Dave Inc 8-K/A, filed Aug 22, 2022
Dave Inc. (DAVE)
About this 8-K/A
Dave Inc filed this 8-K/A on August 22, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 2)
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
(Nasdaq Global Market) | ||||
(Nasdaq Global Market) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Explanatory Note
Dave Inc. (the “Company”) is filing this Amendment No. 2 (this “Amendment No. 2”) to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on January 11, 2022, as amended by Amendment No. 1 to the Current Report on Form 8-K filed on March 25, 2022 (as amended, the “Form 8-K/A”) to (i) file restated audited consolidated financial statements of the Company for the years ended December 31, 2021 and December 31, 2020 provided under Item 9.01(a) in the Form 8-K/A (the “Restatement”) and filed as Exhibit 99.3 to the Form 8-K/A, (ii) update Management’s Discussion and Analysis of Financial Condition and Results of Operations filed as Exhibit 99.4 to the Form 8-K/A as a result of the Restatement, and (iii) update the pro forma combined financial information provided under Item 9.01(b) in the Form 8-K/A and filed as Exhibit 99.5 to the Form 8-K/A. See Note 2 - Restatement of Previously-Issued Financial Statements in the attached audited consolidated financial statements for additional information concerning the Restatement. On August 12, 2022, the Company filed a Current Report on Form 8-K, disclosing that the audited financial statements included in the Form 8-K/A should not be relied upon.
This Amendment No. 2 does not amend any other item of the Form 8-K/A or purport to provide an update or a discussion of any developments at the Company subsequent to the filing date of the Form 8-K/A.
Capitalized terms used but not defined herein have the meanings assigned to them in the Form 8-K/A.
Restatement Background
On August 9, 2022, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, after consideration of the relevant facts and circumstances and after consultation with the Company’s management and Moss Adams LLP, the Company’s independent registered public accounting firm during the periods described below (“Moss Adams”), reached a determination that the Company’s previously issued (i) audited consolidated financial statements as of and for the years ended December 31, 2021 and December 31, 2020 presented in the Form 8-K/A (the “Audited Financials Relevant Periods”), and (ii) unaudited consolidated financial statements and related disclosures for the three months ended March 31, 2022 presented on the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 13, 2022 (the “First Quarter 10-Q”) (the “Relevant Earnout Period”) should no longer be relied upon due to the errors described below in such financial statements.
Cash Flow Adjustment
In connection with the preparation of the unaudited consolidated financial statements and related disclosures for the quarter ended June 30, 2022, the Company reevaluated the accounting treatment of the Company’s member advances within the Company’s statements of cash flows and concluded that cash flows from the principal portion of member advances should be included as an investing activity as opposed to an operating activity, resulting in an overstatement of the cash flows used in operating activities and an understatement of the cash flows from investing activities during the Audited Financials Relevant Periods. Upon further review, the Company determined to correct the treatment of the principal portion of member advances by classifying them as an investing activity instead of operating activity in the statement of cash flows for the Audited Financials Relevant Period.
Earnout Adjustment
In connection with the preparation of the unaudited consolidated financial statements and related disclosures for quarter ended June 30, 2022, the Company reevaluated the accounting treatment of certain previously disclosed earnout arrangements in connection with the Company’s business combination pursuant to the Agreement and Plan of Merger, dated June 7, 2021, by and among Dave Inc., VPC Impact Acquisition Holdings III, Inc. (“VPCC”), Bear Merger Company I Inc., and Bear Merger Company II LLC (the “Business Combination Agreement”). The Business Combination Agreement provided for the issuance of 1,586,037 shares (the “Earnout Shares”) of the Company’s Class A common stock, par value $0.0001 per share (“Class A Common Stock”) to VPC Impact Acquisition Holdings Sponsor III, LLC, which is the sponsor of VPCC, and the independent directors of VPCC prior to the completion of the business combination, subject to potential forfeiture such that 60% of the Earnout Shares will be fully vested and no longer subject to forfeiture in the event that the Class A Common Stock achieves a trading price of at least $12.50 per share, and 40% of the Earnout Shares will be fully vested and no longer subject to forfeiture in the event that the Class A Common Stock achieves a trading price of at least $15.00 per share (in each case, determined by reference to the volume-weighted average price achieved for at least 20 trading days within any 30 consecutive trading days) prior to June 7, 2026. The Earnout Shares were recognized at fair value upon the closing of the business combination and classified in stockholders’ equity.
On August 9, 2022, the Company, in consultation with the Audit Committee, reached a determination that the unaudited consolidated financial statements presented in the First Quarter 10-Q improperly assessed the accounting treatment of the Earnout Shares by classifying them as stockholders’ equity rather than as a liability, resulting in a reclassification of the earnout shares along with a non-cash fair value adjustment during the Relevant Earnout Period. Upon further review, the Company determined to correct the treatment of the Earnout Shares by reclassifying them as a liability measured at fair value and recording a non-cash fair value adjustment for the Relevant Earnout Period.
The reclassification of Earnout Shares as liability measured at fair value also impacted the Company’s pro forma combined financial information provided under Item 9.01(b) in the Form 8-K/A. Accordingly, the Company is filing updated pro forma combined financial information under Item 9.01(b) of this Amendment No. 2.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Financial statements of businesses acquired.
The audited consolidated financial statements of Legacy Dave as of December 31, 2021 and 2020 and for the years ended December 31, 2021 and 2020 (as restated) are included as Exhibit 99.3 and are incorporated by reference into this Item 9.01. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Legacy Dave for the year ended December 31, 2021 (as updated) is also included as Exhibit 99.4 and is incorporated by reference into this Item 9.01.
(b) Pro Forma Financial Information
The unaudited pro forma combined financial information of the Company and Legacy Dave as of December 31, 2021 and for the year ended December 31, 2021 (as updated) is set forth in Exhibit 99.5 hereto and is incorporated herein by reference into this Item 9.01.
(d) List of Exhibits.
| Exhibit Number |
Description | |
| 23.1 | Consent of Moss Adams, LLP | |
| 99.3 | Audited consolidated financial statements of Dave Inc. as of December 31, 2021 and 2020 and for the years ended December 31, 2021 and 2020 | |
| 99.4 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of Dave Inc. for the year ended December 31, 2021 | |
| 99.5 | Unaudited pro forma combined financial information of VPC Impact Acquisition Holdings III, Inc. and Dave Inc. as of December 31, 2021 and for the year ended December 31, 2021 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dave Inc. | ||||||
| Dated: August 22, 2022 |
|
/s/ Jason Wilk | ||||
| Jason Wilk | ||||||
| Chief Executive Officer and Director | ||||||
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-1 (No. 333-262478) and Form S-8 (No. 333-263589) of Dave Inc., of our report dated March 25, 2022 (except for the effects of the restatement described in Note 2 and the reverse recapitalization described in Note 20, as to which the date is August 22, 2022), relating to the consolidated financial statements of Dave Inc. (the “Company”) (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the restatement of the 2021 and 2020 consolidated financial statements), appearing in the Current Report on Form 8-K/A of the Company dated August 22, 2022, filed with the Securities and Exchange Commission.
/s/ Moss Adams LLP
Los Angeles, California
August 22, 2022
Exhibit 99.3
Dave Inc. and Subsidiary
Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm
December 31, 2021 and 2020
Contents:
| Report of Independent Registered Public Accounting Firm |
1 | |||
| Consolidated Balance Sheets as of December 31, 2021 and 2020 |
2 | |||
| Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020 |
3 | |||
| Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 |
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4 |
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| Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 |
5 | |||
| Notes to Consolidated Financial Statements |
6-37 | |||
Report of Independent Registered Public Accounting Firm
The Shareholders and the Board of Directors
Dave Inc. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Dave Inc. and Subsidiary (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Restatement of 2021 and 2020 Financial Statements
As discussed in Note 2, the accompanying consolidated financial statements have been restated.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Moss Adams
Los Angeles, California
March 25, 2022
(except for the effects of the restatement described in Note 2 and the reverse recapitalization described in Note 20, as to which the date is August 22, 2022)
We have served as the Company’s auditor since 2018.
1
Dave Inc. and Subsidiary
Consolidated Balance Sheets
(in thousands; except share data)
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 32,009 | $ | 4,789 | ||||
| Marketable securities |
8,226 | 17,666 | ||||||
| Member advances, net of allowance for unrecoverable advances of $11,995 and $12,580 as of December 31, 2021 and 2020, respectively |
49,013 | 38,744 | ||||||
| Prepaid income taxes |
1,381 | 4,008 | ||||||
| Restricted cash, current |
— | 83 | ||||||
| Deferred issuance costs |
5,131 | — | ||||||
| Prepaid expenses and other current assets |
4,443 | 4,062 | ||||||
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| Total current assets |
100,203 | 69,352 | ||||||
| Property and equipment, net |
685 | 516 | ||||||
| Lease right-of-use assets (related-party of $970 and $1,184 as of December 31, 2021 and 2020, respectively) |
2,702 | 1,378 | ||||||
| Intangible assets, net |
7,849 | 4,505 | ||||||
| Derivative asset on loans to stockholders |
35,253 | 457 | ||||||
| Debt facility commitment fee, long-term |
131 | — | ||||||
| Restricted cash, net of current portion |
363 | 197 | ||||||
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| Total assets |
$ | 147,186 | $ | 76,405 | ||||
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| Liabilities, and stockholders’ equity |
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| Current liabilities: |
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| Accounts payable |
$ | 13,044 | $ | 8,492 | ||||
| Accrued expenses |
13,045 | 5,324 | ||||||
| Line of credit |
— | 3,910 | ||||||
| Lease liabilities, short-term (related-party of $243 and $205 as of December 31, 2021 and 2020, respectively) |
1,920 | 400 | ||||||
| Legal settlement accrual |
3,701 | 3,201 | ||||||
| Note payable |
15,051 | — | ||||||
| Credit facility |
20,000 | — | ||||||
| Convertible debt, current |
695 | — | ||||||
| Interest payable, convertible notes, current |
25 | — | ||||||
| Other current liabilities |
1,153 | 2,853 | ||||||
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| Total current liabilities |
68,634 | 24,180 | ||||||
| Lease liabilities, long-term (related-party of $822 and $1,065 as of December 31, 2021 and 2020, respectively) |
970 | 1,088 | ||||||
| Debt facility, long-term |
35,000 | — | ||||||
| Convertible debt, long-term |
— | 695 | ||||||
| Interest payable, convertible notes |
— | 13 | ||||||
| Warrant liability |
3,726 | — | ||||||
| Other non-current liabilities |
119 | 585 | ||||||
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| Total liabilities |
108,449 | 26,561 | ||||||
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| Commitments and contingencies (Note 14) |
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| Stockholders’ equity: |
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| Preferred stock, par value per share $0.0001, 10,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2021 and 2020 |
— | — | ||||||
| Class A common stock, par value per share $0.0001, 500,000,000 shares authorized; 299,724,811 and 295,793,583 shares issued at December 31, 2021 and December 31, 2020, respectively; 297,094,254 and 291,948,310 shares outstanding at December 31, 2021 and December 31, 2020, respectively |
30 | 29 | ||||||
| Class V common stock, par value per share $0.0001, 100,000,000 shares authorized; 48,450,639 shares issued and outstanding at December 31, 2021 and 2020, respectively; |
5 | 5 | ||||||
| Treasury stock |
(5 | ) | (154 | ) | ||||
| Additional paid-in capital |
86,796 | 77,632 | ||||||
| Loans to stockholders |
(15,192 | ) | (14,764 | ) | ||||
| Accumulated deficit |
(32,897 | ) | (12,904 | ) | ||||
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| Total stockholders’ equity |
38,737 | 49,844 | ||||||
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| Total liabilities, and stockholders’ equity |
$ | 147,186 | $ | 76,405 | ||||
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See accompanying notes to the consolidated financial statements.
2
Dave Inc. and Subsidiary
Consolidated Statements of Operations
(in thousands)
| For the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating revenues: |
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| Service based revenue, net |
$ | 142,182 | $ | 120,595 | ||||
| Transaction based revenue, net |
10,831 | 1,201 | ||||||
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| Total operating revenues, net |
153,013 | 121,796 | ||||||
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| Operating expenses: |
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| Provision for unrecoverable advances |
32,174 | 25,539 | ||||||
| Processing and servicing fees |
23,459 | 21,646 | ||||||
| Advertising and marketing |
51,454 | 38,019 | ||||||
| Compensation and benefits |
49,544 | 22,210 | ||||||
| Other operating expenses |
43,260 | 15,763 | ||||||
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| Total operating expenses |
199,891 | 123,177 | ||||||
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| Other (income) expenses: |
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| Interest income |
(287 | ) | (409 | ) | ||||
| Interest expense |
2,545 | 17 | ||||||
| Legal settlement and litigation expenses |
1,667 | 4,467 | ||||||
| Other strategic financing and transactional expenses |
264 | 1,356 | ||||||
| Changes in fair value of derivative asset on loans to stockholders |
(34,791 | ) | — | |||||
| Changes in fair value of warrant liability |
3,620 | — | ||||||
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| Total other (income) expense, net |
(26,982 | ) | 5,431 | |||||
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| Net loss before provision for income taxes |
(19,896 | ) | (6,812 | ) | ||||
| Provision for income taxes |
97 | 145 | ||||||
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| Net loss |
$ | (19,993 | ) | $ | (6,957 | ) | ||
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| Net loss per share: |
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| Basic |
$ | (0.15 | ) | $ | (0.06 | ) | ||
| Diluted |
$ | (0.15 | ) | $ | (0.06 | ) | ||
| Weighted-average shares used to compute net loss per share |
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| Basic |
136,575,395 | 123,230,367 | ||||||
| Diluted |
136,575,395 | 123,230,367 | ||||||
See accompanying notes to the consolidated financial statements.
3
Dave, Inc. and Subsidiary
Consolidated Statement of Stockholders’ Equity
(in thousands, except share data)
| Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock |
Series B-1 convertible preferred stock |
Series B-2 convertible preferred stock |
Common stock | Class A | Class V | Additional paid-in capital |
Loans to stockholders |
Treasury stock |
Accumulated deficit |
Total stockholders’ (deficit) equity |
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| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 (as previously reported) |
133,216,940 | $ | 9,881 | 13,326,050 | $ | 49,675 | 3,991,610 | $ | 12,617 | 99,449,310 | $ | 0.1 | — | $ | — | — | $ | — | $ | 3,712 | $ | (14,492 | ) | $ | (154 | ) | $ | (5,947 | ) | $ | (16,881 | ) | ||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization |
(133,216,940 | ) | (9,881 | ) | (13,326,050 | ) | (49,675 | ) | (3,991,610 | ) | (12,617 | ) | (99,449,310 | ) | (0.1 | ) | 290,900,192 | 29 | 48,450,639 | 5 | 72,139 | — | — | — | 72,173 | |||||||||||||||||||||||||||||||||||||||||||
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| Balance at January 1, 2020 (as adjusted) |
— | — | — | — | — | — | — | — | 290,900,192 | 29 | 48,450,639 | 5 | 75,851 | (14,492 | ) | (154 | ) | (5,947 | ) | 55,292 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock option exercises |
— | — | — | — | — | — | — | — | 1,697,089 | — | — | — | 256 | — | — | — | 256 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock option early exercises |
— | — | — | — | — | — | — | — | 545,994 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of common stock issued for stock option early exercise |
— | — | — | — | — | — | — | — | (310,381 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock |
— | — | — | — | — | — | — | — | (884,584 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholder loans interest |
— | — | — | — | — | — | — | — | — | — | — | — | — | (272 | ) | — | — | (272 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | 1,525 | — | — | — | 1,525 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (6,957 | ) | (6,957 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Balance at December 31, 2020 |
— | $ | — | — | $ | — | — | $ | — | — | $ | — | 291,948,310 | 29 | 48,450,639 | 5 | $ | 77,632 | $ | (14,764 | ) | $ | (154 | ) | $ | (12,904 | ) | $ | 49,844 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock option exercises |
— | — | — | — | — | — | — | — | 5,086,040 | 1 | — | — | 1,708 | — | — | — | 1,709 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of stock option early exercises |
— | — | — | — | — | — | — | — | — | — | — | — | 75 | — | — | — | 75 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholder loans interest and amendment |
— | — | — | — | — | — | — | — | 59,904 | — | — | — | — | (428 | ) | 149 | — | (279 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | 7,381 | — | — | — | 7,381 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (19,993 | ) | (19,993 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Balance at December 31, 2021 |
— | $ | — | — | $ | — | — | $ | — | — | $ | — | 297,094,254 | $ | 30 | 48,450,639 | $ | 5 | $ | 86,796 | $ | (15,192 | ) | $ | (5 | ) | $ | (32,897 | ) | $ | 38,737 | |||||||||||||||||||||||||||||||||||||
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See accompanying notes to the consolidated financial statements.
4
Dave Inc. and Subsidiary
Restated Consolidated Statements of Cash Flows
(in thousands)
| For the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| (As Restated) | (As Restated) | |||||||
| Operating activities |
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| Net loss |
$ | (19,993 | ) | $ | (6,957 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation and amortization |
3,055 | 1,718 | ||||||
| Provision for unrecoverable advances |
32,174 | 25,539 | ||||||
| Changes in fair value of derivative assets |
(34,791 | ) | — | |||||
| Changes in fair value of warrant liability |
3,620 | — | ||||||
| Disposal of property and equipment |
14 | — | ||||||
| Stock-based compensation |
7,381 | 1,525 | ||||||
| Non-cash interest |
(233 | ) | (272 | ) | ||||
| Non-cash lease expense |
78 | 12 | ||||||
| Changes in fair value of marketable securities |
1 | (3 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Member advances, service revenue |
(2,280 | ) | (4,354 | ) | ||||
| Prepaid income taxes |
2,627 | (4,008 | ) | |||||
| Prepaid expenses and other current assets |
(311 | ) | (2,600 | ) | ||||
| Accounts payable |
2,568 | 1,983 | ||||||
| Accrued expenses |
7,128 | 3,433 | ||||||
| Income taxes payable |
— | (508 | ) | |||||
| Legal settlement accrual |
500 | 3,201 | ||||||
| Other current liabilities |
(1,625 | ) | 2,472 | |||||
| Other non-current liabilities |
(466 | ) | 547 | |||||
| Interest payable, convertible notes |
12 | 12 | ||||||
|
|
|
|
|
|||||
| Net cash (used in) provided by operating activities |
(541 | ) | 21,740 | |||||
|
|
|
|
|
|||||
| Investing activities |
||||||||
| Payments for internally developed software costs |
(6,107 | ) | (3,989 | ) | ||||
| Purchase of property and equipment |
(371 | ) | (231 | ) | ||||
| Net disbursements and collections of Member advances |
(40,163 | ) | (30,886 | ) | ||||
| Purchase of marketable securities |
(5 | ) | (138 | ) | ||||
| Sale of marketable securities |
9,444 | 7,780 | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(37,202 | ) | (27,464 | ) | ||||
|
|
|
|
|
|||||
| Financing activities |
||||||||
| Borrowings on line of credit |
— | 3,910 | ||||||
| Repayment on line of credit |
(3,910 | ) | — | |||||
| Proceeds from issuance of common stock for stock option exercises |
1,709 | 256 | ||||||
| Proceeds from issuance of common stock for stock option early exercises |
— | 75 | ||||||
| Payment of issuance costs |
(2,753 | ) | — | |||||
| Proceeds from borrowings on note payable |
15,000 | — | ||||||
| Proceeds from borrowings on debt and credit facilities |
55,000 | — | ||||||
|
|
|
|
|
|||||
| Net cash provided by financing activities |
65,046 | 4,241 | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents and restricted cash |
27,303 | (1,483 | ) | |||||
| Cash and cash equivalents and restricted cash, beginning of the year |
5,069 | 6,552 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents and restricted cash, end of the year |
$ | 32,372 | $ | 5,069 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of non-cash investing and financing activities |
||||||||
| Operating lease right of use assets recognized |
$ | 2,514 | $ | — | ||||
| Operating lease liabilities recognized |
$ | 2,514 | $ | — | ||||
| Property and equipment purchases in accounts payable |
$ | 25 | $ | 7 | ||||
| Receivable from early exercise of stock options |
$ | — | $ | 368 | ||||
| Vesting of common stock exercised early |
$ | 75 | $ | — | ||||
| Amendment to loan to stockholder |
$ | 145 | $ | — | ||||
| Supplemental disclosure of cash (received) paid for: |
||||||||
| Income taxes |
$ | (2,484 | ) | $ | 2,798 | |||
| Interest |
$ | 1,992 | $ | — | ||||
| The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the consolidated balance sheet with the same as shown in the consolidated statement of cash flows. |
||||||||
| Cash and cash equivalents |
$ | 32,009 | $ | 4,789 | ||||
| Restricted cash |
363 | 280 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents, and restricted cash, end of period |
$ | 32,372 | $ | 5,069 | ||||
|
|
|
|
|
|||||
See accompanying notes to the consolidated financial statements.
5
Dave Inc.
Notes to the Consolidated Financial Statements
Note 1 Business and Basis of Presentation
Business
Dave Inc. (the “Company” or “Dave”), formerly known as VPC Impact Acquisition Holdings III, Inc. is a Delaware corporation, which operates through its subsidiary, Dave Operating LLC. The Company’s business is to provide its members (“Members”) a suite of financial software and services related to personal finance. All operating activities, revenues earned, and expenses incurred were generated in the United States of America.
VPCC was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On January 5, 2022 (the “Closing Date”), VPCC completed a business combination (the “Business Combination”) pursuant to the Agreement and Plan of Merger, dated as of June 7, 2021 (the “Merger Agreement”), by and among VPCC, Bear Merger Company I, Inc., Bear Merger Company II, LLC, and pre-Business Combination Dave Inc. (“Legacy Dave”). On the Closing Date, VPCC was renamed Dave Inc. and its shares began trading on The Nasdaq Stock Market LLC (“Nasdaq”) under the ticker symbol “DAVE.” The Company’s public warrants also trade on Nasdaq under the ticker symbol “DAVEW”.
Unless the context otherwise requires, the information below pertains to Legacy Dave, the pre-Business Combination operating company that existed prior to the Business Combination which closed on the Closing Date, and in such context, the terms “the Company” or “Dave” refers to such pre-combination company. Please refer to Note 20 Subsequent Events for further discussion of the Business Combination.
Dave’s Personal Financial Management Service
Dave’s personal financial management service enables Members to monitor their bank account balances to avoid overdraft fees and build budgets to assist in short-term financial planning. When a Member signs up for the Company’s mobile application, Dave connects to the Member’s checking account and then monitors and analyzes the Member’s typical spending and saving behavior. Based on this analysis, Dave identifies upcoming expenses, such as a car or rent payment, and likely future spending based on historical spending habits that enables Members to more effectively manage their finances. The Members are charged a $1 monthly fee for this software monitoring service. Revenue from Dave’s personal financial management service are included in service based revenue, net in the consolidated statement of operations.
Dave’s Advance Service (Extra Cash)
Many of Dave’s Members are at risk of having liquidity shortfalls before they receive their next paycheck. To help these Members avoid incurring overdraft fees, Dave offers them the ability to obtain a non-recourse cash advance of up to $250 (an “Advance”).
Members need not pay a fee to obtain an Advance, as Members can always obtain Advances via automated clearing house (“ACH”) payment for free, which generally arrive within three business days. However, many Members choose to pay an optional instant transfer fee to obtain the Advance within eight hours. Members may also choose to pay a voluntary tip to compensate the Company for use of its Advance service. Revenue from Dave’s advance service are included in service based revenue, net in the consolidated statement of operations.
Dave’s Job Portal Service
As an additional tool to help prevent overdrafting and improve cash flow, Dave helps connect Members to open local jobs. Dave’s job portal service, referred to as “Side Hustle,” enables Members to view potential opportunities for supplemental work, primarily in flexible, part-time roles. Side Hustle allows Members to submit applications to a repository of job openings with various partner companies, which include various ride share platforms and food delivery companies. Dave generates referral fees from partner companies for facilitating contacts between them and the Dave’s Members. Revenue from Dave’s job portal service are included in service based revenue, net in the consolidated statement of operations.
Dave’s Checking Product
Dave offers a free, no minimum, no overdraft-fee mobile checking account to its Members in partnership with a federally insured banking institution. Members can fund their accounts with direct deposit from their payroll or make manual cash and electronic deposits, spend via a debit card, access ATMs and transfer funds between accounts at other banks and to third parties online, all through Dave’s mobile application.
6
Dave Inc.
Notes to the Consolidated Financial Statements
Other features include automated budgeting, advances, access to the Company’s exclusive job board, and the ability to build credit with on-time rent payments. Revenue from Dave’s checking product are included in transaction based revenue, net in the consolidated statement of operations.
Basis of Presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and a variable interest entity (“VIE”). All intercompany transactions and balances have been eliminated upon consolidation.
In accordance with the provisions of Accounting Standards Codification (“ASC”) 810, Consolidation, the Company consolidates any VIE of which the Company is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when it is not considered the primary beneficiary. The Company evaluates its relationships with its VIEs on an ongoing basis to ensure that the Company continues to be the primary beneficiary.
Retroactive Application of Reverse Recapitalization
The Business Combination is accounted for as a reverse recapitalization of equity structure. Pursuant to U.S. GAAP, the Company recasts its Consolidated Statements of Stockholders’ Equity from January 1, 2020 to the Closing Date, the total stockholder’s equity (deficit) within the Company’s Consolidated Balance Sheets as of December 31, 2021 and 2020 and the weighted average outstanding shares basic and diluted for the years ended December 31, 2021 and 2020 by applying the recapitalization retroactively.
