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Item 9A. Controls and Procedures

2022-03-31 compared with 2021-03-18 · 676 added, 538 removed, 747 unchanged (62% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act ) as of the end of the period covered by this Annual Report on Form 10-K.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures .

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report , our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as our principal financial and accounting officer, to allow timely decisions regarding required disclosures.

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure.

The Chief Executive Officer and the Chief Financial Officer, as our principal financial and accounting officer, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K and, based on their evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting, described below.

Management’s Report on Internal Control Over Financial Reporting

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Management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to conduct an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021.

Management has excluded from its evaluation the internal control over financial

reporting of all current year acquisitions, which were included in the December 31, 2020 consolidated financial statements .

B ased on the assessment, management has concluded that, as of December 31, 2020, our internal control over financial reporting was effective.

As an emerging growth company, management’s assessment of internal control over financial reporting was not subject to attestation by our independent registered public accounting firm.

Management has excluded from its evaluation the internal control over financial reporting of all current year acquisitions, which were included in the December 31, 2021 consolidated financial statements.

A material weakness is a 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.

We identified three material weakness es in internal control over financial reporting as of December 31, 2021:

The first related to ineffective information technology general controls (ITGCs) in the areas of user access and segregation of duties over certain information technology (IT) systems that support the Company’s financial reporting processes.

Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.

We believe that these control deficiencies were a result of IT control processes lacking sufficient documentation such that the successful operation of ITGCs was overly dependent upon knowledge and experience of certain individuals within the Company.

The second related to ineffective controls in aggregate over parts inventory, including cycle counts, receiving controls, and monitoring of adjustments to inventory.

We believe that these control deficiencies were a result of inadequate policies and procedures and lack of training leading to the inconsistent control performance across our geographies.

The third related to ineffective controls in aggregate over the order-to-cash process, including proper review and authorization of pricing and discounts, work orders, sales agreements, and rental contracts.

We believe that these control deficiencies were a result of inadequate policies and procedures and lack of training leading to the inconsistent control performance across our geographies.

Based on the assessment and identification of the material weaknesses described above, management has concluded that, as of December 31, 2021, our internal control over financial reporting was not effective.

Our chief executive officer and principal financial officer have certified that, based on each such officer’s knowledge, the financial statements, and other financial information included in this Annual Report on Form 10-K, fairly present in all material respects our financial condition, results of operations, and cash flows as of, and for, the periods presented in this Annual Report on Form 10-K.

In addition, we have begun to develop a remediation plan for these material weaknesses, which is described below.

The effectiveness of our internal control over financial reporting has been audited by UHY LLP , an independent registered public accounting firm.

As stated in its report included herein, UHY LLP has issued an adverse audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively.

The remediation actions include:

For the material weakness over user access and segregation of duties;

(i) working with our enterprise resource planning (“ERP”) vendor to implement a specific system module to assist with the documentation and monitoring of user access and segregation of duties;

(ii) dedicating personnel, including management, to focus on successful and timely implementation of the aforementioned ERP module;

(iii) enhancing and expanding policies and procedures over the performance of user access reviews and the monitoring of segregation of duties;

(iv) developing a training program and educating control owners concerning the principles and requirements of each control related to user access and segregation of duties within IT systems impacting financial reporting.

For the material weakness over parts inventory;

(i) enhancing and expanding policies and procedures over the performance of controls around parts inventory, including cycle counts, receiving, and the monitoring of inventory adjustments;

(ii) developing a training program and educating personnel concerning the principles and requirements of each control impacting parts inventory;

(iii) dedicating personnel, including management, to focus on successful and timely development and implementation of the aforementioned policies, procedures, and training.

For the material weakness over order-to-cash;

(i) enhancing and expanding policies and procedures over the performance of controls around the sales process, across all lines of business;

(ii) developing a training program and educating personnel concerning the principles and requirements of each control impacting the sales cycle;

(iii) dedicating personnel, including management, to focus on successful and timely development and implementation of the aforementioned policies, procedures, and training.

We believe that these actions will remediate the material weaknesses.

The weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

While there can be no assurance that our efforts will be successful, we expect that the remediation of these material weaknesses will be completed prior to the end of fiscal 2022.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Except for the material weaknesses identified during the quarter, there was no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

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001-38864) filed by the Company on December 22, 2020) .

Fifth Amended and Restated ABL First Lien Credit Agreement, dated February 3, 2020, among the B.

Riley Principal Merger Corp., Alta Equipment Holdings, Inc., Alta Enterprises, LLC, Alta Construction Equipment Illinois, LLC, Alta Heavy Equipment Services, LLC, Alta Industrial Equipment Michigan, LLC, Alta Construction Equipment, L.L.C., Alta Industrial Equipment Company, L.L.C., NITCO, LLC, Alta Construction Equipment Florida, LLC, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on February 4, 2020).

Note Purchase Agreement, dated February 3, 2020, among B.

Bank National Association, as Administrative Agent (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on February 4, 2020).

Fifth Amended and Restated Floor Plan First Lien Credit Agreement, dated February 3, 2020, among B.

001-38864) filed by the Company on February 4, 2020).

Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on December 13, 2019).

Letter Agreement, dated April 8, 2019, by and among the Company, its officers, its directors and B.

Riley Principal Sponsor Co., LLC (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No.

Indenture, dated April 1, 2021, among the Company, the Guarantors listed therein and Wilmington Trust, National Association, as trustee and as collateral agent (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on April 5, 2021) .

Form of 5.625% Senior Secured Second Lien Notes due 2026 (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on April 5, 2021).

Form of 5.625% Senior Secured Second Lien Notes due 2026 (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on April 5, 2021) .

Registration Rights Agreement, dated April 8, 2019, by and among the Company, B.

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001- 38864) filed by the Company on February 14, 2020).

Sixth Amended and Restated ABL First Lien Credit Agreement, dated April 1, 2021, among Alta Equipment Group Inc., Alta Equipment Holdings, Inc., Alta Enterprises, LLC, Alta Construction Equipment Illinois, LLC, Alta Heavy Equipment Services, LLC, Alta Industrial Equipment Michigan, LLC, Alta Construction Equipment, L.L.C., Alta Industrial Equipment Company, L.L.C., NITCO, LLC, Alta Construction Equipment Florida, LLC, Alta Industrial Equipment New York, LLC, Alta Construction Equipment New York and PEAKLOGIX, LLC the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on April 11, 2019) .

Sixth Amended and Restated Floor Plan First Lien Credit Agreement, dated February 3, 2020, among Alta Equipment Group Inc., Alta Equipment Holdings, Inc., Alta Enterprises, LLC, Alta Construction Equipment Illinois, LLC, Alta Heavy Equipment Services, LLC, Alta Industrial Equipment Michigan, LLC, Alta Construction Equipment, L.L.C., Alta Industrial Equipment Company, L.L.C., NITCO, LLC, Alta Construction Equipment Florida, LLC, Alta Industrial Equipment New York, LLC, Alta Construction Equipment New York and PEAKLOGIX, LLC the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on April 11, 2019) .

Intercreditor Agreement, dated April 1, 2021, between JPMORGAN CHASE BANK, N.A., as Administrative Agent for the ABL First Lien Secured Parties, WILMINGTON TRUST, NATIONAL ASSOCIATION, as collateral agent for the Second Lien Secured Parties, and acknowledged by Alta Equipment Group Inc., Alta Equipment Holdings, Inc., Alta Enterprises, LLC, Alta Construction Equipment Illinois, LLC, Alta Heavy Equipment Services, LLC, Alta Industrial Equipment Michigan, LLC, Alta Construction Equipment, L.L.C., Alta Industrial Equipment Company, L.L.C., NITCO, LLC, Alta Construction Equipment Florida, LLC, Alta Industrial Equipment New York, LLC, Alta Construction Equipment New York, LLC and PEAKLOGIX, LLC (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on April 11, 2019) .

Letter Agreement, dated April 8, 2019, by and among the Company, its officers, its directors and B.

Riley Principal Sponsor Co., LLC (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No.

001-38864) filed by the Company on April 11, 2019).

Forward Purchase Agreement, dated April 8, 2019, by and between the Company and B.

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

Cover Page Interactive Data File (embedded within the Inline XBRL document)

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

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Chief Executive Officer and Director

Power of Attorney

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ryan Greenawalt and Tony Colucci, jointly and severally, their attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

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To the Board of Directors and

Stockholders of Alta Equipment Holdings Inc.

Stockholders of Alta Equipment Group Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Alta Equipment Group Inc.

and Subsidiaries (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of stockholders’ equity (deficit), operations, and cash flows for the years ended December 31, 2020 and 2019, 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 financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Alta Equipment Group Inc.

and Subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, 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 financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 31, 2022, expressed an adverse opinion.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, 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 that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

As disclosed in Note 12 of the consolidated financial statements, the Company leases its operating branch facilities and fleet of service vehicles.

Auditing management’s accounting and presentation for leases was especially complex and challenging as the Company’s right-of-use assets and lease liabilities totaled $104 million and $106 million, respectively, at the date of adoption of ASC 842, Leases.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process for determining the classification, valuation and completeness of the right-of-use assets and lease liabilities.

Such controls include management’s review of the completeness of the population of leases, including lease modifications, verification of the accuracy of the computation of the right-of-use asset and lease liability, including the determination of the incremental borrowing rate.

We tested the completeness of the lease population through evidence obtained from Company personnel and an assessment of leases on a location-by-location basis based upon our understanding of the Company’s branches and master lease agreements.

For a sample of leases, we performed audit procedures that included, testing the accuracy of data used in the calculation of the right-of-use asset and lease liability, by agreeing the underlying inputs, such as lease term and payment terms to source documents.

We evaluated key assumptions and methodologies used in the Company’s selection of the incremental borrowing rate by developing a comparative calculation.

We have served as the Company’s auditor since 2019.

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March 31, 2022

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of Alta Equipment Group Inc.

and Subsidiaries

Adverse Opinion on Internal Control over Financial Reporting

We have audited Alta Equipment Group Inc.

and Subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control---Integrated Framework (2013) issued by COSO.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management’s assessment:

The Company had ineffective information technology general controls (ITGCs) in aggregate over systems that support the Company’s financial reporting processes in the areas of user access and segregation of duties conflicts.

These items were pervasive due to a system limitation and included access to master files and initiating, authorizing, and recording transactions.

The Company had ineffective controls in aggregate over inventory related to cycle counting of parts inventory, including review and approval of adjustments to inventory, and ensuring timely receipt and validation of parts inventory received.

The Company had ineffective controls in aggregate over the order-to-cash process, including proper review and authorization of pricing and discounts, work orders, sales agreements, and rental contracts.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report dated March 31, 2022, on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and the related statements of operations, stockholders’ equity, and cash flows of the Company, and our report dated March 31, 2022, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Assessment of Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

To the Board of Directors and

Stockholders of Alta Equipment Group Inc.

and Subsidiaries

As indicated in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the entities that were acquired by the Company during 2021 (the “2021 Acquisitions”), which are included in the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of operations, cash flows and changes in stockholders’ equity for the year then ended.

The 2021 Acquisitions’ net revenue represented approximately two percent of consolidated net revenue for the year ended December 31, 2021.

As of December 31, 2021, the 2021 Acquisitions’ total assets represented approximately nine percent of consolidated total assets.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the 2021 Acquisitions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Sterling Heights, Michigan

March 31, 2022

ALTA EQUIPMENT GROUP INC.

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CURRENT ASSETS

Accounts receivable, net

Accounts receivable, net of allowances of $ 10.7 and $ 7.1 as of December 31, 2021 and December 31, 2020, respectively

Inventories, net

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PROPERTY AND EQUIPMENT, NET

OPERATING LEASE RIGHT-OF-USE ASSETS, NET

Intangible assets, net

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Lines of credit

Lines of credit, net

Floor plan payable – new equipment

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Accrued expenses

Current operating lease liabilities

Other current liabilities

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Long-term debt, net of current portion

Capital lease obligations, net of current portion

Buyback residual obligations, net of current portion

Guaranteed purchase obligation, net of current portion

Lease liability, net of current portion

Finance lease obligations, net of current portion

Deferred revenue, net of current portion

Guaranteed purchase obligations, net of current portion

Long-term operating lease liabilities

Other liabilities

Warrant liability

Deferred tax liability

TOTAL LIABILITIES

STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred stock, $0.0001 par value, 1,000,000 shares authorized, 1,200,000 Depositary Shares representing a 1/1000th fractional interest in a share of 10% Series A Cumulative Perpetual Preferred Stock, $0.0001 par value per share, issued and outstanding at December 31, 2020, no shares issued and outstanding at December 31, 2019

CONTINGENCIES - NOTE 14

STOCKHOLDERS’ EQUITY

Preferred stock, $ 0.0001 par value, 1,000,000 shares authorized, 1,200,000 Depositary Shares representing a 1/1000th fractional interest in a share of 10 % Series A Cumulative Perpetual Preferred Stock, $ 0.0001 par value per share, issued and outstanding at December 31, 2021 and December 31, 2020

Common stock, $ 0.0001 par value, 200,000,000 shares authorized;

30,018,502 issued and outstanding at December 31, 2020, $0.01 par value, 7,300,000 issued and outstanding at December 31, 2019

32,363,376 issued and outstanding at December 31, 2021, 30,018,502 issued and outstanding at December 31, 2020

Additional paid-in capital

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Accumulated deficit

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of these consolidated financial statements.

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AND SUBSIDIARIES

CONSOLIDATED S TATEMENTS OF OPERATIONS

Years ended December 31,

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

(in millions, except share and per share amounts)

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Total general and administrative expenses

(Loss) income from operations

Other income (expense)

Income (loss) from operations

Other (expense) income

Interest expense, floor plan payable – new equipment

Interest expense – other

Change in fair market value of warrants

Loss on extinguishment of debt

Total other income (expense)

Total other (expense) income

Loss before taxes

Income tax benefit

Basic and diluted loss per share

Basic and diluted weighted average common shares outstanding

Income tax provision (benefit)

Preferred stock dividends

Net loss available to common shareholders

Basic loss per share

Diluted loss per share

Basic weighted average common shares outstanding

Diluted weighted average common shares outstanding

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2021 and 2020

Preferred Stock

(amounts in millions, except share amounts)

Accumulated Deficit

Stockholder’s

Treasury Stock

Stockholders'

Equity (Deficit)

Balance at January 1, 2019

Balance at December 31, 2019

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Balance at December 31, 2020

Dividends on preferred stock

Share based compensation

Warrants exchanged into common stock

Issuance of restricted stock units to employees

Balance at December 31, 2021

The accompanying notes are an integral part of these consolidated financial statements.

