (16,367,427) |
| Balance (in Shares) at Mar. 31, 2022 | 33,965,804 | |||
| Share-based compensation | $ 10 | 251,685 | 251,695 | |
| Share-based compensation (in Shares) | 96,812 | |||
| Net loss | (899,711) | (899,711) | ||
| Balance at Jun. 30, 2022 | $ 3,406 | 8,516,706 | (25,535,555) | (17,015,443) |
| Balance (in Shares) at Jun. 30, 2022 | 34,062,616 | |||
| Balance at Dec. 31, 2022 | $ 3,411 | 11,107,946 | (38,606,537) | (27,495,180) |
| Balance (in Shares) at Dec. 31, 2022 | 34,825,971 | |||
| Share-based compensation | 1,118,994 | 1,118,994 | ||
| Net loss | (6,479,783) | (6,479,783) | ||
| Balance at Mar. 31, 2023 | $ 3,411 | 12,226,940 | (45,086,320) | (32,855,969) |
| Balance (in Shares) at Mar. 31, 2023 | 34,825,971 | |||
| Balance at Dec. 31, 2022 | $ 3,411 | 11,107,946 | (38,606,537) | (27,495,180) |
| Balance (in Shares) at Dec. 31, 2022 | 34,825,971 | |||
| Net loss | (10,488,750) | |||
| Balance at Jun. 30, 2023 | $ 3,515 | 13,537,195 | (49,095,287) | (35,554,577) |
| Balance (in Shares) at Jun. 30, 2023 | 35,102,553 | |||
| Balance at Mar. 31, 2023 | $ 3,411 | 12,226,940 | (45,086,320) | (32,855,969) |
| Balance (in Shares) at Mar. 31, 2023 | 34,825,971 | |||
| Vesting of RSUs | $ 104 | (104) | ||
| Vesting of RSUs (in Shares) | 276,582 | |||
| Note payable allocated to warrants | 526,955 | 526,955 | ||
| Share-based compensation | 783,404 | 783,404 | ||
| Net loss | (4,008,967) | (4,008,967) | ||
| Balance at Jun. 30, 2023 | $ 3,515 | $ 13,537,195 | $ (49,095,287) | $ (35,554,577) |
| Balance (in Shares) at Jun. 30, 2023 | 35,102,553 |
Organization and Description of Business |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Organization and Description of Business [Abstract] | |
| Organization and Description of Business | Note 1 – Organization and Description of Business
Description of Business
PARTS iD, Inc., a Delaware corporation (the “Company,” “PARTS iD,” “we,” “our” or “us”), is a technology-driven, digital commerce company focused on creating custom infrastructure and unique user experience within niche markets. PARTS iD has a product portfolio comprised of approximately 18 million SKUs, when fully available, an end-to-end digital commerce platform for both digital commerce and fulfillment, and a virtual shipping network comprising over 2,500 locations, approximately 4,500 active brands, and machine learning algorithms for complex fitment industries such as vehicle parts and accessories. Management believes that the Company is a market leader and proven brand-builder, fueled by its commitment to delivering an engaging shopping experience; comprehensive, accurate and varied product offerings; and continued digital commerce innovation. |
Summary of Significant Accounting Policies |
6 Months Ended | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The unaudited condensed consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Results for interim periods should not be considered indicative of results for any other interim period or for the full year.
The unaudited condensed consolidated financial statements include the accounts of PARTS iD, Inc. and its wholly owned subsidiary, PARTS iD, LLC. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements include revenue recognition, return allowances, allowance for credit losses, depreciation, inventory valuation, valuation of deferred income tax assets and the capitalization and recoverability of software development costs.
Stock Compensation
Compensation expense related to stock option awards and restricted stock units granted to certain employees, directors and consultants is based on the fair value of the awards on the grant date. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date is based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost is adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the fair value previously used at the service inception date or any subsequent reporting date. Forfeitures are recorded as they occur. The Company recognizes compensation cost related to time-vested options and restricted stock units with graded vesting features on a straight-line basis over the requisite service period. Compensation cost related to performance-vesting options and performance-based units, where a performance condition or a market condition that affects vesting exists, is recognized over the shortest of the explicit, implicit, or defined service periods. Compensation cost is adjusted depending on whether the performance condition is achieved. If the achievement of the performance condition is probable or becomes probable, the full fair value of the award is recognized. If the achievement of the performance condition is not probable or ceases to be probable, then no compensation cost is recognized or amounts previously recognized are reversed.
Concentration of Credit Risk
Financial instruments that expose the Company to a concentration of credit risk principally include cash and accounts receivable balances. The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. The Company manages accounts receivable credit risk through its policy of limiting extensions of credit to customers. Substantially all customer orders are paid by credit card at the point of sale.
Going Concern
These condensed consolidated financial statements have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assts and satisfaction of liabilities in the normal course of business. We have operated with a negative working capital model since our inception. The Company has a working capital deficiency of approximately $47.4 million. We continue to face macro-economic headwinds and the resulting declining revenue and profitability, which increased the working capital deficit, and resulted in the use of approximately $5.0 million in cash from operating activities, of which $1.0 million was attributable to changes in working capital during the six months ended June 30, 2023. With this, substantial doubt exists about the Company’s ability to continue as a going concern within one year from the date of the issuance of these condensed consolidated financial statements.
The accompanying condensed consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not reflect any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.
To address liquidity concerns, the Company is pursuing additional financing and continues to restructure and optimize its operations including moderating capital investments, improving gross margin, reducing expenses, and renegotiating vendor payment terms. In addition, to address its liquidity needs, the Company recently obtained an aggregate of $1.25 million from the sale and issuance of convertible notes and warrants (as discussed below) and a $0.7 million loan from JGB Collateral, LLC. In addition, the Company obtained additional financing in July 2023. See Note 10 – Subsequent Events for more information.
PARTS iD has also retained Canaccord Genuity Group, Inc. (“Canaccord”) as its financial advisor and DLA Piper LLP (US) as its legal counsel to assist in evaluating potential strategic alternatives.
There can be no assurance that the evaluation of strategic alternatives will result in any potential transaction, or any assurance as to its outcome or timing. PARTS iD has not set a timetable for completion of the process and does not intend to disclose developments related to the process unless and until PARTS iD executes a definitive agreement with respect thereto, or the Board of Directors otherwise determines that further disclosure is appropriate or required.
Accounts Receivable
Accounts receivable balances include amounts due from customers. The Company periodically reviews its accounts receivable balances to determine whether an allowance for credit losses is necessary based on an analysis of past due accounts, historical occurrences of credit losses, existing economic conditions, and other circumstances that may indicate that the realization of an account is in doubt. As of June 30, 2023 and December 31, 2022, the Company determined that an allowance for credit losses was not necessary.
Inventory
Inventory consists of purchased goods that are immediately available-for-sale and are stated at the lower cost or net realizable value, determined using the first-in, first-out method. Merchandise-in-transit directly from suppliers to customers is recorded in inventory until the product is delivered to the customer. As of June 30, 2023, and December 31, 2022, merchandise-in-transit amounted to $341,690 and $957,735, respectively. The risk of loss is transferred from the supplier to the Company at the shipping point. Since the purchased goods are immediately shipped directly from suppliers to customers the Company deemed that an inventory reserve for obsolete or slow-moving goods was unnecessary.