In addition, the Company recasts the stock class and issued and outstanding number of shares, exercise prices of options and warrants for each balance sheet period presented in these Condensed Consolidated Financial Statements and the accompanying notes. Please refer to Note 20 Subsequent Events for further discussion of the Business Combination.
Retroactive Application of Reverse Recapitalization to the Condensed Consolidated Statements of Stockholders’ Equity
Pursuant to the terms of the Business Combination Agreement, as part of the Business Combination, all of the issued and outstanding Series A preferred stock of Legacy Dave were automatically converted into Legacy Dave common stock at a 1:1 ratio and Series B-1 and Series B-2 convertible preferred stock of Legacy Dave were automatically converted into Legacy Dave common stock at a 1:1.033076 ratio, which were all converted again, along with all other issued and outstanding common stock of Legacy Dave, into shares of the Company’s Class A common stock, par value $0.0001 per share (“Class A Common Stock”) and Class V common stock, par value per share $0.0001 (“Class V Common Stock”), at an exchange ratio of 1.354387513 (the “Exchange Ratio”). Additionally, each of the Company’s stock options that were outstanding immediately prior to the closing of the Business Combination remained outstanding and converted into stock options for Class A Common Stock and Class V Common Stock equal to the number of Legacy Dave’s common stock, subject to such stock options multiplied by the Exchange Ratio at an exercise price per share equal to the current exercise price per share for such stock options divided by the Exchange Ratio.
Retroactive Application of Reverse Recapitalization to the Condensed Consolidated Statements of Operations
Furthermore, based on the retroactive application of the reverse recapitalization to the Company’s Condensed Consolidated Statements of Stockholders’ Equity, the Company recalculated the weighted average shares for the years ended December 31, 2021 and 2020. The basic and diluted weighted-average Legacy Dave common stock were retroactively converted to Class A Common Stock and Class V Common Stock using the Exchange Ratio to conform to the recast period.
Retroactive Application of Reverse Recapitalization to the Condensed Consolidated Balance Sheets
Finally, to conform to the retroactive application of recapitalization to the Company’s Condensed Consolidated Statements of Stockholders’ Equity, the Company reclassified the $9,881 carrying value of Legacy Dave Series A convertible preferred stock, the $49,675 carrying value of Legacy Dave Series B-1 convertible preferred stock, and the $12,617 carrying value of Legacy Dave Series B-2 convertible preferred stock to additional paid-in capital (“APIC”), less amounts attributable to the par value of the Class A Common Stock as recast, as of December 31, 2021 and 2020.
Variable Interest Entities
The Company is considered the primary beneficiary of Dave OD Funding I, LLC (“Dave OD”), as it has the power over the activities that most significantly impact the economic performance of Dave OD and has the obligation to absorb expected losses and the right to receive expected benefits that could be significant, in accordance with accounting guidance. As a result, the Company consolidated Dave OD and all intercompany accounts have been eliminated. The carrying value of Dave OD’s assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheet as of December 31, 2021, are as follows:
| Assets |
||||
| Cash and cash equivalents |
$ | 26,239 | ||
| Member advances, net of allowance for unrecoverable advances of $1,315 as of December 31, 2021 |
35,835 | |||
| Debt and credit facility commitment fee, current |
470 | |||
| Debt facility commitment fee, long-term |
131 | |||
|
|
|
|||
| Total assets |
$ | 62,675 | ||
|
|
|
|||
| Liabilities |
||||
| Accounts payable |
$ | 411 | ||
| Debt facility |
35,000 | |||
| Credit facility |
20,000 | |||
| Other current liability |
400 | |||
| Warrant liability |
3,726 | |||
|
|
|
|||
| Total liabilities |
$ | 59,537 | ||
|
|
|
The assets of Dave OD are not restricted and its creditors have full recourse against the Company for its liabilities. Dave OD had no activity during the year ended December 31, 2020.
7
Dave Inc.
Notes to the Consolidated Financial Statements
COVID-19 Impact
There are many uncertainties regarding the current global pandemic involving a novel strain of coronavirus (“COVID-19”), and the Company continues to closely monitor the impact of the pandemic on all aspects of its business, including how it has and may in the future impact its Members, employees, suppliers, vendors, and business partners. The duration and magnitude of the continuing effects of COVID-19 on the Company’s Members remain uncertain and dependent on various factors, including the continued severity and transmission rate of the virus, new variants of the virus, the nature of and duration for which preventative measures remain in place, the extent and effectiveness of containment and mitigation efforts, including vaccination programs, and the type of stimulus measures and other policy responses that the U.S. government may further adopt.
Beginning in March 2020, the Company’s business and operations were disrupted by the conditions caused by COVID-19, which adversely affected Members’ spending levels and disposable income. Governmental actions such as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) helped mitigate the effects of COVID-19 on the Company’s Members. In particular, stimulus funds and incremental unemployment benefits provided under the CARES Act created additional financial support for the Company’s Members; however, the overall economic conditions potentially increase Members’ credit risk. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its responses accordingly.
Note 2 Restatement of Previously-Issued Financial Statements
In connection with the preparation of the Company’s June 30, 2022 unaudited condensed consolidated financial statements, management became aware of a classification error in the consolidated statements of cash flows for the years ended December 31, 2021 and 2020. Based on the internal investigation, the audit committee and management became aware of the error on the classification of the cash flows related to the disbursements and collections of the Member advances.
The Company previously presented cash flow from Member advances, which includes disbursements, collections and service revenues, as operating activities. The Company identified that the disbursements and collections of Member advances should be part of investing activities while revenues are part of operating activities. The Company corrected this error by reclassifying the net disbursements and collections portion of the cash flows to investing activities under “Net disbursements and collections of Member advances” in the Consolidated Statements of Cash Flows. The Company also updated the financial line item for the service revenue portion from “Member advances” in operating activities to “Member advances, service revenue”. This error only impacts the consolidated statements of cash flows.
The following table presents the impact of this error correction in the Consolidated Statements of Cash Flows as of and for the years ended December 31, 2021 and 2020, is as follows (in thousands):
| As Reported | Adjustment | As Restated | ||||||||||||||||||||||
| For the Year Ended December 31, |
For the Year Ended December 31, |
For the Year Ended December 31, |
||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Operating activities |
||||||||||||||||||||||||
| Member advances, service revenue |
$ | (42,443 | ) | $ | (35,240 | ) | $ | 40,163 | $ | 30,886 | $ | (2,280 | ) | $ | (4,354 | ) | ||||||||
| Net cash (used in) provided by operating activities |
$ | (40,704 | ) | $ | (9,146 | ) | $ | 40,163 | $ | 30,886 | $ | (541 | ) | $ | 21,740 | |||||||||
| Investing activities |
||||||||||||||||||||||||
| Net disbursements and collections of Member advances |
$ | — | $ | — | $ | (40,163 | ) | $ | (30,886 | ) | $ | (40,163 | ) | $ | (30,886 | ) | ||||||||
| Net cash provided by (used in) investing activities |
$ | 2,961 | $ | 3,422 | $ | (40,163 | ) | $ | (30,886 | ) | $ | (37,202 | ) | $ | (27,464 | ) | ||||||||
Note 3 Significant Accounting Policies
Use of Estimates
The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported revenues and expenses incurred during the reporting periods. The Company’s estimates are based on its historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company’s critical accounting estimates and assumptions are evaluated on an ongoing basis including those related to the: (i) allowance for unrecoverable advances; (ii) realization of tax assets and estimates of tax liabilities; (iii) valuation of equity securities; (iv) fair value of derivatives; and (v) valuation of note payable and warrant liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Service Based Revenue, Net:
Service based revenue, net primarily consists of tips, express processing fees, and subscriptions charged to Members, net of processor costs associated with advance disbursements. Member advances are treated as financial receivables under ASC 310 Receivables (“ASC 310”).
The Company encourages but does not contractually require its Members who receive a cash advance to leave a discretionary tip. The Company treats tips as an adjustment of yield to the advances and are recognized over the average term of advances.
Express processing fees apply when a Member requests an expedited cash advance. At the Member’s election, the Company expedites the funding of advance funds within eight hours, as opposed to the customary three business days, of the advance request. Express processing fees are nonrefundable loan origination fees and are recognized as revenues over the expected contractual term of the advance.
Costs incurred by the Company to fund cash advances are treated as direct loan origination costs. These direct loan origination costs are netted against advance-related income over the expected contractual term of the advance. Direct origination costs recognized as a reduction of advance-related income during the years ended December 31, 2021 and 2020, was $3.8 million and $3.6 million, respectively.
The Company accounts for subscriptions in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company must identify the contract with a Member, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price
8
Dave Inc.
Notes to the Consolidated Financial Statements
to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies the performance obligations. The Company’s primary sources of revenue are derived from fees earned on advances, and other financial instruments that are not within the scope of ASC 606. The Company has evaluated the nature of its contracts with Members and determined that further disaggregation of revenue from contracts with Members into categories beyond what is presented in the consolidated statements of operations was not necessary. For revenue sources that are within the scope of Topic 606, the Company fully satisfies its performance obligations and recognizes revenue in the period it is earned as services are rendered. Transaction prices are typically fixed, charged on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying ASC 606 that significantly affects the determination of the amount and timing of revenue from contracts with the Company’s Members. Sources of revenue from contracts with Members that are in the scope of ASC 606 include subscription fees, lead generation fees and reward program fees.
Subscription fees of $1 are received on a monthly basis from Members who subscribe to the Company’s application. The Company continually fulfills its obligation to each Member over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. The Company recognizes revenue ratably as the Member receives and consumes the benefits of the platform throughout the contract period.
Price concessions granted to Members who have insufficient funds when subscription fees are due are forms of variable consideration under the Company’s contracts with Members. For price concessions, the Company has elected, as an accounting policy, to account for price concessions for the month at the end of the reporting month based on the actual amount of concessions granted as the impact.
Service based revenue also consists of lead generation fees from the Company’s Side Hustle advertising partners. The Company is entitled to receive these lead generation fees when Members of the application sign up for jobs with the Company’s various partners. Lead generation contracts contain a single performance obligation. Lead generation revenue is recognized at a point in time upon satisfaction and completion of the single performance obligation. The Company also receives cash monthly as part of a rewards program for those Dave debit card Members who choose to spend funds with selected vendors. The cash received by the Company is recorded as unearned revenue and recognized as revenue as the subscription credits are earned by the Members.
Transaction Based Revenue, Net:
Transaction based revenue, net primarily consists of interchange and ATM revenues from Dave’s Checking Product, net of ATM-related fees, and are recognized at the point in time the transactions occur, as the performance obligation is satisfied. ATM-related fees recognized as a reduction of transaction based revenue during the years ended December 31, 2021 and 2020, was $0.8 million and $0.07 million, respectively.
Processing and Servicing Fees
Processor fees consist of fees paid to the Company’s processors for the recovery of advances, tips, processing fees, and subscriptions. These expenses also include fees paid for services to connect Member’s bank accounts to the Company’s application. Except for processing and service fees associated with advance disbursements, which are recorded net against revenue, all other processing and service fees are expensed as incurred.
Cash and Cash Equivalents
The Company classifies all highly liquid instruments with an original maturity of three months or less as cash equivalents.
9
Dave Inc.
Notes to the Consolidated Financial Statements
Restricted Cash
Restricted cash primarily represents cash held at financial institutions that is pledged as collateral for specific accounts that may become overdrawn.
Marketable Securities
Marketable securities consist of a money market mutual fund. The fair value of marketable securities is determined by quoted prices in active markets and changes in fair value are recorded in other (income) expense in the consolidated statements of operations.
Member Advances
Member advances include non-recourse cash advances, fees, and tips net of certain direct origination costs and allowance for unrecoverable advances. Management’s intent is to hold advances until maturity or payoff. Members’ cash advances are treated as financial receivables under ASC 310.
Advances to Members are not interest-bearing. The Company recognizes these advances at the advanced amount and does not use discounting techniques to determine present value of advances due to their short-term average maturity. The consequent discount impact under the imputed interest rate method does not result in a significant impact to the consolidated financial statements.
The Company does not provide modifications to advances.
Allowance for Unrecoverable Advances
The Company maintains an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in the outstanding Member advances. Management currently estimates the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors. Interpretations of the nature and volume of the portfolio and projections of future economic conditions involve a high degree of subjectivity. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the consolidated statements of operations.
The Company considers advances over 120 days past due or which become uncollectible based on information available to the Company as impaired. All impaired advances are deemed uncollectible and subsequently written-off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries of Member advances written-off, if any, are recorded as a reduction to Member advances when collected, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances expense in the consolidated statements of operations.
Internally Developed Software
Internally developed software is capitalized when preliminary development efforts are successfully completed, management has authorized and committed project funding, it is probable that the project will be completed, and the software will be used as intended. Capitalized costs consist of salaries and other compensation costs for employees incurred for time spent on upgrades and enhancements to add functionality to the software and fees paid to third-party consultants who are directly involved in development efforts. These capitalized costs are included on the consolidated balance sheets as intangible assets, net. Other costs are expensed as incurred and included within other operating expenses in the consolidated statements of operations. Capitalized costs for the years ended December 31, 2021 and 2020, were approximately $6.1 million and $4.0 million, respectively.
Amortization of internally developed software commences when the software is ready for its intended use (i.e., after all substantial testing is complete). Internally developed software is amortized over its estimated useful life of 3 years.
10
Dave Inc.
Notes to the Consolidated Financial Statements
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Property and equipment are recorded at cost and depreciated over the estimated useful lives ranging from 3 to 7 years using the straight-line method. Maintenance and repair costs are charged to operations as incurred and included within other operating expenses in the consolidated statements of operations.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets, primarily property and equipment and amortizable intangible assets, whenever events or changes in business circumstances indicate that carrying amounts of the assets may not be fully recoverable. If the sum of the expected undiscounted future cash flows from an asset is less than the carrying amount of the asset, the Company estimates the fair value of the assets. The Company measures the loss as the amount by which the carrying amount exceeds its fair value calculated using the present value of estimated net future cash flows.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurement (“ASC 820”), provides a single definition of fair value and a common framework for measuring fair value as well as disclosure requirements for fair value measurements used in the consolidated financial statements. Under ASC 820, fair value is determined based upon the exit price that would be received by a company to sell an asset or paid by a company to transfer a liability in an orderly transaction between market participants, exclusive of any transaction costs. Fair value measurements are determined by either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability. Absent a principal market to measure fair value, the Company uses the most advantageous market, which is the market from which the Company would receive the highest selling price for the asset or pay the lowest price to settle the liability, after considering transaction costs. However, when using the most advantageous market, transaction costs are only considered to determine which market is the most advantageous and these costs are then excluded when applying a fair value measurement. ASC 820 creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority and Level 3 having the lowest.
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
11
Dave Inc.
Notes to the Consolidated Financial Statements
Following are the major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3) (in thousands):
| December 31, 2021 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets |
||||||||||||||||
| Marketable securities |
$ | 8,226 | $ | — | $ | — | $ | 8,226 | ||||||||
| Derivative asset on loans to stockholders |
— | — | 35,253 | 35,253 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 8,226 | $ | — | $ | 35,253 | $ | 43,479 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities |
||||||||||||||||
| Warrant liability |
$ | — | $ | — | $ | 3,726 | $ | 3,726 | ||||||||
| Note payable |
— | — | 15,051 | 15,051 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
$ | — | $ | — | $ | 18,777 | $ | 18,777 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| December 31, 2020 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets |
||||||||||||||||
| Marketable securities |
$ | 17,666 | $ | — | $ | — | $ | 17,666 | ||||||||
| Derivative asset on loans to stockholders |
— | — | 457 | 457 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 17,666 | $ | — | $ | 457 | $ | 18,123 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company had no assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2021 and 2020.
The Company also has financial instruments not measured at fair value. The Company has evaluated cash and cash equivalents, Member advances, restricted cash, accounts payable, and accrued expenses, and believes the carrying value approximates the fair value due to the short-term nature of these balances. The fair value of the credit facility, debt facility, convertible debt, and line of credit approximate their carrying values.
Marketable Securities:
The Company evaluated the quoted market prices in active markets for its marketable securities and has classified its securities as Level 1. The Company’s investments in marketable securities are exposed to price fluctuations. The fair value measurements for the securities are based upon the quoted prices of similar items in active markets multiplied by the number of securities owned.
Derivatives:
Derivative Asset Related to Loans to Stockholders
In relation to certain loans to stockholders, the Company purchased call options which grant the Company the right to acquire a fixed number of the Class A Common Stock, held by such stockholders over the exercise period (four years). However, the exercise price per share is not fixed. The approximate $2.4166 exercise price per share increases by a nominal amount of approximately $0.004 for each month that lapses from the call option issuance date. As of December 31, 2021, the exercise price per share was approximately $2.5281. The Company understands that this variability in the exercise price of the call option is tied to the passage of time, which is not an input to the fair value of the Company’s shares per ASC 815. Therefore, the Company does not believe the call option meets the scope exception under ASC 815. As the scope exception is not met, the call option is accounted for as a derivative instrument. Accordingly, the call option is measured at fair value and presented as a derivative asset on loans to stockholders on the Company’s consolidated balance sheets. Interest earned on the non-recourse promissory notes will be reported as interest income and changes in the fair value of the call option will be reported as other income or expense in the period incurred. The call option is measured at fair value at the end of each reporting period with change in fair value recorded in earnings. In January 2022, the Company exercised the call options. Please refer to Note 20 Subsequent Events for details.
12
Dave Inc.
Notes to the Consolidated Financial Statements
A roll-forward of the Level 3 derivative asset on loans to stockholders is as follows (in thousands):
| Opening value at January 1, 2020 |
$ | 457 | ||
| Change in fair value during the year |
— | |||
|
|
|
|||
| Ending value at December 31, 2020 |
457 | |||
| Amendment to loan to stockholder |
5 | |||
| Change in fair value during the year |
34,791 | |||
|
|
|
|||
| Ending value at December 31, 2021 |
$ | 35,253 | ||
|
|
|
For the year ended December 31, 2021, the Company used a probability-weighted expected return method (“PWERM”) to weight the indicated call options value determined under the binomial option pricing model to determine the fair value of the call options. The increase in the fair value of the derivative asset on loans to stockholders for the year ended December 31, 2021, was primarily due to the increase in the fair value of Common Stock due to the Company’s progress towards completing the SPAC merger. The following table presents the assumptions used to value the call options for the year ended December 31, 2021:
| Expected volatility |
57.0 | % | ||
| Risk-free interest rate |
0.1 -0.6 | % | ||
| Remaining term |
0.0 - 1.5 Years |
For the year ended December 31, 2020, the Company used a binomial option pricing model to determine the fair value of the call option. The following table presents the assumptions used to value the call options for the year ended December 31 2020:
| Expected volatility |
61.5 | % | ||
| Risk-free interest rate |
0.2 | % | ||
| Remaining term |
3.0 Years |
Warrant Liability Related to Debt Facility:
As discussed further in Note 12 Debt and Credit Facility, in January 2021, contemporaneously with the execution of a debt facility, the Company issued warrants that met the definition of a derivative under ASC 815. This warrant liability was initially recorded as a liability measured at the estimated fair value, with the offsetting entry recorded as a loan commitment fees asset. The derivative liability was subsequently recorded at fair value at each reporting period, with changes in fair value reflected in earnings. The loss related to the change in fair value of the warrant liability in the year ended December 31, 2021, was $3.6 million, which is presented within changes in fair value of warrant liability in the consolidated statements of operations.
A roll-forward of the Level 3 warrant liability is as follows (in thousands):
| Opening value at January 1, 2021 |
$ | — | ||
| Initial fair value at the original issuance date |
106 | |||
| Change in fair value during the year |
3,620 | |||
|
|
|
|||
| Ending value at December 31, 2021 |
$ | 3,726 | ||
|
|
|
The Company used a PWERM to weight the indicated warrant liability value determined under the binomial option pricing model to determine the fair value of the warrant liability. The following table presents the assumptions used to value the warrant liability for the period year ended December 31, 2021:
| Expected volatility |
57.0 | % | ||
| Risk-free interest rate |
0.1 - 0.6 | % | ||
| Remaining term |
0.0 - 1.5 Years |
Note Payable:
As discussed in Note 11 Note Payable, the Company has elected to measure the note payable at fair value using the fair value option of ASC 825-10. The Company identified an embedded derivative related to a convertible feature in its promissory note and in accordance with ASC 815-15-25-1 criterion (b), since the Company has elected to apply the fair value option to the debt embedded features will not be separated from the debt host. The note payable is carried on the Company’s consolidated balance sheet as a current liability estimated at fair value with changes in fair value reflected in earnings. The loss related to the change in fair value of the promissory note for the year ended December 31, 2021 was $0.1 million, which is presented within interest expense in the consolidated statements of operations.
13
Dave Inc.
Notes to the Consolidated Financial Statements
A roll-forward of the Level 3 promissory note is as follows (in thousands):
| Opening value at January 1, 2021 |
$ | — | ||
| Initial fair value at the original issuance date |
106 | |||
| Change in fair value during the year |
3,620 | |||
|
|
|
|||
| Ending value at December 31, 2021 |
$ | 3,726 | ||
|
|
|
|||
| Expected volatility |
57.0 | % | ||
| Risk-free interest rate |
0.1 - 0.6 | % | ||
| Remaining term |
0.0 - 1.5 Years | |||
| Opening value at January 1, 2021 |
$ | — | ||
| Fair value at issuance |
14,608 | |||
| Change in fair value during the year |
443 | |||
|
|
|
|||
| Ending value at December 31, 2021 |
$ | 15,051 | ||
|
|
|
|||
The Company used a market yield approach to determine the fair value of the promissory note. The market yield assumption used to estimate the fair value of the promissory note as of December 31, 2021, was 3.60%.
There were no other assets or liabilities that were required to be measured at fair value on a recurring basis as of December 31, 2021 and 2020.
Fair Value of Common Stock
The Company is required to estimate the fair value of the common stock underlying the Company’s stock-based awards. The fair value of the common stock underlying the Company’s stock-based awards has been determined, in each case, based on a valuation model as discussed further below, and was approved by the Company’s Board of Directors. The Company’s Board of Directors intends all stock options granted to be exercisable at a price per share not less than the fair value per share of the ordinary share underlying those stock options on the date of grant.
In the absence of a public market for the common stock, the valuation of the common stock has been determined using a market approach, income approach, and subject company transaction method. The allocation of equity value was determined using the option pricing method. The valuation was performed in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.
The Company considered various objective and subjective factors to determine the fair value of the Company’s common stock as of each grant date, including:
| • | Historical financial performance; |
| • | The Company’s business strategy; |
| • | Industry information, such as external market conditions and trends; |
| • | Lack of marketability of the Common Stock; |
| • | Likelihood of achieving a liquidity event, such as an initial public offering, special-purpose acquisition company (“SPAC”) merger, or strategic sale given prevailing market conditions and the nature and history of the Company’s business; |
| • | Prices, privileges, powers, preferences, and rights of our convertible preferred stock relative to those of the Common Stock; |
| • | Forecasted cash flow projections for the Company; |
| • | Illiquidity of stock-based awards involving securities in a private company; and |
| • | Macroeconomic conditions. |
The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. The probability of a liquidity event and the derived discount rate are significant assumptions used to estimate the fair value of the common stock. If the Company had used different assumptions or estimates, the fair value of the common stock and the Company’s stock-based compensation expense could have been materially different.
The Company’s estimated fair value of its common stock was $0.724 per share as of August 30, 2020 (“August 2020 Valuation”). The August 2020 Valuation utilized the income and market approaches in estimating the fair value.
14
Dave Inc.
Notes to the Consolidated Financial Statements
In 2021, the Company’s management team contemplated a SPAC merger (refer to Note 20 Subsequent Events), which was incorporated in a June 7, 2021 valuation that resulted in a fair value for the Company’s common stock of $6.40 per share as of June 7, 2021 (“June 2021 Valuation”). The SPAC Transaction was considered in the subsequent valuation performed as of October 6, 2021, that resulted in a fair value for the Company’s common stock of $7.97 per share (“October 2021 Valuation”). The June 2021 Valuation and the October 2021, Valuation used the hybrid method, wherein a PWERM incorporated an expected near term SPAC exit scenario as well as an option pricing model (“OPM”).
The increase in the fair value of the Company’s common stock between the August 2020 Valuation and the June 2021 Valuation was due to the Company’s progress towards completing the SPAC merger that was not known or knowable at the earlier valuation dates. Similarly, the increase in the fair value of the Company’s common stock between the June 2021 Valuation and the October 2021 Valuation resulted primarily from an increase in the probability of the near term SPAC Transaction closing.
Concentration of Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash and cash equivalents, restricted cash, Member cash advances, and accounts receivable. The Company’s cash and cash equivalents and restricted cash in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits were approximately $31.9 million and $4.6 million at December 31, 2021 and 2020, respectively. The Company’s payment processors also collect cash on the Company’s behalf and will hold these cash balances temporarily until they are settled the next business day. Also, the Company does not believe its marketable securities are exposed to any significant credit risk due to the quality and nature of the securities in which the money is held. Pursuant to the Company’s internal investment policy, investments must be rated A-1/P-1 or better by Standard and Poor’s Rating Service and Moody’s Investors Service at the time of purchase.