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AND SUBSIDIARIES

CONSOLIDATED S TATEMENTS OF CASH FLOWS

Years Ended December 31,

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

(amounts in millions)

OPERATING ACTIVITIES

Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:

Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:

Depreciation and amortization

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Loss on debt extinguishment

(Repayment) accrual of paid-in-kind interest

Change in fair value of warrants

Share-based payment

Changes in deferred rent

Share based compensation

Repayment of paid-in-kind interest

Changes in deferred taxes

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Accounts payable, accrued expenses, customer deposits, and other current liabilities

Leases and other liabilities

Net cash used in operating activities

Leases, deferred revenue and other liabilities

Net cash provided by (used in) operating activities

INVESTING ACTIVITIES

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Expenditures for property and equipment

Expenditures for guaranteed purchase obligations

Expenditures for acquisitions, net of cash acquired

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Proceeds from issuance of long-term debt, net

Proceeds from issuance of notes

Preferred dividends paid

Payment of promissory note

Payments on long-term debt

Payments on capital lease obligations

Payments on finance lease obligations

Equity proceeds from reverse recapitalization, net

Proceeds from disgorgement of short swing profits

Proceeds from issuance of common stock, net

Proceeds from issuance of preferred stock, net

Proceeds from disgorgement of short swing profits

Repurchases of common stock

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Cash, Beginning of year

Cash, End of year

Cash, End of period

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest

Non-cash investing and financing activities:

Equipment acquired through capital lease

The accompanying notes are an integral part of these consolidated financial statements.

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Alta Equipment Group Inc.

(formerly known as B.

Riley Principal Merger Corp.) (individually or as sometimes collectively together with its direct and indirect subsidiaries referred to herein as the “Company”), was incorporated in Delaware on October 30, 2018 as a blank check company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.

On February 14, 2020, the Company consummated a reverse recapitalization pursuant to which the Company acquired Alta Equipment Holdings, Inc.

pursuant to an agreement and plan of merger between the Company, BR Canyon Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Alta Equipment Holdings, Inc.

and Ryan Greenawalt.

This business merger will be referred to as “reverse recapitalization” throughout this document.

In connection with the reverse recapitalization, Merger Sub merged with and into Alta Equipment Holdings, Inc., with Alta Equipment Holdings, Inc.

surviving the reverse recapitalization as a direct, wholly owned subsidiary of the Company, and the Company changed its name from B.

Riley Principal Merger Corp.

to Alta Equipment Group Inc.

The Company and Alta Equipment Holdings, Inc.

are the holding companies for Alta Enterprises, LLC.

and its subsidiaries (“Alta” or the “Company”) is engaged in the retail sale, service, and rental of material handling and construction equipment in the states of Michigan, Illinois, Indiana, Ohio, New York (including New York City in our Material Handling segment), Virginia and Florida as well as the New England region (including Boston) of the United States.

Alta Equipment Holdings, Inc.

is the holding company for Alta Enterprises, LLC.

Alta Enterprises, LLC is the holding company for Alta Industrial Equipment Michigan;

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PeakLogix, LLC;

Alta Material Handling New York State, LLC;

Alta Construction Equipment, LLC;

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Alta Heavy Equipment Services, LLC;

Alta Construction Equipment Florida, LLC, and Alta Construction Equipment New York, LLC.

The Company is engaged in the retail sale, service, and rental of lift trucks and construction equipment in the states of Michigan, Illinois, Indiana, Virginia and Florida as well as the Northeastern part of the United States.

Alta Construction Equipment Florida, LLC;

Alta Construction Equipment Ohio, LLC;

Alta Construction Equipment New England, LLC;

Alta Mine Services, LLC;

and Alta Construction Equipment New York, LLC.

Alta Construction Equipment, LLC is the holding company for Alta Kubota Michigan, LLC which is the holding company of Ginop Sales, Inc.

Unless the context otherwise requires, the use of the terms “the Company”, “we,” “us,” and “our” in these notes to the unaudited consolidated financial statements refers to Alta Equipment Group Inc.

and its consolidated subsidiaries.

The COVID-19 pandemic has created significant volatility in the global economy and resulted in significant disruptions to our business in the year ended December 31, 2020.

The extent and duration of the COVID-19 impact on our operations and financial position, and on the domestic and global economy, remain uncertain.

Prior to mid-March 2020, our performance was generally in accordance with our expectations.

In mid-March 2020, the Company started to see a slowdown in its business activity, initially and primarily in the automotive industry and in the state of Michigan due to its customers being impacted by the COVID-19 pandemic.

COVID-19 is discussed in more detail throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Concentration of Supplier Risk

The Company purchases a significant portion of their inventory and related equipment and rental fleet from two vendors.

The Company purchases a significant portion of their new equipment and parts inventory and rental fleet from two vendors.

The Company purchased approximately 35 % and 40 % of total purchases from these vendors for the years ended December 31, 2021 and 2020, respectively.

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At December 31, 2021 and 2020, the Company has recorded an allowance for doubtful accounts in the amount of $ 10.7 million and $ 7.1 million, respectively.

Generally, the Company does not require collateral for its accounts receivable.

A receivable is considered past due if payments have not been received by the Company for 30 days.

Although generally no collateral is required, when feasible, mechanics’ liens are filed, and personal guarantees are signed to protect the Company’s interests.

A receivable is considered past due if payments have not been received by the Company based on established customer payment terms.

At that time, the Company will review all past due accounts and determine what action to take.

Certain accounts are turned over to collection, while the Company places liens on others.

Certain accounts are turned over to collection agencies, while the Company places liens and pursues a variety of other collection strategies on others.

Accounts will be written off when deemed uncollectible by management.

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This inventory is carried at the cost of the equipment less any accumulated depreciation.

At December 31, 2020 and 2019, the Company recorded a reserve for slow moving parts, tires and used equipment inventory in the amount of $2.9 million and $1.9 million, respectively.

At December 31, 2021 and 2020, the Company recorded a reserve for slow moving and obsolete parts, tires, and used equipment inventory in the amount of $ 3.5 million and $ 2.9 million, respectively.

Property and Equipment

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The Company assigns useful lives to property and equipment categories as follows:

Transportation equipment

Machinery and equipment

Transportation equipment (autos and trucks)

Machinery and equipment including rental fleet

Office equipment

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Intangible assets with a finite life consist of customer relationships, non-compete agreements, tradenames and favorable market rent and are carried at cost less accumulated amortization.

During the 4 th quarter of 2021, the Company reassessed the useful lives of our intangible assets acquired from recent acquisitions.

Given our recent rebranding efforts, the Company shortened the remaining

useful lives of some tradename intangible assets resulting in accelerated amortization in the 4 th quarter of 2021 and beyond.

The estimated useful lives of the definite lived intangible assets are as follows:

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Non-compete agreements

Favorable market rent

Depreciation and Amortization

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The useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate.

Depreciation and amortization expense related to non-operational property and equipment and rental fleet is recognized in “general administrative expenses” and “cost of revenues”, respectively, in the Consolidated Statements of Operations.

Depreciation and amortization expense related to non-revenue generating property and equipment and revenue-generating rental fleet is recognized in “general administrative expenses” and “cost of revenues”, respectively, in the Consolidated Statements of Operations.

The Company amortizes the cost of identified intangible assets on a straight-line basis over the expected period of benefit.

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When reviewing long-lived assets for impairment, the Company groups long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

The Company did not identify any impairment of long-lived assets for the years ended December 31, 2020 and 2019.

Pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 350, Intangibles-Goodwill and Other (“ASC 350”), goodwill is recorded as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.

The Company did no t identify any impairment of long-lived assets for the years ended December 31, 2021 and 2020.

Pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other (“ASC 350”), goodwill is recorded as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.

We estimate the fair value of our reporting units (which are our reportable segments) using a discounted cash flow methodology under an income approach, corroborating the results with a market approach-based guideline-company methodology which analyzes the enterprise value (market capitalization plus interest-bearing liabilities) and operating metrics (e.g., EBITDA) of companies engaged in the same or similar line of business and compares those metrics to those of the Company.

We believe the combination of these valuation approach es , yields the most appropriate evidence of fair value.

We believe the combination of these valuation approaches, yields the most appropriate evidence of fair value.

A decrease in our EBITDA could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to our financial position and results of operations.

The Company may first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test.

If a quantitative impairment test is performed, the fair value of the reporting unit is estimated using a market approach based on published earnings multiples of comparable entities with similar operations and economic characteristics as well as acquisition multiples paid in recent transactions.

Our annual goodwill impairment testing conducted as of September 30, 2020, indicated that all of our reporting units had estimated fair values which exceeded their respective carrying amounts.

Our goodwill impairment testing as of December 31, 2019, indicated that all of our reporting units had estimated fair values which exceeded their respective carrying amounts.

Based on the results of the test, there was no goodwill impairment.

If a quantitative impairment test is performed, the fair value of the reporting unit is estimated using the valuation approach previously described.

While the Company does not believe a qualitative assessment would have triggered the required quantitative assessment, a quantitative assessment was performed nonetheless.

Our annual goodwill impairment testing conducted as of September 30 , 2021, indicated that our reporting units had estimated fair values which exceeded their respective carrying amounts.

Our goodwill impairment testing as of September 30 , 2020, indicated that our reporting units had estimated fair values which exceeded their respective carrying amounts.

Based on the results of the test s , there was no goodwill impairment.

Deferred Financing Costs and Debt Discount

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Deferred financing costs and debt discounts with an original cost of $ 9.3 million and $ 9.8 million at December 31, 2021 and 2020, respectively, and accumulated amortization of $ 1.9 million and $ 1.8 million at December 31, 2021 and 2020, respectively, have been deferred.

Amortization of these deferred costs was $1.8 million and $1.0 million at December 31, 2020 and 2019, respectively, and is included in interest expense in the accompanying Consolidated Statements of Operations.

Amortization of deferred costs was $ 2.0 million and $ 1.8 million at December 31, 2021 and 2020, respectively, and is included in interest expense in the accompanying Consolidated Statements of Operations.

Revenue Recognition

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In some cases, the Company provides a guarantee to repurchase the equipment back at the end of the lease term between the customer and third-party lessee at a set residual amount set forth in the initial sales contract or pay the customer for the deficiency, if any, between the sale proceeds received for the equipment and the guaranteed minimum resale value.

The Company is precluded from recognizing a sale of equipment if it guarantees to repurchase the sold equipment back or guarantees the resale value of the equipment to the customer for contracts determined to be operating leases.

Rather, these transactions are accounted for in accordance with ASC 840, Lease Accounting (“Topic 840”).

Lease liability, with respect to the aforementioned sale transactions, represents the net proceeds upon the equipment’s initial transfer.

The Company is precluded from recognizing a sale of equipment if it guarantees to repurchase the sold equipment back or guarantees the resale value of the equipment.

Rather, these transactions are accounted for in accordance with ASC 842, Leases (“ASC 842”) for 2021 and ASC 840, Leases (“ASC 840”) for 2020.

Deferred revenue, with respect to the aforementioned sale transactions, represents the net proceeds upon the equipment’s initial transfer.

These amounts, excluding the guaranteed residual value, are recognized into rental revenue on a pro-rata basis over the leased contract period up to the first exercise date of the guarantee.

At December 31, 2020 and 2019, the total lease liability relating to these various equipment sale transactions amounted to $3.8 million and $5.5 million, respectively.

The Company also recognized a liability for its guarantee to repurchase the equipment at the residual amounts of $9.0 million and $12.5 million as of December 31, 2020 and 2019, respectively.

At December 31, 2021 and 2020, the total deferred revenue relating to these various equipment sale transactions amounted to $ 2.9 million and $ 3.8 million, respectively.

The Company also recognized a liability for its guarantee to repurchase the equipment at the residual amounts of $ 7.2 million and $ 9.0 million as of December 31, 2021 and 2020.

The Company also enters into various rental agreements whereby owned equipment is leased to customers.

Revenue from the majority of rental agreements is recognized over the term of the agreement in accordance with Topic 840.

Revenue from the majority of rental agreements is recognized over the term of the agreement in accordance with ASC 840 for 2020 and ASC 842 for 2021.

A rental contract includes rates for daily, weekly, or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding.

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Rental revenue and revenue attributable to rental conversions, are recognized in “Rental revenue” and “Rental equipment sales” on the Consolidated Statements of Operations, respectively.

T he Company recognizes deferred revenue with respect to automated equipment installation and system integration services, service maintenance contracts and equipment rental agreements.

Deferred revenue with respect to service sales represents the unearned portion of fees related to guaranteed maintenance contracts for customers covering equipment previously purchased.

amounts are recognized based on an estimated rate at which the services are provided over the life of the contract.

The Company also recognizes deferred revenue related to rental agreements.

Total deferred revenue relating to automated equipment installation and system integration services, service maintenance contracts and equipment rental agreements as of December 31, 2021 and 2020 was $ 16.5 million and $ 9.6 million, respectively.

Revenue from periodic maintenance service sales is recognized upon completion of the service.

Revenue from guaranteed maintenance contracts is recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract, typically three to five years .

The Company also enters into contracts with customers where it provides automated equipment installation and system integration services.

Revenue from the installation services are recognized over time as the performance obligation is satisfied, determined using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs.

The Company also enters into sales contracts with customers where it provides automated equipment installation and system integration services and installation and set-up of warehouse management systems and related hardware and software support services.

Revenues from these sales contracts are recognized over time as the performance obligation is satisfied, determined using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs.

Revenue from recurring support services is recognized ratably over the contract period.

Payment terms vary by the type and location of the customer and the products or services offered.

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The Company does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year, or if payment is expected to be received less than a year after the good or service has been provided.

Sales and other taxes collected from customers and remitted to government authorities are accounted for on a net basis and, therefore, excluded from revenue.

Sales and other taxes collected from customers and remitted to government authorities are accounted for on a net basis and, therefore, are excluded from revenue.

Shipping and handling costs are treated as fulfillment costs and are included in cost of revenue.

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Under bill-and-hold arrangements, revenue is recognized when all configuration work is complete and the equipment has been set aside for final shipment, at which point the Company has determined control has been transferred.

Deferred Revenue

T he Company recognizes deferred revenue with respect to automated equipment installation and system integration services, service sales and rental agreements.

Deferred revenue with respect to service sales represents the unearned portion of fees related to guaranteed maintenance contracts for customers covering equipment purchased.

These amounts are recognized based on an estimated rate at which the services are provided over the life of the contract.

The Company also recognizes deferred revenue related to rental agreements.

Total deferred revenue relating to automated equipment installation and system integration services, service sales agreements and rental agreements as of December 31, 2020 and 2019 was $9.6 million and $4.7 million, respectively.

Advertising and Marketing

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Offering Costs and Transaction Expenses

The Company incurred costs directly attributable to its initial public offering, such as underwriter, registration and filing fees along with direct incremental legal, accounting, and professional fees relating to the Business Combination.

The Company evaluated all the fees and approximately $ 2.6 million of expenses were recorded as an offset against proceeds of the reverse recapitalization.

As of December 31, 2019, there were $0.7 million deferred as prepaid expenses and other current assets in our accompanying Consolidated Balance Sheets.