Other Current Assets
Other current assets include advances to vendors amounting to $2,171,240 and $1,796,680 as of June 30, 2023, and December 31, 2022, respectively, which are included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
Website and Software Development
The Company capitalizes certain costs associated with website and software developed for internal use in accordance with ASC 350-50, Intangibles – Goodwill and Other – Website Development Costs, and ASC 350-40, Intangibles – Goodwill and Other – Internal Use Software, when both the preliminary project design and the testing stage are completed and management has authorized further funding for the project, which it deems probable of completion and to be used for the function intended. Capitalized costs include amounts related to website and software development such as contractors’ fees, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project. Capitalization of such costs ceases when the project is complete and ready for its intended use. Capitalized costs are amortized over a three-year period commencing on the date that the specific module or platform is placed in service. Costs incurred during the preliminary stages of development and ongoing maintenance costs are expensed as incurred.
Intangible Assets
Intangible assets consist of indefinite-lived domain names and are stated at cost less impairment losses, if any. The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. The Company has determined that there were no triggering events in the six months ended June 30, 2023 and 2022, and no impairment charges were necessary.
During the first quarter of 2023, the Company sold its Onyx.com domain name for $250,000.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Accounts Payable
Accounts payable as of June 30, 2023, consisted of amounts payable to vendors of $35.1 million and credit card payable of $2.8 million payable to a credit card company. As of December 31, 2022, accounts payable consisted of amounts payable to vendors of $33.1 million and $3.3 million credit card payable to the same credit card company mentioned above.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard replaced all previous accounting guidance on this topic, eliminated all industry-specific guidance and provided a unified model to determine how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires companies to use more judgment and make more estimates than under prior guidance. Judgments include identifying performance obligations in the contract, estimating the amount of consideration to include in the transaction price, and allocating the transaction price to each performance obligation.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies contracts with customers; (ii) identifies performance obligation(s); (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligation(s); and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.
The Company recognizes revenue on product sales through its website as the principal in the transaction as the Company has concluded it controls the product before it is transferred to the customer. The Company controls products when it is the entity responsible for fulfilling the promise to the customer and takes responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in establishing prices, and selects the suppliers of products sold.
Sales discounts earned by customers at the time of purchase and taxes collected from customers, which are remitted to governmental authorities, are deducted from gross revenue in determining net revenue. Allowances for sales returns are estimated and recorded based on historical experience and reduce product revenue, inclusive of shipping fees, by expected product returns. Allowances for sales returns at June 30, 2023 and December 31, 2022, were $213,534 and $549,250, respectively.
The Company has two types of contractual liabilities: (a) amounts received from customers prior to the delivery of products are recorded as customer deposits in the accompanying condensed consolidated balance sheets and are recognized as revenue when the products are delivered, which amounted to $875,508 and $3,098,119 at June 30, 2023 and December 31, 2022, respectively, and (ii) site credits (which are initially recorded in accrued expenses and are recognized as revenue in the period they are redeemed), amounting to $158,306 and $3,414,019 at June 30, 2023 and December 31, 2022, respectively.
Cost of Goods Sold
Cost of goods sold consists of the cost of product sold to customers, plus shipping and handling costs and shipping supplies, net of vendor rebates.
Advertising Costs
Advertising costs are expensed as incurred. The Company incurred $0.4 million in advertising costs during the three months ended June 30, 2023, and $9.4 million during the months ended June 30, 2022. For the six months ended June 30, 2023, advertising costs were $1.6 million and $19.1 for the six months ended June 30, 2022.
Income Taxes
The Company is a C corporation for U.S. federal income tax purposes. Accordingly, the Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates for years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding allowance is established. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on the Company’s various income tax returns for the reporting year.
ASC 740 also provides guidance on the accounting for uncertain tax positions recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on the Company’s evaluation, management concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements. The Company files U.S. federal and State of New Jersey state tax returns and had no unrecognized tax benefits at June 30, 2023 and December 31, 2022.
The Company’s policy for recording interest and penalties associated with audits is to record such expenses as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the six months ended June 30, 2023 and 2022. Management is currently unaware of any issues under review that could result in significant payments, accruals, or material deviations from its filing positions.
Loss Per Share
For the three and six months ended June 30, 2023 and 2022, basic net loss per common share was determined by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For purposes of calculating diluted net loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include performance-based stock units and unvested restricted stock units using the treasury stock method. For all periods presented, there is no difference in the number of shares used to compute basic and diluted net loss per common share due to the Company’s net loss.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. This ASU is effective for smaller reporting companies for years beginning January 1, 2023. The Company adopted Topic 326 on January 1, 2023, and the adoption of this guidance did not have a material impact on the condensed consolidated financial statements.
Certain Significant Risks and Uncertainties
In February 2022, the Russian Federation launched a full-scale invasion against Ukraine, and sustained conflict and disruption in the region is ongoing. The Company’s engineering and product data development team as well as back office and part of its customer service center are in Ukraine. The Company’s ability to maintain adequate liquidity for its operations is dependent upon several factors, including its revenue and earnings, the impacts of COVID-19 and Russian-Ukraine conflict on macroeconomic conditions, and its ability to take further cost savings and cash conservation measures if necessary. The Russian-Ukraine conflict could have a material adverse effect upon the Company.
Significant Accounting Policies
There have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”). |
Property and equipment |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and equipment | Note 3 – Property and Equipment
Property and equipment consists of the following as of:
Depreciation of property and equipment for three months ended June 30, 2023 and 2022 was $1,978,114 and $2,142,433, respectively. Depreciation of property and equipment for the six months ended June 30, 2023 and 2022 was $3,977,030 and $4,096,895, respectively. |
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Leases |
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| Leases | Note 4 – Leases
Operating Leases
The Company has lease arrangements for office spaces and an equipment lease. These leases expire at various dates through 2025.
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Debt |
6 Months Ended |
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Jun. 30, 2023 | |
| Debt [Abstract] | |
| Debt | Note 5 – Debt
On October 21, 2022, the Company entered into a Loan and Security Agreement with JGB Collateral, LLC (as amended, the “JGB Loan Agreement”), a Delaware limited liability company (“JGB”), in its capacity as collateral agent (the “Agent”) and the several financial institutions or entities that from time to time become parties to the JGB Loan Agreement as lenders (collectively, the “Lender”).
The loan agreement provided for term loans in an aggregate principal amount of up to $11.0 million under two tranches. The tranches consist of (a) a first tranche consisting of term loans in the aggregate principal amount of $5.5 million, of which the entire amount was funded to the Company on the closing date (the “Initial Term Loan Advance”); and (ii) a second tranche consisting of term loans in the aggregate principal amount of an additional $5.5 million, which may funded to the Company by the Lender in its sole and absolute discretion (subject to the terms and conditions of the Loan Agreement) until the date that is six months after the Closing Date (the “Second Term Loan Advance” and together with the Initial Term Loan Advance, the “Term Loan Advances”). Each of the Term Loan Advances will be issued with an original issue discount of $500,000.
In connection with the entry into the loan agreement, with respect to the Initial Term Loan Advance, the Company issued to the Lender a warrant (the “Warrant”) to purchase 1,000,000 shares (the “Warrant Shares”) of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”). The Warrant will be exercisable for a period of five years from the date of issuance at a per-share exercise price equal to $2.00, subject to certain adjustments as specified in the Warrant. If the Company seeks and obtains the Second Loan Term Advance in accordance with the terms of the Loan Agreement, the Company will issue another Warrant to the Lender to purchase 1,000,000 shares of the Company’s Common Stock at a per-share exercise price equal to $2.00 and otherwise on the same terms and conditions as the Warrant issued with respect to the Initial Term Loan Advance. The Warrant also provides for customary shelf and piggyback registration rights with respect to the Warrant Shares.