No Member individually exceeded 10% or more of the Company’s Member cash advances balances as of December 31, 2021 and 2020.
Leases
ASC 842, Leases (“ASC 842”) requires lessees to recognize most leases on the consolidated balance sheet with a corresponding right-of-use asset. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. Leases are classified as financing or operating which will drive the expense recognition pattern. Lease payments on short-term leases are recognized as expense on a straight-line basis over the lease term.
The Company leases office space under three separate leases, all of which are considered operating leases. One lease includes the option to renew and the exercise of the renewal option is at the Company’s sole discretion. Options to extend or terminate a lease are considered as part of calculating the lease term to the extent that the option is reasonably certain of exercise. The leases do not include the options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Covenants imposed by the leases include letters of credit required to be obtained by the lessee.
The incremental borrowing rate (“IBR”) represents the rate of interest the Company would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. When determinable, the Company uses the rate implicit in the lease to determine the present value of lease payments. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.
15
Dave Inc.
Notes to the Consolidated Financial Statements
Loans to Stockholders
In 2019, the Company entered into loan, pledge, and option agreements with various employees, who are also stockholders, to provide those employees cash in exchange for non-recourse promissory notes and call options, which allowed the Company to acquire shares held by these stockholders. Following ASC 310, the Company recorded each note as a reduction to shareholders’ equity and will do so until it is repaid, or the associated call option is exercised and the Company reacquires the collateralized shares. Interest earned and accrued on the notes also increases this contra-equity account balance.
Stock-Based Compensation
Stock Option Awards:
ASC 718, Compensation-Stock Compensation (“ASC 718”), requires the estimate of the fair value of all stock-based payments to employees, including grants of stock options, to be recognized in the statement of operations over the requisite service period. Under ASC 718, employee option grants are generally valued at the grant date and those valuations do not change once they have been established. The fair value of each option award is estimated on the grant date using the Black-Scholes Option Pricing Model. As allowed by ASC 718, the Company’s estimate of expected volatility is based on its peer company average volatilities, including industry, stage of life cycle, size, and financial leverage. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant valuation. The Company recognizes forfeitures as they occur.
Restricted Stock Awards:
Restricted stock awards (“RSAs”) are valued on the grant date and the fair value of the RSAs is equal to the estimated fair value of the Company’s common stock on the grant date. This compensation cost is recognized over the requisite service period. When the requisite service period begins prior to the grant date (because the service inception date occurs prior to the grant date), the Company is required to begin recognizing compensation cost before there is a measurement date (i.e., the grant date). The service inception date is the beginning of the requisite service period. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date shall be based on the fair value of the award at the reporting date. In the period in which the grant is approved, cumulative compensation cost is adjusted to reflect the cumulative effect of the compensation cost based on fair value at the grant date rather than the service inception date. The Company recognizes forfeitures as they occur.
RSAs Issued to Non-Employees:
The Company issues shares of restricted stock to consultants for various advisory and consulting-related services. The Company recognized this expense, measured as the estimated value of the shares issued, as a component of stock-based compensation expense, presented within compensation and benefits in the consolidated statements of operations.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2021 and 2020, were approximately $45.6 million and $35.9 million, respectively, and is presented within advertising and marketing in the consolidated statements of operations.
Income Taxes
The Company follows ASC 740, Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more-likely-than-not that the asset will not be realized.
16
Dave Inc.
Notes to the Consolidated Financial Statements
ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained in a court of last resort, based on the technical merits. If more-likely-than-not, the amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination, including compromise settlements. For tax positions not meeting the more-likely-than-not threshold, no tax benefit is recorded. The Company has estimated approximately $0.5 million and $0.1 million of uncertain tax positions as of December 31, 2021 and 2020, respectively, related to state income taxes. and research tax credits.
The Company’s policy is to recognize interest expense and penalties accrued on any unrecognized tax benefits as a component of income tax expense within the statement of operations. The Company recognized approximately $0.004 million and $0.003 million of interest expense and penalties as a component of income tax expense during the years ended December 31, 2021 and 2020, respectively. There was approximately $0.007 million and $0.003 million of accrued interest expense and penalties as of December 31, 2021 and 2020, respectively.
Segment Information
The Company determines its operating segments based on how its chief operating decision makers manage operations, make operating decisions, and evaluate operating performance. The Company has determined that the Chief Operating Decision Maker (“CODM”) is a joint role shared by the Chief Executive Officer and Chief Financial Officer. Based upon the way the CODM reviews financial information and makes operating decisions and considering that the CODM reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance, the service-based and transaction-based operations constitute a single operating segment and one reportable segment.
Net Loss Per Share Attributable to Stockholders
The Company has two classes of participating securities (Class A Common Stock and Class V Common Stock) issued and outstanding as of December 31, 2021.
Prior to the consummation of the Business Combination, the Company had five classes of participating securities (Series A preferred stock, par value $0.000001 per share (“Series A Preferred Shares”), Series B-1 preferred stock, par value $0.000001 per share (“Series B-1 Preferred Shares”), and Series B-2 preferred stock, par value $0.000001 per share (“Series B-2 Preferred Shares”) and, together with the Series A Preferred Shares and the Series B-1 Preferred Shares, the “Preferred Stock”), unvested Restricted Stock Awards (“RSA”) and early exercised stock options) issued and outstanding as of December 31, 2021 and 2020. The Company used the two-class method to compute net loss per common share, because it had issued multiple classes of participating securities. The two-class method requires earnings for the period to be allocated between multiple classes of participating securities based upon their respective rights to receive distributed and undistributed earnings. Losses are not attributed to participating securities as holders of Preferred Stock, unvested RSAs, and early exercise stock options are not contractually obligated to share in the Company’s losses.
Basic net loss per share attributable to holders of common stock is calculated by dividing net loss attributable to holders of common stock by the weighted-average number of shares outstanding, excluding shares issued in relation to unvested RSAs and vested early exercise stock options funded by non-recourse notes (refer to Note 17 Related-Party Transactions for further details on the Company’s Loans to Stockholders).
Diluted net loss per share attributable to holders of common stock adjusts the basic net loss per share attributable to stockholders and the weighted-average number of shares outstanding for the potentially dilutive impact of stock options, warrants, and restricted stock using the treasury stock method and convertible preferred stock using the as-if-converted method.
17
Dave Inc.
Notes to the Consolidated Financial Statements
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to holders of common stock (in thousands, except share data):
| For the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator |
||||||||
| Net loss |
$ | (19,993 | ) | $ | (6,957 | ) | ||
| Less: noncumulative dividend to convertible preferred stockholders |
— | — | ||||||
| Less: undistributed earnings to participating securities |
— | — | ||||||
|
|
|
|
|
|||||
| Net loss attributed to common stockholders—basic |
(19,993 | ) | (6,957 | ) | ||||
| Add: undistributed earnings reallocated to common stockholders |
— | — | ||||||
|
|
|
|
|
|||||
| Net loss attributed to common stockholders—diluted |
$ | (19,993 | ) | $ | (6,957 | ) | ||
| Denominator |
||||||||
| Weighted-average shares of common stock—basic |
136,575,395 | 123,230,367 | ||||||
| Dilutive effect of equity incentive awards |
— | — | ||||||
|
|
|
|
|
|||||
| Weighted-average shares of common stock—diluted |
|
136,575,395 |
|
123,230,367 | ||||
| Net loss per share |
||||||||
| Basic |
$ | (0.15 | ) | $ | (0.06 | ) | ||
| Diluted |
$ | (0.15 | ) | $ | (0.06 | ) | ||
The following potentially dilutive shares were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:
| For the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Equity incentive awards |
34,709,104 | 31,628,791 | ||||||
| Convertible preferred stock |
203,882,182 | 203,882,182 | ||||||
| Series B-1 warrants |
2,254,234 | — | ||||||
|
|
|
|
|
|||||
| Total |
240,845,520 | 235,510,973 | ||||||
|
|
|
|
|
|||||
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted:
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduced a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology, which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to maturity debt securities, trade receivables and other receivables measured at amortized cost at the time the financial asset is originated or acquired. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. In November 2019, the FASB issued an amendment making this ASU effective for public companies for the fiscal year beginning after December 15, 2019. In February 2020, the FASB issued an amendment providing a description of the measurement process for current expected credit losses. Early adoption is permitted. The Company plans to adopt the standard on January 1, 2023, provided it remains an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
18
Dave Inc.
Notes to the Consolidated Financial Statements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. The amendments in ASU 2019-12 remove certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of U.S. GAAP. This ASU is effective for public companies for annual periods beginning after December 15, 2020. Early adoption is permitted. The Company plans to adopt the standard on January 1, 2022, provided it remains an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for accounting for contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The provisions of this standard are available for election for all companies through December 31, 2022. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is permitted. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), which addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. The amendments in this update are effective for all companies for annual periods beginning after December 15, 2021. The new standard will be effective for the Company on January 1, 2022. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements:
In October 2020, the FASB issued ASU 2020-10, Codification Improvements (“Codification”). The update provides incremental improvements on various topics in the Codification to provide clarification, correct errors in, and simplification on a variety of topics. Among other things, the guidance includes presentation disclosures for the amount of income tax expense or benefit related to other comprehensive income. The amendments are effective for public entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the standard effective January 1, 2021. The Company has evaluated the effect that the updated standard had on its internal processes, consolidated financial statements, and related disclosures, and has determined that the adoption did not have a significant impact on its consolidated financial statements and related disclosures.
19
Dave Inc.
Notes to the Consolidated Financial Statements
Note 4 Marketable Securities
Below is a detail of marketable securities (in thousands):
| December 31, 2021 | December 31, 2020 | |||||||
| Marketable securities |
$ | 8,226 | $ | 17,666 | ||||
|
|
|
|
|
|||||
| Total |
$ | 8,226 | $ | 17,666 | ||||
|
|
|
|
|
|||||
The Company’s marketable securities consisted of a money market mutual fund. At December 31, 2021 and 2020, the fund’s money market instruments were comprised of primarily certificates of deposit and financial company/asset backed commercial paper. At December 31, 2021 and 2020, the investment portfolio had a weighted-average maturity of 46 days. The fund is publicly traded with a ticker symbol SPPXX and the money market instruments were measured at fair market value at December 31, 2021 and 2020. Proceeds from sales and purchases of marketable securities during the year ended December 31, 2021, were approximately $9.4 million and $0.005 million, respectively. Proceeds from sales and purchases of marketable securities during the year ended December 31, 2020, were approximately $7.8 million and $0.1 million, respectively. The amount of loss recorded in connection with the investment in marketable securities for the year ended December 31, 2021, was approximately $0.001 million and was recorded as a component of interest expense in the consolidated statements of operations. The amount of gain recorded in connection with the investment in marketable securities for the year ended December 31, 2020, was approximately $0.003 million and was recorded as a component of interest income in the consolidated statements of operations.
Note 5 Member Cash Advances, Net
Below is a detail of Member cash advances, net as of December 31, 2021 (in thousands):
| Days From Origination |
Gross Member Advances |
Allowance for Unrecoverable Advances |
Member Advances, Net |
|||||||||
| 1-10 |
$ | 39,910 | $ | (1,313 | ) | $ | 38,597 | |||||
| 11-30 |
8,111 | (2,084 | ) | 6,027 | ||||||||
| 31-60 |
4,781 | (2,652 | ) | 2,129 | ||||||||
| 61-90 |
3,986 | (2,735 | ) | 1,251 | ||||||||
| 91-120 |
4,220 | (3,211 | ) | 1,009 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 61,008 | $ | (11,995 | ) | $ | 49,013 | |||||
|
|
|
|
|
|
|
|||||||
Below is a detail of Member cash advances, net as of December 31, 2020 (in thousands):
| Days From Origination |
Gross Member Advances |
Allowance for Unrecoverable Advances |
Member Advances, Net |
|||||||||
| 1-10 |
$ | 27,948 | $ | (1,367 | ) | $ | 26,581 | |||||
| 11-30 |
8,380 | (1,205 | ) | 7,175 | ||||||||
| 31-60 |
5,489 | (3,009 | ) | 2,480 | ||||||||
| 61-90 |
6,088 | (4,284 | ) | 1,804 | ||||||||
| 91-120 |
3,419 | (2,715 | ) | 704 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 51,324 | $ | (12,580 | ) | $ | 38,744 | |||||
|
|
|
|
|
|
|
|||||||
20
Dave Inc.
Notes to the Consolidated Financial Statements
Member advances, net, represent outstanding advances, tips, and processing fees, net of direct origination costs, less an allowance for unrecoverable advances.
The roll-forward of the allowance for unrecoverable advances is as follows (in thousands):
| Opening allowance balance at January 1, 2020 |
$ | 9,355 | ||
| Plus: provision for unrecoverable advances |
25,539 | |||
| Less: amounts written-off |
(22,314 | ) | ||
|
|
|
|||
| Ending allowance balance at December 31, 2020 |
$ | 12,580 | ||
|
|
|
|||
| Plus: provision for unrecoverable advances |
32,174 | |||
| Less: amounts written-off |
(32,759 | ) | ||
|
|
|
|||
| Ending allowance balance at December 31, 2021 |
$ | 11,995 | ||
|
|
|
Note 6 Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
| December 31, 2021 | December 31, 2020 | |||||||
| Computer equipment |
$ | 664 | $ | 289 | ||||
| Leasehold improvements |
384 | 427 | ||||||
| Furniture and fixtures |
14 | 14 | ||||||
|
|
|
|
|
|||||
| Total property and equipment |
1,062 | 730 | ||||||
| Less: accumulated depreciation |
(377 | ) | (214 | ) | ||||
|
|
|
|
|
|||||
| Property and equipment, net |
$ | 685 | $ | 516 | ||||
|
|
|
|
|
|||||
Depreciation expense for the years ended December 31, 2021 and 2020, was approximately $0.2 million and $0.1 million, respectively. As of December 31, 2021 and 2020, the Company had outstanding commitments for the purchase of property and equipment totaling approximately $0.03 million and $0.007 million, respectively.
Note 7 Intangible Assets, Net
The Company’s Intangible assets, net consisted of the following (in thousands):
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||
| Weighted Average Useful Lives |
Gross Carrying Value |
Accumulated Amortization |
Net Book Value | Gross Carrying Value |
Accumulated Amortization |
Net Book Value | ||||||||||||||||||||||||
| Internally developed software |
3.0 Years | $ | 13,109 | $ | (5,342 | ) | $ | 7,767 | $ | 7,002 | $ | (2,587 | ) | $ | 4,415 | |||||||||||||||
| Domain name |
15.0 Years | 121 | (39 | ) | 82 | 121 | (31 | ) | 90 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Intangible assets, net |
$ | 13,230 | $ | (5,381 | ) | $ | 7,849 | $ | 7,123 | $ | (2,618 | ) | $ | 4,505 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
21
Dave Inc.
Notes to the Consolidated Financial Statements
The future estimated amortization expenses as of December 31, 2021, were as follows (in thousands):
| 2022 |
$ | 3,658 | ||
| 2023 |
2,851 | |||
| 2024 |
1,282 | |||
| 2025 |
8 | |||
| 2026 |
8 | |||
| Thereafter |
42 | |||
|
|
|
|||
| Total future amortization |
$ | 7,849 | ||
|
|
|
Amortization expense for the years ended December 31, 2021 and 2020, was approximately $2.8 million and $1.6 million, respectively. No impairment charges were recognized related to long-lived assets for the years ended December 31, 2021 and 2020.
Note 8 Accrued Expenses
The Company’s Accrued expenses consisted of the following (dollars in thousands):
| December 31, 2021 | December 31, 2020 | |||||||
| Accrued charitable contributions |
$ | 7,164 | $ | 3,364 | ||||
| Accrued compensation |
1,522 | 875 | ||||||
| Sales tax payable |
1,208 | 991 | ||||||
| Accrued professional and program fees |
2,163 | 94 | ||||||
| Other |
988 | — | ||||||
|
|
|
|
|
|||||
| Total |
$ | 13,045 | $ | 5,324 | ||||
|
|
|
|
|
|||||
Accrued charitable contributions include amounts the Company has pledged related to charitable tree and meal donations. The Company uses a portion of tips received to make a charitable cash donation to third parties who use the funds to plant trees or provide meals to those in need. For the years ended December 31, 2021 and 2020, the Company pledged approximately $4.7 million and $3.8 million related to charitable donations, respectively. These costs are expensed as incurred and are presented within other general and administrative expenses in the consolidated statements of operations.
Accrued compensation includes accrued bonuses, accrued vacation, and employer Social Security payroll taxes deferred under the CARES Act. Other accrued expenses include amounts owed related to Dave’s Checking Product.
Note 9 Convertible Debt, Net
2019 Convertible Notes:
In 2019, the Company issued convertible promissory notes in an aggregate principal amount of approximately $0.7 million (the “2019 Convertible Notes”). The interest rate is 1.69% per annum, computed as simple interest and will accrue and be payable with each installment of principal. The 2019 Convertible Notes and accrued interest are due in full upon maturity, which is 36 months (2022) from the respective issuance dates. Issuance costs related to this transaction were not significant.
The 2019 Convertible Notes contained an embedded feature whereby the principal and interest are convertible into shares of Class A Common Stock or a sub-class of Preferred Stock at the holder’s option if a qualified equity transaction were to take place (“2019 Optional Conversion upon a Qualified Financing”). A qualified equity transaction is defined as a financing transaction that raises at least $40.0 million through the issuance of common or preferred shares. The Company determined that this embedded feature was, in substance, a put option settleable in a variable number of shares. However, it was determined that separate accounting under ASC 815 was not required because the put option was
22
Dave Inc.
Notes to the Consolidated Financial Statements
“clearly and closely related” to the host contract, as there was no significant discount or premium upon conversion. Therefore, the 2019 Convertible Notes and their embedded features were recorded as a single debt instrument. Additionally, the 2019 Convertible Notes contained a contingent beneficial conversion feature; however, the accounting for such feature is not recognized until the contingency associated with it is subsequently resolved.
As of December 31, 2021, no conversions of the 2019 Convertible Notes had occurred nor has the contingency associated with the beneficial conversion feature been resolved. The total outstanding principal and accrued interest balance is presented within convertible debt, current on the consolidated balance sheets.
Contractual interest expense on the 2019 Convertible Notes for the years ended December 31, 2021 and 2020, was $0.001 million, respectively, and are included in Interest expense within the consolidated statements of operations. The effective interest rate on the 2019 Convertible Notes was 1.7%.
In January 2022, the 2019 Convertible Notes were converted into shares of Class A Common Stock. Please refer to Note 20 Subsequent Events for details.
Note 10 Line of Credit
In November 2017, the Company entered into a line of credit agreement with UBS (the “UBS Agreement”). Issuance costs related to this transaction were not significant. There is no stated maturity date, there are no financial covenants and the amount of line of credit is solely dependent upon the total amount of assets the Company holds with UBS at any given point. During 2021, the Company repaid $3.9 million and the UBS Agreement was terminated in March 2021. As of December 31, 2020, the Company had an outstanding balance of $3.9 million, which included $0.01 million of accrued interest. The interest incurred related to this borrowing is included in Interest expense within the consolidated statement of operations.
Note 11 Note Payable
In August 2021, VPCC entered into an amendment to the private investment in public equity (“PIPE”) subscription agreement (“PIPE Amendment”) it previously entered into with Alameda Research Ventures LLC (“Alameda Research”) in connection with the proposed business combination with the Company (refer to Note 1 Business and Basis of Presentation). The PIPE Amendment calls for a $15.0 million pre-funding, which was facilitated through the issuance of an unsecured promissory note by the Company to Alameda Research. The Company’s obligations to repay the principal amount of the promissory note will be discharged through the issuance of 1.5 million shares of VPCC to Alameda Research at the closing of the business combination. The promissory note bears an interest rate of the applicable short-term federal rate and is due at the earlier of (i) the one-year anniversary of the promissory note, or (ii) an event of default.
The Company has elected to measure the note payable debt instrument at fair value using the fair value option of ASC 825-10. The Company determined that the feature to settle the promissory note with shares at the closing of the business combination is a contingently exercisable share settled put option that represents an embedded derivative instrument that requires bifurcation from the host promissory note. Additionally, the feature to redeem the promissory note upon a default event is a contingently exercisable call option and represents an embedded derivative instrument that requires bifurcation from the host promissory note. However, in accordance with ASC 815-15-25-1 criterion (b), since the Company has elected to apply the fair value option to the debt, the embedded features will not be separated from the debt host. The fair value of the promissory note was $14.6 million as of the issuance date and $15.1 million as of December 31, 2021.
23
Dave Inc.
Notes to the Consolidated Financial Statements
Note 12 Long-Term Debt Facility
In January 2021, Dave OD Funding I, LLC (“Borrower”) entered into a Senior Secured Loan Facility (the “Debt Facility”) with Victory Park Management, LLC (“Agent”), which is an affiliate of VPCC, allowing the Borrower to draw up to $100 million from various lenders associated with Victory Park Management, LLC (the “Lenders”). The Debt Facility has an interest rate of 6.95% annually plus a base rate defined as the greater of three-month LIBOR (as of the last business day of each calendar month) and 2.55%. Interest is payable monthly in arrears. The effective interest rate as of December 31, 2021, was 9.57%. The Company guaranteed up to $20,000,000 of Dave OD’s obligations under the Debt Facility, and currently that limited guaranty is secured by a first-priority lien against substantially all of the Company’s assets. The Debt Facility has certain financial covenants, including a requirement to maintain a minimum cash, cash equivalents, or marketable securities balance of $10.0 million and as of December 31, 2021, the Company was in compliance with all covenants. Payments of the loan draws are due at the following dates: (i) within five business days after the date of receipt by the Borrower and the Company (“Credit Party”) or any of their subsidiaries of any net cash proceeds in excess of $250 thousand in the aggregate during any fiscal year from any asset sales (other than certain permitted dispositions), the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to 100% of such net cash proceeds; (ii) within five business days after the date of receipt by any Credit Party or any of their subsidiaries, or the Agent as loss payee, of any net cash proceeds from any destruction or taking, the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to 100% of such net cash proceeds; (iii) within three business days after the date of receipt by any Credit Party or any of their subsidiaries of any net cash proceeds from the incurrence of any indebtedness of any Credit Party or any of their subsidiaries (other than with respect to permitted indebtedness), the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to 100% of such net cash proceeds; and (iv) (a) if extraordinary receipts are received by any Credit Party in the aggregate amount in any fiscal year in excess of $250 thousand or (b) if an event of default has occurred and is continuing at any time when any extraordinary receipts are received by any Credit Party, then within five business days of the receipt by any Credit Party of any such extraordinary receipts, the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to (x) 100% of such extraordinary receipts in excess of $250 thousand in respect of clause (a) above and (y) 100% of such extraordinary receipts in respect of clause (b) above.
In November 2021, Dave OD entered into an amendment of the Debt Facility which added a $20 million credit line (as amended, the “Credit Facility”) which has an interest rate of 8.95% annually plus a base rate defined as the greater of three-month LIBOR (as of the last business day of each calendar month) and 2.55%. The effective interest rate as of December 31, 2021, was 13.88%. As of December 31, 2021, the Company has drawn $35.0 million on the Debt Facility and $20.0 million on the Credit Facility. The Company has made no repayments.
Contemporaneously with the execution of the Debt Facility, the Company issued warrants to the Lenders as consideration for entering into the Debt Facility, representing a loan commitment fee. The warrants vest and become exercisable based on the Company’s aggregated draw on the Debt Facility in incremental $10.0 million tranches and terminate upon the earliest to occur of (i) the fifth anniversary of the occurrence of a qualified financing event, and (ii) the consummation of a liquidity event. The holders of the warrants have the ability to exercise their right to acquire a number of Series B-1 Preferred Shares equal to 0.2% of the fully diluted equity of the Company as of the closing date (“Series B-1 Warrants Closing Date”) of the Company’s next equity financing with proceeds of at least $40.0 million (“Qualified Financing Event”) or immediately prior to the consummation of a liquidity event. The exercise price of the warrants is the greater of (i) 80% of the fair market value of each share of the Company’s common stock at the Series B-1 Warrants Closing Date, and (ii) $2.770293 per share, subject to certain down-round adjustments. The warrants meet the definition of a derivative under ASC 815 and will be accounted for as a liability at fair value and subsequently remeasured to fair value at the end of each reporting period with the changes in fair value recorded in the consolidated statement of operations. The initial offsetting entry to the warrant liability was an asset recorded to reflect the loan commitment fee. The loan commitment fee asset will be amortized to interest expense over the commitment period of four years. In November 2021, the Company amended the warrant agreements to include additional terms, including a contingent cash settlement amount for approximately $4.5 million at the option of the Lenders, subject to the consummation of a liquidity event and minimum cash proceeds from the liquidity event. The amendment did not change the classification of the warrants as a derivative under ASC 815. The Company estimated the fair value of the warrants at the issuance date to be $0.1 million using the Black-Scholes option-pricing model. Determining the fair value of these warrants under this model requires subjective assumptions. These estimates involve inherent uncertainties and the application of management’s judgment. The following table presents the assumptions used to estimate the fair value of the warrants at the issuance date:
24
Dave Inc.
Notes to the Consolidated Financial Statements
| Expected volatility |
55.0% | |
| Risk-free interest rate |
0.1 - 0.2% | |
| Remaining term |
0.6 - 2.9 Years |
Note 13 Leases
In June 2018, the Company entered into a lease agreement for a single general office space in Los Angeles, California. The initial term of the lease was nine months with a five-year extension option at the discretion of the lessee. Monthly rent was approximately $0.001 million, subject to an annual escalation of 3%. In November 2021, the Company and lessor agreed to terminate the lease agreement.