These were deferred until completion of the reverse recapitalization, at which time $0.4 million were reclassified to additional paid-in capital as a reduction of the proceeds.

On November 3, 2020, the Company had declared effective a registration statement on Form S-1 covering the resale of 507,143 shares of the Company’s common stock issued as partial consideration for the acquisition of Howell Tractor and Equipment, LLC.

The Company incurred direct and incremental legal, accounting, and professional fees related to the registration of these shares of approximately $ 0.2 million.

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The Company evaluated all the fees and approximately $ 1.8 million of expenses were recorded as an offset against proceeds from the depositary shares.

Recurring and other incremental organizational costs including accounting and legal fees that were not directly attributable to these offerings were expensed as incurred.

The Company is a newly formed corporation for the income tax purposes.

Recurring and other incremental corporate costs including accounting and legal fees that were not directly attributable to these offerings were expensed as incurred.

The Company is a newly formed corporation in 2020 for income tax purposes.

Alta Enterprises, LLC was historically and remains a partnership for federal income tax purposes, with each partner being separately taxed on its share of taxable income (loss).

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and Subsidiaries”), and the deferred impact of the interest in the lower tier partnership.

When looking at the consolidated return filer, and considering the operating entity is a 100% owned partnership, the Company uses the guidance in FASB ASC Topic 740 - Income Taxes, asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (ii) operating loss and tax credit carryforwards.

As it relates to being a c onsolidated r eturn filer, and considering the operating entity is a 100 % owned partnership, the Company uses the guidance in FASB ASC 740 - Income Taxes, asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (ii) operating loss and tax credit carryforwards.

Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled.

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Business Combinations

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values.

The assets acquired, liabilities assumed, and contingent purchase consideration are recorded at fair value on the acquisition date.

These estimates are inherently uncertain and are subject to refinement.

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed (including contingent purchase consideration), and intangible assets acquired based on their estimated fair values on the acquisition date.

Management develops estimates based on assumptions as part of the purchase price allocation process to value the assets acquired, and liabilities assumed as of the acquisition date.

These estimates are inherently uncertain and are subject to refinement.

As a result, during the preliminary purchase price measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

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Segment Reporting

The Company has determined in accordance with ASC 280, Segment Reporting (“Topic 280”), that it has two reportable segments:

The Company has determined in accordance with ASC 280, Segment Reporting (“ASC 280”), that it has two reportable segments:

1) Material Handling and 2) Construction Equipment.

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See Note 22 regarding segment information.

S hare Based Compensation

Share Based Compensation

The Board of Directors approved the Company’s 2020 Omnibus Incentive Plan, which enables the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other share based awards and cash awards to directors, employees and consultants to improve the ability of the Company to attract, retain, and motivate individuals upon whom the Company’s sustained growth and financial success depend, by providing such persons with an opportunity to acquire or increase their proprietary interest in the Company.

We measure the employee stock-based awards at grant-date fair value using provisions of ASC 718 – Stock Compensation and record compensation expense over the vesting period of the award.

The Company made an accounting election upon adoption of Accounting Standard Update (“ASU”) 2016-09 and will recognize forfeitures when they occur .

The Company treated equity awards granted to non-employee directors similarly to the equity awards to employees upon adoption of ASU 2018-07.

The Company made an accounting election based upon the adoption of Accounting Standard Update (“ASU”) 2016-09 and will recognize forfeitures when they occur.

The Company treated equity awards granted to non-employee directors similarly to the equity awards to employees based upon the adoption of ASU 2018-07.

New Accounting Pronouncements

Recent Accounting Pronouncements Adopted in 2021

Fair Value Measurement — Disclosure Framework

In August 2018, the FASB issued ASU No.

2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, modifies, and adds certain disclosure requirements on fair value measurements.

Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

For public companies, this ASU is effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted.

Entities were permitted to early adopt any eliminated or amended disclosures and delay adoption of the additional disclosure requirements until the effective date.

We adopted this ASU on the effective date of January 1, 2020.

The adoption of this accounting standard update has not had a material impact on our consolidated financial statements and disclosures.

The new ASC 842, Leases , is effective for the annual reporting period ended December 31, 2021, with an effective date of January 1, 2021, and the interim reporting periods beginning January 1, 2022.

The Company adopted ASC 842 and all related amendments using the modified retrospective method whereby the cumulative effect of adopting the standard was recognized in equity at the date of initial application and ASC 842 applies to all leases existing at, or entered into after, January 1, 2021.

Comparative information has not been restated for 2020 and continues to be reported under the accounting standards in effect for that period.

Comparative information in subsequent quarterly filings in 2022 will recast 2021 results to reflect the adoption of ASC 842.

Lessor Accounting

Our equipment rental business involves rental contracts with customers whereby we are the lessor in the transaction and therefore, we believe that such transactions are subject to ASC 842.

We account for such rental contracts as operating leases pursuant to ASC 842, as well as pursuant to the previous lease accounting guidance (ASC 840) in effect for the periods prior to the effective date of ASC 842.

There was no material impact on the Company’s consolidated income statement from the adoption of ASC 842 as of January 1, 2021 as a lessor.

Lessee Accounting

The most prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities for all leases (except for short-term leases).

The Company made a policy election for all asset classes to exclude the balance sheet recognition of leases with a lease term, at lease commencement, of 12 months or less and no purchase option reasonably certain to be exercised.

The standard also requires additional disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from lease transactions.

The new standard resulted in a material increase in right-of-use assets and lease liabilities on the Company’s consolidated balance sheet beginning in 2021.

There was no material impact on the Company’s consolidated income statement and consolidated statement of cash flows from the adoption of ASC 842 as of January 1, 2021 as a lessee.

The difference between the lease assets and lease liabilities was recorded as an adjustment to the opening balance of retained earnings.

The cumulative effects of the changes made to the Company’s consolidated balance sheet as of January 1, 2021 were as follows:

Balance as of December 31, 2020

Adjustments due to adoption of ASC 842

Balance as of January 1, 2021

Prepaid expenses and other current assets

Operating lease right-of-use assets

Property and equipment, net

Intangible assets, net

Other current liabilities

Current operating lease liabilities

Other liabilities

Long-term operating lease liabilities

Finance lease liabilities were included in Other current liabilities and Other liabilities in the Consolidated Balance Sheet as of December 31, 2020 and are now included in Current portion of long-term debt and Long-term debt, net of current portion as of December 31, 2021.

The Company elected the package of practical expedients on existing leases as of the effective date which permits the Company to carry forward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs.

The Company did not elect the hindsight practical expedient.

Additionally, the Company elected the practical expedient to not reassess whether any expired or existing land easements contain leases.

Reference Rate Reform:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC 848)

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC 848) .

This guidance is intended to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met.

The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

The amendments of this ASU became effective for the Company during 2021 and apply on

a prospective basis.

Our exposure related to the cessation of LIBOR is limited to the interest expense we incur on our Credit Facilit ies .

The impact of the transition from LIBOR to alternative reference interest rates (e.g., Secured Overnight Financing Rate “SOFR”) was not material on our consolidated financial position and results of operations.

Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”) that replaces the existing leasing guidance.

Topic 842 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases.

Accounting guidance for lessors is largely unchanged.

The Company is still assessing the impact Topic 842 will have on its future revenue and expenses.

The new accounting standard is effective for the annual reporting period ended December 31, 2022 with an effective date of January 1, 2022, and the interim reporting periods beginning January 1, 2023.

Early adoption is permitted.

Management is currently assessing the impact the adoption of this standard will have on the Company’s consolidated financial statements as well as the available transition methods.

Financial Instruments — Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (ASC 326):

Measurement of Credit Losses on Financial Instruments .

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The Company is currently evaluating whether the new guidance, while limited to our non-operating lease trade receivables, will have an impact on the consolidated financial statements or existing internal controls.

Reference Rate Reform:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848) .

The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

The amendments of this ASU should be applied on a prospective basis.

Our potential exposure related to the expected cessation of LIBOR is limited to the interest expense we incur on our Credit Facility.

We are currently evaluating the impact of the transition from LIBOR to alternative reference interest rates.

We cannot predict the effect of the potential changes to or elimination of LIBOR, the establishment and use of alternative rates or benchmarks, but do not expect a significant impact on our consolidated financial position, and results of operations .

NOTE 3 — REVENUE RECOGNITION

We recognize revenue in accordance with two different accounting standards:

1) Topic 606 (which addresses revenue from contracts with customers) and 2) Topic 840 (which addresses lease revenue).

Under Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the business expects to be entitled to in exchange for those goods or services.

1) ASC 606 (which addresses revenue from contracts with customers) and 2) ASC 840 in 2020 and ASC 842 in 2021 (which addresses lease revenue).

Under ASC 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the business expects to be entitled to in exchange for those goods or services.

Control is transferred when the customer has the ability to direct the use of and obtain the benefits from the goods or services.

The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer.

For agreements with multiple performance obligations, which are rare, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes.

For agreements with multiple performance obligations, which are infrequent, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes.

In these types of agreements, the Company generally allocates sales prices to each distinct performance obligation based on the observable selling price.

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The following table summarizes the Company’s disaggregated revenues as presented in the Consolidated Statement of Operations for the year ended December 31, 2021 and 2020 by revenue type, and by the applicable accounting standard.

Year ended December 31, 2020

Year ended December 31, 2019

December 31, 2021

December 31, 2020

New and used equipment sales

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Rental equipment sales

The 2019 presentation conforms with our 2020 presentation.

The Company believes that the disaggregation of revenues from contracts to customers as summarized above, together with the discussion below, depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by economic factors.

Leases revenues (Topic 840)

Leases revenues (ASC 840 in 2020 and ASC 842 in 2021)

New and used equipment sales:

The Company enters into various equipment sale transactions with certain customers, whereby customers purchase equipment from the Company and then lease the equipment to a third party.

In some cases, the Company provides a guarantee to repurchase the equipment back at the end of the lease term between the customer and third party lessee at a set residual amount set forth in the initial sales contract or pay the customer for the deficiency, if any, between the sale proceeds received for the equipment and the guaranteed minimum resale value.

In some cases, the Company provides a guarantee to repurchase the equipment back at the end of the lease term between the customer and third-party lessee at a set residual

amount set forth in the initial sales contract or pay the customer for the deficiency, if any, between the sale proceeds received for the equipment and the guaranteed minimum resale value.

The Company is precluded from recognizing a sale of equipment when it is obligated or has an option to repurchase or guarantees the resale value of the equipment to the customer for contracts determined to be operating leases.

For these arrangements, because the Company generally receives the full amount of the consideration at the beginning of the arrangement, the Company initially records deferred revenue for the amount received and recognizes revenue on a pro-rata basis over the term of the contract under Topic 840.

Rental revenue:

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Because the rental contracts can extend across multiple reporting periods, the Company records unbilled rental revenues and deferred rental revenues at the end of each reporting period.

Revenues from contracts with customers (Topic 606)

Accounting for the different types of revenues pursuant to Topic 606 are discussed below.

Substantially all of the Company’s revenues under Topic 606 are recognized at a point in time rather than over time.

The adoption of ASC 842 in 2021 did not have a material impact on how lease revenues are recorded by the Company.

Revenues from contracts with customers (ASC 606)

Accounting for the different types of revenues pursuant to ASC 606 are discussed below.

Substantially all of the Company’s revenues under ASC 606 are recognized at a point in time rather than over time.

New and used equipment sales:

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The bill-and-hold arrangements primarily apply to sales when physical shipment of heavy equipment to the customer is prohibited by law (e.g.

frost laws) or requested by the customer due to their inability to arrange freight simultaneous to revenue being recognized, both are limited circumstances.

The customer equipment sold under a bill-and-hold arrangement is physically separated from Company inventory and that equipment cannot be used by Alta or sold to another customer.

The Company does not offer material rights of return.

The Company recognized approximately $14.9 million in revenues for the year-to-date period ended December 31, 2020 from automated equipment installation and system integration services as performance obligations were satisfied over time using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs.

The Company recognized approximately $ 55.9 million and $ 14.9 million in revenues for the years ended December 31, 2021 and 2020, respectively, from automated equipment installation and system integration services as performance obligations were satisfied over time using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs.

Revenues from the sale of parts are recognized at the time of pick-up by the customer for over-the-counter sales transactions.

For parts that are shipped to a customer, the Company elected to use a practical expedient of Topic 606 and treat such shipping activities as fulfillment costs, thereby recognizing revenues at the time of shipment.

For parts sold in connection with the performance of a service, revenue is recognized simultaneously with the associated service revenue.

For parts that are shipped to a customer, the Company elected to use a practical expedient of ASC 606 and treat such shipping activities as fulfillment costs, thereby recognizing revenues at the time of shipment.

The Company does not offer material rights of return.

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The Company recognizes guaranteed maintenance service revenues over-time using an input method of costs incurred to estimated costs over the life of the related contract.

Revenue recognized from guaranteed maintenance contracts totaled $16.4 million and $15.7 million for the year-to-date period ended December 31, 2020 and 2019, respectively.

Revenue recognized from guaranteed maintenance contracts totaled $ 18.8 million and $ 16.4 million for the years ended December 31, 2021 and 2020, respectively.

The Company also records service revenue from warranty contracts whereby the Company performs service on behalf of the Original Equipment Manufacturer (“OEM”) or third-party warranty provider.

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In some cases, certain rental agreements contain a rental purchase option, whereby the customer has an option to purchase the rented equipment during the term of the rental agreement.

Revenues from the sale of rental equipment are recognized at the time the rental purchase option agreement has been approved and signed by both parties, as the equipment is already in the customer’s possession under the previous rental agreement, and therefore control has been transferred as title has been transferred.

Revenues from the sale of rental equipment that are in the midst of a rental agreement are recognized at the time the rental purchase agreement has been approved and signed by both parties, as the equipment is already in the customer’s possession under the previous rental agreement, and therefore control has been transferred as title has been transferred.

Contract costs

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The Company has contract assets associated with contracts with customers.

Contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue.

Deferred revenue associated with service contracts represents the unearned portion of revenue related to guaranteed maintenance contracts for customers covering equipment purchased.

Contract assets as of December 31, 2021 and 2020 were $ 6.0 million and $ 0.1 million, respectively.

Deferred revenue associated with service contracts represents the unearned portion of revenue related to guaranteed maintenance contracts for customers covering equipment previously purchased.

These amounts are recognized based on an estimated rate at which the services are provided over the life of the contract.

Payment terms

The Company’s revenues do not include material amounts of variable consideration under Topic 606.

The deferred revenue also includes the unearned portion of revenue from automated equipment installation and system integration services where revenue is recognized as performance obligations are satisfied over time using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs.

Deferred revenue also includes the net proceeds upon sale of equipment with certain guaranteed purchase obligations for leases depending on lease classification.

In total, deferred revenue as of December 31, 2021 and 2020 was $ 19.4 million and $ 13.4 million, respectively.