The effective interest rate on the Initial Term Loan Advance of $5.5 million was 17.9%. The Company incurred debt issue issuance costs of approximately $165,000 in connection with this loan and recorded a discount of $500,000. As of December 31, 2022 and June 30, 2023, the Company had $4.2 million and $3.4 million outstanding on the note, respectively, net of debt discounts and debt issuance costs. The Company incurred $249,721 and $436,121 of interest expense on the note during the three and six months ended June 30, 2023, respectively. A portion of the note was attributed to the warrants for 1,000,000 shares of the Company’s stock which at the time of issuance had been valued at $799,000 using the Black-Scholes model. As of December 31, 2022, the fair value of the warrant was determined to be approximately $551,000 and at June 30, 2023 the fair value of the warrant was determined to be $168,000, and accordingly, the decrease in its value was recorded as a change in fair value of warrants on the condensed consolidated statement of operations. The loan requires the Company to make 30 monthly payments of $183,333 beginning on April 30, 2023, with the last payment due September 30, 2025. On January 6, 2023, the Company notified its Agent and Lender that it was not in compliance with the Consolidated Quarterly Net Revenue Covenant (as defined in the Loan Agreement) for the calendar quarter ended December 31, 2022. On February 22, 2023, the Company and JGB executed an amendment to the Loan Agreement (the “Amendment”) and on February 27, 2023, the Company repaid $2.0 million of the loan to JGB.
On February 22, 2023 the Company and the Agent executed an amendment to the Loan Agreement (the “First Amendment”), which, among other things, (i) the Company agreed to repay the principal amount of the term loan to the Agent in the following installments: (A) $2 million on February 23, 2023, (B) $1 million on August 22, 2023 and (C) the entire remaining principal balance and all accrued but unpaid interest which remained at the original loan rate of 8.0% (including the Original Issue Discount, as defined in the Amendment) on August 22, 2024; (ii) the Agent agreed to withdraw the Notice of Default and not exercise its purported rights and remedies thereunder; (iii) the Lender may elect, at any time and from time to time, to convert any outstanding portion of the outstanding term loan into shares of the Company’s common stock at a conversion price of $0.50 per share; (iv) removed the “Cash Minimum” covenant of which the Company had to maintain unrestricted, unencumbered Cash (as defined in the Loan Agreement) of at least $2,000,000; (v) removed the EBITDA (as defined in the JGB Loan Agreement) covenant of which the Company had to maintain at least the applicable EBITDA Target (as defined in the JGB Loan Agreement) for each calendar quarter; (vi) removed the revenue covenant in which the Company had to maintain consolidated quarterly net revenue of at least $75 million each calendar quarter and (vii) provided a lien to JGB in the Company’s claims for trademark infringement against Volkswagen Group of America, Inc. pursuant to the lawsuit currently pending in the United States District Court for the District of New Jersey and captioned as Onyx Enterprises Int’l, Corp v. Volkswagen Group of America, Inc., and all proceeds and products thereof and United States District Court for the District of Massachusetts and captioned as Onyx Enterprises International Corp. v. ID Parts LLC, and all proceeds and products thereof (collectively, the “Volkswagen Trademark Claims”), provided that the Company can secure the Permitted Litigation Indebtedness (as defined in the Amendment) on the terms described in the Amendment.
In connection with the First Amendment, the Company and the Agent entered into an Amended and Restated Intellectual Property and Security Agreement (the “A&R Security Agreement”) which amended and restated that certain Intellectual Property and Security Agreement, dated as of October 21, 2022. The A&R Security Agreement removed the exclusion of the Volkswagen Trademark Claims from the Agent’s security interest in the Company’s intellectual property.
The First Amendment was accounted for as a debt extinguishment in accordance with ASC 470, which resulted in the Initial Term Loan Advance being derecognized and the convertible notes that were issued as a result of the First Amendment being recorded at fair value with the difference resulting in a $879,045 loss on debt extinguishment for the three months ended March 31, 2023 and six months ended June 30, 2023.
On March 6, 2023 (the “Initial Closing Date”), PARTS iD, Inc., a Delaware corporation (the “Company”), entered into a Note and Warrant Purchase Agreement (the “March Purchase Agreement”) whereby the Company agreed to issue and sell to certain investors (collectively, the “Investors”), in a private placement, (a) an aggregate principal amount of up to $10 million in junior secured convertible promissory notes (the “March Convertible Notes”) and (i) an aggregate of up to two million warrants to purchase the Company’s common stock at an exercise price of $0.50 per share (the “March Warrants”), in one or more closings pursuant to the terms of the March Purchase Agreement. All the disinterested directors of the Company’s Board of Directors, as well as the disinterested directors of the Audit Committee, reviewed and approved the terms of the March Purchase Agreement, March Convertible Notes and March Warrants. As of the Initial Closing Date, the Company issued and sold (a) an aggregate principal amount of $2,900,000 of March Convertible Notes and (ii) an aggregate of 580,000 March Warrants, of which $2,650,000 of March Convertible Notes and 530,000 March Warrants were purchased by entities affiliated with certain directors, officers, and beneficial owners of the Company. At the time of issuance the fair value of the March Warrants was determined to be $158,000 using the Black-Scholes model. As of June 30, 2023, the fair value of the March Warrants was determined to be de minimus, and accordingly, the decrease in their value was recorded as a change in fair value of warrants on the condensed consolidated statement of operations.
The March Convertible Notes accrue interest at 7.75% per annum, compounded semi-annually and such interest may be paid at the option of the Company either in cash or common stock. Upon the Company’s sale and issuance of equity or equity-linked securities pursuant to which the Company receives aggregate gross proceeds of at least $3 million (a “Qualified Equity Financing”), the March Convertible Notes are mandatorily convertible into shares of such equity securities sold in the Qualified Equity Financing. The Company may, at its option, redeem the March Convertible Notes (including the outstanding principal and any accrued but unpaid interest thereon) for cash, in full or in part, if the March Convertible Notes have otherwise not been converted within 180 days of the date of issuance. In addition, upon a Change of Control (as defined in the March Convertible Notes) of the Company, the March Convertible Notes shall be repaid in full at or before the closing of such transaction in cash.
The March Convertible Notes are strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement; and (ii) the Permitted Litigation Indebtedness (as defined in the JGB Loan Agreement).
Subject to the subordination provisions described above and more fully described in the March Convertible Notes, the March Convertible Notes are secured by a junior security interest in all the Company’s rights, title, and interest in and to all the Company’s assets. The March Convertible Notes mature on March 6, 2025.
The March Warrants will expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The March Warrants provide that a holder of March Warrants will not have the right to exercise any portion of its March Warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that each holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that any holder of the Warrants that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the Warrants shall not be subject to the Beneficial Ownership Limitation.
The Company intends to use the proceeds from the issuance of the March Convertible Notes and the March Warrants for working capital purposes and the repayment of current indebtedness.
The March Convertible Notes and the March Warrants were issued by the Company in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and have not been registered under the Securities Act.
As of June 30, 2023, the Company had $2.8 million outstanding on the March Convertible Notes, net of debt discounts.
On May 19, 2023, the Company issued to certain investors, in a private placement (i) unsecured convertible promissory notes in the aggregate principal amount of $1,000,000 (the “May Convertible Notes”) and (ii) an aggregate of 2,083,333 warrants (the “May Warrants”) to purchase shares of the Company’s Class A common stock at an exercise price of $0.48 per share. Lev Peker, the Chief Executive Officer and a director of the Company purchased an aggregate principal amount of $750,000 May Convertible Notes and received an aggregate of 1,562,500 May Warrants in this offering. All the disinterested directors of the Company’s Board of Directors, as well as the disinterested directors of the Audit Committee, reviewed and approved the terms of the May Convertible Notes and May Warrants.