In November 2018, the Company entered into a sublease agreement with PCJW Properties LLC (“PCJW”), controlled by Company’s founders (including the Company’s current CEO), for general office space next to the aforementioned leased property in Los Angeles, California. The lease term is five years subject to early termination by either party. Under the terms of the sublease, monthly rent is approximately $0.005 million, subject to an annual escalation of 4%.
In January 2019, the Company entered into a lease agreement with PCJW for office space located in Los Angeles, California. The lease term is seven years, beginning January 1, 2019 and ending December 31, 2025. Monthly rent is approximately $0.019 million, subject to an annual escalation of 5%.
In September 2019, the Company entered into a sublease for general office space in West Hollywood, California. The lease term was two years subject to early termination by either party. Under the terms of the lease, monthly rent was approximately $0.01 million, subject to an annual escalation of 3%. In December 2019, the Company entered into a lease amendment to increase the leased office space in exchange for monthly rent of approximately $0.023 million. The amendment also extended the lease term to October 31, 2021, and increased the annual escalation to 3.5%.
In May 2020, the Company entered into a sublease with Whalerock for general office space in West Hollywood, California. Under the terms of the sublease, the lease term is approximately 18-months and the monthly rent is approximately $0.14 million. The Company began utilizing the office space in June 2021.
All leases were classified as operating and operating lease expenses are presented within Other operating expenses in the consolidated statements of operations. The Company does not have any finance leases or sublease arrangements where the Company is the sublessor. The Company’s leasing activities are as follows (in thousands):
| For the Year Ended December 31, |
||||||||
| 2021 | 2020 | |||||||
| Operating lease cost |
$ | 1,424 | $ | 546 | ||||
| Short-term lease cost |
4 | — | ||||||
| Variable lease cost |
— | — | ||||||
|
|
|
|
|
|||||
| Total lease cost |
$ | 1,428 | $ | 546 | ||||
|
|
|
|
|
|||||
| Other information: |
||||||||
| Cash paid for operating leases |
$ | 1,347 | $ | 534 | ||||
| Right-of-use assets obtained in exchange for new operating lease liability |
$ | 2,514 | $ | — | ||||
| Weighted-average remaining lease term - operating lease |
2.07 | 4.19 | ||||||
| Weighted-average discount rate - operating lease |
10 | % | 10 | % | ||||
25
Dave Inc.
Notes to the Consolidated Financial Statements
The future minimum lease payments as of December 31, 2021, were as follows (in thousands):
| Year |
Third-Party Commitment |
Related-Party Commitment |
Total | |||||||||
| 2022 |
$ | 1,770 | $ | 335 | $ | 2,105 | ||||||
| 2023 |
148 | 339 | 487 | |||||||||
| 2024 |
— | 295 | 295 | |||||||||
| 2025 |
— | 309 | 309 | |||||||||
| Thereafter |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total minimum lease payments |
$ | 1,918 | $ | 1,278 | $ | 3,196 | ||||||
|
|
|
|
|
|
|
|||||||
| Less: imputed interest |
(92 | ) | (214 | ) | (306 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total lease liabilities |
$ | 1,826 | $ | 1,064 | $ | 2,890 | ||||||
|
|
|
|
|
|
|
|||||||
Note 14 Commitments and Contingencies
Litigation:
From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. In December 2021, the Company accrued $0.5 million related to a settlement agreement related to an employment dispute, which is included within legal settlement accrual in the consolidated balance sheet for the year ended December 31, 2021
Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or claims will have a significant adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
Stoffers v. Dave Inc. (filed September 16, 2020 in LA County Superior Court)
This is a purported class action lawsuit filed in connection with a July 2020 data breach. The Company is in the process of settling this matter and estimates the settlement to be approximately $3.2 million, which amount is included within legal settlement accrual in the consolidated balance sheets for the years ended December 31, 2021 and 2020.
Martinsek v. Dave Inc.
In January 2020, a former employee of the Company filed a complaint in the California Superior Court for the County of Los Angeles against the Company and the Company’s Chief Executive Officer, asserting claims for, among other things, breach of contract, breach of fiduciary duty, conversion, and breach of the implied covenant of good faith and fair dealing. The complaint alleges that the Company and the Chief Executive Officer misappropriated approximately 9.2 million shares (as adjusted for a 10:1 forward stock split in November 2020 and the 1.354387513 Exchange Ratio) by rescinding a stock option agreement and a restricted stock purchase agreement between the Company and the former employee under which such shares were issued and repurchasing the shares. The Company rescinded the agreements for failure of consideration. The Company and the Chief Executive Officer answered, denying all claims and asserting defenses. Discovery has commenced and a trial date has been set in November 2022. The Company is vigorously defending against this claim.
Whalerock v. Dave Inc.
Whalerock Industries Holding Company, LLC (“Whalerock”) filed an unlawful detainer action against the Company on or about August 4, 2020, which was dismissed by Whalerock on March 18, 2021. On or about March 29, 2021, Whalerock initiated new litigation against the Company seeking declaratory relief. The Company and Whalerock entered into a sublease in May 2020 whereby the Company would sublease certain space from Whalerock located in West Hollywood, California. This matter involves a dispute between the Company and Whalerock over whether the 18-month sublease has commenced, and if so, when. The Company is actively litigating this matter and cannot estimate the likely outcome at this time.
26
Dave Inc.
Notes to the Consolidated Financial Statements
Note 15 Preferred Stock and Stockholders’ Equity
Preferred Stock:
Pursuant to the terms of the Business Combination Agreement, as part of the Business Combination, all of the issued and outstanding Series A preferred stock of Legacy Dave were automatically converted into Legacy Dave common stock at a 1:1 ratio and Series B-1 and Series B-2 convertible preferred stock of Legacy Dave were automatically converted into Legacy Dave common stock at a 1:1.033076 ratio, which were all converted again, along with all other issued and outstanding common stock of Legacy Dave, into shares of Class A Common Stock and Class V Common Stock, at the Exchange Ratio. Please refer to Note 20 Subsequent Events for further discussion of the Business Combination.
The Company recasts its Consolidated Statements of Stockholders’ Equity from January 1, 2020 to the Closing Date and the total stockholder’s equity within the Company’s Consolidated Balance Sheets as of December 31, 2021 and 2020 and the weighted average outstanding shares basic and diluted for the years ended December 31, 2021 and 2020 by applying the recapitalization retroactively. As a result of the equity recast, no shares of preferred stock were outstanding as of December 31, 2021 and 2020. However, for purposes of calculating the weighted average outstanding shares, preferred stock of Legacy Dave is considered outstanding and not converted to common stock until the Closing Date in line with ASC 805-40-45.
Pursuant to the terms of the Company’s amended and restated certificate of incorporation, shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors are authorized to fix the voting rights, if any, designations, powers and preferences, the relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series of preferred stock. The Company’s Board of Directors are able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stock and could have anti-takeover effects. The ability of the the Company’s Board of Directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control or the removal of existing management.
Class A and Class V Common Stock:
The Company’s Board of Directors has authorized two classes of common stock, Class A and Class V. The Company had authorized 500,000,000 and 100,000,000 shares of Class A and Class V Common Stock. Shares of Class V Common Stock have 10 votes per share, while shares of Class A Common Stock have one vote per share. The holders of shares of Class A Common Stock and Class V Common Stock shall at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the Company’s stockholders. Class V Common Stock are convertible into shares of Class A Common Stock on a one-to-one basis at the option of the holders of Class V Common Stock at any time upon written notice to the Company. As of December 31, 2021 and 2020, the Company had 299,724,811 and 295,793,583 of Class A Common Stock issued, respectively. As of December 31, 2021 and 2020, the Company had 297,094,254 and 291,948,310 of Class A Common Stock outstanding, respectively. As of December 31, 2021 and 2020, the Company had 48,450,639 of Class V Common Stock issued and outstanding, respectively.
27
Dave Inc.
Notes to the Consolidated Financial Statements
Note 16 Stock-Based Compensation
In 2017, the Company’s Board of Directors adopted the Dave Inc. 2017 Stock Plan (the “2017 Plan”). The 2017 Plan authorizes the award of stock options, restricted stock, and restricted stock units. Options granted under the 2017 Plan generally vest over four years as follows: 25% of option shares vest on the first anniversary of the vesting commencement and 1/48th of the shares vest monthly over the remaining three years. Options expire 10 years from the date of grant. The 2017 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock bonuses and rights to purchase restricted stock. The incentive stock options are expected to qualify within the meaning of Section 422 of the U.S. Tax Code and non-statutory stock options. The total number of shares available for grants under the 2017 Plan was 5,584,048 as of December 31, 2021.
On January 4, 2022, the stockholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan was previously approved, subject to stockholder approval, by the Company’s Board of Directors on January 4, 2022. The 2021 Plan became effective immediately upon the completion of the business combination with VPCC. Please refer to Note 20 Subsequent Events for details. The 2021 Plan had no activity during the year ended December 31, 2021.
On January 4, 2022, the stockholders of the Company considered and approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP was previously approved, subject to stockholder approval, by the Company’s Board of Directors on January 4, 2022. The ESPP became effective immediately upon the completion of the business combination with VPCC. Please refer to Note 20 Subsequent Events for details. The ESPP had no activity during the year ended December 31, 2021.
Stock Options:
Management has valued stock options at their date of grant utilizing the Black-Scholes option pricing model. The fair value of the underlying shares was estimated by using a number of inputs, including recent arm’s length transactions involving the sale of the Company’s common stock.
28
Dave Inc.
Notes to the Consolidated Financial Statements
The following table presents the weighted-average assumptions used to value options granted during the years ended December 31:
| 2021 | 2020 | |||||||
| Expected term |
6.0 years | 6.0 years | ||||||
| Risk-free interest rate |
0.9 | % | 0.8 | % | ||||
| Expected dividend yield |
0.0 | % | 0.0 | % | ||||
| Expected volatility |
60.7 | % | 57.0 | % | ||||
Expected term—The expected term represents the period of time that options are expected to be outstanding. As the Company does not have sufficient historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.
Risk free interest rate—The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options.
Expected dividend yield—The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends.
Expected volatility—Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption is based on historical volatilities of a peer group of similar companies whose share prices are publicly available. The Company identified a group of peer companies and considered their historical stock prices. In identifying peer companies, the Company considered the industry, stage of life cycle, size, and financial leverage of such other entities.
Activity with respect to options granted under the 2017 Plan is summarized as follows:
| Shares | Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
| Options outstanding, January 1, 2020 |
16,623,195 | $ | 0.28 | 9.1 | $ | 6,775 | ||||||||||
| Granted |
19,896,082 | $ | 0.71 | |||||||||||||
| Exercised |
(1,952,728 | ) | $ | 0.13 | ||||||||||||
| Forfeited |
(3,232,054 | ) | $ | 0.44 | ||||||||||||
| Expired |
(149,292 | ) | $ | 0.69 | ||||||||||||
|
|
|
|||||||||||||||
| Options outstanding, December 31, 2020 |
31,185,203 | $ | 0.55 | 8.7 | $ | 5,548 | ||||||||||
|
|
|
|||||||||||||||
| Granted |
18,037,252 | $ | 0.72 | |||||||||||||
| Exercised |
(5,194,681 | ) | $ | 0.34 | ||||||||||||
| Forfeited |
(8,887,497 | ) | $ | 0.67 | ||||||||||||
| Expired |
(431,250 | ) | $ | 0.63 | ||||||||||||
|
|
|
|||||||||||||||
| Options outstanding, December 31, 2021 |
34,709,027 | $ | 0.64 | 8.5 | $ | 288,784 | ||||||||||
|
|
|
|||||||||||||||
| Nonvested options, December 31, 2021 |
24,954,068 | $ | 0.70 | 8.9 | $ | 205,915 | ||||||||||
|
|
|
|||||||||||||||
| Vested and exercisable, December 31, 2021 |
7,657,630 | $ | 0.50 | 7.7 | $ | 64,734 | ||||||||||
|
|
|
|||||||||||||||
The weighted-average grant-date fair-value of the grants was $1.22 and $0.37 for the years ended December 31, 2021 and 2020, respectively.
The Company recognized approximately $7.4 million and $1.5 million of stock-based compensation expense arising from stock option grants which is recorded as a component of compensation and benefits in the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively. There was approximately $22.1 million of total unrecognized compensation cost related to unvested stock options granted under the Plan as of the year ended December 31, 2021. The cost is expected to be recognized over the weighted-average remaining period of 3.9 years.
During the year ended December 31, 2021, in accordance with the terms of a former executive’s severance agreement, the Company modified share-based payment awards by accelerating the vesting. As a result of the modification, the Company recorded stock-based compensation of $2.1 million during the year ended December 31, 2021, which is included in the $7.4 million stock-based compensation.
29
Dave Inc.
Notes to the Consolidated Financial Statements
The Company allowed certain stock option holders to exercise unvested options to purchase shares of Common Stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s employment termination, at the original issuance price, until the options are fully vested. As of December 31, 2021 and 2020, 533,290 and 1,173,690 shares of Common Stock were subject to repurchase at weighted-average prices of $0.69 and $0.59 per share, respectively. The Company historically has issued non-recourse notes secured by stock options to fund exercises to certain key employees. During 2020, the Company issued a non-recourse note for $1.0 million, which was secured by a pledge of 1,422,106 shares (please refer to Note 17 Related-Party Transactions for details). The shares pledged are not considered outstanding for accounting purposes whether vested or unvested. As of December 31, 2021, there were 2,630,557 options exercised in exchange for non-recourse notes, of which 2,097,267 options were vested. As of December 31, 2020, there were 3,845,273 options exercised in exchange for non-recourse notes, of which 2,780,223 options were vested. The shares issued pursuant to unvested options and both vested and unvested options funded by non-recourse notes have been included in shares issued and outstanding on the consolidated balance sheets and consolidated statements of stockholders’ equity as such shares are considered legally outstanding.
On March 3, 2021, the Company granted the Chief Executive Officer stock options to purchase up to 11,456,061 shares of Common Stock in nine tranches. Each of the nine tranches contain service, market, and performance conditions. The market conditions relate to the achievement of certain specified price targets. Vesting commences on the grant date; however, no compensation charges are recognized until the service, market, and performance condition are probable, which is upon the completion of a liquidity event, the achievement of specified price targets for each tranche of shares, and continuous employment. As of December 31, 2021, the performance and market conditions have not been met and were not deemed probable. The options have a strike price of $0.72 per share. The Company determined the fair value of the options on the grant date to be approximately $10.5 million using a Monte Carlo simulation with key inputs and assumptions such as stock price, term, dividend yield, risk-free interest rate, and volatility. Each tranche will vest monthly over a derived service period.
The following table presents the key inputs and assumptions used to value the options granted to the Chief Executive Officer on the grant date:
| Expected volatility |
40.0 | % | ||
| Risk-free interest rate |
1.5 | % | ||
| Remaining term |
10.0 Years | |||
| Expected dividend yield |
0.0 | % |
Restricted Stock Issued to Employees:
The Company did not issue shares of restricted stock to employees during either of the years ended December 31, 2021 and 2020.
There was no unrecognized compensation cost related to employee unvested restricted stock as of December 31, 2021.
30
Dave Inc.
Notes to the Consolidated Financial Statements
Activity with respect to restricted stock activity for employees is summarized as follows:
| Shares | Weighted- Average Grant-Date Fair Value |
|||||||
| Nonvested shares at January 1, 2020 |
23,588,972 | $ | 0.28 | |||||
| Granted |
— | $ | — | |||||
| Vested |
(19,487,718 | ) | $ | 0.19 | ||||
| Forfeited |
(884,584 | ) | $ | 0.69 | ||||
|
|
|
|||||||
| Nonvested shares at December 31, 2020 |
3,216,670 | $ | 0.69 | |||||
|
|
|
|||||||
| Granted |
— | $ | — | |||||
| Vested |
(3,216,670 | ) | $ | 0.69 | ||||
| Forfeited |
— | $ | — | |||||
|
|
|
|||||||
| Nonvested shares at December 31, 2021 |
— | $ | — | |||||
|
|
|
|||||||
Restricted Stock Issued to Non-Employees:
The Company recognized approximately $0.1 million and $0.1 million of stock-based compensation expense related to restricted stock grants to non-employees for years ended December 31, 2021 and 2020, respectively. Stock based compensation expense is presented within compensation and benefits in the consolidated statements of operations.
There was no unrecognized compensation cost related to non-employee unvested restricted stock for the year ended December 31, 2021.
Activity with respect to non-employee restricted stock activity is summarized as follow:
| Shares | Weighted- Average Grant-Date Fair Value |
|||||||
| Nonvested shares at January 1, 2020 |
313,206 | $ | 0.23 | |||||
| Granted |
— | $ | — | |||||
| Vested |
(306,151 | ) | $ | 0.22 | ||||
| Forfeited |
— | $ | — | |||||
|
|
|
|||||||
| Nonvested shares at December 31, 2020 |
7,055 | $ | 0.69 | |||||
|
|
|
|||||||
| Granted |
— | $ | — | |||||
| Vested |
(7,055 | ) | $ | 0.69 | ||||
| Forfeited |
— | $ | — | |||||
|
|
|
|||||||
| Nonvested shares at December 31, 2021 |
— | $ | — | |||||
|
|
|
|||||||
Note 17 Related-Party Transactions
Leasing Arrangements:
In November 2018, the Company entered into a sublease agreement with PCJW, controlled by Company’s founders (including the Company’s current CEO), for general office space next to the aforementioned leased property in Los Angeles, California. The lease term is five years subject to early termination by either party. Under the terms of the sublease, monthly rent is approximately $0.005 million, subject to an annual escalation of 4%.
In January 2019, the Company entered into a lease agreement with PCJW for office space located in Los Angeles, California. The lease term is seven years, beginning January 1, 2019 and ending December 31, 2025. Monthly rent is approximately $0.019 million, subject to an annual escalation of 5%.
31
Dave Inc.
Notes to the Consolidated Financial Statements
During 2021 and 2020, the Company paid approximately $0.3 million and $0.3 million under lease agreements with PCJW for general office space in Los Angeles, California. Refer to Note 13 Leases for further details on the Company’s leasing arrangement with PCJW.
The following is a schedule of future minimum rental payments as of December 31, 2021, under Company’s sub-lease for the properties located in Los Angeles, California signed with PCJW, the entity controlled by the Company’s founders (in thousands):
| Year |
Related-Party Commitment |
|||
| 2022 |
$ | 335 | ||
| 2023 |
339 | |||
| 2024 |
295 | |||
| 2025 |
309 | |||
| Thereafter |
— | |||
|
|
|
|||
| Total minimum lease payments |
$ | 1,278 | ||
|
|
|
|||
| Less: imputed interest |
(214 | ) | ||
|
|
|
|||
| Total lease liabilities |
$ | 1,064 | ||
|
|
|
|||
The related-party components of the lease right-of-use assets, lease liabilities, short-term, and lease liabilities, long-term are presented as part of the right-of-use asset and lease liability on the consolidated balance sheets.
Related-Party Exercise Receivable Promissory Notes:
During 2018, the Company issued non-recourse promissory notes with certain employees, which allowed for the early exercise of stock options, with the exercise price to be paid back to the Company at a later date. The notes for approximately $0.1 thousand were secured by a pledge of 2,630,557 shares.
During 2020, the Company issued a non-recourse promissory note with a certain executive, which allowed for the early exercise of stock options, with the exercise price to be paid back to the Company at a later date. The note for approximately $1.0 million was secured by a pledge of 1,422,106 shares.
The amounts due as of December 31, 2021 and 2020, was approximately $1.1 million and $1.1 million, respectively. The promissory notes have a term of five years and carry stated interest rates between 1.5% and 2.0%, which are compounded annually.
Loans to Stockholders:
In 2019, the Company entered into loan, pledge, and option agreements (“Loans to Stockholders”) with various employees, who are also stockholders, to provide those employees cash in exchange for non-recourse promissory notes and call options, which allow the Company to acquire shares held by these stockholders. The entire unpaid principal balance of these Loans to Stockholders, together with all accrued but unpaid interest, is due and payable upon the earlier (i) of August 12, 2026; (ii) a liquidity event; or (iii) upon the exercise of the call option by the Company. These Loans to Stockholders carry stated interest rates of 1.87%, which are compounded annually. Inclusive of interest, the Loans to Stockholders were approximately $15.2 million and $14.8 million as of December 31, 2021 and 2020, respectively. Please refer to Note 2 Significant Accounting Policies for further details on the fair value of the derivative asset related to the Loans to Stockholders. In January 2022, the Company exercised the call options and the promissory notes were repaid. Please refer to Note 20 Subsequent Events for details.
Note 18 Income Taxes
The components of income tax expense for the years ended December 31, 2021 and 2020, were as follows (dollars in thousands):
| 2021 | 2020 | |||||||
| Current: |
||||||||
| Federal |
$ | 41 | $ | 19 | ||||
| State |
115 | 104 | ||||||
|
|
|
|
|
|||||
| Total current |
156 | 123 | ||||||
| Deferred: |
||||||||
|
|
|
|
|
|||||
| Federal |
(59 | ) | 22 | |||||
| State |
— | — | ||||||
|
|
|
|
|
|||||
| Total deferred |
(59 | ) | 22 | |||||
|
|
|
|
|
|||||
| Provision for income taxes |
$ | 97 | $ | 145 | ||||
|
|
|
|
|
|||||
32
Dave Inc.
Notes to the Consolidated Financial Statements
A reconciliation between the Company’s federal statutory tax rate and its effective tax rate for the years ended December 31, 2021 and 2020, is as follows:
| 2021 | 2020 | |||||||
| Federal statutory tax rate |
21.0 | % | 21.0 | % | ||||
| State taxes, net of federal benefit |
22.2 | % | 4.8 | % | ||||
| Derivative asset |
36.7 | % | 0.0 | % | ||||
| Warrant liability |
-3.8 | % | 0.0 | % | ||||
| Stock-based compensation |
-2.7 | % | -4.5 | % | ||||
| Penalties |
-0.1 | % | -0.8 | % | ||||
| Other |
-0.4 | % | -0.2 | % | ||||
| Research and development tax credit - federal |
5.9 | % | 3.3 | % | ||||
| Change in valuation allowance |
-79.3 | % | -25.7 | % | ||||
|
|
|
|
|
|||||
| Effective tax rate |
-0.5 | % | -2.1 | % | ||||
|
|
|
|
|
|||||
The major components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020, consists of the following (dollars in thousands):
| 2021 | 2020 | |||||||
| Deferred tax assets: |
||||||||
| Net operating loss carryforward |
$ | 14,232 | $ | — | ||||
| Excess interest expense carryforward |
497 | — | ||||||
| Allowance for Member advances |
3,488 | 3,549 | ||||||
| Accrued expenses |
1,249 | 1,138 | ||||||
| Accrued compensation |
356 | 345 | ||||||
| Lease liability |
840 | 420 | ||||||
| Research and development tax credit |
2,117 | 408 | ||||||
| Stock-based compensation |
355 | 26 | ||||||
| Other |
146 | 20 | ||||||
|
|
|
|
|
|||||
| Total deferred tax assets |
23,280 | 5,906 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: |
||||||||
| Property and equipment |
(2,354 | ) | (1,297 | ) | ||||
| Right of use asset |
(785 | ) | (389 | ) | ||||
| Prepaid expenses |
(235 | ) | (153 | ) | ||||
|
|
|
|
|
|||||
| Total deferred tax liabilities |
(3,374 | ) | (1,839 | ) | ||||
|
|
|
|
|
|||||
| Total net deferred tax assets before valuation allowance |
19,906 | 4,067 | ||||||
| Less: valuation allowance |
(19,906 | ) | (4,126 | ) | ||||
|
|
|
|
|
|||||
| Total net deferred tax liabilities |
$ | — | $ | (59 | ) | |||
|
|
|
|
|
|||||
As of December 31, 2021, the Company had $48.7 million of federal and $55.7 million of combined state net operating loss (“NOL”) carryforwards available to offset future taxable income. The federal NOLs do not expire; however, they are subject to a utilization limit of 80% of taxable income in any given year. The State NOLs begin to expire in 2031, except for $8.2 million of state NOLs that do not expire. Internal Revenue Code Section 382 imposes limitations on the utilization of NOLs in the event of certain changes in ownership of the Company. The Company has not yet completed a comprehensive analysis of its past ownership changes. Depending upon the degree of those past ownership changes, and any future ownership changes, annual limits may impair the Company’s ability to utilize NOLs and could cause federal income taxes to be due sooner than if no such limitations applied.
The realization of deferred tax assets is dependent upon future sources of taxable income. Available positive and negative evidence is considered in making this determination. Due to a history of losses and uncertainty as to future taxable income, realization of the deferred tax assets is limited to the anticipated reversal of certain deferred tax liabilities. Management determined that there were insufficient federal and state deferred tax liabilities to offset all of the federal and state deferred tax assets at December 31, 2021 and 2020. Therefore, management believes it is more-likely-than-not that the net federal and state deferred assets will not be fully realized and has recorded valuation allowances in the amounts of approximately $19.9 million and $4.1 million, as of December 31, 2021 and 2020, respectively.
33
Dave Inc.