The Company recognized revenue of $ 8.5 million from the prior year ending deferred revenue balance during the current year.

Consideration and Payment terms

The Company’s revenues do not include material amounts of variable consideration under ASC 606.

Payment terms may vary by the type of customer, location, and the type of products or services offered.

The time between invoicing and when payment is due

is not significant, and contracts do not generally include a significant financing component.

The time between invoicing and when payment is due is not significant, and contracts do not generally include a significant financing component.

Contracts with customers do not generally result in significant obligations associated with returns, refunds, or warranties.

Contract estimates and judgments

The Company’s revenues accounted for under Topic 606 generally do not require significant estimates or judgments as the transaction price is generally fixed and clearly stated in the customer contracts.

The Company’s revenues accounted for under ASC 606 generally do not require significant estimates or judgments as the transaction price is generally fixed and clearly stated in the customer contracts.

Contracts generally do not include multiple performance obligations, and accordingly do not require estimates of the standalone selling price for each performance obligation.

Substantially all of the Company’s revenues are recognized at a point in time and the timing of the satisfaction of the applicable performance obligations is readily determinable.

The Company’s revenues under Topic 606 are generally recognized at the time of delivery to, or pick-up by, the customer.

The Company’s revenues under ASC 606 are generally recognized at the time of delivery to, or pick-up by, the customer.

NOTE 4 — RELATED PARTY TRANSACTIONS

The Company leases a subset of its operating facilities from three real estate entities related through common ownership.

Total rent expense under these lease agreements was $4.8 million for the year ended December 31, 2020 and $4.6 million for the year ended December 31, 2019.

Total rent expense under these lease agreements for both years ended December 31, 2021 and December 31, 2020 was $ 4.8 million.

At December 31, 2021, the Company had net operating right-of-use assets and operating lease liabilities associated with related party leases of $ 24.0 million and $ 26.3 million, respectively.

See Note 12 for a schedule of future minimum lease payments under operating leases with both related parties and unrelated third parties.

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Gross Inventory

Inventory reserve

Inventory reserves

Direct labor of $ 1.6 million and $ 1.7 million incurred for open service orders were capitalized and included in work in process at December 31, 2021 and 2020, respectively.

The remaining work in process balances as of December 31, 2021 and 2020, primarily represent parts applied to open service orders.

Rental depreciation expense, for new and used equipment inventory under short-term leases with purchase options, was $3.0 and $3.4 million for the year ended December 31, 2020 and 2019, respectively.

Rental depreciation expense, for new and used equipment inventory under short-term leases with purchase options, was $ 5.8 million and $ 3.0 million for the year ended December 31, 2021 and 2020, respectively.

NOTE 6 — PROPERTY AND EQUIPMENT

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Leasehold improvements

Finance lease right-of-use assets

Office equipment

1 unchanged sentence

accumulated depreciation and amortization

Equipment, auto and trucks, leasehold improvements and computer and office equipment

Equipment, autos and trucks, leasehold improvements, finance leases and office and computer equipment

Total accumulated depreciation and amortization

Total depreciation and amortization on property and equipment was $ 86.7 million and $ 69.7 million for the years ended December 31, 2021 and 2020, respectively.

The Company had assets related to capital leases, which are included in the machinery and equipment balance above.

Such assets had gross carrying values totaling $4.0 million and $3.5 million, and accumulated amortization balances totaling $2.5 million and $1.3 million, as of December 31, 2020 and 2019, respectively.

Of the $418.5 million and $285.1 million of gross cost of rental fleet, $13.0 million and $18.4 million were represented by guaranteed purchase obligation (“GPO”) assets as of December 31, 2020 and 2019, respectively.

The Company had assets related to finance leases with gross carrying values totaling $ 15.1 million and $ 4.0 million, and accumulated amortization balances totaling $ 3.8 million and $ 2.5 million, as of December 31, 2021 and 2020, respectively.

Of the $ 461.4 million and $ 418.5 million of gross cost of rental fleet, $ 9.7 million and $ 13.0 million were represented by guaranteed purchase obligation assets as of December 31, 2021 and 2020, respectively.

NOTE 7 — GOODWILL

The following table summarizes the changes in the carrying amount of goodwill in total and by reportable segment during the years ended December 31, 2020 and 2021, respectively (amounts in millions):

Balance, January 1, 2019

Balance, December 31, 2019

Balance, December 31, 2020

Adjustments to purchase price allocations

Balance, December 31, 2021

See Note 20, Business Combinations for further information.

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December 31, 2021

Weighted Average Remaining Life (in years)

Gross carrying

Customer relationships

Non-compete agreements

Internal use software

December 31, 2020

Weighted Average Remaining Life (in years)

Gross carrying

Customer relationships

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Favorable market rent

Amortization of intangible assets was $2.3 million and $0.3 million for the years ended December 31, 2020 and 2019, respectively.

Amortization of intangible assets, excluding favorable market rent which is amortized to lease expense, was $ 3.3 million and $ 2.3 million for the years ended December 31, 2021 and 2020, respectively.

During the 4 th quarter of 2021, the Company reassessed the useful lives of our intangible assets acquired from recent acquisitions.

Given our recent rebranding efforts, the Company shortened the remaining useful lives of some tradename intangible assets resulting in accelerated amortization in the 4 th quarter of 2021 and beyond.

The Company reviewed its finite-lived intangible assets for impairment and determined that none of the assets were impaired during the years ended December 31, 2021 and 2020.

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NOTE 9 — LINES OF CREDIT AND FLOOR PLANS

Effective February 14, 2020, the Company amended and restated its credit facility with its first lien lender by entering into the Fifth Amended and Restated ABL First Lien Credit Agreement (“Amended and Restated Credit Agreement”) and the facility thereunder, the “ABL Facility”) by and among Alta Equipment Group Inc.

On January 11, 2021, the Company amended its Fifth Amended and Restated ABL First Lien Credit Agreement by and among Alta Equipment Group Inc.

and the other credit parties named therein, the lenders named therein, JP Morgan Chase Bank, N.A., as Administrative Agent, and the syndication agents and documentation agent named therein.

In connection with the Amended and Restated Credit Agreement, the Company amended and restated its floor plan facility with its first lien lender by entering into the Fifth Amended and Restated Floor Plan First Lien Credit Agreement (“Floor Plan Credit Agreement” and the facility thereunder, the “Floor Plan Facility”) by and among Alta Equipment Group Inc.

and the other credit parties named therein, the lender JP Morgan Chase Bank, N.A., as Administrative Agent, Sole Bookrunner and Sole Lead Arranger.

The Amended and Restated Credit Agreement, among other things, (i) moved the $85 million floor plan financing facility of the Fourth Amended and Restated First Lien Credit Agreement out of syndication and into the Floor Plan Credit Agreement, (ii) increased the total aggregate amount of indebtedness of all floor plans from $220 million to $225 million, (iii) increased the revolving line of credit borrowing capacity from $110 million to $300 million, and (iv) modified certain financial covenants.

The Floor Plan Credit Agreement, among other things, (i) modified the floor plan financing facility with its first lien lender from $85 million to $40 million, and (ii) modified certain financial covenants.

The amendment generally allowed for dividend payments to be made on the Preferred Stock without having to meet a leverage threshold, it excluded the preferred dividend payments from affecting the second lien prepayment requirement, and it increased OEM Floor Plan Facility (as hereinafter defined) limits from $ 225 million to $ 250 million;

however, credit line borrowings would begin to be limited in the instance amounts borrowed on OEM Floor Plan Facilities exceed $ 225 million.

On April 1, 2021, the Company entered into a Sixth Amended and Restated ABL First Lien Credit Agreement (the “Amended and Restated ABL Credit Agreement”) by and among Alta Equipment Group Inc.

and the other credit parties named therein, the lenders named therein, JP Morgan Chase Bank, N.A., as Administrative Agent, and the syndication agents and documentation agent named therein, superseding and replacing the Fifth Amended and Restated ABL First Lien Credit Agreement.

The Amended and Restated ABL Credit Agreement, among other things, (i) increased the asset based revolving line of credit (the “ABL Facility”) borrowing capacity from $ 300 million to $ 350 million, (ii) modified certain financial covenants, and (iii) removed the certain limitations on credit line borrowings if OEM Floor Plan Facility) borrowings exceeded $225 million.

The ABL Facility was amended on December 20, 2021 to increase the OEM Floor Plan Facility limits to $ 350 million, as a result of Business Combinations.

Line of Credit and Floor Plan — First Lien Lender

The Company has an ABL Facility with its first lien holder with advances on the line being supported by eligible accounts receivable, parts, and otherwise unencumbered new and used equipment inventory and rental equipment.

The ABL Facility has a maximum borrowing capacity of $300 million and interest cost is the London Interbank Offered Rate (“LIBOR”) plus an applicable

margin or the CB Floating Rate, depending on the borrowing.

As of Dec ember 3 1 , 2020, the Company had an outstanding ABL Facility balance of $ 1 59.1 million, excluding unamortized debt issuance costs.

The effective interest rate was 2.

0 % at Dec ember 3 1 , 2020.

The Company has a Floor Plan Facility with its first lien lender to primarily finance new inventory.

This Floor Plan Facility has a maximum borrowing capacity of $40 million.

The interest cost for the first lien lender floor plan facility is LIBOR plus an applicable margin.

The ABL Facility, which is collateralized by substantially all assets of the Company, has a maximum borrowing capacity of $ 350 million and interest cost is the SOFR plus an applicable margin or the CB Floating Rate, depending on the borrowing.

As of December 31, 2021, the Company had an outstanding ABL Facility balance of $ 100.7 million, excluding unamortized debt issuance costs.

The effective interest rate was 2.3 % at December 31, 2021.

As of December 31, 2020, the Company had an outstanding ABL Facility balance of $ 159.1 million, excluding unamortized debt issuance costs.

The effective interest rate was 2.0 % at December 31, 2020.

The Company has a First Lien Floor Plan Facility with its first lien lender to primarily finance new inventory.

This First Lien Floor Plan Facility has a maximum borrowing capacity of $ 50 million.

The interest cost for the First Lien Floor Plan Facility is SOFR plus an applicable margin.

The First Lien Floor Plan Facility is collateralized by substantially all assets of the Company.

As of December 31, 2021, the Company had an outstanding balance on their First Lien Floor Plan Facility of $ 30.6 million, excluding unamortized debt issuance costs.

The effective interest rate at December 31, 2021 was 2.8 %.

The floor plan is collateralized by substantially all assets of the Company.

As of December 31, 2020, the Company had an outstanding balance on their first lien lender floor plan facility of $35.3 million, excluding unamortized debt issuance costs.

Under our previous Fourth Amended and Restated Credit Agreement, the Company had an outstanding revolving line of credit balance of $72.7 million, excluding unamortized debt issuance costs and an effective interest rate of 3.9% at December 31, 2019.

As of December 31, 2020, the Company had an outstanding balance on their First Lien Floor Plan Facility of $ 35.3 million, excluding unamortized debt issuance costs.

The effective interest rate at December 31, 2020 was 2.9 %.

The Company routinely sells equipment that is financed under the First Lien Floor Plan Facility.

When this occurs the payable under the applicable First Lien Floor Plan Facility related to the financed equipment being sold becomes due to be paid at the time of sale.

Original Equipment Manufacturer (“OEM”) Captive Lenders and Suppliers’ Floor Plans

The Company has floor plan financing facilities with several OEM captive lenders and suppliers for new and used inventory and rental equipment, each with borrowing capacities ranging from $2.0 million to $102.0 million.

Primarily, the Company utilizes the facilities for purchases of new equipment inventories.

Certain floor plans provide for up to twelve-months interest only or deferred payment periods.

In addition, certain floor plans provide for interest and principal free terms at the suppliers’ discretion.

The Company routinely sells equipment that is financed under OEM captive lender floor plans prior to the original maturity date of the financing agreement.

When this occurs, the related OEM captive lender floor plan payable becomes due to be paid at the time the equipment being financed is sold.

With the recent acquisitions, the Company’s floor plan financing facilities with its OEM capital lenders and suppliers were amended to include the new locations and new entities.

The floor plan financing facilities are secured by the equipment being financed, and contain operating company guarantees.

The interest is LIBOR plus an applicable margin.

The Company has floor plan financing facilities with several OEM captive lenders and suppliers (the “OEM Floor Plan Facilities”, and together with the First Lien Floor Plan Facility, are collectively referred to herein as the “Floor Plan Facilities”) for new and used inventory and rental equipment, each with borrowing capacities ranging from $ 2 million to $ 102 million.

Primarily, the Company utilizes the OEM Floor Plan Facilities for purchases of new equipment inventories.

Certain OEM Floor Plan Facilities provide for up to twelve-months interest only or deferred payment periods.

In addition, certain OEM Floor Plan Facilities regularly provide for interest and principal free payment terms.

The Company routinely sells equipment that is financed under OEM Floor Plan Facilities.

When this occurs the payable under the applicable OEM Floor Plan Facilities related to the financed equipment being sold becomes due to be paid at the time of sale.

With the recent acquisitions, some of the Company’s OEM Floor Plan Facilities were amended to include new locations and new entities.

The OEM Floor Plan Facilities are secured by the equipment being financed, and contain operating company guarantees.

The interest is SOFR plus an applicable margin.

The effective rates, excluding the favorable effect of interest-subsidies, as of December 31, 2021 ranged from 3.1 % to 6.0 %.

As of December 31, 2020, and December 31, 2019, the Company had an outstanding balance on these OEM floor plans of $122.2 million and $122.6 million, respectively.

The total aggregate amount of floor plan financing (including the first lien lender floor plan) facilities cannot exceed $225.0 million at any time.

The total balance related to floorplan financing as of December 31, 2020 was $157.5 million excluding unamortized debt issuance costs.

For the years ended December 31, 2020, and December 31, 2019, the Company recognized interest expense associated with new equipment financed under its floor plan facilities of $2.3 million and $2.9 million, respectively.

Maximum borrowings under the floor plans and ABL Facility are limited to $525 million.

The total amount outstanding as of December 31, 2020 was $316.6 million, exclusive of debt issuance and deferred financings costs of $1.5 million.

Maximum borrowings under the previous floor plans and the revolving line of credit were limited to $330 million.

The total amount outstanding was $272.7 million, net of debt issuance costs of $0.5 million as of December 31, 2019.

As of December 31, 2021, and December 31, 2020, the Company had an outstanding balance on the OEM Floor Plan Facilities of $ 124.3 million and $ 122.2 million, respectively.

The total aggregate amount of financing under the OEM Floor Plan Facilities and the First Lien Floor Plan Facility cannot exceed $ 400.0 million at any time.

The total aggregate outstanding balance under the OEM Floor Plan Facilities and the First Lien Floor Plan Facility as of December 31, 2021, and December 31, 2020, was $ 154.9 million and $ 157.5 million, respectively, excluding unamortized debt issuance costs.