The Company allocated the proceeds from the private placement between the May Convertible Notes and the May Warrants by applying the relative fair value methodology. The Company allocated $578,704 to the May Convertible Notes and $421,296 to the May Warrants. As of June 30, 2023, the Company had approximately $601,000 outstanding on the May Convertible Notes, net of discounts.
The May Convertible Notes accrue interest at 7.75% per annum compounded semi-annually. The May Convertible Notes mature on May 19, 2025 (the “Maturity Date”). Effective on the Maturity Date, if the convertible notes have not otherwise been repaid by the Company in accordance with the terms and conditions set forth therein, then at the option of the purchasers, the outstanding balance of the convertible notes (including any accrued but unpaid interest thereon) (the “May Note Amounts”) shall convert into that number of fully paid and nonassessable shares of the Company’s common stock at a conversion price equal to the respective May Note Amounts (as defined in the May Convertible Notes) divided by the conversion price (as defined in the May Convertible Notes). The Company may prepay the May Note Amounts at any time prior to the Maturity Date.
The May Convertible Notes are strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement and (ii) Permitted Litigation Indebtedness (as defined in the JGB Loan Agreement).
The May Warrants will expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The warrants provide that a holder of May Warrants will not have the right to exercise any portion of its warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that each holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that any holder of the May Warrants that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the May Warrants shall not be subject to the Beneficial Ownership Limitation.
On June 14, 2023, the Company entered into a Note and Warrant Purchase Agreement whereby the Company agreed to issue and sell to an investor in a private placement, (i) an unsecured convertible promissory note in the aggregate principal amount of $250,000 (the “June Convertible Note”) and (ii) a warrant (the “June Warrant”) to purchase an aggregate of 694,444 shares of the Company’s Class A common stock (the “Common Stock”), at an exercise price of $0.36 per share. The June Convertible Note accrues interest at 7.75% per annum, compounded semi-annually. The June Convertible Note matures on June 14, 2025. At maturity, if the June Convertible Note has not otherwise been repaid by the Company, then at the option of the purchaser, the outstanding balance of the June Convertible Note, including any accrued but unpaid interest thereon, shall convert into that number of fully paid and nonassessable shares of the Company’s Common Stock at a Conversion Price (as defined in the June Convertible Note). The Company may prepay the June Note Amount at any time prior to the Maturity Date.
The Company allocated the proceeds from the private placement between the June Convertible Note and the June Warrants by applying the relative fair value methodology. The Company allocated $144,342 to the June Convertible Note and $105,658 to the June Warrants. As of June 30, 2023, the Company had approximately $147,000 outstanding on the June Convertible Note, net of discounts.
The June Convertible Note is strictly subordinated to the (i) senior secured indebtedness incurred or owed by the Company pursuant to the JGB Loan Agreement and (ii) Permitted Litigation Indebtedness (as defined in the Loan Agreement).
The June Warrant will expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The June Warrant provides that the holder will not have the right to exercise any portion of the June Warrant, if the holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that the holder of the June Warrant that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the June Warrant shall not be subject to the Beneficial Ownership Limitation.
On June 16, 2023, the Company entered into a Second Amendment to the JGB Loan Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company borrowed an additional $700,000 with an original discount on such additional loan of $100,000. In accordance with the terms of the Second Amendment, the Company shall repay the loan in equal weekly installments of $50,000 commencing on July 7, 2023; provided, however, that in the event the Company receives gross proceeds of at least $2,000,000 from any debt or equity financing following the effective date of the Second Amendment, then the Company shall repay an amount equal to $950,000 on the outstanding balances under the JGB Loan Agreement.
As of June 30, 2023, the Company had approximately $615,000 outstanding on the loan, net of discounts.
On July 13, 2023, the Company repaid in full the indebtedness owed under the JGB Loan Agreement and the JGB loan Agreement was terminated in accordance with its terms. See “Subsequent Events” below for more information. |
Shareholders’ Deficit |
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| Shareholders’ Deficit | Note 6 – Shareholders’ Deficit
Preferred Stock
As of June 30, 2023, the Company had authorized for issuance a total of 1,000,000 shares of preferred stock, par value of $0.0001 per share (“Preferred Stock”). As of June 30, 2023 and December 31, 2022, shares of Preferred Stock were issued or were outstanding. The Certificate of Incorporation of the Company authorizes the Board of Directors to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special, and other rights at the time of issue of any Preferred Stock.
Common Stock
As of June 30, 2023, and December 31, 2022, the Company had 35,102,553 and 34,825,971, respectively, shares of Class A common stock outstanding. As of June 30, 2023 and December 31, 2022, the Company had reserved 5,729,078 and 6,005,660, respectively, shares of Class A common stock for issuance as follows:
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Commitments and Contingencies |
6 Months Ended |
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Jun. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Note 7 – Commitments and Contingencies
As of June 30, 2023, there were no material changes to the Company’s legal matters and other contingencies disclosed in Note 7 of the “Notes to Consolidated Financial Statements” included in our Annual Report on 2022 Form 10-K for the year ended December 31, 2022. |
Share-Based Compensation |
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| Share-Based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation | Note 8 – Share-Based Compensation
During the three months ended June 30, 2023 and 2022, selling, general and administrative expenses included $458,981 and $(180,529) of share-based compensation expense, respectively. For the three months ended June 30, 2022, share-based compensation was negative $(180,529) due to nil accrual for performance-based restricted stock units (“PSUs”) as well as the reversal of previous PSUs accrual of $973,659 as the Company no longer believed the performance criteria included in the PSUs plan was likely to be achieved. During the six months ended June 30, 2023 and 2022, selling general and administrative expenses included $1,114,568 and $686,841 of share-based compensation expense, respectively.
During the three months ended June 30, 2023 and 2022, the Company capitalized $324,423 and $432,224, respectively, of share-based compensation expense associated with awards issued to consultants who are directly associated with and who devote time to our internal-use software. During the six months ended June 30, 2023 and 2022, the Company capitalized $787,813 and $856,334, respectively, of share based compensation expense associated with awards issued to consultants who are directly associated with and who devote time to our internal-use software.
Equity Incentive Plan
In October 2020, in connection with the Business Combination, the Company’s stockholders approved the Parts iD, Inc. 2020 Equity Incentive Plan (the “2020 EIP”). The 2020 EIP became effective immediately upon the closing of the Business Combination. As of June 30, 2023, of the 4,904,596 shares of Class A common stock reserved for issuance under the 2020 EIP in the aggregate, 2,935,496 shares remained available for issuance.
The 2020 EIP provides for the grant of stock options, restricted stock, restricted stock units (“RSUs”), PSUs, stock appreciation rights, other stock-based awards, and cash awards (collectively, “awards”). The awards may be granted to employees, directors, and consultants of the Company.
Restricted Stock Units
The following table summarizes the activity related to RSUs during the six months ended June 30, 2023:
As of June 30, 2023, approximately $1.7 million of unamortized share-based compensation expense was associated with outstanding RSUs, which is expected to be recognized over a remaining weighted average period of 0.42 years.
Performance-Based Restricted Stock Units
The following table summarizes the activity related to PSUs during the six months ended June 30, 2023:
As of June 30, 2023, the performance criteria included in the PSUs plan are unlikely to be achieved, and accordingly, the Company has no accrual of share-based compensation expenses associated with the outstanding PSUs. The weighted average period of 0.58 years was remaining before the expiration of outstanding PSUs.
Employee Stock Purchase Plan
In October 2020, in connection with the Business Combination, the Company’s stockholders approved the Parts iD, Inc. 2020 Employee Stock Purchase Plan (the “2020 ESPP”). There are 2,043,582 shares of Class A common stock available for issuance under the 2020 ESPP. The 2020 ESPP became effective immediately upon the closing of the Business Combination, but it has not yet been implemented. As of June 30, 2023, no shares had been issued under the 2020 ESPP. |
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Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | Note 9 – Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences in financial statements and income tax carrying values using rates in effect for years such differences are to reverse. Due to uncertainties surrounding the Company’s ability to generate future taxable income and consequently realize such deferred income tax assets, a full valuation allowance has been established.
The disclosures regarding deferred tax assets included in our 2022 Form 10-K continue to be accurate for the three and six months ended June 30, 2023.
The Company does not currently anticipate any significant increase or decrease in the total amount of unrecognized tax benefits within the next twelve months.
None of the Company’s U.S. federal or state income tax returns are currently under examination by the Internal Revenue Service (the “IRS”) or state authorities. However, fiscal years 2017 and later remain subject to examination by the IRS and respective states. |
Subsequent Events |
6 Months Ended |
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Jun. 30, 2023 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 10 – Subsequent Events
Convertible Notes and Warrants
On July 13, 2023, the Company entered into a Note and Warrant Purchase Agreement (the “July Purchase Agreement”) whereby the Company agreed to issue and sell to certain investors affiliated with certain directors, officers and beneficial owners of the Company, in a private placement (i) an aggregate principal amount of up to $3.25 million in junior secured convertible promissory notes (the “July Convertible Notes”) and (ii) an aggregate of up to 7,738,094 warrants (the “July Warrants”) to purchase the Company’s Common Stock at an exercise price of per share. All the disinterested directors of the Company’s Board of Directors, as well as the disinterested directors of the Audit Committee, reviewed and approved the terms of the July Purchase Agreement, July Convertible Notes and July Warrants.
The July Convertible Notes issued to the non-insider purchaser accrues interest at 7.75% per annum, compounded semi-annually. Effective on the maturity date, if the July Convertible Notes have not otherwise been repaid by the Company, then at the option of the purchasers, the outstanding balance of the July Convertible Notes, including any accrued but unpaid interest thereon (the “July Note Amounts”), shall convert into that number of fully paid and nonassessable shares of the Company’s Common Stock. Upon the Company’s sale and issuance of equity or equity-linked securities pursuant to which the Company receives aggregate gross proceeds of at least $10.0 million (an “Equity Financing”), the Company shall repay the Note Amounts in cash. In addition, upon a Change of Control (as defined in the July Convertible Notes) of the Company, the July Convertible Notes shall be repaid in full at or before the closing of such transaction in cash. The Convertible Notes are strictly subordinated to the Lind Senior Notes (described below) and are secured by a junior security interest in all the Company’s right, title, and interest in and to all the Company’s assets. The July Convertible Notes mature on July 13, 2024.
The July Warrants will expire after 5 years from the date of issuance and the July Warrants issued to the non-insider Purchaser may be exercised on a cashless basis. The July Warrants provide that a holder of July Warrants will not have the right to exercise any portion of its July Warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that each holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that any holder of the July Warrants that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the July Warrants shall not be subject to the Beneficial Ownership Limitation. The July Convertible Notes and the July Warrants were issued by the Company in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The July Purchase Agreement provides for customary shelf registration rights with respect to the shares of Common Stock underlying the July Convertible Notes and July Warrants.
On July 13, 2023, the Company used proceeds from the July Convertible Notes and the Lind Financing (as described below) to repay the Lenders and the JGB Loan Agreement was thereby terminated upon the receipt by the Lenders of a payoff amount of $4,318,444.46 which included the outstanding principal balance due under the JGB Loan Agreement, accrued but unpaid interest thereon and Lenders’ and Agent’s legal fees and other expenses. The payoff amount paid by the Company in connection with the termination of the JGB Loan Agreement was made pursuant to a payoff letter. As a result, the JGB Loan Agreement, together with all documents and agreements executed in connection therewith, have terminated and all liens associated therewith have been released, subject to the Company continuing to be bound by certain terms under the JGB Loan Agreement that customarily survive the termination of similar agreements, including, without limitation, certain indemnification obligations and the terms of the warrants previously issued to the Lenders.
Lind Financing
On July 14, 2023 (the “Initial Lind Closing Date”), the Company entered into a Securities Purchase Agreement (the “Lind Purchase Agreement”) with Lind Global Partners II, L.P. (“Lind”) and one other external investor. The agreement provides for loans in an aggregate principal amount of up to $10.0 million under various tranches. On the Initial Lind Closing Date, the Company received funding in the amount of $3.75 million and pursuant to the terms of the Lind Purchase Agreement, Lind agreed to fund an additional $1.0 million within 5 business days of the Company (i) having a registration statement (the “Registration Statement”) declared effective by the SEC for the registration of the shares of the Company’s Common Stock issuable upon conversion of the Lind Note (as defined below) and Lind Warrant (as defined below) and (ii) the receipt of Stockholder Approval (as defined in the Lind Purchase Agreement), if necessary. In consideration for the $4.75 million, the Company issued and sold to Lind, in a private placement, (a) a senior secured convertible promissory note in the aggregate principal amount of $5,367,500 (the “Lind Note”) and (b) warrants (the “Lind Warrant”) to purchase the Company’s Common Stock at an exercise price of $0.50 per share.
At any time while the Lind Note is outstanding, the Company may deliver a written notice requesting an increase in the amount of funding equal to no less than $1.0 million and shall not exceed $5.25 million. Lind shall, within 7 business days of receiving the notice give a written response to the Company stating that Lind has elected (in its sole and absolute discretion) to (i) advance the full requested amount, (ii) advance an amount less than the full requested amount or (iii) not advance any of the requested amount. In addition, Lind may, in its sole discretion and without any action by the Company, deliver written notice to the Company of its election to advance up to an aggregate of $2.0 million of increased funding to the Company.
The Lind Note was issued at a discount and matures on July 14, 2024. Following the date that is sixty (60) days after the earlier to occur of (A) the date the Registration Statement is declared effective by the SEC or (B) the date that any shares issued pursuant to the Lind Note may be immediately resold under Rule 144 of the Securities Act, the Company may repay all, but not less than all, of the then outstanding principal amount of the Lind Note, subject to a 5% premium. If the Company elects to prepay the Lind Note, Lind has the right to convert up to 33 1/3% of the principal amount of the Lind Note at the Conversion Price (as defined in the Lind Note) into shares of the Company’s Common Stock. The Lind Note is convertible, at the option of Lind, into shares of the Company’s common stock at price per share equal to the lower of $0.50 or 90% of the average of the 3 lowest daily VWAPs during the 20 Trading Days (as defined in the Lind Note) prior to conversion.
As collateral for the obligations under the Lind Purchase Agreement, the Company has granted to Lind a senior security interest in all of Company’s right, title, and interest in, to and under all of Company’s property (inclusive of intellectual property), subject to certain exceptions.
The Lind Warrant expires 5 years from the date of issuance and may be exercised on a cashless basis. The Lind Warrant provides that Lind will not have the right to exercise any portion of the warrant, if, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Securities Exchange Act of 1934, as amended, would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the Beneficial Ownership Limitation shall automatically increase to 9.99% if Lind, together with its affiliates, owns in excess of 4.99% of the Company’s outstanding Common Stock. The note and the warrant were issued by the Company in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and have not been registered under the Securities Act.
The Lind Warrant provides for customary shelf and piggyback registration rights with respect to the shares of Common Stock underlying the Lind Note and the Lind Warrant.
Placement Agent Warrant
On July 14, 2023, in consideration for its services in respect of the Lind Financing described above, the Company also issued to Titan Partners Group LLC, a division of American Partners, LLC (the “Placement Agent”) warrants to purchase 536,570 shares of the Company’s Common Stock at an exercise price per share of $0.625 (the “Placement Agent Warrant”). The Placement Agent Warrant has a 5-year term. In addition, the Company paid the Placement Agent a commission of $285,000. The Placement Agent Warrant also provides for customary demand and piggyback registration rights with respect to the shares of Common Stock underlying the Placement Agent Warrant.
Management has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q and believes that all material subsequent events have been disclosed. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
| Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation The unaudited condensed consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Results for interim periods should not be considered indicative of results for any other interim period or for the full year. The unaudited condensed consolidated financial statements include the accounts of PARTS iD, Inc. and its wholly owned subsidiary, PARTS iD, LLC. All intercompany accounts and transactions have been eliminated in consolidation. |
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| Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements include revenue recognition, return allowances, allowance for credit losses, depreciation, inventory valuation, valuation of deferred income tax assets and the capitalization and recoverability of software development costs. |
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| Stock Compensation | Stock Compensation Compensation expense related to stock option awards and restricted stock units granted to certain employees, directors and consultants is based on the fair value of the awards on the grant date. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date is based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost is adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the fair value previously used at the service inception date or any subsequent reporting date. Forfeitures are recorded as they occur. The Company recognizes compensation cost related to time-vested options and restricted stock units with graded vesting features on a straight-line basis over the requisite service period. Compensation cost related to performance-vesting options and performance-based units, where a performance condition or a market condition that affects vesting exists, is recognized over the shortest of the explicit, implicit, or defined service periods. Compensation cost is adjusted depending on whether the performance condition is achieved. If the achievement of the performance condition is probable or becomes probable, the full fair value of the award is recognized. If the achievement of the performance condition is not probable or ceases to be probable, then no compensation cost is recognized or amounts previously recognized are reversed.
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| Concentration of Credit Risk | Concentration of Credit Risk Financial instruments that expose the Company to a concentration of credit risk principally include cash and accounts receivable balances. The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. The Company manages accounts receivable credit risk through its policy of limiting extensions of credit to customers. Substantially all customer orders are paid by credit card at the point of sale. |
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| Going Concern | Going Concern These condensed consolidated financial statements have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assts and satisfaction of liabilities in the normal course of business. We have operated with a negative working capital model since our inception. The Company has a working capital deficiency of approximately $47.4 million. We continue to face macro-economic headwinds and the resulting declining revenue and profitability, which increased the working capital deficit, and resulted in the use of approximately $5.0 million in cash from operating activities, of which $1.0 million was attributable to changes in working capital during the six months ended June 30, 2023. With this, substantial doubt exists about the Company’s ability to continue as a going concern within one year from the date of the issuance of these condensed consolidated financial statements. The accompanying condensed consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not reflect any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern. To address liquidity concerns, the Company is pursuing additional financing and continues to restructure and optimize its operations including moderating capital investments, improving gross margin, reducing expenses, and renegotiating vendor payment terms. In addition, to address its liquidity needs, the Company recently obtained an aggregate of $1.25 million from the sale and issuance of convertible notes and warrants (as discussed below) and a $0.7 million loan from JGB Collateral, LLC. In addition, the Company obtained additional financing in July 2023. See Note 10 – Subsequent Events for more information. PARTS iD has also retained Canaccord Genuity Group, Inc. (“Canaccord”) as its financial advisor and DLA Piper LLP (US) as its legal counsel to assist in evaluating potential strategic alternatives. There can be no assurance that the evaluation of strategic alternatives will result in any potential transaction, or any assurance as to its outcome or timing. PARTS iD has not set a timetable for completion of the process and does not intend to disclose developments related to the process unless and until PARTS iD executes a definitive agreement with respect thereto, or the Board of Directors otherwise determines that further disclosure is appropriate or required. |
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| Accounts Receivable | Accounts Receivable Accounts receivable balances include amounts due from customers. The Company periodically reviews its accounts receivable balances to determine whether an allowance for credit losses is necessary based on an analysis of past due accounts, historical occurrences of credit losses, existing economic conditions, and other circumstances that may indicate that the realization of an account is in doubt. As of June 30, 2023 and December 31, 2022, the Company determined that an allowance for credit losses was not necessary.
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| Inventory | Inventory Inventory consists of purchased goods that are immediately available-for-sale and are stated at the lower cost or net realizable value, determined using the first-in, first-out method. Merchandise-in-transit directly from suppliers to customers is recorded in inventory until the product is delivered to the customer. As of June 30, 2023, and December 31, 2022, merchandise-in-transit amounted to $341,690 and $957,735, respectively. The risk of loss is transferred from the supplier to the Company at the shipping point. Since the purchased goods are immediately shipped directly from suppliers to customers the Company deemed that an inventory reserve for obsolete or slow-moving goods was unnecessary. |
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| Other Current Assets | Other Current Assets Other current assets include advances to vendors amounting to $2,171,240 and $1,796,680 as of June 30, 2023, and December 31, 2022, respectively, which are included in prepaid expenses and other current assets on the condensed consolidated balance sheets. |
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| Website and Software Development | Website and Software Development The Company capitalizes certain costs associated with website and software developed for internal use in accordance with ASC 350-50, Intangibles – Goodwill and Other – Website Development Costs, and ASC 350-40, Intangibles – Goodwill and Other – Internal Use Software, when both the preliminary project design and the testing stage are completed and management has authorized further funding for the project, which it deems probable of completion and to be used for the function intended. Capitalized costs include amounts related to website and software development such as contractors’ fees, payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project. Capitalization of such costs ceases when the project is complete and ready for its intended use. Capitalized costs are amortized over a three-year period commencing on the date that the specific module or platform is placed in service. Costs incurred during the preliminary stages of development and ongoing maintenance costs are expensed as incurred. |
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| Intangible Assets | Intangible Assets Intangible assets consist of indefinite-lived domain names and are stated at cost less impairment losses, if any. The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. The Company has determined that there were no triggering events in the six months ended June 30, 2023 and 2022, and no impairment charges were necessary. During the first quarter of 2023, the Company sold its Onyx.com domain name for $250,000. |
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| Property and Equipment | Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
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| Accounts Payable | Accounts Payable Accounts payable as of June 30, 2023, consisted of amounts payable to vendors of $35.1 million and credit card payable of $2.8 million payable to a credit card company. As of December 31, 2022, accounts payable consisted of amounts payable to vendors of $33.1 million and $3.3 million credit card payable to the same credit card company mentioned above.
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| Revenue Recognition | Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard replaced all previous accounting guidance on this topic, eliminated all industry-specific guidance and provided a unified model to determine how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires companies to use more judgment and make more estimates than under prior guidance. Judgments include identifying performance obligations in the contract, estimating the amount of consideration to include in the transaction price, and allocating the transaction price to each performance obligation. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identifies contracts with customers; (ii) identifies performance obligation(s); (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligation(s); and (v) recognizes revenue when (or as) the Company satisfies each performance obligation. The Company recognizes revenue on product sales through its website as the principal in the transaction as the Company has concluded it controls the product before it is transferred to the customer. The Company controls products when it is the entity responsible for fulfilling the promise to the customer and takes responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in establishing prices, and selects the suppliers of products sold. Sales discounts earned by customers at the time of purchase and taxes collected from customers, which are remitted to governmental authorities, are deducted from gross revenue in determining net revenue. Allowances for sales returns are estimated and recorded based on historical experience and reduce product revenue, inclusive of shipping fees, by expected product returns. Allowances for sales returns at June 30, 2023 and December 31, 2022, were $213,534 and $549,250, respectively. The Company has two types of contractual liabilities: (a) amounts received from customers prior to the delivery of products are recorded as customer deposits in the accompanying condensed consolidated balance sheets and are recognized as revenue when the products are delivered, which amounted to $875,508 and $3,098,119 at June 30, 2023 and December 31, 2022, respectively, and (ii) site credits (which are initially recorded in accrued expenses and are recognized as revenue in the period they are redeemed), amounting to $158,306 and $3,414,019 at June 30, 2023 and December 31, 2022, respectively. |
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| Cost of Goods Sold | Cost of Goods Sold Cost of goods sold consists of the cost of product sold to customers, plus shipping and handling costs and shipping supplies, net of vendor rebates. |
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| Advertising Costs | Advertising Costs Advertising costs are expensed as incurred. The Company incurred $0.4 million in advertising costs during the three months ended June 30, 2023, and $9.4 million during the months ended June 30, 2022. For the six months ended June 30, 2023, advertising costs were $1.6 million and $19.1 for the six months ended June 30, 2022. |
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| Income Taxes | Income Taxes The Company is a C corporation for U.S. federal income tax purposes. Accordingly, the Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates for years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding allowance is established. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on the Company’s various income tax returns for the reporting year.
ASC 740 also provides guidance on the accounting for uncertain tax positions recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on the Company’s evaluation, management concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements. The Company files U.S. federal and State of New Jersey state tax returns and had no unrecognized tax benefits at June 30, 2023 and December 31, 2022. The Company’s policy for recording interest and penalties associated with audits is to record such expenses as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the six months ended June 30, 2023 and 2022. Management is currently unaware of any issues under review that could result in significant payments, accruals, or material deviations from its filing positions. |
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| Loss Per Share | Loss Per Share For the three and six months ended June 30, 2023 and 2022, basic net loss per common share was determined by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For purposes of calculating diluted net loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include performance-based stock units and unvested restricted stock units using the treasury stock method. For all periods presented, there is no difference in the number of shares used to compute basic and diluted net loss per common share due to the Company’s net loss. |
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| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. This ASU is effective for smaller reporting companies for years beginning January 1, 2023. The Company adopted Topic 326 on January 1, 2023, and the adoption of this guidance did not have a material impact on the condensed consolidated financial statements. |
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| Certain Significant Risks and Uncertainties | Certain Significant Risks and Uncertainties In February 2022, the Russian Federation launched a full-scale invasion against Ukraine, and sustained conflict and disruption in the region is ongoing. The Company’s engineering and product data development team as well as back office and part of its customer service center are in Ukraine. The Company’s ability to maintain adequate liquidity for its operations is dependent upon several factors, including its revenue and earnings, the impacts of COVID-19 and Russian-Ukraine conflict on macroeconomic conditions, and its ability to take further cost savings and cash conservation measures if necessary. The Russian-Ukraine conflict could have a material adverse effect upon the Company. |
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| Significant Accounting Policies | Significant Accounting Policies There have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Form 10-K”). |
Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
| Schedule of Property and Equipment are Stated at Cost Less Accumulated Depreciation | Property and equipment are stated at cost less
accumulated depreciation. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives
of the assets as follows:
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Property and equipment (Tables) |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment | Property and equipment consists of the following
as of:
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Leases (Tables) |
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| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Office Spaces and an Equipment Lease | The Company has lease arrangements for office
spaces and an equipment lease. These leases expire at various dates through 2025.
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Shareholders’ Deficit (Tables) |
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| Shareholders’ Deficit [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Shares of Class A Common Stock for Issuance | shares of Class A common
stock for issuance as follows:
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Share-Based Compensation (Tables) |
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| Schedule of Summarizes the Activity Related to RSUs | The following table summarizes the activity related
to RSUs during the six months ended June 30, 2023:
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| Schedule of Summarizes the Activity Related to PSUs | The following table summarizes the activity related
to PSUs during the six months ended June 30, 2023:
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Organization and Description of Business (Details) |
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Jun. 30, 2023 | |
| Organization and Description of Business [Abstract] | |
| Description of business | PARTS iD has a product portfolio comprised of approximately 18 million SKUs, when fully available, an end-to-end digital commerce platform for both digital commerce and fulfillment, and a virtual shipping network comprising over 2,500 locations, approximately 4,500 active brands, and machine learning algorithms for complex fitment industries such as vehicle parts and accessories. |
Summary of Significant Accounting Policies (Details) - Schedule of Property and Equipment are Stated at Cost Less Accumulated Depreciation |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Video and studio equipment [Member] | |
| Public Utility, Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 5 years |
| Website and internally developed software [Member] | |
| Public Utility, Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 3 years |
| Computer and electronics [Member] | |
| Public Utility, Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 5 years |
| Vehicles [Member] | |
| Public Utility, Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 5 years |
| Furniture and Fixtures [Member] | |
| Public Utility, Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 5 years |
| Leasehold Improvements [Member] | |
| Public Utility, Property, Plant and Equipment [Line Items] | |
| Leasehold improvements | Lesser of useful life or lease term |
Property and equipment (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation of property and equipment | $ 1,978,114 | $ 2,142,433 | $ 3,977,030 | $ 4,096,895 |
Leases (Details) - Schedule of Office Spaces and an Equipment Lease |
3 Months Ended | 6 Months Ended |
|---|---|---|
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2023
USD ($)
|
|
| Leases [Abstract] | ||
| Operating Lease Expense - net | $ 98,426 | $ 196,852 |
| Additional Lease Information: | ||
| Weighted average remaining lease term-operating leases (in years) | 1 year 9 months | 1 year 9 months |
| Weighted average discount rate-operating leases | 7.00% | 7.00% |
| Future minimum lease payments under non-cancellable leases as of June 30, 2023, were as follows: | ||
| July 1, 2023 to December 31, 2023 | $ 359,322 | $ 359,322 |
| January 1, 2024 to December 31, 2024 | 276,358 | 276,358 |
| January 1, 2025 to September 30, 2025 | 197,940 | 197,940 |
| Sub-total | 833,620 | 833,620 |
| Less: Portion representing interest | 106,385 | 106,385 |
| Total future minimum lease payments | 727,235 | 727,235 |
| Less: Current portion of lease obligations | 430,356 | 430,356 |
| Long-term portion of lease obligations | $ 296,879 | $ 296,879 |
Debt (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 22, 2023 |
Jun. 16, 2023 |
Jun. 14, 2023 |
Mar. 06, 2023 |
Feb. 27, 2023 |
Feb. 23, 2023 |
Feb. 22, 2023 |
May 19, 2023 |
Jun. 30, 2023 |
Jun. 30, 2023 |
Apr. 30, 2023 |
Dec. 31, 2022 |
|
| Debt (Details) [Line Items] | ||||||||||||
| Aggregate principal amount | $ 2,900,000 | $ 11,000,000 | $ 11,000,000 | |||||||||
| Original issue discount | $ 500,000 | $ 500,000 | ||||||||||
| Purchase to warrants (in Shares) | 530,000 | 2,083,333 | ||||||||||
| Warrants exercisable | 5 years | |||||||||||
| Exercise price per share (in Dollars per share) | $ 0.36 | $ 0.5 | $ 0.48 | $ 2 | $ 2 | |||||||
| Effective interest rate amount | $ 5,500,000 | $ 5,500,000 | ||||||||||
| Effective interest rate | 17.90% | 17.90% | ||||||||||
| Debt issuance costs | $ 165,000 | $ 165,000 | ||||||||||
| Loan discount | 500,000 | 500,000 | ||||||||||
| Loan outstanding | 4,200,000 | 4,200,000 | $ 3,400,000 | |||||||||
| Interest expense | $ 249,721 | 436,121 | ||||||||||
| Issuance cost | 799,000 | |||||||||||
| Fair value of warrants | 551,000 | |||||||||||
| Fair value of warrant | $ 158,000 | $ 168,000 | ||||||||||
| Monthly payments of amount | $ 183,333 | |||||||||||
| Due date | Sep. 30, 2025 | |||||||||||
| Principal amount | $ 250,000 | $ 2,000,000 | $ 1,000,000 | |||||||||
| Loan rate | 8.00% | |||||||||||
| Conversion price (in Dollars per share) | $ 0.5 | |||||||||||
| Cash | $ 2,000,000 | |||||||||||
| Net revenue | $ 75,000,000 | |||||||||||
| Loss on debt extinguishment | $ 879,045 | |||||||||||
| Aggregate warrants (in Shares) | 580,000 | |||||||||||
| Convertible notes | $ 2,650,000 | |||||||||||
| Accrue interest, percentage | 7.75% | 7.75% | ||||||||||
| Aggregate gross proceeds | $ 3,000,000 | |||||||||||
| Warrants, description | The March Warrants provide that a holder of March Warrants will not have the right to exercise any portion of its March Warrants, if such holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that each holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that any holder of the Warrants that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the Warrants shall not be subject to the Beneficial Ownership Limitation. | |||||||||||
| Convertible notes, net of debt discounts outstanding | $ 2,800,000 | |||||||||||
| Convertible notes | $ 7,490,834 | 7,490,834 | $ 4,203,282 | |||||||||
| Warrants outstanding | 421,296 | |||||||||||
| Convertible notes, net of discounts | $ 615,000 | |||||||||||
| Percentage of common stock outstanding | 4.99% | |||||||||||
| Percentage in excess of warrant | 9.99% | |||||||||||
| Warrant description | The June Warrant will expire after 5 years from the date of issuance and may not be exercised on a cashless basis. The June Warrant provides that the holder will not have the right to exercise any portion of the June Warrant, if the holder, together with its affiliates, and any other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange Act would beneficially own in excess of 4.99%, of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the holder may increase or decrease the Beneficial Ownership Limitation by giving notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the Company but not to any percentage in excess of 9.99%; provided that the holder of the June Warrant that beneficially owns in excess of 19.99% of the number of shares of the Common Stock outstanding on the issuance date of the June Warrant shall not be subject to the Beneficial Ownership Limitation. | |||||||||||
| Additional borrowed loan | $ 700,000 | |||||||||||
| Discount on loan | 100,000 | |||||||||||
| Loan installment payment | 50,000 | |||||||||||
| Gross proceeds | 2,000,000 | |||||||||||
| Repayment of loan amount | $ 950,000 | |||||||||||
| Warrant [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Purchase to warrants (in Shares) | 1,000,000 | 1,000,000 | ||||||||||
| Convertible notes | $ 105,658 | $ 105,658 | ||||||||||
| Convertible notes, net of discounts | $ 601,000 | |||||||||||
| Purchase of warrants shares (in Shares) | 694,444 | |||||||||||
| Common Stock [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Purchase to warrants (in Shares) | 1,000,000 | 1,000,000 | ||||||||||
| Exercise price per share (in Dollars per share) | $ 2 | $ 2 | ||||||||||
| Private Placement [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Convertible notes | $ 578,704 | |||||||||||
| Convertible notes, net of discounts | $ 147,000 | |||||||||||
| Warrant [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Accrue interest, percentage | 19.99% | 19.99% | ||||||||||
| Class A Common Stock [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Common stock, par value per share (in Dollars per share) | $ 0.0001 | $ 0.0001 | ||||||||||
| First tranches [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Aggregate principal amount | $ 5,500,000 | $ 5,500,000 | ||||||||||
| Second tranche [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Aggregate principal amount | 5,500,000 | 5,500,000 | ||||||||||
| Fair Value Methodology [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Convertible notes | $ 144,342 | $ 144,342 | ||||||||||
| Black-Scholes model [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Purchase to warrants (in Shares) | 1,000,000 | 1,000,000 | ||||||||||
| Director [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Purchase to warrants (in Shares) | 1,562,500 | |||||||||||
| Principal amount | $ 750,000 | |||||||||||
| Convertible Notes Payable [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Accrue interest, percentage | 7.75% | 7.75% | ||||||||||
| Forecast [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Principal amount | $ 1,000,000 | |||||||||||
| Delaware Corporation [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Aggregate principal amount | $ 10,000,000 | |||||||||||
| JGB [Member] | ||||||||||||
| Debt (Details) [Line Items] | ||||||||||||
| Loan repaid | $ 2,000,000 |
Shareholders’ Deficit (Details) - $ / shares |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Shareholders’ Deficit (Details) [Line Items] | ||
| Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Class A Common Stock [Member] | ||
| Shareholders’ Deficit (Details) [Line Items] | ||
| Shares of common stock outstanding | 35,102,553 | 34,825,971 |
| Shares of common stock issued | 5,729,078 | 6,005,660 |
Shareholders’ Deficit (Details) - Schedule of Shares of Class A Common Stock for Issuance - shares |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Schedule Of Shares Of Class ACommon Stock For Issuance Abstract | ||
| Indemnification reserve: Upon the expiration of the indemnification period of two years as described in the Business Combination Agreement, subject the payments of indemnity claims, if any, the Company will issue up to 750,000 Common shares to former Onyx shareholders | 750,000 | 750,000 |
| EIP reserve: Shares reserved for future issuance under the stockholder approved Parts iD, Inc. 2020 Equity Incentive Plan | 2,935,496 | 3,212,078 |
| ESPP reserve: Shares reserved for future issuance under the stockholder approved Parts iD, Inc. 2020 Employee Stock | 2,043,582 | 2,043,582 |
| Total shares reserved for future issuance | 5,729,078 | 6,005,660 |
Shareholders’ Deficit (Details) - Schedule of Shares of Class A Common Stock for Issuance (Parentheticals) |
Jun. 30, 2023
shares
|
|---|---|
| Schedule Of Shares Of Class ACommon Stock For Issuance Abstract | |
| Common shares to former Onyx shareholders | 750,000 |
Share-Based Compensation (Details) - Schedule of Summarizes the Activity Related to RSUs |
6 Months Ended |
|---|---|
|
Jun. 30, 2023
$ / shares
shares
| |
| Schedule of Summarizes the Activity Related to Rsus [Abstract] | |
| Restricted Stock Units, Unvested balance at beginning of the period | shares | 1,053,445 |
| Weighted Average Grant Date Fair Value, Unvested balance at beginning of the period | $ / shares | $ 4.67 |
| Restricted Stock Units, Granted | shares | |
| Weighted Average Grant Date Fair Value, Granted | $ / shares | |
| Restricted Stock Units, Vested | shares | (276,582) |
| Weighted Average Grant Date Fair Value, Vested | $ / shares | $ 1.02 |
| Restricted Stock Units, Forfeited | shares | (173,364) |
| Weighted Average Grant Date Fair Value, Forfeited | $ / shares | $ 5.81 |
| Restricted Stock Units, Unvested balance at ending of the period | shares | 603,499 |
| Weighted Average Grant Date Fair Value, Unvested balance at ending of the period | $ / shares | $ 5.98 |