Notes to the Consolidated Financial Statements
A reconciliation of the Company’s gross unrecognized tax benefits as of December 31, 2021 and 2020 is as follows (dollars in thousands):
| 2021 | 2020 | |||||||
| Balance at beginning of year |
$ | 111 | $ | — | ||||
| Increases to prior positions |
204 | 104 | ||||||
| Decreases to prior positions |
— | — | ||||||
| Increases for current year positions |
141 | 7 | ||||||
|
|
|
|
|
|||||
| Balance at end of year |
$ | 456 | $ | 111 | ||||
|
|
|
|
|
|||||
As of December 31, 2021, the Company had $0.5 million of gross unrecognized tax benefits related to state income taxes and research tax credits. The unrecognized tax benefits of $0.1 million as of December 31, 2021, would, if recognized, affect the effective tax rate. Although it is possible that the amount of unrecognized tax benefits with respect to the uncertain tax positions will increase or decrease in the next 12 months, the Company does not expect material changes.
The Company recognized insignificant amounts of interest expense as a component of income tax expense during the years ended December 31, 2021 and 2020. The income tax related accrued interest amounts were also insignificant as of December 31, 2021 and 2020, respectively.
On March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act contains certain income tax relief provisions, including a modification to the limitation of business interest expense for tax years beginning in 2019 and 2020. In addition, the CARES Act permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021, and allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also created a program of funding for small business, known as the Paycheck Protection Program (“PPP”). The Company did not experience any material impacts to its tax status or reporting as a result of these provisions.
Note 19 401(k) Savings Plan
The Company maintains a 401(k) savings plan for the benefit of its employees. Employees can defer up to 90% of their compensation subject to fixed annual limits. All current employees are eligible to participate in the 401(k) savings plan. Beginning January 2021, the Company began matching contributions to the 401(k) savings plan equal to 100% of the first 4% of wages deferred by each participating employee. The Company incurred expenses for employer matching contributions of approximately $1.1 million and $0 million for the years ended December 31, 2021 and 2020, respectively.
Note 20 Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date, but before the consolidated financial statements are available to be issued. The Company recognizes in the consolidated financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the consolidated balance sheet, including the estimates inherent in the process of preparing the consolidated financial statements. The Company’s consolidated financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the consolidated balance sheet but arose after the consolidated balance sheet date and before the consolidated financial statements were available to be issued.
34
Dave Inc.
Notes to the Consolidated Financial Statements
Closing of the Merger and Related Transactions
On January 5, 2022, (the “Closing Date”), the Company consummated the previously announced mergers contemplated by the Merger Agreement, dated as of June 7, 2021 (the “Agreement”). In connection with the closing of the Business Combination, VPC Impact Acquisition Holdings III, Inc. (“VPCC”) changed its name to “Dave Inc.,” and the surviving entity operates under the name “Dave Operating LLC” (“Surviving Entity”). Holders of 21,417,767 shares of VPCC common stock exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from VPCC’s initial public offering, which was approximately $10.00 per share, or approximately $224.2 million. Upon consummation of the Business Combination, the following occurred:
| • | Each non-redeemed outstanding share of VPCC common stock was converted into one share of Class A common stock of the Surviving Entity. |
| • | Each outstanding share of Legacy Dave’s Preferred Stock converted into Legacy Dave’s Common Stock. |
| • | The 2019 Convertible Notes, which had an aggregate principal amount of approximately $0.7 million, and $0.03 accrued interest were converted into approximately 225,331 fully vested shares of Legacy Dave’s Common Stock. |
| • | All of the call options related to the Loans to Stockholders were exercised, settling the derivative asset on Loans to Stockholders of $35.3 million and the contra-equity Loans to Stockholders of $15.2 million with additional-paid-in-capital (“APIC”) being the offsetting entry. |
The holders of Legacy Dave’s Common Stock and stock options to purchase Legacy Dave’s Common Stock pursuant to the 2017 Plan, received aggregate merger consideration with an implied value of $3,500.0 million (the “Equity Value”), consisting of a number of shares of Class A common stock of the Surviving Entity, par value $0.0001 per share and shares of Class V common stock of the Surviving Entity, par value $0.0001 per share, with each deemed to have a value of $10.00 per share, equal to the Equity Value divided by $10.00.
At closing, VPCC transaction costs of $20.1 million were paid, which reduced the proceeds from VPCC and reduced APIC. Additionally, the Company had incurred $5.1 million of transactions costs, which were capitalized and included within deferred issuance costs in the consolidated balance sheet for the years ended December 31, 2021, and reduced APIC at closing.
Legacy Dave is deemed the accounting predecessor and the combined entity is the successor registrant with the U.S. Securities and Exchange Commission (“SEC”), meaning that Legacy Dave’s consolidated financial statements for previous periods are to be disclosed in the registrant’s future periodic reports filed with the SEC. While the legal acquirer in the Merger Agreement is VPCC, for financial accounting and reporting purposes under U.S. GAAP, Legacy Dave is the accounting acquirer and the Business Combination is accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Dave in many respects. Under this method of accounting VPCC is treated as the “acquired” company for financial reporting purposes. For accounting purposes, Legacy Dave is deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Legacy Dave (i.e., a capital transaction involving the issuance of stock by VPCC for Legacy Dave Capital Stock). Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Dave will become the historical consolidated financial statements of the combined company, and VPCC’s assets, liabilities and results of operations have been consolidated with Legacy Dave beginning on the Closing Date. Operations prior to the Business Combination will be presented as those of Legacy Dave in future reports. The net assets of VPCC are recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded.
PIPE Investment
Concurrently with the Agreement, VPCC entered into Subscription Agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”) pursuant to which, the PIPE Investors agreed to purchase an aggregate of 21,000,000 shares of the VPCC’s Class A common stock in a private placement for a purchase price of $10.00 per share, or an aggregate of $210.0 million in gross cash proceeds. On August 17, 2021, VPCC entered into an amendment to the Subscription Agreement it previously entered into with Alameda Research, in connection with the proposed Business Combination with Legacy Dave. The amendment called for a $15.0 million pre-funding of Alameda Research’s PIPE Investment, which was facilitated through the issuance of a promissory note by Legacy Dave to Alameda Research. Legacy Dave’s obligations to repay the principal amount of such promissory note were discharged through the issuance to Alameda Research of 1.5 million shares of Dave at the Closing of the Business Combination. The closing of the private placement occurred immediately prior to the Closing Date.
35
Dave Inc.
Notes to the Consolidated Financial Statements
Repurchase Agreement
Concurrently with the execution of the Agreement, VPCC, Legacy Dave, Jason Wilk, Legacy’s Dave’s Chief Executive Officer, and Kyle Beilman, Legacy Dave’s Chief Financial Officer (collectively, the “Selling Holders”), into a repurchase agreement, pursuant to which, among other things, the Legacy Dave agreed to repurchase a certain number of shares of Legacy Dave’s Common Stock from the Selling Holders (including shares of Dave Class V common stock issued to Mr. Wilk), at a purchase price of $10.00 per share, on the business day immediately following the effective time of the Business Combination. The repurchases were contingent on the amount of Available Cash (as defined in the Agreement) being in excess of $300.0 million. Since Available Cash did not exceed $300.0 million, there were no repurchases.
Contingent Share Agreement
Pursuant to the terms of an agreement with certain holders of VPCC Class B common stock (the “Founder Holders”), the Founder Holders agreed to forfeit an aggregate of 951,622 shares of VPCC Class B common stock (“Founder Holder Contingent Closing Shares”) if net percentage of shares redeemed by VPCC holders exceeded 20% of the VPCC Class A common stock held by VPCC stockholders as of the date of the Agreement. As the net redemption exceeded 20%, all 951,622, or 100% of the Founder Holder Contingent Closing Shares were forfeited.
Earnout Agreement
Up to 1,586,037 shares of Legacy Dave Class A Common Stock held by the Founder Holders (the “Founder Holder Earnout Shares”) received upon conversion of an equal number of shares of VPCC’s Class B common stock are subject to forfeiture if certain market vesting conditions are not met.
The Founder Holder Earnout Shares will be recognized at fair value upon the closing of the Business Combination and classified as a liability. The issuance of the Founder Holder Earnout Shares will be recorded as a liability with the offsetting amount within additional-paid-in-capital (“APIC”) because the Earnout Shares are not indexed to the Company’s own equity. Dave determined the fair value of the Founder Holder Earnout Shares to be approximately $9.7 million as of January 5th based on a valuation using a Monte Carlo simulation with key inputs and assumptions such as stock price, term, dividend yield, risk-free rate, and volatility. The Founder Holder Earnout Shares will be remeasured to fair value at each reporting period end with changes in fair value going through the Statements of Operation.
Settlement of Other Agreements
On January 27, 2021, Legacy Dave issued warrants contemporaneously with a debt facility. The warrants vest and become exercisable based on Legacy Dave’s aggregated draw on the debt facility in incremental $10.0 million tranches and terminate upon the earliest to occur of (i) the fifth anniversary of the occurrence of a qualified financing event, and (ii) the consummation of a liquidity event. Immediately prior to the close of the Business Combination, 1,664,394 of the vested warrants were exercised and net settled for 450,843 shares of Legacy Dave’s Class A Common Stock after applying an exchange ratio of 1.354387513 pursuant to the terms of the Business Combination.
On March 3, 2021, Legacy Dave issued stock options to a certain executive, with a vesting schedule subject to certain conditions. The value of the stock options was estimated using a Monte Carlo simulation. This model requires the input of certain assumptions, including the risk-free interest rate, volatility, dividend yield and expected life. The options were granted in nine tranches each of which contain service, market and performance conditions. Vesting commenced on the grant date. On the date of the Business Combination, there is a cumulative expense for the amount vested between the grant date and the date of the Business Combination. The cumulative stock-based compensation expense as of the date of the Business Combination was approximately $1.9 million.
On January 3, 2022, Legacy Dave entered into an agreement with a certain executive to transfer and sell shares of Legacy Dave Common Stock to Legacy Dave. A total of 146,565 shares of Legacy Dave’s Common Stock were repurchased for an aggregate purchase amount of $1.6 million.
Upon the consummation of the Business Combination, the 2017 Plan was terminated and replaced by the Dave Inc. 2021 Equity Incentive Plan.
Convertible Note Purchase Agreement and White Label Services Agreement
On March 21, 2022, the Company entered into a Convertible Note Purchase Agreement (“Purchase Agreement”) with FTX Ventures Ltd. (“FTX Ventures”), pursuant to which the Company sold and issued a convertible note in the initial principal amount of $100.0 million (the “Note” and the transactions contemplated by the Purchase Agreement and the Note, the “Transaction”). The Note bears interest at a fixed rate of 3.00% per year (compounded semi-annually). Interest may be paid in-kind or in cash, at the Company’s option. Forty-eight months (the “Maturity Date”) after the date of the initial issuance of the Note (the “Issuance Date”), the Company will pay FTX Ventures the sum of (i) the outstanding principal amount of the Note, plus (ii) all accrued but unpaid interest thereon (the “Redemption Price”). Payment of the Redemption Price on the Maturity Date will constitute a redemption of the Note in whole. During the term of the Note, the Note will be convertible into shares of Common Stock at the option of the FTX Ventures. The initial conversion price of the Note is $10.00 per share of Common Stock (the “Conversion Price”). The Conversion Price of the Note is subject to adjustment for stock splits, dividends or distributions, recapitalizations, spinoffs or similar transactions. The Note and the shares of Common Stock issuable upon conversion of the Note have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold absent registration or an applicable exemption from registration requirements.
36
Dave Inc.
Notes to the Consolidated Financial Statements
On March 21, 2022, the Company also entered into a White Label Services Agreement (the “Services Agreement”) with West Realm Shire Services, Inc., d/b/a FTX US (“FTX US”). The Services Agreement allows the Company’s customers to establish accounts with FTX US to place orders through the Company’s platform for eligible cryptocurrencies and for the settlement of such orders. During the four-year term of the Services Agreement, FTX US will be the Company’s exclusive provider of such cryptocurrency services.
The Company is not aware of any other significant events that occurred subsequent to the consolidated balance sheet date that would have a significant impact on its consolidated financial statements other than what is disclosed above.
37
Exhibit 99.4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in Exhibit 99.3 to this Amendment No. 2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 11, 2022 (the “Form 8-K”). This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of the Form 8-K. Actual results may differ materially from those contained in any forward-looking statements. Unless otherwise noted or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of Dave Inc. and our consolidated subsidiaries prior to the closing of the Business Combination (as defined below).
Overview
In the story of David vs. Goliath, the small underdog is able to outsmart and defeat his larger adversary. This is the spirit behind the name “Dave.” We have built an integrated financial services online platform that provides millions of Americans with seamless access to a variety of intuitive financial products at a fraction of the cost and with much higher speed to value than that of the legacy financial services incumbents, such as traditional banks and other financial institutions. Our mission is to build products that level the financial playing field. Our near-term strategy is focused on delivering a superior banking experience for anyone living paycheck to paycheck.
Based on our observation and analysis of Member data, legacy financial institutions charge high fees for consumer banking and other financial services products, which disproportionately burdens tens of millions of Americans who can least afford them. We see this dynamic playing out with our Members who we believe are on average paying between $300-$400 in overdraft, maintenance and other fees to their existing bank for basic checking services.
Further, we see a significant opportunity to address the broader short-term credit market. According to a report by the Center for Financial Services Innovation (“CFSI”), legacy financial institutions charge approximately $30 billion in fees annually. The Financial Health Network estimates that financially “coping” and “vulnerable” populations pay approximately $120 billion a year in fees and interest for access to short-term credit.
Our prospective Member opportunity is also significant. According to the Financial Health Network, by 2023 approximately 45 million Americans will be “financially vulnerable,” 65 million Americans will be unbanked or underbanked and 185 million Americans will fall into the low or volatile income and credit- challenged category. Given these dynamics, we estimate that our total addressable market consists of between 150 million to 180 million Americans who are in need of financial stability and are either not served or underserved by legacy financial institutions.
Dave offers a suite of innovative financial products aimed at helping our Members improve their financial health. Our budgeting tool helps Members manage their upcoming bills to avoid overspending. To help Members avoid punitive overdraft fees and access short-term liquidity, Dave offers cash advances through its flagship 0% interest ExtraCash product. We also help Members generate extra income for spending or emergencies through our Side Hustle product, where we present Members with supplemental work opportunities. Through Dave Banking, we provide a modern checking account experience with valuable tools for building long-term financial health.
Market research conducted by Dave found that legacy financial institutions commonly require a more extensive banking relationship and days or even weeks of wait times to access their features and services, which can potentially be more onerous in order to obtain premium features (e.g., access to increased interest rates requires direct deposit or higher minimum daily balances). Even new challenger banks often take multiple days or even weeks before allowing members to access certain premium features, according to the same research. In contrast, Members are able to utilize all of Dave’s products individually and instantly, whether or not their banking relationship is with us. As an example, our ExtraCash product allows new Members to access up to $250 to cover an overdraft at their existing bank. We are able to do this by leveraging our proprietary machine learning engine that analyzes a Member’s prior transaction history at their existing bank. This flexible approach to Member choice and speed to value has been a key driver of our growth and best-in-Class brand favorability. According to market research conducted by Dave in June 2021 through a third-party using a quantitative online survey of 2,021 respondents across the United States 73% of respondents rated Dave in the two highest favorable categories (42% very favorable and 30% somewhat favorable) compared to other bank innovators.
We have only begun to address the many inequities in financial services, but our progress to date demonstrates the demand for Dave to rewire the financial system for the everyday person. Since inception and through the date of this Annual Report on Form 10-K, over 10 million Members have registered on the Dave app, over six million of them have used at least one of our current products and we believe that we have a substantial opportunity to continue growing our Member base going forward. We strongly believe that the value proposition of our platform approach will continue to accelerate as a result of our data-driven perspective of our Members, allowing us to introduce products and services that address their changing life circumstances.
Business Combination and Public Company Costs
On January 5, 2022 (the “Closing Date”), we consummated the previously announced mergers contemplated by the Merger Agreement, dated as of June 7, 2021 (the “Merger Agreement”), by and among VPC Impact Acquisition Holdings III, Inc. (“VPCC”), Dave Inc., a Delaware corporation (“Legacy Dave”), Bear Merger Company I Inc., a Delaware corporation and a direct, wholly owned subsidiary of VPCC (“First Merger Sub”), and Bear Merger Company II LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of VPCC (“Second Merger Sub” and together with the First Merger Sub, the “Merger Subs”). Pursuant to the Merger Agreement, First Merger Sub merged with and into Legacy Dave (the “First Merger”), with Legacy Dave being the surviving corporation of the First Merger (the “Surviving Corporation”), and immediately following the First Merger, the Surviving Corporation merged with and into Second Merger Sub (the “Second Merger,” together with the First Merger, the “Mergers” and the Mergers together with the other transactions contemplated by the Merger Agreement, the “Business Combination”), with Second Merger Sub being the surviving company of the Second Merger as a wholly owned subsidiary of VPCC (the “Surviving Entity”). In connection with the closing of the Business Combination, we changed our name from “VPC Impact Acquisition Holdings III, Inc.” to “Dave Inc.,” and the Surviving Entity operates under the name “Dave Operating LLC.”
While the legal acquirer in the Merger Agreement is VPCC, for financial accounting and reporting purposes under accounting principles generally accepted in the United States (“U.S. GAAP”), Legacy Dave is the accounting acquirer, and the Business Combination is accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Dave in many respects. Under this method of accounting VPCC is treated as the “acquired” company for financial reporting purposes. For accounting purposes, Legacy Dave is deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Legacy Dave (i.e., a capital transaction involving the issuance of stock by VPCC for Dave Capital Stock). Accordingly, the consolidated assets, liabilities and results of operations of Legacy Dave will become the historical consolidated financial statements of the combined company, and VPCC’s assets, liabilities and results of operations have been consolidated with Dave beginning on the Closing Date. Operations prior to the Business Combination will be presented as those of Legacy Dave in future reports. The net assets of VPCC are recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded.
As a result of the consummation of the Business Combination, we expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, and legal and administrative resources, including increased audit, compliance and legal fees.
Recent Developments
On March 21, 2022, we entered into a Convertible Note Purchase Agreement (“Purchase Agreement”) with FTX Ventures Ltd., owner and operator of FTX US (“FTX Ventures”), pursuant to which, we sold and issued a convertible note in the initial principal amount of $100.0 million (the “note” and the transactions contemplated by the Purchase Agreement and the note, the “Transaction”). The Transaction is exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act. We intend to use the proceeds from the sale of the note for working capital and general corporate purposes.
The note bears interest at a fixed rate of 3.00% per year (compounded semi-annually), payable semi-annually in arrears on June 30th and December 31th of each year. Interest may be paid in-kind or in cash, at our option. Forty-eight months (the “Maturity Date”) after the date of the initial issuance of the note (the “Issuance Date”), we will pay FTX Ventures the sum of (i) the outstanding principal amount of the note, plus (ii) all accrued but unpaid interest thereon, plus (iii) all expenses incurred by FTX Ventures (the “Redemption Price”). Payment of the Redemption Price on the Maturity Date will constitute a redemption of the note in whole.
During the term of the note, the note will be convertible into shares of our Class A Common Stock, par value $0.0001 per share (the “Common Stock”) at the option of FTX Ventures, upon delivery on one or more occasions of a written notice to us electing to convert the note or all of any portion of the outstanding principal amount of the note. The initial conversion price of the note is $10.00 per share of Common Stock (the “Conversion Price”). The conversion price of the note is subject to adjustment for stock splits, dividends or distributions, recapitalizations, spinoffs or similar transactions. The note and the shares of Common Stock issuable upon conversion of the note have not been registered under the Securities Act and may not be offered or sold absent registration or an applicable exemption from registration requirements.
Beginning on the twenty-four-month anniversary of the Issuance Date continuing until the Maturity Date, if the closing price of the Common Stock equals or exceeds 175% of the Conversion Price for 20 out of the 30 consecutive trading days ending immediately preceding the delivery of the notice of our election to convert the note, the note will be convertible into shares of Common Stock, upon delivery of a written notice to FTX Ventures electing to convert the note or all or any portion of the outstanding principal amount of the note.
At any time prior to the Maturity Date, we may, in our sole discretion and upon delivery of a written notice to FTX Ventures electing to prepay the note, prepay the note without penalty by paying FTX Ventures 100% of the Redemption Price. Once the Redemption Price has been delivered to FTX Ventures, the note will be cancelled and retired.
Conversion of the full initial principal amount of the note would result in the issuance of 10,000,000 shares of Common Stock if converted at $10.00 per share, which amount is subject to increase by any interest paid in kind that is added to the outstanding principal under the terms of the note.
The Purchase Agreement and note include customary representations, warranties and covenants and set forth standard events of default upon which the note may be declared immediately due and payable.
On March 21, 2022, we also entered into a White Label Services Agreement (the “Services Agreement”) with West Realm Shire Services, Inc., d/b/a FTX US (“FTX US”). The Services Agreement allows our customers to establish accounts with FTX US through our platform to place orders for eligible cryptocurrencies and for the settlement of such orders. During the four-year term of the Services Agreement, FTX US will be our exclusive provider of such cryptocurrency services.
Business Combination and Public Company Costs
In January 2021, Dave OD Funding I, LLC, a Delaware LLC and our subsidiary as a result of the Business Combination (“Dave OD Funding”), entered into a $100.0 million delayed draw credit facility (the “Existing Financing Agreement”) with Victory Park Management, LLC, an affiliate of VPCC. The facility has a base rate of 6.95% annually plus a base rate defined as the greater of three-month LIBOR (as of the last business day of each calendar month) and 2.55%. Should the principal balance exceed $50 million or $75 million, the base rate will decrease to 5.95% or 5.45%, respectively. The facility, which contains multiple tranches, allows Dave OD Funding to draw on the facility based upon eligible receivables outstanding and qualified cash. As a result of the Business Combination, we are guarantors of $50 million of Dave OD Funding’s obligations under the Existing Financing Agreement. This limited guaranty is secured by a first-priority lien against substantially all of our assets. Warrants were also issued by Legacy Dave in connection with the facility and those warrants were converted into our warrants as a result of the Business Combination. In November 2021, Dave OD Funding entered into an amendment of the Existing Financing Agreement which added a $20 million credit line (as amended, the “Credit Facility”) which has an interest rate of 8.95% annually plus a base rate defined as the greater of three-month LIBOR (0.21% as of December 31, 2021) and 2.55%. At December 31, 2021, $35.0 million of term loans under the facility were outstanding and $20.0 million had been drawn on the credit line. Please refer to Note 12 in the accompanying audited consolidated financial statements of Dave for the year ended December 31, 2021 included in this Amendment No. 2 to the Form 8-K.
In August 2021, VPCC announced that it entered into an amendment to the PIPE subscription agreement it previously entered into with Alameda Research Ventures LLC (“Alameda Research”), in connection with the Business Combination. The amendment called for a $15 million pre-funding of Alameda Research’s PIPE Investment, which was facilitated through the issuance of a promissory note by Legacy Dave to Alameda Research, which was discharged at the Closing of the Business Combination through the issuance of 1.5 million shares of Dave to Alameda Research. The promissory note bore an interest rate of the applicable short-term federal rate and was due at the earlier of (i) the one-year anniversary of the promissory note or (ii) an event of default. For more information regarding the promissory note, please refer to Note 11 in the accompanying audited consolidated financial statements of Dave for the year ended December 31, 2021 included in this Amendment No. 2 to the Form 8-K.
Restatement of Consolidated Financial Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to certain adjustments made to our previously issued consolidated financial statements as of and for the years ended December 31, 2021 and 2020. The determination to restate these consolidated financial statements was made by management after its review of records related to the classification of cash flows to/from Member advances, in connection with its preparation of the Company’s consolidated financial statements for the six months ended June 30, 2022. See Note 2—Restatement of Previously Issued Financial Statements to our consolidated financial statements.
COVID-19 Impact
There are many uncertainties regarding the current global pandemic involving a novel strain of coronavirus (“COVID-19”), and we continue to closely monitor the impact of the pandemic on all aspects of our business, including how it has and may in the future impact our Members, employees, suppliers, vendors, and business partners. The duration and magnitude of the continuing effects of COVID-19 on our Members remain uncertain and dependent on various factors, including the continued severity and transmission rate of the virus, new variants of the virus, the nature of and duration for which preventive measures remain in place, the extent and effectiveness of containment and mitigation efforts, including vaccination programs, and the type of stimulus measures and other policy responses that the U.S. government may further adopt.
Beginning in March 2020, our business and operations were disrupted by the conditions caused by COVID-19, which adversely affected Members’ spending levels and disposable income. Governmental actions such as the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) helped mitigate the effects of COVID-19 on our Members. In particular, stimulus funds and enhanced unemployment benefits provided under the CARES Act created additional financial support for our Members; however, the overall economic conditions and increased levels of unemployment may negatively impact the creditworthiness of our Members and could impact the credit risk on our Advance business. We actively monitor the performance of our Advance portfolio and will continue to assess the impact of the COVID-19 pandemic. At the onset of the pandemic, we made some underwriting modifications in response and intend to make additional adjustments to our risk management policies as necessary.
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For more information concerning COVID-19, see the section titled “Risk Factors—Our business, financial condition and results of operations have and may continue to be adversely affected by the COVID-19 pandemic or other similar epidemics or adverse public health developments, including government responses to such events” and “—Our non-recourse cash advances expose us to credit risk of our Members and if our underwriting criteria for making advances is not sufficient to mitigate against this risk, our financial condition and operating results could be adversely affected if a substantial number of our Members fail to repay the cash advance they receive.”