For the years ended December 31, 2021, and December 31, 2020, the Company recognized interest expense associated with new equipment financed under its OEM Floor Plan Facilities and First Lien Floor Plan Facility of $ 1.7 million and $ 2.3 million, respectively.

Maximum aggregate borrowings under the First Lien Floor Plan Facility, OEM Floor Plan Facilities, and ABL Facility are limited to $ 750.0 million unless certain other conditions are met.

The total amount outstanding as of December 31, 2021, and December 31, 2020, was $ 255.6 million and $ 316.6 million, exclusive of debt issuance and deferred financings costs of $ 2.4 million and $ 1.5 million, respectively.

NOTE 10 — LONG-TERM DEBT

In connection with the reverse recapitalization, the Company entered into a new Note Purchase Agreement (the “Term Loan”) dated as of February 3, 2020, for the purposes of, among other things, (i) financing the reverse recapitalization, (ii) financing the acquisitions of Flagler and Liftech;

and (iii) providing for the repayment and refinance of a portion of the Company’s prior existing debt.

Notes Payable — Senior Lien Holder

On December 27, 2017, the Company entered into a Note Purchase Agreement (the “Prior Note Purchase Agreement”) with a lender with an initial note commitment of $40 million, plus an additional delayed draw note commitment of $20 million.

On April 31, 2018 and July 31, 2018, the Company borrowed $3.5 million and $5 million, respectively, against the $20 million delayed draw commitment.

On May 1, 2019, the Company borrowed an additional $11.5 million against the $20 million delayed draw commitment.

The notes were subject to payment-in-kind (PIK) interest at 10% on any unpaid principal amount from the date of issue through repayment, with all PIK interest added to the outstanding principal.

The balance at December 31, 2019 included the initial note commitment of $40 million and delayed draws totaling $20 million, plus PIK interest of approximately $11.2 million, accrued from the initial funding date through the end of the year.

The note was secured by a second priority lien on substantially all of the assets of the Company, including a pledge of equity interests, and were to mature on June 27, 2023.

In connection with the December 27, 2017 note, warrants were issued enabling the purchase of 25% of the common units outstanding on a fully diluted basis at $0.01 per warrant unit.

On February 14, 2020, in connection with the reverse recapitalization and in conjunction with entering into the Amended and Restated Credit Agreement and Term Loan, the Company repaid this note payable in full, completely discharging the Company of any obligations to the lender .

Subordinated Debt

On December 27, 2017, the Company entered into notes payable to former shareholders of Alta Equipment Company, Inc., the Company’s former parent Company.

The notes were unsecured, were subject to interest at 5%, with rights subordinated to the first lien lender and second lien lender.

During the term of the notes, the Company paid holders’ semi-annual installments of accrued interest but maintained the option to capitalize such accrued interest amounts into the principal sum of each note.

The notes were to mature December 2027.

On February 14, 2020, in connection with the reverse recapitalization, and i n conjunction with entering into the Amended and Restated Credit Agreement and Term Loan, the Company repaid in full the subordinated debt to the former shareholders of Alta Equipment Company and terminated all commitments and discharged all guarantees related to those agreements.

As of December 31, 2020, the Company has no subordinated debt on its Consolidated Balance Sheet.

On February 14, 2020, the Company entered into a Note Purchase Agreement which comprised of a term loan in an aggregate principal amount of $155.0 million with its second priority lien lender through syndication, with an initial maturity date of August 2025.

In connection with the new Term Loan, the Company retired the Prior Note Purchase Agreement.

The term loan is payable, at the lender’s option, in quarterly installments of $1.9 million plus interest at LIBOR plus 8%.

As of December 31, 2020, the effective interest rate was 9.8%.

The Term loan is collateralized by substantially all assets of the Company.

As of December 31, 2020, outstanding borrowings under the term loan were $149.2 million, which included $6.4 million deferred financing costs and original issue discounts.

Notes Payable — OEM Captive Lender

On May 9, 2014, the Company entered into a Master Note Agreement with an OEM captive lender.

These notes were payable in monthly installments, with interest ranging from 3.29% to 4.99%.

The notes were secured by the specific assets financed and were to mature at various dates through October 2024.

On February 14, 2020, in connection with the reverse recapitalization, the Company repaid in full the balance of the notes payable to the OEM captive lender.

As of December 30, 2020, there were no notes payable to an OEM captive lender on our Consolidated Balance Sheet.

On April 1, 2021, the Company completed a private offering of our Senior Secured Second Lien Notes (the “Notes”), for the purposes of, among other things, repayment and refinancing of a portion of the Company’s prior existing debt, reducing interest rate exposure and providing liquidity for financing of future growth initiatives.

Senior Secured Second Lien Notes

On April 1, 2021, the Company sold $ 315.0 million of our 5.625% Notes which are due in 2026.

The Notes are guaranteed (the “Guarantees” and, together with the Notes, are herein referred to as the “Securities”) by the guarantors that are party thereto (the “Guarantors”) on a second lien, senior secured basis.

The Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended, pursuant to a purchase agreement among the Company, the Guarantors, and J.P.

Morgan Securities LLC, as representative of the initial purchasers.

The Notes are guaranteed by each of our existing and future domestic subsidiaries that becomes a borrower or guarantor under our or the Guarantors’ indebtedness, including the Credit Agreements, as amended and restated concurrently with the closing of the Notes offering.

The Notes and the Guarantees are secured, subject to certain exceptions and permitted liens, by second-priority liens on substantially all of our assets and the assets of the Guarantors that secure on a first-priority basis all of the indebtedness under our ABL Facility and the First Lien Floor Plan Facility and certain hedging and cash management obligations, including, but not limited to, equipment, fixtures, inventory, intangibles and capital stock of our subsidiaries now owned or acquired in the future by us or the Guarantors.

The Notes bear interest at the rate of 5.625 % per annum and will mature on April 15, 2026 .

Interest on the Notes is payable in cash on April 15 and October 15 of each year, beginning on October 15, 2021.

The October 15, 2021 interest payment was made on or about October 15, 2021.

As of December 31, 2021, outstanding borrowings under the Notes were $ 310.0 million, which included $ 5.0 million deferred financing costs and original issue discount.

The effective interest rate on the Notes, taking into account the original issue discount, is 5.93 %.

On February 14, 2020, the Company entered into a Note Purchase Agreement which comprised of a second lien term loan (the “Term Loan”) in an aggregate principal amount of $ 155.0 million with a second priority lien lender through syndication, with an initial maturity date of August 2025 .

The term loan was payable, at the lender’s option, in quarterly installments of $ 1.9 million plus interest at SOFR plus 8 %.

On April 1, 2021, in connection with the issuance of the new Notes, the Company repaid all of its outstanding obligations under the Term Loan, $ 147.3 million, completely discharging the Company of any further obligations to the lender .

Extinguishment of Debt

In accordance with ASC Topic No.

470-50, “Debt – Modifications and Extinguishments” (Topic No.

470), the transactions noted above were determined to be an extinguishment of the existing debt and an issuance of new debt.

As a result, the Company recorded a loss on the extinguishment of debt in the amount of $7.6 million in the line item “Loss on Extinguishment of Debt” in its Consolidated Statements of Operations.

Of the $7.6 million loss on the extinguishment of debt, $3.9 million represented early call premiums that the Company paid to the holders of its Senior Lien Notes and OEM Captive Lender as a result of repurchasing both notes prior to their maturity.

The remaining balance represented the write off of deferred financing fees related to the extinguishment of these debt facilities.

In the second quarter of 2021, and in connection with the repayment of the Term Loan, the Company recorded a loss on the extinguishment of debt in the amount of $ 11.9 million in the line item “Loss on Extinguishment of Debt” in its Consolidated Statements of Operations.

This was in accordance with ASC No.

470-50, “Debt – Modifications and Extinguishments” (ASC 470), as the transaction was determined to be an extinguishment of the existing debt and an issuance of new debt.

In the second quarter of 2020, the Company recorded a loss on the extinguishment of debt in the amount of $ 7.6 million in the line item “Loss on extinguishment of debt” in its Consolidated Statements of Operations.

This was in accordance with ASC 470, as the transaction was determined to be an extinguishment of the existing debt and an issuance of new debt.

The Company’s long-term debt consists of the following (amounts in millions):

Senior lien holder

OEM captive lender

Subordinated debt

First lien lender – term loan

High yield notes

Unamortized debt issuance costs

Debt discount

Current maturities of long-term debt, net

Long-term debt, net

Finance leases

Total debt and finance leases

current maturities

Long-term debt and finance leases, net

As of December 31, 2021, the Company was in compliance with the financial covenants set forth in its debt agreements.

Long term debt maturities, excluding unamortized debt discounts and debt issuance costs, are as follows (amounts in millions):

Long term debt principal maturities, excluding finance leases which are disclosed in Note 12, Leases, are as follows (amounts in millions):

Years ending December 31,

Promissory Note

On June 12, 2020, the Company entered into an unsecured promissory note for $1.0 million at an interest rate of 6.0% on the unpaid principal sum in connection with the PeakLogix acquisition.

The promissory note is due one year from the date of the acquisition.

Due to the short-term nature of the note, the liability was included in “Other current liabilities” on the Consolidated Balance Sheet as of December 31, 2020.

On June 12, 2020, the Company entered into an unsecured promissory note for $ 1.0 million at an interest rate of 6.0 % on the unpaid principal sum in connection with the PeakLogix acquisition which was due one year from the date of the acquisition and recorded in “Other current liabilities” as of December 31, 2020.

During the second quarter of 2021, the Promissory Note of $ 1.1 million, inclusive of accrued interest, was paid in full.

Notes Payable – Non-Contingent Consideration

The Company acquired all the assets of PeakLogix on June 12, 2020.

Pursuant to the purchase agreement, Sellers are entitled to additional cash payments of a minimum of $2.0 million through-out 5-year earn-out period.

As of December 31, 2020, the Company recorded a $1.7 million liability related to present value of these minimum cash payments using a market participant discount rate.

This additional future liability is recorded as non-contingent liability in “Other liabilities” on the Consolidated Balance Sheet.

Pursuant to the asset purchase agreement, Sellers are entitled to additional cash payments of a minimum of $ 2.0 million throughout a 5 -year earn-out period .

As of December 31, 2021, the Company recorded a $ 1.8 million liability which included $ 1.7 million related to present value of these minimum cash payments using a market participant discount rate and $ 0.1 million of imputed interest.

As of December 31, 2020, the liability was $ 1.7 million.

This additional future liability is recorded as non-contingent liability in “Other current liabilities” and “Other liabilities” on the December 31, 2021 Consolidated Balance Sheets.

See Note 17, Fair Value Instruments, and Note 20, Business Combinations, for further information.

NOTE 11 — EQUITY AND WARRANTS

NOTE 11 — EQUITY

Preferred Stock

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At the closing, the Company issued 1,200 shares of Series A Preferred Stock represented by 1,200,000 Depositary Shares issued.

We will pay cumulative cash dividends on the Series A Preferred Stock, when and as declared by our Board of Directors, at the rate of 10% of the $25,000.00 liquidation preference ($25.00 per depositary share) per year (equivalent to $2500 or $2.50 per depositary share).

Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October, beginning on or about April 30, 2021;

provided that if any dividend payment date is not a business day, then the dividend which would otherwise have

been payable on that dividend payment date may be paid on the next succeeding business day, and no interest, additional dividends or other sums will accumulate.

We will pay cumulative cash dividends on the Series A Preferred Stock, when and as declared by our Board of Directors, at the rate of 10 % of the $ 25,000 ($ 25.00 per depositary share) per year (equivalent to $ 2,500 or $ 2.50 per depositary share).

Dividends are payable quarterly in arrears, on or about the last day of January, April, July and October, beginning on or about April 30, 2021;

provided that if any dividend payment date is not a business day, then the dividend which would otherwise have been payable on that dividend payment date may be paid on the next succeeding business day, and no interest, additional dividends or other sums will accumulate.

Dividends will accumulate and be cumulative from, and including December 22, 2020, the date of original issuance.

The first dividend, which is scheduled to be paid on or about April 30, 2021 in the amount of $ 0.88889 per depositary share, will be for more than a full quarter and will cover the period from, and including, the first date we issue and sell the depositary shares through, but not including, April 30, 2021 .

On April 9, 2021, the Company declared a cash dividend $ 0.89 per depositary share, which was paid on April 30, 2021 to holders of record as of the close of business on April 15, 2021.

This dividend payment covered the period from and including December 22, 2020 through, but not including April 30, 2021.

On July 2, 2021, the Company declared a cash dividend $ 0.625 per depository share, which was paid on August 2, 2021 to holders of record as of the close of business on July 15, 2021.

The dividend payment covered the period from and including April 30, 2021 through, but not including July 31, 2021.

On October 4, 2021, the Company declared a cash dividend $ 0.625 per depository share, which was paid on November 1, 2021 to holders of record as of the close of business on October 15, 2021.

The dividend payment covered the period from and including July 31, 2021 through, but not including October 31, 2021.

In conjunction with the reverse recapitalization, the Company made changes to its capital stock.

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shareholders in connection with the transaction are reflected as if they were issued and outstanding beginning on January 1, 2019.

On April 12, 2021, we exchanged all 8,668,746 of our outstanding warrants into shares of our common stock at an exchange ratio of 0.263 shares of common stock per warrant, for an aggregate issuance of approximately 2,279,874 shares of common stock in the exchange.

As of December 31, 2020, there were warrants outstanding to acquire 8,668,746 shares of the Company’s Common Stock.

These warrants were issued in connection with the equity infusion related to reverse recapitalization.

The warrants entitle the registered holder to purchase one share of our Class A Common Stock at a price of $11.50 per share, subject to certain adjustments.

The warrants will expire five years after February 14, 2020, the date reverse recapitalization was completed or earlier upon redemption or liquidation.

Prior to the reverse recapitalization, t he Company granted warrants to purchase 33,333.33 shares of common units in connection with the stock purchase and redemption that occurred on December 27, 2017.

The warrants entitled the registered holder to purchase one share of our Class A Common Stock at a price of $ 11.50 per share, subject to certain adjustments.

The warrants were to expire five years after February 14, 2020, the date the reverse recapitalization was completed or earlier upon redemption or liquidation.

The 2017 Warrants had an exercise price of $ 0.01 and included a conditional put option, allowing the holder to require the Company to purchase the outstanding warrants, via a settlement upon the following events:

1 unchanged sentence

The warrants were to expire December 27, 2027 .

The warrants also included a limited call right, where in the event of a sale transaction, the Company had the right to redeem, in cash, all of the warrants simultaneously at a per common share price equal to the per unit set for the sale transaction.

For the year ended December 31, 2019, the change in fair value of warrants was included in other income (expense) on the Consolidated Statements of Operations.

See Note 17 for more information.

On February 14, 2020, the Company consummated its reverse recapitalization.

As a result, the Company redeemed all the warrants outstanding upon closing of the reverse recapitalization and as of December 31, 2020, there were no warrant liabilities on the Consolidated Balance Sheet.

NOTE 12 — CAPITAL LEASES

At December 31, 2020 and 2019, the Company had capital leases payable to financial institutions in the amount of $1.5 million and $2.2 million, respectively.

The assets and liabilities under these capital leases are initially recorded at the fair value of the assets under capital lease.

The 2017 Warrants also included a limited call right, where in the event of a sale transaction, the Company had the right to redeem, in cash, all of the warrants simultaneously at a per common share price equal to the per unit set in the sale transaction.

In connection with the reverse recapitalization closing on February 14, 2020, the Company redeemed all the 2017 Warrants outstanding and as of December 31, 2020, there were no warrant liabilities on the Consolidated Balance Sheets associated with the 2017 Warrants.

NOTE 12 — LEASES

The Company adopted ASC 842, Leases , and all related amendments effective for the annual reporting period ended December 31, 2021, with an effective date of January 1, 2021, using the modified retrospective method.

The Company determines if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities on the Company’s consolidated balance sheet as of December 31, 2021.

Finance leases are included in property and equipment, net, current portion of long-term debt, and finance lease obligations, net of current portion on the Company’s consolidated balance sheets.

Lease right-of-use assets are recognized at commencement date based upon the present value of the remaining future minimum lease payments over the lease term.

The Company’s lease terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based upon information available at the commencement date to determine the present value of future lease payments.

The Company applies the portfolio approach for the incremental borrowing rate on its leases based upon similar lease term and payments.

The lease right-of-use asset also includes lease payments made in advance of lease commencement and excludes lease incentives.

Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components.

For real estate leases, these components are accounted for as a single lease component.

For all equipment leases excluding vehicles, the lease and non-lease components are accounted for as a single lease component.

For vehicle leases, these components are accounted for separately.

Variable lease expenses include payments based upon changes in a rate or index, such as consumer price indexes, as well as usage of the leased asset.

Short-term lease expenses include leases with terms, at lease commencement, of 12 months or less and no purchase option reasonably certain to be exercised, including leases with a duration of one month or less.

Low-value lease expense includes leases with terms, at lease commencement, of greater than 12 months, but do not meet our capitalization threshold, which is consistent with our property and equipment capitalization threshold.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants;

however, there are certain lease agreements that include guaranteed purchase obligations for lift trucks.

See guaranteed purchase obligations in Note 13, Leases – Lessor.

The Company primarily has operating and finance leases for branch facilities, corporate office, and certain equipment which encompass both related party and third-party leases.

The Company’s leases have remaining lease terms that range from less than one year to leases that mature through February 2035 and contain provisions to renew the leases for additional terms of five to fifteen years .

The Company leases and subleases certain lift trucks to customers under short and long-term operating lease agreements.

The sublease income is included in Rental revenue on our consolidated statement of operations and is included in sublease revenue referenced in Note 13, Operating Leases - Lessor.

Sublease income below includes subleases that are not included in Rental revenue due to being outside our normal business operations.

The costs of the head lease for these subleases are included in operating lease expense below.

At December 31, 2021 and 2020, assets recorded under finance leases (previously capital), net of accumulated depreciation were $ 11.3 million and $ 1.5 million, respectively.

The assets are depreciated over the lower of their related lease terms or their estimated useful lives.

Minimum future lease payments under capital leases described above for each of the next five years and in the aggregate are as follows (amounts in millions):

Years ending December 31,

current portion presented in Other current liabilities

Long-term capital lease obligation

NOTE 13 — OPERATING LEASES — LESSOR

The Company leases and subleases lift trucks to customers under long-term operating lease agreements which expire at various dates through 2024.

Approximate minimum rentals receivable under such leases for each of the next four years are as follows (amounts in millions):

The components of lease expense (including related party leases) were as follows:

Year ending December 31, 2021

Operating lease expense

Short-term lease expense

Low-value lease expense

Variable lease expense

Finance lease expense:

Amortization of right-of-use assets

Interest on lease liabilities

Sublease income

Total lease expense

Total lease expense under the third-party operating leases for the year ended December 31, 2020 were $ 19.3 million operating and $ 1.0 million finance (previously capital).

Included in operating lease expense for 2020 is deferred rent expense of $ 0.9 million.

Other information related to leases is presented in the table below:

Supplemental Cash Flows Information

Year ending December 31, 2021

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows for operating leases

Operating cash flows for finance leases

Financing cash flows for finance leases

Non-cash right-of-use assets obtained in exchange for lease obligations

Operating leases

Finance leases

Weighted Average Remaining Lease Term (in years)

Operating leases

Finance leases

Weighted Average Discount Rate

Operating leases

Finance leases

Minimum future lease payments under non-cancellable operating and finance leases described above as of December 31, 2021 were as follows (amounts in millions):

Years ending December 31,

NOTE 14 — COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases buildings and equipment under various operating leases with both related (see Note 5) and unrelated third parties.

The leases expire at various dates through February 2035 and contain provisions to renew the leases for additional terms of five to fifteen years.

Total lease expense under the third-party operating leases for the years ended December 31, 2020 and 2019 was $19.3 million and $10.9 million, respectively.

Included in rent expense for 2020 and 2019 is deferred rent expense of $0.9 million, and $0.7 million, respectively, attributable to third party and related party lease agreements with escalating rent payments.

Minimum future payments under the operating leases described above and in Note 4 for each of the next five years and thereafter and in the aggregate are as follows (amounts in millions):

Finance Leases

Total future minimum lease payments

imputed interest

Amounts recognized in the condensed consolidated balance sheet as of December 31, 2021

Current portion of long-term debt

Current operating lease liabilities

Finance lease obligations, net of current portion

Long-term operating lease liabilities

As of December 31, 2021, the Company did no t have leases that were executed but had not yet commenced.

See Note 14, Contingencies, for more information on certain contracts where the Company guarantees the performance of the third-party lessee.

NOTE 13 — LEASES — LESSOR

The Company leases and subleases certain lift trucks to customers under long-term operating lease agreements which expire at various dates through 2028.

Approximate minimum rentals receivable, none of which are recorded in our consolidated Balance Sheets, under such leases for each of the next five years are as follows (amounts in millions):

Years ending December 31,

Future guaranteed purchase obligations under capital leases for each of the next five years and thereafter are as follows (amounts in millions):

Sublease income recorded in rental revenue in our consolidated Statement of Operations for the years ended December 31, 2021 and December 31, 2020 was $ 7.5 million and $ 7.9 million, respectively.

Future guaranteed purchase obligations under operating and sales-type leases to be paid by the Company for each of the next five years and thereafter are as follows (amounts in millions):

Years ending December 31,

At December 31, 2020 and 2019, the Company was party to certain contracts in which it guarantees the performance of lease agreements between various third-party leasing companies.

The terms of the guarantees range from three to five years.

In the event of a default by a third-party lessee, the Company would be required to pay all or a portion of the remaining unpaid lease obligation as specified in the contract.

The estimated exposure related to these guarantees was $2.4 million and $3.3 million at December 31, 2020 and 2019, respectively.

For more information on our rental revenue as a lessor, please refer to Note 3, Revenue Recognition.

NOTE 14 — CONTINGENCIES

As of December 31, 2021, and December 31, 2020, the Company was party to certain contracts in which it guarantees the performance of agreements with various third-party financial institutions.

The terms of the guarantees range from two to six years .

In the event of a default by a third-party lessee, the Company would be required to pay all or a portion of the remaining unpaid obligations as specified in the contract.

The estimated exposure related to these guarantees was $ 1.7 million and $ 2.4 million at December 31, 2021 and December 31, 2020, respectively.

It is anticipated that the third parties will have the ability to repay the debt without the Company having to honor the guarantee;

therefore, no amount has been accrued on the Consolidated Balance Sheets at December 31, 2020 and 2019.

therefore, no amount has been accrued on the Consolidated Balance Sheets at December 31, 2021 and December 31, 2020, respectively.

Legal Proceedings

During the years ended December 31, 2020 and 2019, various claims and lawsuits, incidental to the ordinary course of business, are pending against the Company.

During the years ended December 31, 2021 and December 31, 2020, various claims and lawsuits, incidental to the ordinary course of business, are pending against the Company.

In the opinion of management, after consultation with legal counsel, resolution of these matters are not expected to have a material effect on the Company’s consolidated financial statements.

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The Company does not believe there are any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the Company.

As of December 31, 2020, there was $1.4 million in outstanding letters of credits issued in the normal course of business.

As of December 2019, there was no outstanding letters of credits.

As of December 31, 2021, and December 31, 2020 there was $ 3.4 million and $ 1.4 million, respectively, in outstanding letters of credits issued in the normal course of business.

NOTE 15 — INCOME TAXES

The Company accounts for income taxes under the asset and liability method.

Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates in effect for the year in which the difference is expected to reverse.

Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse.

Additionally, the impact of changes in the tax rates and laws on deferred taxes, if any, is reflected in the financial statement in the period of enactment.

The deferred tax liabilities and assets for the Company represent the difference between the financial statement and tax basis of the partnership interest in Alta Enterprises, LLC.

As such, the Company is using the single line item approach.

The income tax benefit for the years ended December 31, 2020 and 2019 consisted of the following:

The Company is using the single line-item approach for financial statement presentation of deferred tax assets and liabilities.

The income tax provision (benefit) for the years ended December 31, 2021 and 2020 consisted of the following:

Year Ended December 31,

Federal taxes-current

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State taxes-deferred

For the years ended December 31, 2020 and 2019, the reconciliation between the income tax benefit computed by applying the statutory U.S.

federal income tax rate to the pre-tax loss before income taxes and total income tax expense recognized in the financial statements was as follows:

Income tax (expense) benefit at statutory U.S.

For the years ended December 31, 2021 and 2020, the reconciliation between the income tax expense (benefit) computed by applying the statutory U.S.

federal and state related income tax rate to the pre-tax loss before income taxes and total income tax expense (benefit) recognized in the financial statements was as follows:

Year Ended December 31,

Income tax benefit at statutory U.S.

states rate, net

Permanent differences:

Officer's life insurance

Total income tax benefit

The Company recorded an income tax benefit of $6.6 million and $0 for the years ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2019, the reverse recapitalization had yet to occur and therefore the Company does not have a comparable period.

The income tax benefit covers the period starting with the reverse recapitalization on February 14, 2020 through the year ended December 31, 2020.

The income tax results from the period January 1, 2020 through the day prior to the reverse recapitalization will be recognized by the predecessor.

As a result of the recapitalization transaction, there was a step-up in the tax value of the Company.

The step-up tax value has been estimated as of the date of these financials.

The value will be finalized in conjunction with the finalization of the tax reporting obligations associated with the pre-IPO period dated January 1, 2020 through February 13, 2020.

Due to the nature of the transaction, these tax filings are not due until 2021.

As such, there is a possibility that the estimate used for the value step up could change, which would in turn change the opening balance sheet.

We believe any true-up to the value step up will be immaterial, however further work is required to make a final determination.

As of December 31, 2020, the Company had $ 0.5 million of net deferred tax assets, which was presented in “Other Assets” on the Consolidated Balance Sheet.

As discussed above, this represents the GAAP to tax difference in the basis of the underlying partnership, Alta Enterprises, LLC.

This basis difference mirrors the GAAP to tax differences within the partnership, which primarily relate to property and equipment assets and other temporary items where the tax basis differs from the GAAP carrying amounts.

At December 31, 2020, the income tax benefit was $6.6 million.

This was primarily driven by the level of pre-tax loss of $20.7 million for the period from February 14, 2020 to December 31, 2020.

The effective income tax rate for the period from February 14, 2020 to December 31, 2020 of 31.9% was affected by non-deductible expenses and state income taxes.

Valuation allowance

Total income tax expense (benefit)

The Company recorded an income tax expense of $ 3.6 million and a benefit of $ 6.6 million for the years ended December 31, 2021 and 2020, respectively.

This was primarily driven by the level of pre-tax loss of $ 17.2 million in 2021 as compared to $ 20.7 million for the period from February 14, 2020 to December 31, 2020.

As a result of the Company’s 2021 analysis of the realizability of its deferred tax asset, and after considering tax planning initiatives and other inputs, the Company determined that it was more likely than not that deferred tax asset would not be realized and has thus maintained a full valuation allowance against the deferred tax asset.

In addition, the scheduling of deferred items highlighted the need to book a deferred tax liability in order to properly reflect the limitation of the use of net operating losses at 80 % in any given year.

The income tax benefit in 2020 covers the period starting with the reverse recapitalization on February 14, 2020 through the year ended December 31, 2020.

The income tax results from the period January 1, 2020 through the day prior to the reverse recapitalization have been recognized by the predecessor.

As a result of the reverse recapitalization, there was a step-up in the tax value of the Company.

The Company reviews the realizability of its deferred tax asset on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required.

In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with any other positive or negative evidence.

All of the factors that the Company considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involves significant judgment.

The effective income tax rate for the years December 31, 2021 and December 31, 2020 were ( 20.9 )% and 31.9 %, respectively.

The effective income tax rate in 2021 was primarily due to the impact of the establishment of the valuation allowance and the resulting realization of a deferred tax liability.

The effective income tax rate in 2020 was primarily due to the impact of expenses and resulting tax losses associated with the r everse capitalization.

The components of deferred tax assets and liabilities as of December 31, 2021 and 2020 were as follows:

Year Ended December 31,

Deferred Tax Assets

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Gross deferred tax liabilities

Deferred tax assets, net

As of December 31, 2020, the Company has federal net operating tax loss carryforwards of approximately $4.7 million which may be carried forward indefinitely and are eligible to offset 80% of future taxable income.

Valuation allowance

Deferred tax (liabilities) assets, net

As of December 31, 2021, and December 31, 2020, the Company has federal net operating tax loss carryforwards of approximately $ 10.8 million and $ 4.7 million, respectively, which may be carried forward indefinitely and are eligible to offset 80 % of future taxable income.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic.

The CARES Act, among other thing s, includes various income and payroll tax provisions, modifications to federal net operating loss rules, business interest deduction limitations, and bonus depreciation eligibility for qualified improvement property.

The CARES Act did not materially impact our effective tax rate for the year ended December 31, 2020, although it will impact the timing of future cash payments for taxes.

As of December 31, 2020, we have deferred employer payroll taxes of $5.6 million under the CARES Act, with half of the deferred amounts due by December 31, 2021, and the remaining half due by December 31, 2022.

The CARES Act did not materially impact our effective tax rate for the years ended December 31, 2021 and December 31, 2020, although it impacted the timing of cash payments for taxes.

Under the CARES Act, as of December 31, 2021, we have deferred employer payroll taxes of $ 5.0 million as compared to $ 5.6 million as of December 31, 2020.