Comparability of Financial Information
Our future results of operations and financial position may not be comparable to historical results as a result of the consummation of the Business Combination.
Key Factors Affecting Operating Results
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including Member growth and activity, product expansion, competition, industry trends and general economic conditions.
Member Growth and Activity
We have made significant investments in our platform and our business is dependent on continued Member growth, as well as our ability to offer new products and services and generate additional revenues from our existing members using such additional products and services. Member growth and activity are critical to our ability to increase our scale, capture market share and earn an attractive return on our technology, product and marketing investments. Growth in Members and Member activity will depend heavily on our ability to continue to offer attractive products and services and the success of our marketing and Member acquisition efforts.
Product Expansion
We aim to develop and offer a best-in-class financial services platform with integrated products and services that improve the financial wellbeing of our Members. We have invested and continue to make significant investments in the development, improvement and marketing of our financial products and are focused on continual growth in the number of products we offer that are utilized by our Members.
Competition
We face competition from several financial services-oriented institutions. In our reportable segment, as well as in potential new lines of business, we may compete with more established institutions, some of which have more financial resources. We compete at multiple levels, including competition among other financial institutions and lenders in our Advances business, competition for deposits in our Checking Product from traditional banks and digital banking products, competition for subscribers to our financial management tools, and competition with other technology platforms for the enterprise services that we provide. Some of our competitors may at times seek to increase their market share by undercutting pricing terms prevalent in that market, which could adversely affect our market share for any of our products and services or require us to incur higher member acquisition costs.
Key Components of Statements of Operations
Basis of presentation
Currently, we conduct business through one operating segment which constitutes a single reportable segment. For more information about our basis of presentation, refer to Note 1 in the accompanying audited consolidated financial statements of Dave included in this Amendment No. 2 to the Form 8-K.
Service based revenue, net
Service based revenue, net primarily consists of optional tips, optional express processing fees and subscriptions charged to Members, net of processor-related costs associated with advance disbursements. Service based revenue, net also consists of lead generation fees from our Side Hustle advertising partners as well as fees earned related to the Rewards Product for Members who make debit card spending transactions at participating merchants.
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Transaction based revenue, net
Transaction based revenue, net consists of interchange and ATM revenues from our Checking Product, net of ATM-related fees, and are recognized at the point in time the transactions occur, as the performance obligation is satisfied.
Operating expenses
We classify our operating expenses into the following five categories:
Provision for Unrecoverable Advances
The provision for unrecoverable advances primarily consists of an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in the outstanding advances receivable. We currently estimate the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the consolidated statement of operations. We consider advances more than 120 days past due or which become uncollectible based on information available to us as impaired. All impaired advances are deemed uncollectible and subsequently written off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries, if any, of Member advances written-off are recorded as a reduction to Member advances, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances in the consolidated statements of operations when collected.
Processing and Servicing Fees
Processing and servicing fees consist of fees paid to our processing partners for the recovery of advances, tips, expedited processing fees and subscriptions. These expenses also include fees paid for services to connect Members’ bank accounts to our application. Except for processing and servicing fees associated with advance disbursements which are recorded net against revenue, all other processing and service fees are expensed as incurred.
Advertising and Marketing
Advertising and marketing expenses consist primarily of fees we pay to our platform partners. We incur advertising and marketing expenses for online, social media and television advertising and for partnerships and promotional advertising. Advertising and marketing expenses are recognized as incurred and typically deliver a benefit over an extended period of time. All advertising and marketing costs are expensed as incurred.
Compensation and Benefits
Compensation and benefits expenses represent the compensation, inclusive of stock-based compensation and benefits, that we provides to our employees and the payments we make to third-party contractors. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations and handle routine customer service inquiries and support.
Other Operating Expenses
Other operating expenses consist primarily of technology and infrastructure (third-party Software as a Service “SaaS”), commitments to charity, transaction based costs (program expenses, association fees, processor fees, losses from Member-disputed transactions, and fraud), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, certain sales tax related costs, office related expenses, public relations costs, professional service fees, travel and entertainment, and insurance. Costs associated with technology and infrastructure, rent, depreciation and amortization of our property and equipment and intangible assets, professional service fees, travel and entertainment, public relations costs, utilities, office-related expenses and insurance technology and infrastructure (third-party subscriptions), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, office-related expenses, public relations costs, professional service fees, travel and entertainment and insurance vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.
We expect our operating expenses to increase for the foreseeable future with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.
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Other (income) expenses
Other (income) expenses consist of interest income, interest expense, gain on conversion of convertible notes, loss on the derivative liability associated with convertible notes, legal settlement, litigation expenses, derivative asset fair value adjustments, other strategic financing and transactional expenses, and warrant liability fair value adjustments.
Provision for income taxes
Provision for income taxes consists of the federal and state corporate income taxes accrued on income resulting from the sale of our services. On March 27, 2020, the CARES Act was signed into law, which among other things, includes certain income tax provisions for corporations; however, these benefits did not impact our current tax provision.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
Operating revenues
| For the Years Ended | Change | |||||||||||||||
| December 31, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2021 | 2020 | 2021/2020 | 2021/2020 | ||||||||||||
| Service based revenue, net |
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| Processing fees, net |
$ | 79,101 | $ | 66,969 | $ | 12,132 | 18 | % | ||||||||
| Tips |
45,106 | 36,189 | 8,917 | 25 | % | |||||||||||
| Subscriptions |
17,203 | 16,678 | 525 | 3 | % | |||||||||||
| Other |
772 | 759 | 13 | 2 | % | |||||||||||
| Transaction based revenue, net |
10,831 | 1,201 | 9,630 | 802 | % | |||||||||||
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| Total |
$ | 153,013 | $ | 121,796 | $ | 31,217 | 26 | % | ||||||||
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Service based revenue, net—
Processing Fees, net
Processing fees, net of processor costs associated with advance disbursements, for the year ended December 31, 2021 increased by approximately $12.1 million, or 18%, compared to the year ended December 31, 2020. The increase was primarily attributable to increases in advance volume of approximately $1,007.0 million to approximately $1,412.8 million along with a higher average advance amount period over period. Processing fees tend to increase as advance volume increases, but may not always trend ratably as processing fees vary depending on the total amount of the advance. Approximately 99% and 98% of Members chose to pay a processing fee to expedite an advance for the years ended December 31, 2021 and 2020, respectively. The average processing fees paid to expedite these advances were approximately $5.15 and $4.56 per advance, respectively.
Tips
Tips for the year ended December 31, 2021 increased by approximately $8.9 million, or 25%, compared to the year ended December 31, 2020. The increase was primarily attributable to increases in advance volume of approximately $1,007.0 million to approximately $1,412.8 million period over period. Tips tend to increase as advance volume increases, but may not always trend ratably as tips often vary depending on the total amount of the advance. Approximately 80% and 81% of Members chose to leave a tip for the years ended December 31, 2021 and 2020, respectively. The average amount of tip Members chose to leave was approximately $4.71 and $3.72 per advance, respectively.
Subscriptions
Subscriptions for the year ended December 31, 2021 increased by approximately $0.5 million, or 3%, compared to the year ended December 31, 2020. The increase was primarily attributable to an increase in the number of paying Members on our platform.
Other
Other revenue for the year ended December 31, 2021 increased by approximately $0.01 million, or 2%, compared to the year ended December 31, 2020. The increase was primarily attributable to increases in average revenue per lead related to amounts received from our Side Hustle advertising partners.
Transaction based revenue, net—Transaction based revenue, net for the year ended December 31, 2021 increased by approximately $9.6 million or 802%, compared to the year ended December 31 2020. This increase was primarily attributable to the growth in Members engaging with our Checking Product and corresponding growth in the number of transactions initiated by Members.
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Operating expenses
| For the Years Ended | Change | |||||||||||||||
| December 31, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2021 | 2020 | 2021/2020 | 2021/2020 | ||||||||||||
| Provision for unrecoverable advances |
$ | 32,174 | $ | 25,539 | $ | 6,635 | 26 | % | ||||||||
| Processing and servicing fees |
23,459 | 21,646 | 1,813 | 8 | % | |||||||||||
| Advertising and marketing |
51,454 | 38,019 | 13,435 | 35 | % | |||||||||||
| Compensation and benefits |
49,544 | 22,210 | 27,334 | 123 | % | |||||||||||
| Other operating expenses |
43,260 | 15,763 | 27,497 | 174 | % | |||||||||||
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| Total |
$ | 199,891 | $ | 123,177 | $ | 76,714 | 62 | % | ||||||||
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Provision for unrecoverable advances—The provision for unrecoverable advances totaled approximately $32.2 million for the year ended December 31, 2021, compared to approximately $25.5 million for the year ended December 31, 2020. The increase of approximately $6.6 million, or 26%, was primarily attributable to increases in provision expense related to Member advances aged over 120 days and those that have become uncollectible based on information available to us of approximately $10.4 million, offset by a decrease in the provision expense related to Member advances aged 120 days and under of approximately $3.8 million.
The increase in provision expense related to Member advances aged over 120 days and those which have become uncollectible based on information available to us, period over period, was driven primarily by aged receivables and the increase in advance volume from approximately $1,007.0 million to approximately $1,412.8 million for the years ended December 31, 2020 and 2021, respectively. All impaired advances deemed uncollectible are subsequently written-off and are a direct reduction to the allowance for unrecoverable advances.
The decrease in provision expense related to Member advances aged 120 days and under, was primarily attributed to lower Member advances outstanding in certain aged tranches as of December 31, 2021 compared to December 31, 2020, where Member advances outstanding in those same tranches were higher as of the year ended December 31, 2020 when compared to December 31, 2019. This resulted in a decrease to the allowance for unrecoverable advances and corresponding lower provision for unrecoverable advances expense during the year ended December 31, 2021 as compared to December 31, 2020. We anticipate volatility in Member advances outstanding each year as they are directly correlated with the timing and volume of Member advance activity during the last 120 days of the year.
Throughout 2021, overall historical loss and collections experience of Member advances remained steady, however, historical loss and collections experience decreased slightly when compared to 2020 primarily as a result of underwriting modifications made during early 2020 in response to the onset of COVID-19. These underwriting modifications primarily consisted of lower advance amounts and stricter eligibility requirements. Any changes to our historical loss and collections experience directly affects the historical loss rates utilized in the calculation of the allowance for uncollectible advances. The changes in the allowance for unrecoverable advances, period over period, has a direct impact on the provision for unrecoverable advances.
For information on the aging of Member advances and a rollforward of the allowance for unrecoverable advances, refer to the tables in Note 5 to our audited consolidated financial statements included in this Amendment No.2 to the Form 8-K.
Processing and service fees—Processing and servicing fees totaled approximately $23.5 million for the year ended December 31, 2021, compared to approximately $21.6 million for the year ended December 31, 2020. The increase of approximately $1.8 million, or 8%, was primarily attributable to the increase in advance volume from $1,007.0 million to $1,412.8 million for the years ended December 31, 2020 and 2021, respectively, offset by volume associated discounts and cost savings due to price reductions from our processors.
Advertising and marketing—Advertising and marketing totaled approximately $51.5 million for the year ended December 31, 2021, compared to approximately $38.0 million for the year ended December 31, 2020. The increase of approximately $13.4 million or 35% was primarily attributable to increased marketing efforts and promotions across various social media platforms and television.
Compensation and benefits—Compensation and benefits totaled approximately $49.5 million for the year ended December 31, 2021, compared to approximately $22.2 million for the year ended December 31, 2020. The increase of approximately $27.3 million, or 123%, was primarily attributable to the following:
| • | an increase in payroll and related costs of approximately $13.5 million, primarily due to hiring and increased headcount throughout the business; |
| • | an increase in consultants and contractor costs of approximately $8.0 million, primarily due to our need to supplement recruiting efforts, increase IT security, marketing, and augmenting customer service resources; and |
| • | an increase in stock-based compensation of approximately $5.9 million, primarily due to an increase of approximately $2.4 million from new stock option grants related to increased headcount to support the growth of the business and an increase of approximately $3.5 million from certain stock options modifications. |
Other operating expenses—Other operating expenses totaled approximately $43.3 million for the year ended December 31, 2021, compared to approximately $15.8 million for the year ended December 31, 2020. The increase of approximately $27.5 million, or 174%, was primarily attributable to the following:
| • | an increase in expenses related to our Checking Product of approximately $16.2 million, primarily attributable to the growth in Members and the number of transactions processed; |
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| • | an increase in chargeback related expenses of approximately $4.0 million, primarily due to non-recurring fraudulent activity in relation to our Checking Product (see “Risk Factors—Risks related to our Business and Industry—Fraudulent and other illegal activity involving our products and services could lead to reputational damage to us, reduce the use of our platform and services and may adversely affect our financial position and results of operations.”); |
| • | an increase in charitable contribution expenses of approximately $1.0 million, primarily due to increased amounts pledged to charitable meal donations related to increased Members’ tips; |
| • | an increase in technology and infrastructure expenses of approximately $3.4 million, primarily due to increased spending to support the growth of our business and development of new products and features |
| • | an increase in depreciation and amortization of $1.3 million, primarily due to equipment purchases for increased headcount and amortization of internally developed software; |
| • | an increase in rent expense of $0.9 million, primarily due to additional leased office space; and |
| • | an increase in insurance and state and local taxes, inclusive of sales tax, of approximately $0.2 million and $0.4 million, respectively |
Other (income) expense
| For the Years Ended | Change | |||||||||||||||
| December 31, | $ | % | ||||||||||||||
| (in thousands, except for percentages) | 2021 | 2020 | 2021/2020 | 2021/2020 | ||||||||||||
| Interest income |
$ | (287 | ) | $ | (409 | ) | $ | 122 | -30 | % | ||||||
| Interest expense |
2,545 | 17 | 2,528 | 14871 | % | |||||||||||
| Legal settlement and litigation expenses |
1,667 | 4,467 | (2,800 | ) | -63 | % | ||||||||||
| Other strategic financing and transactional expenses |
264 | 1,356 | (1,092 | ) | -81 | % | ||||||||||
| Changes in fair value of derivative asset on loans to stockholders |
(34,791 | ) | — | (34,791 | ) | 100 | % | |||||||||
| Changes in fair value of warrant liability |
3,620 | — | 3,620 | 100 | % | |||||||||||
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| Total |
$ | (26,982 | ) | $ | 5,431 | $ | (32,413 | ) | -597 | % | ||||||
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Interest income—Interest income totaled approximately $0.3 million for the year ended December 31, 2021, compared to approximately $0.4 million for the year ended December 31, 2020. The decrease of approximately $0.1 million, or 30%, was primarily attributable to lower yields on marketable securities.
Interest expense— Interest expense totaled approximately $2.5 million for the year ended December 31, 2021, compared to approximately $0.02 million for the year ended December 31, 2020. The increase of approximately $2.5 million, or 14,871%, was primarily attributable to interest related to the Credit Facility which we entered into during January, 2021, and was subsequently amended in November, 2021.
Legal settlement and litigation expenses—Legal settlement and litigation expenses totaled approximately $1.7 million for the year ended December 31, 2021, compared to approximately $4.5 million for the year ended December 31, 2020. See “Information About Dave —Legal Proceedings” for more information regarding pending legal actions. The decrease of approximately $2.8 million, or 63%, was primarily attributable to reduced expenses due to the pending settlement of a class action lawsuit, net of estimated insurance reimbursements as compared to those expenses recorded during the year ended December 31, 2020.
Other strategic financing and transactional expenses—Other strategic financing and transactional expenses totaled approximately $0.3 million for the year ended December 31, 2021, compared to approximately $1.4 million for the year ended December 31, 2020. The decrease of approximately $1.1 million, or 81%, was primarily attributable to reduced spending on audit and compliance related expenses associated with potential strategic financing alternatives.
Changes in fair value of derivative asset on loans to stockholders—Changes in fair value of derivative asset on loans to stockholders totaled approximately $34.8 million for the year ended December 31, 2021, compared to $0 for the year ended December 31, 2020. The increase of approximately $34.8 million, or 100%, was primarily attributable to fair value adjustments associated with options issued in connection with loans to stockholders resulting from an increase in the fair value of our common stock.
Changes in fair value of warrant liability—Changes in fair value of warrant liability totaled approximately $3.6 million for the year ended December 31, 2021, compared to $0 for the year ended December 31, 2020. The increase of approximately $3.6 million, or 100%, was primarily attributable to fair value adjustments associated with certain warrants issued in connection with the Existing Financing Agreement.
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Provision for income taxes
| For the Years Ended December 31, |
Change | |||||||||||||||
| (in thousands, except for percentages) | $ | % | ||||||||||||||
| 2021 | 2020 | 2021/2020 | 2021/2020 | |||||||||||||
| Provision for income taxes |
$ | 97 | $ | 145 | $ | (48 | ) | -33 | % | |||||||
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| Total |
$ | 97 | $ | 145 | $ | (48 | ) | -33 | % | |||||||
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Provision for income taxes for the year ended December 31, 2021 decreased by approximately $0.048 million or 33%, compared to the year ended December 31, 2020. This relative decrease was primarily attributable to an increase in the pre-tax loss for the period ended December 31, 2021 and a decrease in the amount of certain deferred tax liabilities that had not qualified as sources of future taxable income for valuation allowance purposes.
Comparison of Years Ended December 31, 2020 and 2019
A discussion regarding our results of operations for the year ended December 31, 2020 compared to the results for the year ended December 31, 2019 can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Dave – Results of Operations” in the proxy statement/prospectus filed with the SEC on December 13, 2021, which is available on the SEC’s website at www.sec.gov.
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Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP measures to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful in assessing our operating performance and are more indicative of our operational performance and facilitate an alternative comparison among fiscal periods. These non-GAAP financial measures are not, and should not be viewed as, substitutes for GAAP reporting measures.
Adjusted EBITDA
“Adjusted EBITDA” is defined as net (loss) income adjusted for interest expense (income), income tax benefit, depreciation and amortization, stock-based compensation and other discretionary items determined by management. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that, when evaluating Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA on a supplemental basis. The reconciliation of net loss to Adjusted EBITDA below should be reviewed and no single financial measure should be relied upon to evaluate our business.
The following table reconciles net (loss) income to Adjusted EBITDA for the years ended December 31 2021 and 2020, respectively:
| (in thousands) | For the Years Ended December 31, |
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| 2021 | 2020 | |||||||
| Net loss |
$ | (19,993 | )$ | (6,957 | ) | |||
| Interest expense (income), net |
2,258 | (392 | ) | |||||
| Provision for income taxes |
97 | 145 | ||||||
| Depreciation and amortization |
2,976 | 1,718 | ||||||
| Stock-based compensation |
7,381 | 1,525 | ||||||
| Legal settlement and litigation expenses |
1,667 | 4,467 | ||||||
| Other strategic financing and transactional expenses |
264 | 1,356 | ||||||
| Changes in fair value of derivative asset on loans to stockholders |
(34,791 | ) | — | |||||
| Changes in fair value of warrant liability |
3,620 | — | ||||||
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| Adjusted EBITDA |
$ | (36,521 | )$ | 1,862 | ||||
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Liquidity and Capital Resources
Since inception, we have financed our operations primarily from the issuance of preferred stock through our Series A and Series B funding rounds, issuances of convertible notes, and funds from borrowings under the Existing Financing Agreement. As of December 31, 2021 and December 31, 2020, our cash and marketable securities balances were $40.6 million and $22.7 million, respectively.
As an early-stage company, the expenses we have incurred since inception are consistent with our strategy and approach to capital allocation. Dave expects to incur net losses in accordance with our operating plan as we continue to expand and improve upon our financial platform.
Our ability to access capital when needed is not assured and, if capital is not available to Dave when, and in the amounts needed, Dave could be required to delay, scale back or abandon some or all of our development programs and other operations, which could materially harm our business, prospects, financial condition and operating results.
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We believe that our cash on hand following the consummation of the Business Combination, including the net proceeds of VPCC’s cash in trust and the proceeds from the PIPE Investment and any alternative financing, should be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months from the date of this Amendment No.2 to the Form 8-K and sufficient to fund our operations. We may raise additional capital through follow-on public offerings or debt financings. The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our research and development efforts. No assurances can be provided that additional funding will be available at terms acceptable to us, if at all. If we are unable to raise additional capital, we may significantly curtail our operations, modify existing strategic plans and/or dispose of certain operations or assets.
Material Cash Requirements
While the effect of COVID-19 has created economic uncertainty and impacted how we manage our liquidity and capital resources, we intend to continue to invest in people, marketing and user acquisition, technology and infrastructure, and new and existing financial products and programs we believe are critical to meeting our strategic objectives. As growth of our ExtraCash product scales, material cash will be required to fund advances until the point at which those advances are subsequently collected. The amount and timing of these related cash outflows in future periods is difficult to predict and is dependent on a number of factors including the hiring of new employees, the rate of change in technology used in our business and our business outlook as a result of the COVID-19 pandemic. While we expect certain cash outflows for these expenditures will exceed amounts spent in 2021, we expect to fund these cash outflows primarily through our cash flows provided by operating and financing activities.
We may use cash to acquire businesses and technologies. The nature of these transactions, however, makes it difficult to predict the amount and timing of such cash requirements.
In the normal course of business, we enter into various agreements with our vendors and retail distributors that may subject us to minimum annual requirements. While our contractual commitments will have an impact on our future liquidity, we believe that we will be able to adequately fulfill these obligations through cash generated from operations and from our existing cash balances. Dave does not have any “off-balance sheet arrangements,” as defined by the SEC regulations
In response to our remote employee workforce strategy in the U.S., we have not yet closed our leased office locations. We are required to continue making our contractual payments until our operating leases are formally terminated or expire. Our remaining leases have terms of less than 1 year to approximately 4 years, subject to renewal options of varying terms, and as of December 31, 2021, we had a total lease liability of approximately $2.9 million. See Note 13 - Leases of the Notes to our Consolidated Financial Statements for additional information regarding our lease liabilities as of December 31, 2021.
We also have certain contractual payment obligations for principal and interest owed under our Existing Financing Agreement Dave OD Funding entered into with Victory Park Management, LLC, then an affiliate of VPCC. Interest payments are required to be made on a monthly basis. At December 31, 2021, $35.0 million of term loans under the Existing Financing Agreement were outstanding and $20.0 million has been drawn on the credit line under the Existing Financing Agreement. For more information on the Existing Financing Agreement, see “—Recent Developments.”
Cash Flows Summary
| For the Year Ended December 31, | ||||||||
| Total cash (used in) provided by: (in thousands) |
2021 | 2020 | ||||||
| Operating activities |
$ | (541 | ) | $ | 21,740 | |||
| Investing activities |
(37,202 | ) | (27,464 | ) | ||||
| Financing activities |
65,046 | 4,241 | ||||||
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| Net increase (decrease) in cash and cash equivalents and restricted cash |
$ | 27,303 | $ | (1,483 | ) | |||
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Cash Flows From Operating Activities
We recorded a net loss of approximately $20.0 million for the year ended December 31, 2021, and a net loss of approximately $7.0 million for the year ended December 31, 2020. We reported cash flows from operating activities of approximately ($0.5) million and $21.7 million for the years ended December 31, 2021 and 2020, respectively.
Net cash used in operating activities for the year ended December 31, 2021 included a net loss of approximately $20.0 million, adjusted for non-cash items of approximately $3.1 million for depreciation and amortization, approximately $32.2 million for provision for unrecoverable advances, approximately $3.6 million for an increase in warrant liability fair value, and approximately $7.4 million for stock-based compensation expense, partially offset by approximately $34.8 million for an increase in derivative asset fair value. Further changes in cash flows from operations included an increase in receivables related to revenue from Member advances of approximately $2.3 million, a decrease in other current liabilities of approximately $1.6 million and a decrease in other non-current liabilities of $0.5 million. These changes were offset primarily by a decrease in prepaid income taxes of approximately $2.6 million, an increase in accounts payable of approximately $2.6 million, an increase in accrued expenses of approximately $7.1 million, and an increase in legal settlement accrual of $0.5 million.
Net cash used in operating activities for the year ended December 31, 2020 included a net loss of approximately $7.0 million, adjusted for non-cash items of approximately $1.7 million for depreciation and amortization, approximately $25.5 million for provision for unrecoverable advances and approximately $1.5 million for stock-based compensation expense. Further changes in cash flows from operations included an increase in receivables related to revenue from Member advances of approximately $4.4 million, an increase in prepaid income taxes of approximately $4.0 million, an increase in prepaid expenses and other current assets of approximately $2.6 million, and a decrease in income taxes payable of approximately $0.5 million. These changes were offset primarily by an increase in accrued expenses of approximately $3.4 million, an increase in other current liabilities of approximately $2.5 million, an increase in accounts payable of approximately $2.0 million, and an increase in legal settlement accrual of approximately $3.2 million.
Cash Flows From Investing Activities
During the year ended December 31, 2021, net cash provided by investing activities was approximately $37.2 million. This included a change in net disbursements and collections of Member advances of approximately $40.2 million, the sale of marketable securities of approximately $9.4 million, partially offset by the capitalization of internally developed software costs of approximately $6.1 million, and the purchase of property and equipment of approximately $0.4 million.
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During the year ended December 31, 2020, net cash provided by investing activities was approximately $27.5 million. This included the change in net disbursements and collections of Member advances of approximately $30.9 million, the sale of marketable securities of approximately $7.8 million, partially offset by the capitalization of internally developed software costs of approximately $4.0 million, the purchase of property and equipment of approximately $0.2 million, and the purchase of marketable securities of approximately $0.1 million.
Cash Flows From Financing Activities
During the year ended December 31, 2021, net cash provided by financing activities was approximately $65.0 million, which consisted of $70.0 million in borrowings and approximately $1.7 million in proceeds from for stock option exercises, partially offset by approximately $3.9 million in line of credit repayments and approximately $2.8 million in issuance cost payments. The $70 million in borrowings consisted of $55 million under the Existing Credit Facility and $15 million from a pre-funding of Alameda Research’s PIPE Investment. For more information on the Existing Financing Agreement and Alameda Research’s PIPE Investment, see “—Recent Developments.”
During the year ended December 31, 2020, net cash provided by financing activities was approximately $4.2 million, which consisted of $3.9 million in line of credit borrowings and approximately $0.3 million in proceeds from issuance of common stock for stock option exercises, including early exercises.
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Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with U.S GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our critical accounting estimates and assumptions are evaluated on an ongoing basis including those related to the: (i) realization of tax assets and estimates of tax liabilities; (ii) valuation of equity securities; (iii) fair value of derivatives; (iv) valuation of notes payable and warrant liabilities; and (v) allowance for unrecoverable advances.
Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Please refer to Note 3 in our accompanying audited consolidated financial statements for the year ended December 31, 2021 included in this Amendment No.2 to the Form 8-K.
While our significant accounting policies are described in the notes to our audited consolidated financial statements, we believe that the following accounting policies require a greater degree of judgment and complexity and are the most critical to understanding our financial condition and historical and future results of operations.
Fair Value of Financial Instruments
We are required to account for certain financial instruments at fair value with changes in fair value reported in earnings, and may elect fair value accounting for certain other financial instruments in accordance with U.S. GAAP.
Financial instruments carried at fair value include marketable securities, derivative assets related to loans to stockholders, warrant liability and the derivative liability related to the 2018 Convertible Notes.
We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards (“ASC”) ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use the following hierarchy in measuring the fair value of our assets and liabilities, focusing on the most observable inputs when available:
| • | Level 1. Quoted prices in active markets for identical assets or liabilities. |
| • | Level 2. Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| • | Level 3. Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Derivative Asset
We recorded a derivative asset related to the call option on loans to stockholders. The derivative asset is carried at estimated fair value on our consolidated balance sheets. Changes in the estimated fair value of the derivatives are reported as (gain) loss on derivatives in the accompanying consolidated statements of operations. We utilize the binomial option pricing model to compute the fair value of the derivative asset and to mark to market the fair value of the derivative at each balance sheet date. The binomial option-pricing model considers a range of assumptions related to the fair value of common stock (see below Fair Value of Common Stock for further details), volatility, dividend yield and risk-free interest rate. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates.
Warrant Liability
We recorded a warrant liability associated with the $100.0 million Existing Financing Agreement with Victory Park Management, LLC. The warrant liability is carried on our consolidated balance sheets as a long-term liability estimated at fair value. Changes in the estimated fair value of the warrant liability are reported as (gain) loss in the accompanying consolidated statements of operations. We utilize the binomial option-pricing model to compute the fair value and to mark to market the fair value of the warrant liability at each consolidated balance sheet date. The binomial
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option-pricing model considers a range of assumptions related to the fair value of common stock (see below Fair Value of Common Stock for further details), volatility, dividend yield and risk-free interest rate. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates.
Note Payable
The Company has elected to measure the note payable debt instrument at fair value using the fair value option of ASC 825-10. We identified an embedded derivative related to a convertible feature in our promissory note with Alameda Research and in accordance with ASC 815-15-25-1 criterion (b), since we have elected to apply the fair value option to the debt, the Contingently Exercisable Share Settled Put/Call Option and any other embedded features will not be separated from the debt host. The note payable is carried on our consolidated balance sheets as a current liability estimated at fair value with changes in fair value reflected in earnings. We used a market yield approach to determine the fair value of the promissory note. The market yield approach model includes subjective input assumptions that can materially affect the fair value estimates.
Fair Value of Common Stock
We are required to estimate the fair value of the common stock underlying our share-based awards. The fair value of the common stock underlying our stock-based awards has been determined, in each case, based on a valuation model as discussed further below, and was approved by our Board of Directors. Our Board of Directors intends all stock options granted to be exercisable at a price per share not less than the fair value per share of the ordinary share underlying those stock options on the date of grant.
In the absence of a public market for our Common Stock, the valuation has been determined using appropriate valuation methodologies in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.
We considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
| • | Historical financial performance; |
| • | Our business strategy; |
| • | Industry information, such as external market conditions and trends; |
| • | Likelihood of achieving a liquidity event, such as an initial public offering, SPAC merger, or strategic sale given prevailing market conditions and the nature and history of our business; |
| • | Prices, privileges, powers, preferences and rights of our convertible preferred stock relative to those of Dave Common Stock; |
| • | Forecasted cash flow projections for Dave’s business; |
| • | Publicly traded price of the special purpose acquisition company (“SPAC”); |
| • | Primary preferred stock financings and secondary common stock transactions of our equity securities; |
| • | Lack of marketability/illiquidity of the common stock underlying our stock-based awards involving securities in a private company; and |
| • | Macroeconomic conditions. |
The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. The probability of a liquidity event, the derived discount rate, and the selected multiples that are applied to our financial statistics are significant assumptions used to estimate the fair value of our common stock. If we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
During 2019 and 2020, our estimated fair value of our common stock remained relatively consistent before a potential public listing through a business combination with a special purpose acquisition company was first considered in 2021 (“SPAC Transaction”).
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The fair value for our common stock was estimated to be $0.69 per share as of August 5, 2019 (“August 2019 Valuation”) and $0.724 per share as of August 30, 2020 (“August 2020 Valuation”). In 2021, our management team first contemplated a SPAC Transaction, which was incorporated in the June 7, 2021 valuation that resulted in a fair value for our common stock of $6.40 per share (“June 2021 Valuation”). The SPAC Transaction was considered in the subsequent valuation performed as of October 6, 2021 that resulted in a fair value for Dave’s common stock of $7.97 per share (“October 2021 Valuation”).
The August 2019 Valuation and August 2020 Valuations were completed prior to the contemplation of the Business Combination, and at the time of these valuations our management did not expect a near-term exit. The August 2019 Valuation was performed at the time of the close of Dave’s Series B-1 and B-2 preferred equity financings (“Series B Financing”). Since no near-term exit was expected, the August 2019 Valuation was performed using the market approach, specifically the subject company transaction method was performed using a single option pricing model (“OPM”) as the allocation method. As a result, the fair value of our common stock was inferred from the Series B Financing. The August 2020 Valuation was performed using the market approach, specifically the guideline public company method (“GPCM”) and used a single OPM as the allocation methodology. The GPCM was performed by first considering the Series B Financing’s implied revenue multiple from the August 2019 valuation report, and then was adjusted based on changes in the guideline public company’s multiples since the Series B Financing occurred, with consideration for adjustments based on our comparative operational performance between the periods.
The June 2021 Valuation and October 2021 Valuation both used the hybrid method, wherein a probability-weighted expected return model (“PWERM”) incorporated an expected near-term SPAC exit scenario as well as an OPM. The OPM was used to model the value of common stock in a delayed exit/stay private scenario. Total equity values for each scenario management identified were estimated as of the measurement date. The delayed exit/stay private scenario total equity value was estimated using the discounted cash flow method under the income approach and the GPCM under the market approach. The total equity value in the SPAC Transaction scenario included in the June 2021 Valuation was determined based on the expected Business Combination pre-money valuation. The common stock price per share in the SPAC Transaction scenario included in the October 2021 Valuation was determined based on the publicly traded price of the SPAC as of the valuation date. Our management’s estimated probability for each scenario occurring at each valuation date was applied to the respective scenario’s indicated common stock value to arrive at the estimated fair value of common stock.
The increase in the fair value of our common stock between the August 2019 and August 2020 Valuations, and the June 2021 Valuation and the October 2021 Valuation was predominantly due to our progress towards completing the Business Combination that was not known or knowable at the earlier valuation dates. As previously discussed, the August 2019 Valuation utilized the Series B financing to determine the value of common stock in a single OPM. The August 2020 Valuation relied upon the GPCM with valuation multiples selected considering the implied multiples at the time of the Series B Financing, with appropriate adjustments to the multiples to account for changes in our financial and operational performance as well as to reflect changes in the guideline public companies’ multiples and comparative performance, from the close of the Series B financing to the August 2020 valuation date. In early 2021, we first contemplated a SPAC Transaction and began taking the necessary steps to prepare for a business combination with VPCC. The necessary steps undertaken to prepare for the Business Combination included meeting with VPCC and investment bankers, discussing timing expectations, and negotiating the preliminary letter of intent with VPCC. As our ongoing negotiations related to the Business Combination reflected an increased likelihood of a near-term exit transaction and/or liquidity event, the valuation of Dave’s equity as of the June 2021 Valuation took into consideration the indicated equity value implied by the negotiations as well as the uncertainty inherent in the future key milestones including execution of the Merger Agreement and VPCC’s shareholder vote. Similarly, the increase in the common stock value to $10.80 per share in the October 2021 Valuation resulted primarily from an increase in the probability of the near-term SPAC Transaction closing and an increase in the value of common stock in that scenario due to the passage of time and an increase in the SPAC’s publicly traded price as compared to the SPAC Transaction’s negotiated pre-money valuation. As a result, the increase in Dave’s common stock fair value between the valuation dates resulted directly from both the increase in the pre-money valuation and acceleration of the timing of an exit, from the Series B Financing to the Business Combination.
Please refer to Note 3 in our accompanying audited consolidated financial statements for the year ended December 31, 2021 included in this Amendment No.2 to the Form 8-K.
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Allowance for Unrecoverable Advances
We maintain an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in outstanding Member advances. We currently estimate the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors. Interpretations of the nature of volume of the portfolio and projections of future economic conditions involve a high degree of subjectivity. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the consolidated statement of operations.
We consider advances over 120 days past due or which become uncollectible based on information available to us as impaired. All impaired advances are deemed uncollectible and subsequently written-off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries of Member advances written-off, if any, are recorded as a reduction to Member advances when collected, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances expense in the consolidated statements of operations.
Income Taxes
We follow ASC 740, Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more-likely-than-not that the asset will not be realized.
ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained in a court of last resort, based on the technical merits. If more-likely-than-not, the amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination, including compromise settlements. For tax positions not meeting the more-likely-than-not threshold, no tax benefit is recorded. We have estimated approximately $0.5 million and $0.1 of uncertain tax positions as of December 31, 2021 and 2020, respectively, related to state income taxes and research tax credits.
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Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense within the statement of operations. We recognized approximately $0.004 million and $0.003 million of interest expense and penalties as a component of income tax expense during the years ended December 31, 2021 and 2020, respectively. There was approximately $0.007 million and $0.003 million of accrued interest and penalties as of December 31, 2021 and 2020, respectively.
We are subject to income tax in jurisdictions in which we operate, including the United States. For U.S. income tax purposes, we are taxed as a C-corporation.
We recognize deferred taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. We recorded a valuation allowance against our deferred tax assets, net of certain deferred tax liabilities, at December 31, 2021 and 2020. Based upon management’s assessment of all available evidence, we have concluded that it is more-likely-than-not that the deferred tax assets, net of certain deferred tax liabilities, will not be realized.
Emerging Growth Company Status
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to remain an emerging growth company and to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and non-public companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. See Note 3 of our accompanying audited consolidated financial statements included in this Amendment No.2 to the Form 8-K for the recent accounting pronouncements adopted and the recent accounting pronouncements not yet adopted for the years ended December 31, 2021 and 2020.
In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company, we intend to rely on such exemptions, we are not required to, among other things: (a) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (b) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd- Frank Wall Street Reform and Consumer Protection Act; (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (auditor discussion and analysis); and (d) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
We will remain an emerging growth company under the JOBS Act until the earliest of (1) the last day of the fiscal year (a) following March 4, 2026, (b) in which we have total annual gross revenue of at least $1.07 billion, (c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
Recently Issued Accounting Standards
Refer to Note 3, “Significant Accounting Policies,” of our audited consolidated financial statements included in this Amendment No.2 to the Form 8-K for a discussion of the impact of recent accounting pronouncements.
Internal Control Over Financial Reporting
In connection with the audit of our consolidated financial statements for the years ended December 31, 2021 and 2020 material weaknesses in our internal control over financial reporting were identified. A material weakness is a
16
deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. For more information concerning the material weaknesses identified, see section titled “Risk Factors—Dave identified material weaknesses in our internal control over financial reporting in its audited financial statements for the years ended December 31, 2021 and 2020 and if Dave is unable to remediate these material weaknesses, or if it identifies additional material weaknesses in the future or otherwise fails to maintain effective internal control over financial reporting, it may not be able to accurately or timely report its financial condition or results of operations, which may adversely affect Dave’s business and share price.”
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to a variety of market and other risks, including the effects of changes in interest rates and inflation, as well as risks to the availability of funding sources, hazard events and specific asset risks.
Interest Rate Risk
We hold cash and cash equivalents and marketable securities for working capital purposes. We do not have significant exposure to market risk with respect to investments, as any investments we enter into are primarily highly liquid investments. As of December 31, 2021, we had cash and cash equivalents and marketable securities of $40.6 million, consisting of operating, savings and money market accounts which are not materially affected by changes in the general level of U.S. interest rates. Furthermore, all of the Convertible Notes issued by us accrue interest at a fixed rate.
We also have interest rate exposure as a result of our outstanding term loans under the Existing Financing Agreement. As of December 31, 2021, the aggregate outstanding principal amounts of the term loans was $35.0 million. The term loans bear interest at an annual rate equal to 6.95% plus a base rate defined as the greater of three-month LIBOR (as of the last day of each calendar month) and 2.55%. In November 2021, Dave OD Funding entered into an amendment of the Existing Financing Agreement which added a $20 million credit line (as amended, the “Credit Facility”) which has an interest rate of 8.95% annually plus a base rate defined as the greater of three-month LIBOR and 2.55% (a total of 11.5% as of December 31, 2021). If overall interest rates increase by 100 basis points, our interest expense would not be significantly affected.
Credit Risk
Financial instruments that potentially subject us to credit risk consist of cash, Member advances and deposits. We maintain our cash with major financial institutions. At times, cash account balances with any one financial institution may exceed FDIC insurance limits ($250,000 per depositor per institution). We believe the financial institutions that hold our cash are financially sound and, accordingly, minimal credit risk exists with respect to cash. Our payment processors also collect cash on our behalf and will hold these cash balances temporarily until they are settled the next business day. The Member advances are also subject to credit risk. See “Risk Factors—Risk Related to Our Business and Industry—Our non-recourse cash advances expose us to credit risk of our Members and if our underwriting criteria for making advances is not sufficient to mitigate against this risk, our financial condition and operating results could be adversely affected if a substantial number of our Members fail to repay the cash advance they receive.”
Inflation Risk
Historically, inflation did not have a material effect on our business, results of operations, or financial condition. During 2021, inflation has begun to increase. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations and financial condition.
17
Exhibit 99.5
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Defined terms included below have the same meaning as terms defined and included in the Form 8-K.
VPCC is providing the following unaudited pro forma combined financial information to aid you in your analysis of the financial aspects of the Business Combination and related transactions. The following unaudited pro forma combined financial information presents the combination of the financial information of VPCC and Dave adjusted to give effect to the Business Combination and related Transactions.
The following unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and the option to present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). VPCC has elected not to present Management’s Adjustments and has only presented Transaction Accounting Adjustments in the following unaudited pro forma combined financial information. Defined terms included below have the same meaning as terms defined and included elsewhere in the Form 8-K.
The historical financial information of VPCC was derived from the audited consolidated financial statements of VPCC as of December 31, 2021 and the period from January 14, 2021 (Inception) through December 31, 2021, incorporated from the Form 10-K. The historical financial information of Dave was derived from the audited consolidated financial statements of Dave as of December 31, 2021 and 2020, and for the years then ended, included elsewhere in this Form 8-K/A. This information should be read together with Dave’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Dave” and other financial information included elsewhere in this Form 8-K/A, and VPCC’s audited financial statements and related notes, the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information incorporated from the Form 10-K, as well as the risk factors set forth under the section titled “Risk Factors” incorporated from the Form 10-K.
The Business Combination is accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, VPCC is treated as the “accounting acquiree” and Dave as the “accounting acquirer” for financial reporting purposes. Dave was determined to be the accounting acquirer primarily based on evaluation of the following facts and circumstances upon the closing of the Business Combination:
| • | Existing Dave Stockholders collectively own a majority of the outstanding shares of the Combined Company immediately following the Closing (92.1% after redemptions of the public stockholders of VPCC) and hold a majority of the voting power immediately following the Closing (96.4% after redemptions of the public stockholders of VPCC including the repurchase of certain shares of Combined Company Class A and Class V Common stock held by Selling Holders pursuant to the Repurchase Agreement); |
| • | by virtue of such voting interest upon the Closing, existing Dave Stockholders have the ability to control decisions regarding the election and removal of directors and officers of the Combined Company following the Closing; |
| • | Dave’s senior management is the senior management of the Combined Company. |
Additionally, Dave’s business comprises the ongoing operations of the combined company immediately following the consummation of the Business Combination. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of Dave issuing shares for the net assets of VPCC, followed by a recapitalization. Accordingly, the consolidated assets, liabilities, and results of operations of Dave became the historical financial statements of the Combined Company, and VPCC’s assets and liabilities have been consolidated with Dave beginning on the Closing Date.
The unaudited pro forma combined balance sheet as of December 31, 2021 assumes that the Business Combination and related Transactions occurred on December 31, 2021. The unaudited pro forma combined statement of operations for the year ended December 31, 2021 gives pro forma effect to the Business Combination and related Transactions as if they had occurred on January 1, 2021. Dave and VPCC have not had any historical relationship prior to the Business Combination. Affiliates of VPCC are lenders to Dave, however, there is no effect on the pro forma adjustments. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
These unaudited pro forma combined financial statements are for informational purposes only. They do not purport to indicate the results that would have been obtained had the Business Combination and related Transactions actually been completed on the assumed date or for the periods presented, or which may be realized in the future. The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma combined financial information. The Combined Company will incur additional costs after the Business Combination in order to satisfy its obligations as an SEC-reporting public company.
The Business Combination and Related Transactions
The aggregate merger consideration for the Business Combination was $3.5 billion, payable in the form of shares of VPCC Common Stock valued at $10.00 per share. As part of the recapitalization, there are 951,622 Founder Holder Contingent Closing Shares and 1,586,037 forfeitable Founder Holder Earnout Shares which were subject to certain market vesting conditions in two tranches.
All Founder Holder Contingent Closing Shares were forfeited as part of the Business Combination based on redemptions of the VPCC Class A Common Stock as follows:
| • | All Founder Holder Contingent Closing Shares forfeited: if the Net Redemption Percentage equals or exceeds 35%, then 100% of the Founder Holder Contingent Closing Shares shall be automatically forfeited by the Founder Holders and cancelled for no consideration. As the Net Redemption Percentage exceeded 35%, all 951,622, or 100%, of the Founder Holder Contingent Closing Shares were forfeited. |
The Founder Holder Earnout Shares are triggered by the below events beginning on the Closing Date and ending on and including the date of the five (5) year anniversary of the Closing:
| • | Sixty percent (60%) of the Founder Holder Earnout Shares (951,622 Founder Holder Earnout Shares) shall immediately become fully vested and no longer subject to forfeiture upon the occurrence of Triggering Event I, which is defined as the first date on which the Common Share Price is equal to or greater than twelve dollars and fifty cents ($12.50) after the Closing Date, but within the Earnout Period (as defined in the Merger Agreement); provided, that |
| (i) | in the event of a change of control pursuant to which VPCC Stockholders receive, or have the right to receive, cash, securities or other property attributing a value of at least twelve dollars and fifty cents ($12.50) to each share of VPCC Class A Common Stock (as agreed in good faith by Sponsor and the VPCC Board), then Triggering Event I shall be deemed to have occurred and; |
| (ii) | in the event that, and as often as, the number of outstanding shares of VPCC Class A Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any similar event, then the applicable Common Share Price (as defined in the Merger Agreement) threshold (i.e., twelve dollars and fifty cents ($12.50)) will, for all purposes of the Merger Agreement (and the Founder Holder Agreement), in each case be equitably adjusted to reflect such change; and |
| • | The remaining Founder Holder Earnout Shares (634,415 Founder Holder Earnout Shares) shall immediately become fully vested and no longer subject to forfeiture upon the occurrence of Triggering Event II, which is defined as the first date on which the Common Share Price is equal to or greater than fifteen dollars ($15.00) after the Closing Date, but within the Earnout Period; provided, that |
| (i) | in the event of a change of control pursuant to which VPCC Stockholders receive, or have the right to receive, cash, securities or other property attributing a value of at least fifteen dollars ($15.00) to each share of VPCC Class A Common Stock (as agreed in good faith by Sponsor and the VPCC Board), then Triggering Event II shall be deemed to have occurred and; |
| (ii) | in the event that, and as often as, the number of outstanding shares of VPCC Class A Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any similar event, then the applicable Common Share Price threshold (i.e., fifteen dollars ($15.00)) will, for all purposes of the Merger Agreement (and the Founder Holder Agreement), in each case be equitably adjusted to reflect such change. |
The Founder Holder Earnout Shares were recognized at fair value upon the closing of the Business Combination and classified as a liability. The issuance of the Founder Holder Earnout Shares will be recorded as a liability with the offsetting amount within additional-paid-in-capital (“APIC”) because the Business Combination is accounted for as a reverse recapitalization. Dave determined the fair value of the Founder Holder Earnout Shares to be approximately $9.7 million based on a valuation using a Monte Carlo simulation with key inputs and assumptions such as stock price, term, dividend yield, risk-free rate, and volatility. The unaudited pro forma combined financial statements reflect pro forma adjustments related to the recognition of the Founder Holder Earnout Shares as an increase to earnout liability and a decrease to APIC.
Concurrently with the execution of the Merger Agreement, VPCC, Dave and Selling Holders entered into the Repurchase Agreement, pursuant to which, among other things, VPCC agreed to repurchase a certain number of shares of Combined Common Stock from the Selling Holders (including shares of Combined Company Class V Common Stock issued to Mr. Wilk in connection with the Transactions), at a purchase price of $10.00 per share, on the business day immediately following the effective time of the Second Merger. The Repurchase was contingent on the amount of VPCC Available Cash being in excess of $300 million. If VPCC Available Cash exceeded $300 million, the number of shares of Combined Company Common Stock subject to the Repurchase would be equal to the Aggregate Repurchase Price, divided by $10.00 (provided that in no event would the Aggregate Repurchase Price exceed $60 million). 80% of the number of shares of Combined Company Common Stock subject to the Repurchase was allocated to Mr. Wilk, with Mr. Beilman allocated the remaining 20%. Mr. Wilk is one of Dave’s current directors and is the Chief Executive Officer of Dave, and, as mentioned above, Mr. Beilman is the Chief Financial Officer of Dave. The Transactions contemplated by the Merger Agreement, including the Mergers, constituted a Business Combination as contemplated by VPCC’s Existing Charter. The Merger was consummated in accordance with the Merger Agreement and Delaware General Corporation Law. Since Parent Cash did not exceed $300 million, there were no repurchases.
On March 3, 2021, Dave issued 11,456,061 stock options to Mr. Wilk. The stock options vest in seven tranches, each of which are vested by satisfying all three vesting conditions: (i) the occurrence of a Liquidity Event, which is defined as the first of (a) the shares of Dave becoming publicly traded on an internationally recognized stock exchange, which includes a merger resulting in the common stock of the surviving company registered under the Exchange Act or publicly traded on an internationally-recognized stock exchange or (b) a Corporate Transaction which is defined as a change in control, reorganization, merger or transfer of all Dave’s assets, (ii) the achievement of a specific stock price milestone and (iii) subject to the continuous employment by Mr. Wilk. The first tranche is one-third of, and the remaining six tranches are one-twelfth of the 11,456,061 shares. The CEO stock options fair value on the grant date was approximately $10.5 million. Upon the closing of the Business Combination, the Combined Company recognized a cumulative charge to compensation expense and recognized the remaining compensation cost over the derived service period.
On August 17, 2021 Alameda Research, a PIPE investor agreed to pre-fund its obligation under the original Subscription Agreement to subscribe for 1,500,000 shares of Class A Common Stock for $15.0 million of the
aggregate PIPE subscription amount. On August 17, 2021, Dave issued a Promissory Note with a principal amount of $15.0 million to Alameda Research and amended the Subscription Agreement to satisfy Alameda Research’s obligation to pay the $15.0 million purchase price under the Alameda Subscription Agreement by way of a full discharge of Dave’s obligations to pay the principal under the Promissory Note. Upon the closing of the Business Combination, the Promissory Note was automatically discharged upon the Combined Company’s issuance of 1,500,000 shares of Class A Common Stock to Alameda Research.
On January 27, 2021, Dave issued warrants contemporaneously with a debt facility. The warrants vest and become exercisable based on the Dave’s aggregated draw on the Debt Facility in incremental $10.0 million tranches and terminate upon the earliest to occur of (i) the fifth anniversary of the occurrence of a qualified financing event and (ii) the consummation of a liquidity event. Immediately prior to the close of the Business Combination, 1,664,394 of the vested warrants were exercised and net settled for 450,843 shares of Class A Common Stock of Dave. Dave and the warrant holders determined Dave would repurchase the exercised shares contingent on the amount of VPCC Available Cash being in excess of $300.0 million. Since Parent Cash did not exceed $300.0 million, there were no repurchases.
The pro forma adjustments giving effect to the Business Combination and related Transactions are summarized below, and are discussed further in the footnotes to these unaudited pro forma combined financial statements:
| • | the First Merger; |
| • | immediately following the consummation of the First Merger, the Second Merger; |
| • | the consummation of the Business Combination and reclassification of cash held in VPCC’s trust account to cash and cash equivalents, net of redemptions (see below); |
| • | the consummation of the PIPE Investment; |
| • | the conversion of certain Dave liabilities to equity; |
| • | the conversion of the Series A, Series B-1 and Series B-2 Convertible Preferred Shares (“Dave Preferred Stock”) to permanent equity; |
| • | the exercise and net settlement of the Dave warrants issued in connection with the Senior Secured Debt Facility; |
| • | the accounting for transaction costs incurred by both VPCC and Dave; |
| • | the exercise of the Dave call options and derecognition of the related loans, related accrued interest receivable and derivative asset to stockholders; |
| • | the accounting for the Earnout Shares liability; |
| • | the accounting for Mr. Wilk’s stock options which include vesting terms satisfied by the Business Combination; and |
| • | the discharge of Dave’s obligation to pay the Promissory Note in exchange for shares of the Combined Company. |
The unaudited pro forma combined financial information also reflects the redemption into cash of VPCC’s common stock by public stockholders of VPCC who elected to exercise their redemption rights for a total of 22,418,001 shares and an aggregate payment of $224.2 million:
The existing Dave Stockholders held 342,638,866 of the Combined Company Common Stock immediately after the Business Combination, which approximates a 92.5% ownership level. The following summarizes the pro forma common shares outstanding (excluding the potential dilutive effect of Dave Options, VPCC Warrants and the Founder Holder Earnout Shares as further described in Note 4):
| Class A Shares | Class V Shares | % | ||||||||||
| Stockholders |
||||||||||||
| Former Dave stockholders and preferred shareholders |
294,188,227 | 48,450,639 | 92.5 | % | ||||||||
| VPCC sponsor shares (1) |
3,806,491 | — | 1.0 | % | ||||||||
| VPCC public stockholders |
2,958,831 | — | 0.8 | % | ||||||||
| PIPE Investment |
21,000,000 | — | 5.7 | % | ||||||||
|
|
|
|
|
|
|
|||||||
| Total shares of Dave common stock outstanding at closing of the Transaction |
321,953,549 | 48,450,639 | 100.0 | % | ||||||||
| (1) | VPCC sponsor shares exclude 951,622 shares of Class A Common Stock that are subject to forfeiture based on number of redemptions (the “Founder Holder Contingent Closing Shares”). All Founder Holder Contingent Shares were forfeited as the net redemption percentage exceeded 35% per the merger agreement. |
The following unaudited pro forma combined balance sheet as of December 31, 2021 and the unaudited pro forma combined statements of operations for the year ended December 31, 2021 are based on the historical financial statements of VPCC and Dave. The unaudited pro forma adjustments are based on information currently available, assumptions, and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma combined financial information.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(in thousands, except share data)
| As of December 31, 2021 |
As of December 31, 2021 |
|||||||||||||||||||
| Dave, Inc. (Historical) |
VPC Impact Acquisition Holdings III, Inc. (Historical) |
Transaction Accounting Adjustments |
Pro Forma Combined |
|||||||||||||||||
| Assets |
||||||||||||||||||||
| Current assets: |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 32,009 | $ | 80 | 253,789 | 3A | $ | 226,554 | ||||||||||||
| 195,000 | 3D | |||||||||||||||||||
| (30,129 | ) | 3H | ||||||||||||||||||
| (224,195 | ) | 3B | ||||||||||||||||||
| Marketable securities |
8,226 | — | 8,226 | |||||||||||||||||
| Member advances, net of allowance for unrecoverable advances |
49,013 | — | 49,013 | |||||||||||||||||
| Prepaid income taxes |
1,381 | — | 1,381 | |||||||||||||||||
| Deferred issuance costs |
5,131 | (5,131 | ) | 3H | — | |||||||||||||||
| Prepaid expenses and other current assets |
4,443 | — | 4,443 | |||||||||||||||||
| Prepaid expenses |
— | 750 | 750 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current assets |
100,203 | 830 | 189,334 | 290,367 | ||||||||||||||||
| Property and equipment, net |
685 | — | 685 | |||||||||||||||||
| Lease right-of-use assets |
2,702 | — | 2,702 | |||||||||||||||||
| Intangible assets, net |
7,849 | — | 7,849 | |||||||||||||||||
| Derivative asset on loans to stockholders |
35,253 | — | (35,253 | ) | 3K | — | ||||||||||||||
| Debt facility commitment fee, long-term |
131 | 131 | ||||||||||||||||||
| Restricted cash, net of current portion |
363 | — | 363 | |||||||||||||||||
| Investments held in Trust Account |
— | 253,789 | (253,789 | ) | 3A | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 147,186 | $ | 254,619 | (99,708 | ) | $ | 302,097 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liabilities, convertible preferred stock, and stockholders’ equity |
||||||||||||||||||||
| Current liabilities: |
||||||||||||||||||||
| Accounts payable |
$ | 13,044 | $ | — | $ | 13,044 | ||||||||||||||
| Accrued expenses |
13,045 | 5,036 | 18,081 | |||||||||||||||||
| Lease liabilities, short-term |
1,920 | 1,920 | ||||||||||||||||||
| Legal settlement accrual |
3,701 | 3,701 | ||||||||||||||||||
| Note payable |
15,051 | (15,051 | ) | 3I | — | |||||||||||||||
| Credit facility |
20,000 | 20,000 | ||||||||||||||||||
| Convertible debt, current |
695 | (695 | ) | 3E | — | |||||||||||||||
| Interest payable, convertible notes |
25 | — | (25 | ) | 3E | — | ||||||||||||||
| Other current liabilities |
1,153 | — | 1,153 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current liabilities |
68,634 | 5,036 | (15,771 | ) | 57,899 | |||||||||||||||
| Lease liabilities, long-term |
970 | — | 970 | |||||||||||||||||
| Debt facility, long-term |
35,000 | 35,000 | ||||||||||||||||||
| Warrant liability |
3,726 | 16,306 | (3,726 | ) | 3L | 16,306 | ||||||||||||||
| Earnout liability |
— | — | 9,682 | 3M | 9,682 | |||||||||||||||
| Other non-current liabilities |
119 | — | 119 | |||||||||||||||||
| Deferred underwriting fee payable |
— | 8,882 | 8,882 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities |
108,449 | 30,224 | (9,815 | ) | 128,858 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Convertible preferred stock |
||||||||||||||||||||
| Series A convertible preferred stock, par value per share $0.000001 |
9,881 | — | (9,881 | ) | 3F | $ | — | |||||||||||||
| Series B-1 convertible preferred stock, par value per share $0.000001 |
49,675 | — | (49,675 | ) | 3F | — | ||||||||||||||
| Series B-2 convertible preferred stock, par value per share $0.000001 |
12,617 | — | (12,617 | ) | 3F | — | ||||||||||||||
| Class A common stock subject to possible redemption |
— | 253,766 | (253,766 | ) | 3C | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total convertible preferred stock |
72,173 | 253,766 | (325,939 | ) | — | |||||||||||||||
| As of December 31, 2021 |
As of December 31, 2021 |
|||||||||||||||||||
| Dave, Inc. (Historical) |
VPC Impact Acquisition Holdings III, Inc. (Historical) |
Transaction Accounting Adjustments |
Pro Forma Combined |
|||||||||||||||||
| Stockholders’ equity: |
||||||||||||||||||||
| Common stock, par value per share $0.000001 |
0.1 | — | — | 3E | 0.1 | |||||||||||||||
| — | 3F | |||||||||||||||||||
| — | 3G | |||||||||||||||||||
| — | 3K | |||||||||||||||||||
| Preferred stock, $0.0001 par value |
— | — | — | |||||||||||||||||
| Class A common stock, $0.0001 par value |
— | — | 2 | 3C | 2 | |||||||||||||||
| (2 | ) | 3B | (2 | ) | ||||||||||||||||
| Class B common stock, $0.0001 par value |
— | 1 | (1 | ) | 3G | — | ||||||||||||||
| Class V common stock, $0.0001 par value |
1 | 3G | 1 | |||||||||||||||||
| Treasury stock |
(5 | ) | — | (5 | ) | |||||||||||||||
| Additional paid-in capital |
14,658 | — | 253,764 | 3C | 208,080 | |||||||||||||||
| 195,000 | 3D | |||||||||||||||||||
| 720 | 3E | |||||||||||||||||||
| 72,173 | 3F | |||||||||||||||||||
| (29,372 | ) | 3G | ||||||||||||||||||
| (35,260 | ) | 3H | ||||||||||||||||||
| 1,939 | 3J | |||||||||||||||||||
| (15,192 | ) | 3K | ||||||||||||||||||
| (35,253 | ) | 3K | ||||||||||||||||||
| 3,726 | 3L | |||||||||||||||||||
| 15,051 | 3I | |||||||||||||||||||
| (224,193 | ) | 3B | ||||||||||||||||||
| (9,682 | ) | 3M | ||||||||||||||||||
| Loans to stockholders |
(15,192 | ) | — | 15,192 | 3K | (0 | ) | |||||||||||||
| Accumulated deficit |
(32,897 | ) | (29,372 | ) | 29,372 | 3G | (34,836 | ) | ||||||||||||
| (1,939 | ) | 3J | ||||||||||||||||||
| Total stockholders’ (deficit) equity |
(33,436 | ) | (29,372 | ) | 236,046 | 173,238 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities, convertible preferred stock , and stockholders’ equity |
$ | 147,186 | $ | 254,619 | (99,708 | ) | $ | 302,097 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
See accompanying notes to unaudited pro forma combined financial information.
-7-
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
| (in thousands, except share data) | ||||||||||||||||||||
| Year Ended December 31, 2021 |
Period From January 14, 2021 (Inception) Through December 31, 2021 |
Year Ended December 31, 2021 |
||||||||||||||||||
| Dave, Inc. (Historical) |
VPC Impact Acquisition Holdings III, Inc. (Historical) |
Transaction Accounting Adjustments |
Pro Forma Combined |
|||||||||||||||||
| Operating revenues: |
||||||||||||||||||||
| Service based revenue, net |
$ | 142,182 | $ | — | $ | 142,182 | ||||||||||||||
| Transaction based revenue, net |
10,831 | — | 10,831 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total operating revenues, net |
153,013 | — | — | 153,013 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating expenses: |
||||||||||||||||||||
| Provision for unrecoverable advances |
32,174 | — | 32,174 | |||||||||||||||||
| Processing and servicing fees |
23,459 | — | 23,459 | |||||||||||||||||
| Advertising and marketing |
51,454 | — | 51,454 | |||||||||||||||||
| Compensation and benefits |
49,544 | — | 2,290 | 3DD | 51,834 | |||||||||||||||
| Other operating expenses |
43,260 | — | 43,260 | |||||||||||||||||
| Formation and operational costs |
— | 6,377 | 6,377 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total operating expenses |
199,891 | 6,377 | 2,290 | 208,558 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Other (income) expense: |
||||||||||||||||||||
| Interest income |
(287 | ) | — | 279 | 3FF | (8 | ) | |||||||||||||
| Interest expense |
2,545 | — | (12 | ) | 3BB | 2,482 | ||||||||||||||
| (51 | ) | 3HH | ||||||||||||||||||
| Legal settlement and litigation expenses |
1,667 | — | 1,667 | |||||||||||||||||
| Other strategic financing and transactional expenses |
264 | — | 264 | |||||||||||||||||
| Changes in fair value of derivative asset on loans to stockholders |
(34,791 | ) | — | 34,791 | 3EE | — | ||||||||||||||
| Changes in fair value of warrant liability |
3,620 | (3,062 | ) | (3,620 | ) | 3GG | (3,062 | ) | ||||||||||||
| Transaction costs allocated to warrant liabilities |
— | 601 | 601 | |||||||||||||||||
| Fair value of Private Placement Warrant liability in excess of proceeds received |
— | 1,377 | 1,377 | |||||||||||||||||
| Interest earned on marketable securities held in Trust Account |
— | (23 | ) | 23 | 3AA | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total other (income) expenses, net |
(26,982 | ) | (1,107 | ) | 31,410 | 3,321 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net loss before provision for income taxes |
(19,896 | ) | (5,270 | ) | (33,700 | ) | (58,866 | ) | ||||||||||||
| Provision for income tax |
97 | — | — | 3CC | $ | 97 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net loss |
$ | (19,993 | ) | $ | (5,270 | ) | $ | (33,700 | ) | $ | (58,963 | ) | ||||||||
| Net loss per share of common stock—basic and diluted |
$ | (0.15 | ) | |||||||||||||||||
| Weighted average shares of common stock outstanding—basic |
136,575,395 | |||||||||||||||||||
| Weighted average shares of common stock outstanding—diluted |
136,575,395 | |||||||||||||||||||
| Net loss per share—Class A common stock redeemable shares—basic and diluted |
$ | (0.19 | ) | $ | (0.16 | ) | ||||||||||||||
| Weighted average shares outstanding—Class A common stock redeemable shares—basic and diluted |
21,782,802 | 4 | 321,964,058 | |||||||||||||||||
| Net loss per share—Class B—basic and diluted |
$ | (0.19 | ) | |||||||||||||||||
| Weighted average shares outstanding—Class B—basic and diluted |
6,244,094 | |||||||||||||||||||
| Net loss per share—Class V—basic and diluted |
$ | (0.16 | ) | |||||||||||||||||
| Weighted average shares outstanding—Class V—basic and diluted |
4 | 48,450,639 | ||||||||||||||||||
See accompanying notes to unaudited pro forma combined financial information.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(in thousands, except share and per share data)
NOTE 1—BASIS OF PRESENTATION
The Business Combination is accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, VPCC is treated as the “accounting acquiree” and Dave as the “accounting acquirer” for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of Dave issuing shares for the net assets of VPCC, followed by a recapitalization. The net assets of VPCC are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Dave.
The unaudited pro forma combined balance sheet as of December 31, 2021 assumes that the Business Combination and related Transactions occurred on December 31, 2021. The unaudited pro forma combined statement of operations for the year ended December 31, 2021 gives pro forma effect to the Business Combination as if it had been completed on January 1, 2021. These periods are presented on the basis that Dave is the acquirer for accounting purposes.
The pro forma adjustments reflecting the consummation of the Business Combination and related Transactions are based on certain currently available information and certain assumptions and methodologies that Dave believes are reasonable under the circumstances. The unaudited pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. Dave believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination and related Transactions based on information available to management at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial information.
The unaudited pro forma combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. The unaudited pro forma combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination and related Transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the Combined Company. They should be read in conjunction with the historical financial statements and notes thereto of VPCC and Dave.
NOTE 2—ACCOUNTING POLICIES AND RECLASSIFICATIONS
Upon consummation of the Business Combination, management performed a comprehensive review of the two entities’ accounting policies. Based on its initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma combined financial information. As a result, the unaudited pro forma combined financial information does not assume any differences in accounting policies.
As part of the preparation of these unaudited pro forma combined financial statements, certain reclassifications were made to align VPCC’s financial statement presentation with that of Dave.
NOTE 3—ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information has been prepared to illustrate the effect of the Business Combination and related Transactions and has been prepared for informational purposes only.
The following unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Dave has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma combined financial information. Dave and VPCC have not had any historical relationship prior to the Business Combination. Affiliates of VPCC are lenders to Dave, however, there is no effect on the pro forma adjustments. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The pro forma combined provision for income taxes does not necessarily reflect the amounts that would have resulted had the Combined Company filed consolidated income tax returns during the periods presented. Dave has not reflected the income tax benefit in the pro forma statement of operations, as Dave does not believe that the income tax benefit is realizable and records a full valuation allowance against all deferred tax assets.
The unaudited pro forma combined financial statements do not reflect pro forma adjustments related to the recognition of the Founder Holder Earnout Shares because there is no net impact on stockholders’ equity on a pro forma combined basis.
The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma combined statement of operations are based upon the number of Dave’s shares outstanding, assuming the Business Combination and related Transactions occurred on January 1, 2021.
Adjustments to Unaudited Pro Forma Combined Balance Sheet
The adjustments included in the unaudited pro forma combined balance sheet as of December 31, 2021 are as follows:
| (A) | Reflects the reclassification of $253.8 million held in the Trust Account to cash and cash equivalents. |
| (B) | Reflects the reduction in cash and VPCC’s APIC in the amount of $224.2 million related to the redemptions. |
| (C) | Reflects the reclassification of VPCC’s Common Stock subject to possible redemption into permanent equity. |
| (D) | Reflected cash proceeds from the concurrent PIPE Investment in the amount of $195.0 million and corresponding offset to APIC, excluding the $15.0 million PIPE prefunding with Alameda Research. The total PIPE Investment including the prefunding was $210.0 million. |
| (E) | Reflects the conversion of approximately $0.7 million of Dave convertible notes and approximately $0.03 of accrued interest into fully vested shares of VPCC Common Stock. Using an estimated exchange ratio of 1.354388, the $0.72 million of Dave liabilities convert into approximately 225,331 shares of Combined Company Common Stock upon the consummation of the Business Combination. |
| (F) | Reflects the conversion of the Dave Preferred Stock into Dave Common Stock in accordance with the Merger Agreement. |
| (G) | Reflects the elimination of VPCC’s retained earnings and Dave’s par value of common shares upon consummation of the Business Combination. |
| (H) | Reflects an adjustment of approximately $30.1 million to reduce cash and approximately $5.1 million to reduced deferred offering costs for transaction costs incurred by VPCC and Dave in relation to the Business Combination and PIPE Investment, including advisory, banking, printing, legal and accounting services. As part of the Business Combination, approximately $35.3 million was determined to be equity issuance costs and offset to additional-paid-in-capital. |
| (I) | Reflects the conversion of approximately $15.1 million of Dave notes payable held at fair value related to the amended PIPE subscription agreement in August 2021 with Alameda Research into fully vested shares of VPCC common stock. |
| (J) | Reflects compensation expense of approximately $1.9 million recorded in additional-paid-in-capital and offset to accumulated deficit, related to Mr. Wilk’s stock options which vested upon closing of the Business Combination. The value of the stock options was estimated using a Monte Carlo simulation. This model requires the input of certain assumptions, including the risk-free interest rate, volatility, dividend yield and expected life. The options were granted in nine tranches each of which contain service, market and performance conditions. Vesting commences on the grant date, however, no compensation charges are recognized until the performance condition is probable upon the completion of the Business Combination. On the date of the Business Combination, there was a cumulative expense for the amount vested between the grant date and the date of the Business Combination. The cumulative stock-based compensation expense as of the date of the Business Combination was $1.9 million. See Note (DD) for further details. |
| (K) | Reflects the exercise of Dave call options in exchange for the forgiveness of the related loans to stockholders of approximately $14.5 million and related accrued interest receivable of $0.7 million. Dave reclassified the loan and derivative asset of approximately $35.3 million to APIC. See Note (EE) for further details. |
| (L) | Reflects the net share settlement of 1,664,394 Dave warrants issued in connection with the Senior Secured Debt Facility into 332,876 shares immediately prior to the Business Combination. Using the exchange ratio of 1.354388, the shares converted into approximately 450,843 VPCC shares on a post combination basis. The cashless exercise is treated as a reclassification of the warrant liability of $3.6 million to APIC, with no repurchase of common stock. |
| (M) | Reflects the recognition of Founder Holder shares as a liability in connection with the Business Combination. The Founder Holder Earnout Shares will be recognized at fair value upon the closing of the Business Combination and classified as a liability with a corresponding debit to APIC. |
Adjustments to Unaudited Pro Forma Combined Statement of Operations
The pro forma adjustments included in the unaudited pro forma combined statement of operations for the year ended December 31, 2021 are as follows:
| (AA) | Elimination of interest income and unrealized gain on the Trust Account. |
| (BB) | Elimination of interest expense of $0.01 million for the year ended December 31, 2021 related to Dave convertible debt that converted to Combined Company Common Stock upon the closing of the Business Combination. |
| (CC) | The net effect of all adjustments impacting the pro forma statement of operations results in a reduction of the income tax benefit of approximately $7.1 million for the year ended December 31, 2021 based on the application of the blended statutory tax rate of 21%. However, Dave has not reflected the income tax benefit in the pro forma statement of operations, as Dave does not believe that the income tax benefit is realizable and records a full valuation allowance against all deferred tax assets. |
| (DD) | Reflects compensation expense related to Mr. Wilk’s stock options. The value of the stock options was estimated using a Monte Carlo simulation. This model requires the input of certain assumptions, including the risk-free interest rate, volatility, dividend yield and expected life. The options were granted in nine tranches each of which contain service, market and performance conditions. Vesting commences on the grant date, however, no compensation charges are recognized until the performance condition is probable upon the completion of the Business Combination. On the date of the Business Combination, there was a cumulative expense for the amount vested between the grant date and the date of the Business Combination. Stock-based compensation expense for the year ended December 31, 2021 was approximately |
| $2.3 million, inclusive of a cumulative expense of approximately $1.9 million. The cumulative expense recognized is a non-recurring item. See NOTE (J) for further details. This is a non-recurring item. |
| (EE) | Reflects the elimination of historical changes in fair value of the call option of approximately $34.8 million for the year ended December 31, 2021. This is a non-recurring item. |
| (FF) | Elimination of interest income from the loans to stockholders related to the call option of approximately $0.3 million for the year ended December 31, 2021. |
| (GG) | Reflects the elimination of historical changes in fair value of the Dave warrant of approximately $3.6 million for the year ended December 31, 2021 upon exercise of the warrant immediately prior to the closing of the Business Combination. This is a non-recurring item. |
| (HH) | Reflects the elimination of historical changes in fair value of the Dave Note Payable of approximately $0.05 million for the year ended December 31, 2021. |
NOTE 4—EARNINGS PER SHARE
Represents the net earnings per share calculated under the two-class method using the historical weighted average outstanding shares and the issuance of additional shares in connection with the Business Combination and PIPE Investment, assuming the shares were outstanding since January 1, 2021. VPCC used the two-class method to compute net income per common share, because it had issued multiple classes of common stock. The two-class method requires earnings for the period to be allocated between multiple classes of common stock based upon their respective rights to receive distributed and undistributed earnings. As the Business Combination and PIPE Investment are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Business Combination and PIPE Investment have been outstanding for the entire period presented. If the maximum number of shares are redeemed, this calculation is retroactively adjusted to eliminate such shares for the entire period.
The unaudited pro forma combined financial information has been prepared for the year ended December 31, 2021:
| (in thousands, except share data) | ||||||||
| Redemptions | ||||||||
| Stockholders | Class A Shares | Class V Shares | ||||||
| Numerator |
||||||||
| Net loss (in thousands) |
$ | (51,250 | ) | $ | (7,712 | ) | ||
| Denominator (1) |
||||||||
| Former Dave stockholders and preferred stockholders |
294,188,227 | 48,450,639 | ||||||
| VPCC sponsor shares (2) |
3,806,491 | — | ||||||
| VPCC public stockholders |
2,958,831 | — | ||||||
| PIPE Investment |
21,000,000 | — | ||||||
|
|
|
|
|
|||||
| Total shares of Dave common stock outstanding at closing of the Transaction |
321,953,549 | 48,450,639 | ||||||
| Net loss per share |
||||||||
| Basic and diluted |
$ | (0.16 | ) | $ | (0.16 | ) | ||
| (1) | The denominator excludes the effect of the Founder Holder Earnout Shares due to the uncertainty related to the market vesting conditions. |
| (2) | Founder Shares excluding 951,622 shares of VPCC Class A Common Stock subject to forfeiture dependent on the number of redemptions (the “Founder Holder Contingent Closing Shares”). All Founder Holder Contingent Shares are forfeited as the net redemption percentage exceeded 35% per the merger agreement. |
VPCC had 6,344,150 Public Warrants and 5,100,214 Private Warrants outstanding as of December 31, 2021. Each VPCC Warrant entitles the holder to purchase one share of common stock at $11.50 per one share. These VPCC Warrants are not exercisable until (i) 30 days after the closing of the Business Combination or (ii) 12 months from the closing of the IPO. As the Combined Company is in a loss position in 2021, any shares issued upon exercise of these VPCC Warrants would have an anti-dilutive effect on earnings per share and, therefore, have not been considered in the calculation of pro forma net loss per common share.
Dave had Dave Warrants outstanding as of December 31, 2021. The Dave Warrants were exercisable for a variable number of shares determined by a fixed percentage of the outstanding equity upon achievement of specified thresholds of the aggregate amount of delayed draw term loans funded by the lenders. Each Dave Warrant entitled the holder to purchase one share of Dave Common Stock at a variable price per share. The 1,664,394 Dave Warrants were share settled immediately prior to Closing and are reflected in the table above. See Note (L) above for further details.
There were 24,407,476 Dave Options outstanding immediately after the Business Combination. As the Combined Company is in a loss position in 2021, any shares issued upon exercise of these Dave Options would have an anti-dilutive effect on earnings per share and, therefore, have not been considered in the calculation of pro forma net loss per common share.