NOTE 16 — SHARE BASED COMPENSATION

During the third quarter 2020, the Compensation Committee of our Board of Directors approved the grant of 690,000 shares of Restricted Stock Units (“RSUs”) to certain directors, officers and employees of the Company under the 2020 Omnibus Incentive Plan.

The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key employees to key employees and directors of the Company.

The Company generally awards grants on an annual basis.

There are 3,468,000 shares of common stock authorized for awards granted under the current plan.

During the second quarter 2021, the Compensation Committee of our Board of Directors approved the grant of 114,292 shares of Restricted Stock Units (“RSUs”) to certain directors, officers and employees of the Company under the 2020 Omnibus Incentive Plan.

During 2020, 690,000 shares RSUs were approved and granted to certain directors, officers, and employees of the Company.

The Company’s plan is to have broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests.

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The compensation expense is recognized on a straight-line basis over the requisite vesting period of the award.

The Company recognized total compensation expense of $3.6 million for the year ended December 31, 2020.

The Company recognized total share based compensation expense of $ 1.2 million and $ 3.6 million for the years ended December 31, 2021 and 2020 respectively.

On August 18, 2020, Robert T.

Chiles, President of our Construction Group, passed away.

Chiles was the holder of RSUs for 390,000 shares of common stock of the Company, and at his passing these RSU’s became fully vested and converted into 390,000 shares of our common stock.

As a result of the immediate vesting of these RSUs, the Company incurred $3.0 million expense.

As of Dec ember 3 1 , 2020, the total unrecognized compensation expense related to the non-vested portion of the Company's restricted stock awards was $ 1 .

7 million, which is expected to be recognized over a weighted average period of 2 .

The following table shows the number of restricted stock awards that were granted and vested during 2020:

Restricted Stock Awards

Weighted average

grant date fair value

As of December 31, 2020

Chiles was the holder of RSUs for 390,000 shares of common stock of the Company, and at his passing these RSUs became fully vested and converted into 390,000 shares of our common stock.

As a result of the immediate vesting of these RSUs, the Company incurred a $ 3.0 million expense.

As of December 31, 2021, the total unrecognized compensation expense related to the non-vested portion of the Company's restricted stock awards was $ 2.0 million, which is expected to be recognized over a weighted average period of 1.9 years.

As of December 31, 2020, the total unrecognized compensation expense related to the non-vested portion of the Company's restricted stock awards was $ 1.7 million, which is expected to be recognized over a weighted average period of 2.8 years.

The following table shows the number of restricted stock awards that were granted and vested during 2020 and 2021:

Restricted Stock Units

Number of units

Weighted average grant date fair value

Granted at inception of 2020 Omnibus Plan

Unvested as of December 31, 2020

Vested-issued

Vested-unissued

Unvested as of December 31, 2021

NOTE 17 — FAIR VALUE INSTRUMENTS

The carrying value of financial instruments reported in the accompanying Consolidated Balance Sheets for cash, accounts receivable, accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature or maturity of these financial instruments.

Based upon current borrowing rates with similar maturities, which are Level 2 fair value inputs, the carrying value of lines of credit, long-term debt, and the guaranteed purchase obligations approximates the fair value as of December 31, 2020 and December 31, 2019.

Based upon current borrowing rates with similar maturities, which are Level 2 fair value inputs, the carrying value of lines of credit, long-term debt, and the guaranteed purchase obligations approximate fair value as of December 31, 2021 and December 31, 2020.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:

The Company granted warrants to purchase 33,333.33 shares of common units in connection with the stock purchase and redemption that occurred on December 27, 2017.

The warrants had an exercise price of $0.01 and included a conditional put option, allowing the holder to require the Company to purchase the outstanding warrants, via a settlement upon the following events:

(1) upon 75% repayment of senior indebtedness, (2) change in control from a sale transaction, and (3) the maturity of the related debt, which required the Company to settle the warrants in cash.

The warrants were to expire December 27, 2027.

The warrants also included a limited call right, where in the event of a sale transaction, the Company had the right to redeem, in cash, all the warrants simultaneously at the per common share price equal to the price set for the sale transaction.

On February 14, 2020, the Company consummated its reverse recapitalization.

The Company recorded the warrants issued based on the fair value at the date of grant and re-measured at each balance sheet date.

The fair value of warrants classified as liabilities at the date of grant was estimated using a market approach.

The valuation methodology was primarily a market-based approach using participants in the material handling and heavy-equipment retailing, wholesaling, and rental industry.

A range of multiples was established taking company-specific risks into consideration and applied to Alta’s adjusted EBITDA to derive an implied enterprise value.

To derive equity value, interest-bearing debt was removed.

The preceding methods described produced a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

Furthermore, although management believed its valuation methods to be appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could have resulted in a different fair value measurement at the reporting date.

The Company redeemed all the warrants outstanding upon closing of the reverse recapitalization on February 14, 2020 and as of December 31, 2020, there were no warrant liabilities on the Consolidated Balance Sheet.

Contingent Consideration

The contingent consideration liability represents the fair value of the future earn-out liability that the Company may be required to pay in conjunction with the acquisitions upon the achievement of certain performance milestones.

The earn-out for the acquisitions is measured at fair value in each reporting period, based on level 3 inputs, with any change to the fair value recorded in the Consolidated Statements of Operations.

The contingent consideration liability represents the fair value of the future earn-out liability that the Company may be required to pay in conjunction with acquisitions upon the achievement of certain performance milestones.

The earn-outs for the acquisitions are measured at fair value in each reporting period, based on level 3 inputs, with any change to the fair value recorded in the Consolidated Statements of Operations.

PeakLogix LLC (“PeakLogix”)

The purchase agreement for the PeakLogix acquisition provides for earn-out payments of a minimum of $ 2.0 million up to $ 3.7 million which can be earned through June 30, 2025 based on meeting certain performance milestones .

We estimated the fair value of the incremental $1.7 million earn-out payment based on a probability weighted range of outcomes analysis and applied a discount rate

that appropriately captures a market participant's view of the risk associated with the obligation.

We estimated the fair value of the incremental $ 1.7 million earn-out payment based on a probability weighted range of outcomes analysis and applied a discount rate that appropriately captures a market participant's view of the risk associated with the obligation.

This analysis considered the earn-out payment thresholds, the minimum and maximum range of earn-out payments per the agreement and the expected future cash flows of PeakLogix.

The earn-out will be remeasured at each balance sheet date using this approach and any resulting increase or decrease will be reflected in the income statement.

Going forward, volatility in the amount of PeakLogix’s actual results and forecasted scenarios could impact the fair value of this contingent consideration.

The Company concluded the future minimum cash payments of $ 2.0 million will be treated as a non-contingent liability and recorded a $ 1.7 million liability related to the present value of these minimum cash payments at the acquisition date in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet.

See Note 10, Long-Term Debt and Note 20, Business Combinations for further information.

In addition to the non-contingent liability, there is a potential earn out payment of $ 1.7 million to be paid to Sellers over a five-year period.

The Company recorded a $1.0 million earn out liability as the acquisition date fair value in “Other Liabilities” on the Consolidated Balance Sheet.

The Company recorded a $ 1.0 million earn out liability as the acquisition date fair value in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet.

As of December 31, 2021, the earn-out was remeasured resulting in an $ 0.4 million increase in fair value.

The remeasurement impact was included in the Consolidated Statement of Operations.

The earn-out will be remeasured at each balance sheet date using this approach and any resulting increase or decrease will be reflected in the Consolidated Statement of Operations.

Going forward, volatility in the amount of PeakLogix’s actual results and forecasted scenarios could impact the fair value of this contingent consideration.

See Note 20, Business Combinations for further information.

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We estimated the fair value of the earn-out liability based on the present value of probability weighted expected future results.

The Company recorded a $ 0.8 million earn out liability as the acquisition date fair value in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet.

As of December 31, 2021, the earn-out was remeasured resulting in a decrease of $ 0.4 million in fair value.

The earn-out will be remeasured at each balance sheet date using this approach and any resulting increase or decrease will be reflected in the Consolidated Statement of Operations.

Going forward, volatility in the amount of Hilo’s actual results and forecasted scenarios could impact the fair value of this contingent consideration.

See Note 20, Business Combinations for further information.

Ginop Sales, Inc (“Ginop”)

The purchase agreement for the Ginop acquisition provides an opportunity for earn-out payments up to $ 1.5 million based on meeting certain financial targets which can be earned through December 31, 2023 .

We estimated the fair value of the incremental earn-out payment based on a probability weighted range of outcomes analysis and applied a discount rate that appropriately captures a market participant's view of the risk associated with the obligation.

This analysis considered the earn-out payment thresholds, the minimum and maximum range of earn-out payments per the agreement and the expected future results of Ginop.

The earn-out will be remeasured at each balance sheet date using this approach and any resulting increase or decrease will be reflected in the Consolidated Statement of Operations.

The Company recorded a $ 0.9 million earn out liability as the acquisition date fair value in “Other Liabilities” on the Consolidated Balance Sheet.

Going forward, volatility in the amount of Ginop’s actual results and forecasted scenarios could impact the fair value of this contingent consideration.

See Note 20, Business Combinations for further information.

The following table sets forth, by level of hierarchy, the Company’s recurring measures at fair value as of December 31, 2021 and 2020 (amounts in millions):

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December 31, 2020

Contingent consideration

The following is a summary of changes to Level 3 instruments during the year ended December 31, 2021 and 2020, which were recognized in a separate line item on the Consolidated Statements of Operations (amounts in millions):

Balance, January 1, 2019

Warrants granted during the period

Change in fair value during the period

Balance, December 31, 2019

Warrants settled at reverse recapitalization

Balance, December 31, 2020

Contingent Consideration

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Balance, December 31, 2020

Acquisition of Ginop

Changes in fair value

Balance, December 31, 2021

The following table represents the Company’s Level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments as of December 31, 2021 and 2020, respectively, and the significant unobservable inputs (amounts in millions):

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Probability weighted range of outcomes

Market approach

NOTE 18 — SELF INSURED

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Equity Linked Incentive Plan

The Company had a Long-Term Equity Linked Incentive Plan (“the Plan”) to award key employees.

Prior to 2020, t he Company had implemented a Long-Term Equity Linked Incentive Plan (“the Plan”) for key employees.

The purpose of the Plan was to retain and attract key employees with an opportunity to receive additional compensation in connection with a change in control of the company (“qualifying event”).

The plan permitted the award of up to 15,686.28 incentive units and 7,843.14 appreciation rights .

The Company did not award any incentive units or appreciation rights during the year ended December 31, 2019.

At December 31, 2019 there were 12,549 incentive units and 6,275 appreciation rights outstanding.

No expense or liability was recognized in the accompanying consolidated financial statements as the likelihood of a qualifying event was not imminent as of December 31, 2019.

As of December 31, 2020, the Company incurred $3.1 million of share-based compensation expense as a result of vesting of the equity linked incentive plan as a result of the qualifying event on February 14, 2020.

For the year ended December 31, 2020, the Company incurred $ 3.1 million of share-based compensation expense as a result of vesting and extinguishment of the equity linked incentive plan as a result of the qualifying event on February 14, 2020.

NOTE 20 — BUSINESS COMBINATIONS

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Other liabilities

Deferred tax liability

Total liabilities

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Assets acquired net of cash

On December 31, 2021, the Company acquired the stock of Ginop, a privately held construction and agricultural equipment distributor, for a total purchase price of $ 30.2 million, which includes $ 0.9 million of the potential $ 1.5 million additional earn-out payments tied to post closing performance of the Ginop business.

The Company acquired $ 0.7 million of cash and $ 0.3 million of estimated excess working capital in the transaction, yielding an enterprise value of approximately $ 29.2 million.

The acquisition strengthens our construction product and service offerings in Northern Michigan and expands our relationship with Kubota.

The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

The following table summarizes the components of the purchase price at December 31, 2021

Cash consideration paid *

Earn-out liability

Total purchase price

* Includes $ 0.7 million cash acquired as part of the Business Combination

On December 31, 2021, the Company acquired the assets of Ambrose, a privately held construction equipment distributor, for a total purchase price of $ 13.1 million, including a $ 2.8 million purchase price adjustment due to working capital.

The Company acquired $ 0.2 million of cash and $ 0.6 million of estimated working capital deficit in the transaction, yielding an enterprise value of approximately $ 13.5 million.

Ambrose is the Northeast’s premier asphalt equipment dealer for more than 33 years, with locations in New Hampshire and Massachusetts.

The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

On December 1, 2021, the Company acquired the assets of Midwest Mine for a total purchase price of $ 6.9 million.

Midwest Mine fabricates, and installs full aggregate processing plants for quarries, mines and recycling operations throughout the United States and is well-established in the Ohio and Michigan markets.

The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

On October 1, 2021, the Company acquired the assets of Gibson, a privately held premium equipment distributor, for a total purchase price of $ 10.6 million.

The acquisition included $ 1.2 million of floorplan-eligible new equipment inventory and the Company assumed $ 4.4 million of equipment financing at closing, yielding an enterprise value at close of approximately $ 13.8 million.

Gibson expands our geographic footprint and presence into Ohio and broadens our construction equipment product portfolio, OEM relationships, and service offerings.

The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

On September 1, 2021, the Company acquired Baron, a privately held dock & door business, for a total purchase price of $ 1.3 million.

Baron specializes in commercial overhead loading dock doors and equipment, hydraulic lifts, and vertical reciprocating conveyors.

The acquisition is another step in the Company’s strategy to build out a full-service warehousing and logistics offering within the material handling segment.

The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

On March 1, 2021, the Company acquired the assets of ScottTech, a material handling, warehouse control software, and turn-key warehouse system integration services provider, for a total purchase price of $ 2.4 million.

The acquisition has natural synergies with the Company’s prior year acquisition of PeakLogix and further bolsters our capabilities with customers in the warehousing and logistics, distribution, and e-commerce end-markets.

The acquisition has been accounted for as a purchase business combination.

Under the purchase method of accounting, the assets acquired, and liabilities assumed have been recorded at the acquisition date at their respective fair values in our consolidated financial statements.

The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of inventory and property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

The following table summarizes the net assets acquired from the acquisitions in 2020 (amounts in millions):

Accounts receivable

Prepaid and other assets

Rental fleet, net

Property and equipment, net

Intangible assets

Floor plan payable

Accounts payable

Accrued expenses

Other current liabilities

Other liabilities

Total Liabilities

Net Assets Acquired

Assets acquired net of cash

On February 14, 2020, in connection with the reverse recapitalization, the Company consummated its acquisition of Flagler for a total purchase price, net of cash, of $ 75.8 million, which was paid out of funds from the closing of the reverse recapitalization.

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The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.

The Company expects the goodwill recognized to be 100% deductible for income tax purposes.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

The fair value of inventory and property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $ 79.0 million.

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The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.

The Company expects the goodwill recognized to be 100% deductible for income tax purposes.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

The fair value of inventory and property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $ 15.2 million.

On June 12, 2020, the Company acquired all the assets of PeakLogix for a total purchase cash consideration of $ 5.7 million, which was paid out of available funds.

Additional consideration includes $1.0 million in an unsecured one-year promissory note at 6% and earn-out payment of a minimum $2.0 million up to a $3.7 million to be paid out to former owners based on meeting certain financial targets throughout a 5-year earn-out period, collectively resulting in an estimated enterprise value of $6.4 million net of cash acquired.

In connection with the purchase, PeakLogix LLC was created.

Additional consideration included a $ 1.0 million unsecured one-year promissory note at 6 % and an earn-out payment of a minimum $ 2.0 million up to a $ 3.7 million to be paid out to former owners based on meeting certain financial targets throughout a 5 -year earn-out period, collectively resulting in an estimated enterprise value of $ 6.4 million net of cash acquired.

See Note 10, Long-Term Debt and Note 15, Fair Value Instruments for further information.

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The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of property, plant, and equipment were estimated to approximate their respective acquisition date net book values.

The Company expects the goodwill recognized to be 100% deductible for income tax purposes.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

The fair value of inventory, property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

The following table summarizes the components of the purchase price at June 12, 2020:

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The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.

The Company expects the goodwill recognized to be 100% deductible for income tax purposes.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

The fair value of inventory and property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $ 19.0 million.

The following table summarizes the component of the purchase price at July 1, 2020:

The following table summarizes the components of the purchase price at July 1, 2020:

Cash consideration paid *

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* Includes $ 2.1 million cash acquired as part of the Business Combination

Martin Implement Sales, Inc.

On September 1, 2020, the Company acquired all the assets of Martin for a total purchase price of $16.1 million, which included floorplan eligible new equipment inventories that was paid out of available funds.

On September 1, 2020, the Company acquired all the assets of Martin for a total purchase price of $ 16.1 million, which was paid out of available funds.

The acquisition has been accounted for as a purchase business combination.

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The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

The Company expects the goodwill recognized to be 100% deductible for income tax purposes.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses .

The fair value of inventory and property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $ 10.6 million.

Howell Tractor and Equipment, LLC (“Howell”)

On October 30, 2020, the Company acquired all the assets of Howell for a total cash consideration of $22.4 million.

The Company issued 507,143 shares of its common stock, valued at $4.0 million, in connection with the purchase agreement, yielding a total purchase price of $26.4 million.

Howell Tractor

On October 30, 2020, the Company acquired all the assets of Howell Tractor for a total cash consideration of $ 22.4 million.

The Company also issued 507,143 shares of its common stock, valued at $ 4.0 million, in connection with the purchase agreement, yielding a total purchase price of $ 26.4 million.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $ 23.1 million.

The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

The Company expects the goodwill recognized to be 100% deductible for income tax purposes.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.

Vantage Equipment, LLC (“Vantage”)

The acquisition has been accounted for as a purchase business combination.

The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of inventory and property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

Subsequent to the 2020 year-end audit, before one year from the acquisition date, the Company recorded a purchase price allocation and working capital adjustment of $ 0.6 million which yielded a total purchase price of $ 27.0 million.

On December 31, 2020, the Company acquired all the assets of Vantage for a total purchase price of $ 24.2 million.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $ 22.5 million.

The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date.

The Company expects the goodwill recognized to be 100% deductible for income tax purposes.

Costs and expenses related to the acquisition have been expensed as incurred in operating expenses .

Incremental costs including accounting and legal fees that were attributable to the acquisition activities were expensed as incurred and these costs were $1.3 million as of December 31, 2020.

Northland Industrial Truck Co., Inc.

The following table summarizes the net assets acquired from the acquisition in 2019 (amounts in millions):

Accounts receivable

Other current & non-current assets

Guaranteed purchase obligation asset

Property, plant, and equipment

Identifiable intangible assets

Accounts payable

Guaranteed purchase obligation liability

Capital lease obligations

Other liabilities

Total Liabilities

Net Assets Acquired

On May 1, 2019, the Company purchased the assets of NITCO, for a total purchase price of $65.6 million.

In connection with the purchase, NITCO, LLC was created.

The goodwill of $1.0 million arising from the acquisition consists largely of an assembled workforce and is expected to be deductible for income tax purposes.

The acquisition has been accounted for as a purchase business combination.

Under the purchase method of accounting, the assets and liabilities assumed are recorded at the date of acquisition at their respective fair values.

The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection.

The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.

It should be further noted that, upon the close of the acquisition, the Company established additional floorplan borrowings for new equipment in the amount of $23.5 million, for a total enterprise value of $42.1 million.

The fair value of inventory and property and equipment were estimated to approximate their respective acquisition date net book values.

Costs and expenses related to the acquisition were expensed as incurred in operating expenses.

Subsequent to the 2020 year-end audit, before one year from the acquisition date, the Company recorded a purchase accounting adjustment to its Vantage acquisition that increased net assets acquired by $ 0.1 million which yielded a total purchase price of $ 24.3 million.

Pro forma financial information - 2020

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Therefore, operating results of Flagler are included in the Company’s Consolidated Statement of Operations after February 14, 2020.

Pursuant to ASC 805, pro forma disclosures should be reported whenever the year or interim period of the acquisition is presented.

Pursuant to ASC 805 and given Flagler’s size, pro forma disclosures should be reported whenever the year or interim period of the acquisition is presented.

The pro forma information below gives effect to the Flagler acquisition as if the acquisition occurred on January 1, 2020.

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As such, pro forma results of operations including other acquisitions have not been presented.

Pro forma financial information - 2019

Pro forma balance sheet of Alta Equipment Group Inc.

The following table provides the pro forma balance sheet of Alta Equipment Group Inc.

as of December 31, 2019 as if Flagler had been acquired on December 31, 2019.

As NITCO was acquired by Alta effective May 1, 2019, they are included within the Alta amounts as of December 31, 2019.

(in millions, except share and per share amounts)

Flagler Pro Forma

Pro Forma Combined

CURRENT ASSETS

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Total current assets

PROPERTY AND EQUIPMENT, NET

Intangible assets, net

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES

Lines of credit

Floor plan payable — new equipment

Floor plan payable — used and rental equipment

Current portion of long-term debt

Accounts payable

Customer deposits

Accrued expenses

Other current liabilities

Total current liabilities

LONG-TERM LIABILITIES

Long-term debt, net of current portion

Capital lease obligations, net of current portion

Buyback residual obligations, net of current portion

Guaranteed purchase obligation, net of current portion

Lease liability, net of current portion

Other liabilities

Warrant liability

TOTAL LIABILITIES

STOCKHOLDERS’ EQUITY (DEFICIT)

Additional paid-in capital

Retained earnings (deficit)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Pro forma statement of operations of Alta Equipment Group Inc.

The following table provides the pro forma statement of operations of Alta Equipment Group Inc.

for the year ended December 31, 2019 as if NITCO and Flagler had been acquired on January 1, 2019.

NITCO was acquired by Alta effective May 1, 2019.

Flagler was acquired on February 14, 2020.

Pursuant to ASC 805, pro forma disclosures should be reported whenever the year or interim

period of the acquisition is presented.

The pro forma results do not include any anticipated cost synergies or other effects of the integration of these entities into Alta.

(in millions, except share and per share amounts)

Alta Pro Forma

NITCO Pro Forma

Flagler Pro Forma

Pro Forma Combined

New, used and rental equipment sales

Service revenue

Rental revenue

Cost of revenues:

New, used and rental equipment sales

Service revenue

Rental revenue

Rental depreciation

Cost of revenue

General and administrative expenses

Depreciation and amortization expense

Total general and administrative expenses

Income (loss) from operations

Other income (expense)

Interest expense

Change in fair market value of warrants

Total other income (expense)

Loss before taxes

Income tax benefit

Net income (loss)

NOTE 21 — UNION PENSION PLAN

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If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers;

If the Company ceases to have an obligation to contribute to the multiemployer plan in which the Company had been a contributing employer, the Company may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company’s participation in the plan prior to the cessation of its obligation to contribute.

If the Company ceases to have a continuing obligation to contribute to the multiemployer plan in which the Company had been a contributing employer, the Company may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company’s participation in the plan prior to the cessation of its obligation to contribute.

The Company’s participation in multiemployer plans for the annual period ended December 31, 2021 and 2020 is outlined in the table below.

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The “Pension Protection Act Zone Status” available is for plan years that ended in 2021 and 2020.

The zone status is based on information provided to the Company and other participating employers by each plan and is certified by the

plan’s actuary.

The zone status is based on information provided to the Company and other participating employers by each plan and is certified by the plan’s actuary.

This indicates the funded status of the plan with the status indicated by the colors of green, yellow, and red with green being the most funded and red being the least funded.

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The “Surcharge Imposed” column indicates whether a surcharge was paid during the most recent annual period presented for the Company’s contributions to any plan in the red zone in accordance with the requirements of the Code.

The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company contributed to the plans.

The last column lists the expiration dates of the collective bargaining agreements with the Company.

There are no plans where the amount contributed by the Company represents more than 5% of the total contributions to the plan for the years ended December 31, 2021, and 2020.

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Central Pension Fund of Operating Engineers Local Union 17C

various through 11/30/2025

Central Pension Fund of the International Union of Operating Engineers Local 158 District 832

Central Pension Fund of the International Union of Operating Engineers

various through 6/19/2025

Central Pension Fund of the International Union of Operating Engineers - Local 158 District 545

Central Pension Fund of the International Union of Operating Engineers - Local 158 District 106

various through 1/9/2026

Operating Engineers Local 825 Fund

Iron Workers District Council of New England and the Int'l Assoc of Bridge, Structural, Ornamental and Reinforcing Iron Workers, AFL-CIO - Ironworkers' Local 15 & 424 Pension Fund

National Pension Fund of the International Association of Machinists & Aerospace Workers - Local 701

NOTE 22 — SEGMENTS

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The operating results for each segment are reported separately to the Company’s Chief Executive Officer to make decisions regarding the allocation of resources, to assess the Company’s operating performance and to make strategic decisions.

The Material Handling segment is principally engaged in operations related to the sale, service, and rental of lift trucks and other material handling equipment in Michigan, Illinois, Indiana and New York, as well as parts of the Northeastern United States.

As of December 31, 2020, the Material Handling segment included the Liftech, PeakLogix and Hilo acquisitions.

The Construction Equipment segment is principally engaged in operations related to the sale, service, and rental of construction equipment in Michigan, Illinois and Florida.

As of Dec ember 3 1 , 2020, the Construction Equipment segment included the Flagler , Martin , Howell and Vantage acquisitions.

The Material Handling segment is principally engaged in operations related to the sale, service, and rental of lift trucks and other material handling equipment in Michigan, Illinois, Virginia, Indiana and New York (including New York City), and New England (including Boston).

As of December 31, 2021, the Material Handling segment includes the ScottTech, Baron, Liftech, PeakLogix, and Hilo acquisitions.

The Construction Equipment segment is principally engaged in operations related to the sale, service, and rental of construction equipment in Michigan, Illinois, Indiana, Ohio, New York, and Florida.

As of December 31, 2021, the Construction Equipment segment includes the Gibson, Midwest Mine, Ambrose, Ginop, Flagler, Martin, Howell Tractor, and Vantage acquisitions.

The Company retains various unallocated expense items at the general corporate level, which the Company refers to as “Corporate” in the table below.

Corporate holds corporate debt and has minor activity all together.

For the year ended December 31, 2020, Corporate incurred $7.6 million in debt extinguishment fees, $7.6 million in transaction costs and other expenses associated with the reverse recapitalization.

During the year, Corporate primarily incurred expenses associated with consulting and legal fees related to acquisition costs, fees associated with the issuance of the common stock and preferred stock, shared based compensation expense and interest expense, which were offset with income tax benefit and $8.0 million in income from a life insurance policy on our Construction Group President.

For the year ended December 31, 2021, Corporate incurred $ 11.9 million in debt extinguishment fees as compared to $ 7.6 million in the prior year.

Corporate primarily incurs expenses associated with the compensation of our directors and our corporate senior leadership team, corporate expenses related to being a public company, preferred stock dividends, consulting and legal fees related to acquisition costs, costs related to capital raising activities, interest expense, and in the prior year ended December 31, 2020 incurred costs associated with the reverse capitalization transaction, fees on the issuance of the common and preferred stock which were partially offset with income tax benefit and $ 8.0 million in income from a life insurance policy on our Construction Group President.

The following table presents the Company’s results of operations by reportable segment for the year ended December 31, 2021 (amounts in millions):

Year Ended December 31, 2021

New and used equipment sales

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The following table presents the Company’s results of operations by reportable segment for the year ended December 31, 2020 (amounts in millions):

Year Ended December 31, 2020

New and used equipment sales

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Construction equipment

NOTE 23 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted-average number of shares outstanding during the period.

Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period.

We include all common shares granted under our share-based compensation plan which remain unvested (“restricted stock units”), in the number of shares outstanding for our diluted EPS calculations using the treasury method.

Basic and diluted EPS for the year ended December 31, 2021, and 2020 were calculated as follows (amounts in millions, except per share amounts):

Basic net (loss) income per share:

Net (loss) income

Basic weighted average common shares outstanding

Basic net (loss) income per share of common stock:

Diluted net (loss) income per share:

Net (loss) income

Basic weighted average common shares outstanding

Effect of dilutive securities:

Effect of dilutive non-vested restricted stock units

Diluted weighted average common shares outstanding

Diluted net (loss) income per share of common stock:

Securities excluded from the calculation of diluted loss per share were approximately 174,000 and 90,000 for the years ended December 31, 2021 and 2020, respectively, because the inclusion of such securities in the calculation would have been anti-dilutive.

NOTE 24 — SUBSEQUENT EVENTS

Warrant Exchange

On March 3, 2021, the Company entered into Amendment No.

1 to the warrant agreement, dated as of April 8, 2019.

The Warrant Amendment amends the warrant agreement to provide for the mandatory exchange of the Company’s outstanding warrants for shares of the Company’s common stock at an exchange ratio of 0.263 shares of common stock per warrant.

Amendment to Credit Agreement

On January 11, 2021, the Company amended its Fifth Amended and Restated ABL First Lien Credit Agreement by and among Alta Equipment Group Inc.

and the other credit parties named therein, the lenders named therein, JP Morgan Chase Bank, N.A., as Administrative Agent, and the syndication agents and documentation agent named therein.

The amendment generally allows for dividend payments to be made on the Preferred Stock without having to meet a leverage threshold, it excludes the Preferred dividend payments from affecting the second lien prepayment requirement, and it increases vendor floor plan limits from $225 Million to $250 Million, however, credit line borrowings would begin to be limited in the instance amounts borrowed on floor plan facilities exceed $225 Million.

We do not have any subsequent events to disclose.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures