Opendoor Technologies Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 61 Consolidated Balance Sheets 64 Consolidated Statements of Operations 65 Consolidated Statements of Comprehensive Loss 66 Consolidated Statements of Changes in Temporary Equity and Shareholders’ Equity (Deficit) 67 Consolidated Statements of Cash Flows 69 Notes to Consolidated Financial Statements 71 60 TABLE OF CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Opendoor Technologies Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Opendoor Technologies Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in temporary equity and shareholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, 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 each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters 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 our especially challenging, subjective, or complex judgments. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Stock-Based Compensation and Share Based Awards – Refer to Notes 1 and 14 to the consolidated financial statements Critical Audit Matter Description During the year ended December 31, 2020, the Company granted restricted stock unit awards (RSUs) to certain executives, which contain service, performance and market conditions (the “market condition RSUs”). These conditions include vesting upon achieving a liquidity event and achieving share price milestones. The Company determined the grant-date fair value of the market condition RSUs utilizing Monte Carlo simulations, which incorporate various assumptions including expected stock price volatility, contractual term, dividend yield, and stock price at grant date. The grant date fair value of the market condition RSUs was $357.4 million, which will be recognized over a requisite service period ranging from 6 months to 3.5 years. The Company recognized $19.9 million of compensation expense related to these market condition RSUs for the year ended December 31, 2020. 61 TABLE OF CONTENTS We identified the accounting and valuation of the market condition RSUs as a critical audit matter because of the significant degree of auditor judgment and increased audit effort to evaluate and assess the valuation model and assumptions used by management to determine the grant date fair value, as well as to evaluate the service periods used to recognize the resulting stock-based compensation expense. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to accounting and valuation of the Company’s market condition RSUs included, among others: • We inspected the offer letters and/or board of director approvals to evaluate the key terms and conditions of awards granted. • We tested the accuracy and completeness of the amounts and inputs used in the valuation model by agreeing the terms to the offer letters and/or board approvals. • With the assistance of fair value specialists, we evaluated the valuation model and assumptions used by the Company to determine the grant date fair value and then developed independent estimates of the grant date fair value and the derived service periods, and compared those estimates to the Company’s. • With the assistance of professionals in our firm having expertise in accounting for stock-based compensation, we evaluated whether the Company appropriately applied FASB’s Accounting Standard Codification (ASC) 718, Compensation—Stock Compensation to the market condition RSUs, where each market-based condition is treated as an accounting unit, including the features of the market condition RSUs that would impact the grant date fair value, the requisite service periods, and the resulting expense recognition. Business Combinations – Refer to Note 2 to the consolidated financial statements Critical Audit Matter Description Opendoor Labs, Inc. (“Opendoor Labs”) entered into a merger agreement (the “Merger Agreement”) with Social Capital Hedosophia Holdings Corp. II, (“SCH”) on September 15, 2020, which was consummated on December 18, 2020. Upon consummation of the transactions contemplated by the terms of the Merger Agreement, Opendoor Labs became a wholly owned subsidiary of SCH, which domesticated from the Cayman Islands to Delaware and changed its name to Opendoor Technologies Inc. The merger and the domestication transactions are collectively referred to as the “Business Combination.” The Business Combination was accounted for as a reverse recapitalization whereby SCH was accounted for as the accounting acquiree and Opendoor Labs as the accounting acquirer. This accounting treatment is equivalent to Opendoor Labs issuing stock for the net assets of SCH, accompanied by a recapitalization whereby no goodwill or intangible assets were recorded. Operations prior to the Business Combination are those of Opendoor Labs. At the close of the Business Combination, the Company received consideration of $376.6 million in cash as a result of the reverse recapitalization. We identified the accounting for the Business Combination as a critical audit matter because of the significant audit effort necessary to evaluate the Company’s conclusions, including the Company’s assessment of which entity represented the accounting acquirer and the resulting characterization and overall basis of presentation of the Company’s consolidated financial statements and disclosures. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s accounting for the Business Combination included, among others: • We inspected the Merger Agreement and other relevant information to evaluate the key terms of the Business Combination. • We evaluated the Company’s analysis of the Business Combination and the accuracy of the information used in the analysis and the judgments made by management. • With the assistance of professionals in our firm having expertise in accounting for Business Combinations, we evaluated management’s conclusion regarding which entity represented the accounting acquirer and the resulting characterization and overall basis of presentation which reflects the Business Combination as a reverse capitalization transaction. 62 TABLE OF CONTENTS • We evaluated the financial statement presentation and disclosures regarding the Business Combination with the accounting conclusions reached and disclosure requirements for a reverse recapitalization. /s/ DELOITTE & TOUCHE LLP San Francisco, California March 4, 2021 We have served as the Company’s auditor since 2015. 63 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONSOLIDATED BALANCE SHEETS (In thousands, except s hare data) As of December 31, 2020 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,412,665 $ 405,080 Restricted cash 92,863 279,742 Marketable securities 47,637 43,576 Mortgage loans held for sale pledged under agreements to repurchase 7,529 2,116 Escrow receivable 1,494 13,882 Real estate inventory, net 465,936 1,312,369 Other current assets ($ 373 and $ 100 carried at fair value) 24,987 30,879 Total current assets 2,053,111 2,087,644 PROPERTY AND EQUIPMENT – Net 29,228 34,606 RIGHT OF USE ASSETS 49,517 60,681 GOODWILL 30,945 30,945 INTANGIBLES – Net 8,684 12,414 OTHER ASSETS 4,097 5,394 TOTAL ASSETS (1) $ 2,175,582 $ 2,231,684 LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ DEFICIT CURRENT LIABILITIES: Accounts payable and other accrued liabilities $ 25,270 $ 32,977 Current portion of credit facilities and other secured borrowings 346,322 1,074,125 Interest payable 1,081 5,808 Lease liabilities, current portion 20,716 13,472 Total current liabilities 393,389 1,126,382 CREDIT FACILITIES – Net of current portion 135,467 221,929 CONVERTIBLE NOTES — 140,096 DERIVATIVE AND WARRANT LIABILITIES — 46,235 LEASE LIABILITIES – Net of current portion 46,625 48,435 OTHER LIABILITIES 94 208 Total liabilities (2) 575,575 1,583,285 COMMITMENTS AND CONTINGENCIES (See Note 19) TEMPORARY EQUITY: Series A convertible preferred stock, zero and 40,089,513 shares authorized, respectively; zero and 40,089,513 shares issued and outstanding, respectively; liquidation preference of $ 0 and $ 9,807 , respectively — 9,763 Series B convertible preferred stock, zero and 23,840,816 shares authorized, respectively; zero and 23,840,816 shares issued and outstanding, respectively; liquidation preference of $ 0 and $ 20,182 , respectively — 20,049 Series C convertible preferred stock, zero and 29,070,700 shares authorized, respectively; zero and 29,070,700 shares issued and outstanding, respectively; liquidation preference of $ 0 and $ 77,160 , respectively — 80,519 Series D convertible preferred stock, zero and 63,956,147 shares authorized, respectively; zero and 63,470,884 shares issued and outstanding, respectively; liquidation preference of $ 0 and $ 248,333 , respectively — 257,951 Series E convertible preferred stock, zero and 165,941,619 shares authorized, respectively; zero and 157,952,523 shares issued and outstanding, respectively; liquidation preference of $ 0 and $ 1,011,319 , respectively — 1,013,220 Total temporary equity — 1,381,502 SHAREHOLDERS’ EQUITY (DEFICIT): Common stock, $ 0.0001 and $ 0.00001 par value, respectively; 3,000,000,000 and 485,262,910 shares authorized, respectively; 540,714,692 and 83,748,443 shares issued and outstanding, respectively 54 — Additional paid-in capital 2,677,155 57,362 Accumulated deficit ( 1,077,243 ) ( 790,483 ) Accumulated other comprehensive income 41 18 Total shareholders’ equity (deficit) 1,600,007 ( 733,103 ) TOTAL LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ EQUITY (DEFICIT) $ 2,175,582 $ 2,231,684 ________________ (1) The Company’s consolidated assets at December 31, 2020 and 2019 include the following assets of certain variable interest entities (“VIEs”) that can only be used to settle the liabilities of those VIEs: Cash and cash equivalents, $ 15,849 and $ 86,526 ; Restricted cash, $ 81,408 and $ 268,368 ; Real estate inventory, net, $ 460,680 and $ 1,312,194 ; Escrow receivable, $ 1,364 and $ 13,798 ; Other current assets, $ 5,365 and $ 11,995 ; and Total assets of $ 564,666 and $ 1,692,881 , respectively. (2) The Company’s consolidated liabilities at December 31, 2020 and 2019 include the following liabilities for which the VIE creditors do not have recourse to Opendoor: Accounts payable and other accrued liabilities, $ 2,335 and $ 9,199 ; Interest payable, $ 1,059 and $ 5,784 ; Current portion of credit facilities and other secured borrowings, $ 339,173 and $ 1,042,984 ; Credit facilities, net of current portion, $ 135,467 and $ 221,929 ; and Total liabilities, $ 478,034 and $ 1,279,896 , respectively. See accompanying notes to consolidated financial statements. 64 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2020 2019 2018 REVENUE $ 2,583,121 $ 4,740,583 $ 1,838,066 COST OF REVENUE 2,363,324 4,439,333 1,704,638 GROSS PROFIT 219,797 301,250 133,428 OPERATING EXPENSES: Sales, marketing and operations 194,721 384,416 196,292 General and administrative 152,769 113,446 72,350 Technology and development 58,172 51,222 28,458 Total operating expenses 405,662 549,084 297,100 LOSS FROM OPERATIONS ( 185,865 ) ( 247,834 ) ( 163,672 ) DERIVATIVE AND WARRANT FAIR VALUE ADJUSTMENT ( 25,941 ) 6,243 ( 18,022 ) LOSS ON EXTINGUISHMENT OF DEBT ( 11,356 ) — — INTEREST EXPENSE ( 67,806 ) ( 109,728 ) ( 60,456 ) OTHER INCOME – Net 4,271 12,401 2,598 LOSS BEFORE INCOME TAXES ( 286,697 ) ( 338,918 ) ( 239,552 ) INCOME TAX EXPENSE ( 63 ) ( 252 ) ( 377 ) NET LOSS ( 286,760 ) ( 339,170 ) ( 239,929 ) LESS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS — 1,847 1,362 NET LOSS ATTRIBUTABLE TO OPENDOOR TECHNOLOGIES INC. $ ( 286,760 ) $ ( 341,017 ) $ ( 241,291 ) Net loss per share attributable to common shareholders: Basic $ ( 2.62 ) $ ( 4.26 ) $ ( 3.16 ) Diluted $ ( 2.62 ) $ ( 4.37 ) $ ( 3.16 ) Weighted-average shares outstanding: Basic 109,301 79,977 78,564 Diluted 109,301 79,977 78,564 See accompanying notes to consolidated financial statements. 65 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2020 2019 2018 NET LOSS $ ( 286,760 ) $ ( 339,170 ) $ ( 239,929 ) OTHER COMPREHENSIVE INCOME: Unrealized gains on marketable securities 23 20 25 COMPREHENSIVE LOSS ( 286,737 ) ( 339,150 ) ( 239,904 ) LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS — 1,847 1,362 COMPREHENSIVE LOSS ATTRIBUTABLE TO OPENDOOR TECHNOLOGIES INC. $ ( 286,737 ) $ ( 340,997 ) $ ( 241,266 ) See accompanying notes to consolidated financial statements. 66 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT) (In thousands, except number of shares) Temporary Equity Shareholders’ Equity (Deficit) Series A Convertible Preferred Stock Series B Convertible Preferred Stock Series C Convertible Preferred Stock Series D Convertible Preferred Stock Series E Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Non- controlling interests Total Shareholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount BALANCE–December 31, 2017 25,477,056 $ 10,037 15,029,846 $ 20,448 17,972,134 $ 80,519 33,937,556 $ 223,072 — $ — 44,694,066 $ — $ 10,702 $ ( 161,434 ) ( 27 ) 129 $ ( 150,630 ) Retroactive Conversion of shares due to Business Combination 15,733,178 — 9,281,576 — 11,098,566 — 20,957,901 — — — 27,600,509 — — — — — — BALANCE-December 31, 2017, as converted 41,210,234 10,037 24,311,422 20,448 29,070,700 80,519 54,895,457 223,072 — — 72,294,575 — 10,702 ( 161,434 ) ( 27 ) 129 ( 150,630 ) Issuance of Series E preferred stock — — — — — — — — 119,601,567 706,766 — — — — — — — Issuance of Series E-1 preferred stock — — — — — — — — 4,022,117 23,816 — — — — — — — Issuance of common stock in connection with acquisition — — — — — — — — — — 2,666,809 — 7,922 — — — 7,922 Vesting of restricted stock — — — — — — — — — — 4,133,158 — 2,388 — — — 2,388 Exercise of stock options — — — — — — — — — — 8,366,487 — 5,201 — — — 5,201 Repurchase of common stock — — — — — — — — — — ( 9,597,173 ) — ( 9,986 ) ( 36,106 ) — — ( 46,092 ) Repurchase of Series A preferred stock ( 1,120,721 ) ( 274 ) — — — — — — — — — — — ( 5,269 ) — — ( 5,269 ) Repurchase of Series B preferred stock — — ( 470,606 ) ( 399 ) — — — — — — — — — ( 1,930 ) — — ( 1,930 ) Repurchase of Series D preferred stock — — — — — — ( 29,963 ) ( 121 ) — — — — — ( 26 ) — — ( 26 ) Stock-based compensation — — — — — — — — — — — — 14,974 — — — 14,974 Other comprehensive income — — — — — — — — — — — — — — 25 — 25 Net income (loss) — — — — — — — — — — — — — ( 241,291 ) — 1,362 ( 239,929 ) BALANCE–December 31, 2018 40,089,513 $ 9,763 23,840,816 $ 20,049 29,070,700 $ 80,519 54,865,494 $ 222,951 123,623,684 730,582 77,863,856 $ — $ 31,201 $ ( 446,056 ) $ ( 2 ) $ 1,491 $ ( 413,366 ) Issuance of Series E-2 preferred stock — — — — — — — — 34,328,839 282,638 — — — — — — — Issuance of Series D preferred stock — — — — — — 8,605,390 35,000 — — — — 7,241 — — — 7,241 Issuance of common stock in stock in connection with acquisition — — — — — — — — — — 1,550,059 — 6,650 — — — 6,650 Vesting of restricted stock — — — — — — — — — — 2,106,144 — 1,061 — — — 1,061 Exercise of stock options — — — — — — — — — — 3,037,155 — 3,450 — — — 3,450 Repurchase of common Stock — — — — — — — — — — ( 808,771 ) — ( 590 ) ( 3,410 ) — — ( 4,000 ) Stock-based compensation — — — — — — — — — — — — 13,196 — — — 13,196 Purchase of non- controlling interests — — — — — — — — — — — — ( 4,847 ) — — ( 62 ) ( 4,909 ) Capital distribution of non-controlling interests — — — — — — — — — — — — — — — ( 3,276 ) ( 3,276 ) Other comprehensive income — — — — — — — — — — — — — — 20 — 20 Net income (loss) — — — — — — — — — — — — — ( 341,017 ) — 1,847 ( 339,170 ) BALANCE–December 31, 2019 40,089,513 $ 9,763 23,840,816 $ 20,049 29,070,700 $ 80,519 63,470,884 $ 257,951 157,952,523 $ 1,013,220 83,748,443 — $ 57,362 $ ( 790,483 ) $ 18 $ — $ ( 733,103 ) Issuance of Series D preferred stock — — — — — — 485,262 1,974 — — — — 2,841 — — — 2,841 Issuance of Series E preferred stock — — — — — — — — 364,070 2,156 — — 1,460 — — — 1,460 Issuance of issuer stock rights in extinguishment of convertible notes — — — — — — — — — — — — 212,940 — — — 212,940 67 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Issuance of common stock in exchange for issuer stock rights — — — — — — — — — — 21,460,401 — — — — — — Issuance of common stock — — — — — — — — — — 1,389,585 — 889 — — — 889 Vesting of restricted stock — — — — — — — — — — 1,461,844 — 133 — — — 133 Exercise of stock options — — — — — — — — — — 5,638,019 — 7,652 — — — 7,652 Conversion of preferred stock to common stock ( 40,089,513 ) ( 9,763 ) ( 23,840,816 ) ( 20,049 ) ( 29,070,700 ) ( 80,519 ) ( 63,956,146 ) ( 259,925 ) ( 158,316,593 ) ( 1,015,376 ) 315,273,768 2 1,385,630 — — — 1,385,632 Issuance of common stock in connection with Business Combination and PIPE offering — — — — — — — — — — 111,742,632 52 970,243 — — — 970,295 Stock-based compensation — — — — — — — — — — — — 38,005 — — — 38,005 Other comprehensive income — — — — — — — — — — — — — — 23 — 23 Net loss — — — — — — — — — — — — — ( 286,760 ) — — ( 286,760 ) BALANCE–December 31, 2020 — $ — — $ — — $ — — $ — — $ — 540,714,692 $ 54 $ 2,677,155 $ ( 1,077,243 ) $ 41 $ — $ 1,600,007 See accompanying notes to consolidated financial statements. 68 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In t housands) Year Ended December 31, 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 286,760 ) $ ( 339,170 ) $ ( 239,929 ) Adjustments to reconcile net loss to cash, cash equivalents, and restricted cash provided by (used in) operating activities: Depreciation and amortization – net of accretion 38,604 27,372 12,781 Amortization of right of use asset 23,744 11,940 — Stock-based compensation 38,005 12,606 8,422 Warrant fair value adjustment 2,622 ( 6,243 ) 18,022 Inventory valuation adjustment 7,596 31,885 20,523 Changes in fair value of derivative instruments 23,043 1,102 2,996 Payment-in-kind interest 3,910 2,052 — Net fair value adjustments and gain (loss) on sale of mortgage loans held for sale ( 3,390 ) ( 447 ) — Origination of mortgage loans held for sale ( 127,658 ) ( 23,194 ) — Proceeds from sale and principal collections of mortgage loans held for sale 125,635 21,525 — Changes in operating assets and liabilities: Escrow receivable 12,388 ( 3,110 ) 4,474 Real estate inventories 834,143 16,951 ( 1,015,207 ) Other assets 4,315 ( 7,518 ) ( 11,723 ) Accounts payable and other accrued liabilities ( 3,995 ) ( 4,331 ) 16,375 Interest payable ( 3,145 ) 475 3,629 Lease liabilities ( 7,146 ) ( 13,945 ) — Net cash provided by (used in) operating activities 681,911 ( 272,050 ) ( 1,179,637 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 17,341 ) ( 27,972 ) ( 20,022 ) Purchase of marketable securities ( 174,530 ) ( 79,319 ) ( 22,926 ) Proceeds from sales, maturities, redemptions and paydowns of marketable securities 170,005 45,025 40,373 Acquisitions, net of cash acquired — ( 32,812 ) ( 4,857 ) Net cash used in investing activities ( 21,866 ) ( 95,078 ) ( 7,432 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Series D preferred stock 3 35,000 — Proceeds from issuance of Series E preferred stock 2,156 — 708,200 Issuance cost of Series E preferred stock — — ( 1,434 ) Proceeds from issuance of Series E-2 preferred stock — 282,875 — Issuance cost of Series E-2 preferred stock — ( 237 ) — Proceeds from issuance of common stock 82 — — Proceeds from issuance of convertible notes — 178,200 20,000 Proceeds from exercise of stock options 7,557 3,358 6,888 Proceeds from Business Combination and PIPE offering 1,013,926 — — Issuance cost of common stock ( 43,449 ) — — Capital distributions of non-controlling interest — ( 3,276 ) — Proceeds from credit facilities and other secured borrowings 1,433,798 3,664,217 1,994,088 Principal payments on credit facilities and other secured borrowings ( 2,250,192 ) ( 3,495,411 ) ( 1,176,541 ) Payment of loan origination fees and debt issuance costs ( 3,220 ) ( 15,137 ) ( 8,911 ) Repurchase of common stock at fair value — ( 3,410 ) ( 37,777 ) Repurchase of Series A preferred stock — — ( 5,543 ) Repurchase of Series B preferred stock — — ( 2,329 ) Repurchase of Series D preferred stock — — ( 147 ) Net cash provided by financing activities 160,661 646,179 1,496,494 NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 820,706 279,051 309,425 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – Beginning of year 684,822 405,771 96,346 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – End of year $ 1,505,528 $ 684,822 $ 405,771 69 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION – Cash paid during the period for interest $ 56,937 $ 85,910 $ 44,574 DISCLOSURES OF NONCASH FINANCING ACTIVITIES: Conversion of preferred stock to common stock $ 1,385,632 $ — $ — Issuance of issuer stock rights in extinguishment convertible notes 212,940 — — Vesting of early exercised stock options 124 1,060 2,388 Conversion of convertible notes to Series E-1 preferred stock — — 23,816 Noncash financing, issuance of common stock for acquisition — 6,650 ( 6,152 ) RECONCILIATION TO CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 1,412,665 $ 405,080 $ 262,368 Restricted cash 92,863 279,742 143,403 Cash, cash equivalents, and restricted cash $ 1,505,528 $ 684,822 $ 405,771 See accompanying notes to consolidated financial statements. 70 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) 1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES Description of Business Opendoor Technologies Inc. (the “Company” and “Opendoor”) including its consolidated subsidiaries and certain variable interest entities (“VIEs”), is a leading digital platform for buying and selling homes. Opendoor streamlines the home selling and buying transaction and creates an end-to-end experience online. As of December 31, 2020, the Company had completed over 80,000 home transactions in 21 markets across the United States. The Company was incorporated in Delaware on December 30, 2013. Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared pursuant to generally accepted accounting principles in the United States of America (“GAAP”). The consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 include the accounts of Opendoor, its wholly owned subsidiaries and VIEs where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements herein. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. Certain prior period amounts have been reclassified to conform to the current period’s presentation. As a result of the Business Combination completed on December 18, 2020, prior period share and per share amounts presented in the accompanying consolidated financial statements and these related notes have been retroactively converted. See “ Note 2— Business Combination” for additional information. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ materially from such estimates. Significant estimates, assumptions and judgments made by management include, among others, the determination of the fair value of common stock, share-based awards, warrants, derivatives, convertible notes, and inventory impairment (“real estate inventory valuation adjustment”). Management believes that the estimates and judgments upon which they rely are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent that there are material differences between these estimates and actual results, the Company’s financial statements will be affected. The COVID-19 pandemic introduced significant additional uncertainties with respect to estimates, judgments and assumptions, which may materially impact these estimates. Significant Risks and Uncertainties The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, the Company believes that changes in any of the following areas could have a significant negative effect on the Company in terms of its future financial position, results of operations or cash flows: public health crises, like the COVID-19 pandemic; its rates of revenue growth; its ability to manage advertising inventory or pricing; engagement and usage of its products; the effectiveness of its investment of resources to pursue strategies; competition in its market; the stability of the residential real estate market; the impact of interest rate changes on demand and its costs; changes in technology, products, markets or services by the Company or its competitors; the addition or loss of significant customers; its ability to maintain or establish relationships with listings and data providers; its ability to obtain or maintain licenses and permits to support its current and future businesses; actual or anticipated changes to its products and services; changes in government regulation affecting its business; the outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; its management of its growth; its ability to attract and retain qualified employees and key personnel; its ability to successfully integrate and realize the benefits of its past or future strategic acquisitions or investments; the protection of customers’ information and other privacy concerns; the protection of its brand and intellectual property; and intellectual property infringement and other claims, among other things. 71 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) On March 11, 2020, the World Health Organization characterized the outbreak of a novel strain of coronavirus (COVID-19) as a pandemic. Since that time, this outbreak has spread throughout the United States inclusive of all of the states in which the Company operates. In response to the developments of COVID-19, the Company paused making new offers to purchase homes beginning in March and significantly reduced the Company’s home inventory balance during the second and third quarters of 2020. The Company relaunched offers to purchase homes in select markets in May 2020 and resumed operations across all of its markets by the end of August 2020. The extent to which COVID-19 will impact our operations will depend on further developments, which are highly uncertain and cannot be predicted at this time. See “Note 20 — Restructuring” for further discussion. Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, investments in marketable securities, and mortgage loans held for sale pledged under agreements to repurchase (“MLHFS”). The Company places cash and cash equivalents and investments with major financial institutions, which management assesses to be of high credit quality, in order to limit exposure of the Company’s investments. Similarly, the Company’s credit risk on mortgage loans held for sale is mitigated due to a large number of customers. Further, the Company’s credit risk on mortgage loans held for sale is mitigated by the fact that the Company typically sells mortgages on the secondary market within a relatively short period of time after which the Company’s exposure is limited to borrower defaults within the initial few months of the mortgage. Reclassifications In 2020, the Company changed its presentation of Mortgage loans held for sale pledged under agreements to repurchase on its Consolidated Balance Sheets as of December 31, 2019, by reclassifying the $ 2.1 million balance from Other current assets to Mortgage loans held for sale pledged under agreements to repurchase. These changes had no effect on previously reported total assets and total liabilities, net loss or to the classifications of cash flow activities. The Company has modified its disclosures, including comparative disclosures, for MLHFS and related mortgage activity. Segment Reporting For the years ended December 31, 2020, 2019, and 2018, the Company was managed as a single operating segment on a consolidated basis. Furthermore, the Company determined that the Co-Founder and Chief Executive Officer is the Chief Operating Decision Maker as he is responsible for making decisions regarding the allocation of resources and assessing performance, as well as for strategic operational decisions and managing the organization at a consolidated level. Cash and Cash Equivalents Cash includes demand deposits with financial institutions and cash items in transit. Cash equivalents include only investments with initial maturities of three months or less that are highly liquid and readily convertible to known amounts of cash. The Company maintains portions of the Company’s cash in bank deposit accounts, which, at times, may exceed federally insured limits. Management believes that the Company is not exposed to any significant credit risk related to cash deposits. Restricted Cash Restricted cash consists primarily of funds held in operating, collection, disbursement and reserve accounts related to the Company’s credit facilities and entities established for such credit facilities. The restricted cash balance related to the Company’s credit facilities are constrained by contract to purchasing real estate inventory and certain related activities. In addition, the Company is required to maintain letters of credit and a time deposit account for certain of the Company’s office leases. See “Note 7 — Credit Facilities and Long-Term Debt” for further discussion. Marketable Securities The Company’s investments in marketable securities consist of debt securities classified as available-for-sale and measured at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in 72 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) shareholders’ equity and realized gains and losses included in earnings. None of the Company’s investments in marketable securities were impaired for the years ended December 31, 2020, 2019 and 2018. See “Note 4 — Cash, Cash Equivalents, and Marketable Securities” for further discussion. Real Estate Inventory Real estate inventory is carried at the lower of cost or net realizable value. Real estate inventory cost includes but is not limited to the property purchase price, acquisition costs and direct costs to renovate or repair the home, less real estate inventory valuation adjustments, if any. Work-in-progress inventory includes homes undergoing updates and finished goods inventory includes homes ready for resale. Real estate inventory is reviewed for impairment at least quarterly and as events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount or basis is not expected to be recovered, a real estate inventory valuation adjustment is recorded to cost of revenue and the related assets are adjusted to their net realizable value. Mortgage Loans Held for Sale Pledged under Agreements to Repurchase MLHFS pledged under agreements to repurchase include residential mortgages originated for sale in the secondary markets on a best-effort basis. The Company has elected the fair value option for all MLHFS (see “Note 8 — Fair Value Disclosures” ). This option allows for the Company to better offset changes in the fair value of MLHFS with derivatives used to economically hedge them when the Company moves away from selling on a best-effort basis, without applying hedge accounting. MLHFS are recorded at fair value based on sales commitments. MLHFS are transferred from the Company to the counterparty pursuant to a master repurchase agreement, which is treated as a secured borrowing; this treatment requires that the assets transferred remain on the Company’s balance sheet and measured as if the transfer did not take place. Gains and losses on MLHFS, including the change in fair value associated with MLHFS, are recorded in Revenue. Direct loan origination costs and fees including headcount costs related to loan production are recorded in Cost of revenue. Interest income on MLHFS is calculated based upon the note rate of the loan and recorded in Interest income. Derivative Instruments The Company’s derivative instruments are comprised of interest rate caps, interest rate lock commitments (“IRLCs”), and embedded conversion options related to the convertible notes. The Company’s derivative instruments are freestanding in nature and some are utilized as economic hedges. These derivative instruments are recorded at fair value with changes recognized as a gain or loss to operations. See “Note 5 — Derivative Instruments” for further discussion. Escrow Receivable Escrow receivable consists of proceeds from home resale held in escrow prior to such proceeds being remitted to us. The Company reviews the need for an allowance for credit losses quarterly based on historical collections experience, among other factors. As of December 31, 2020 and 2019, the Company did not have any material write-offs and did not record an allowance for credit losses. No customers accounted for 10% or more of the Company’s Escrow Receivable as of December 31, 2020 or 2019, respectively. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Property and equipment are capitalized and depreciated. Depreciation is calculated using the straight-line method over the estimated useful lives of assets. Maintenance and repair costs are charged to expense as incurred. The estimated useful lives of the Company’s property and equipment are as follows: 73 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Internally developed software 2 years Software implementation costs Lesser of 3 years or contract term Computers 2 years Security systems 1 year Furniture and fixtures 5 years Leasehold improvements Lesser of useful life or lease term Office equipment 3 years Leases The Company determines if an arrangement is or contains a lease at inception or modification of the arrangement. An arrangement is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period in exchange for consideration. Control over the use of the identified assets means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. For leases for which the Company is the lessee, the Company recognizes right-of-use assets and lease liabilities for all leases other than those with a term of 12 months or less as the Company has elected to apply the short-term lease recognition exemption. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are classified and recognized at the commencement date of a lease. Lease liabilities are measured based on the present value of fixed lease payments over the lease term. Right-of-use assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company. Lease payments may vary because of changes in facts or circumstances occurring after the commencement, including changes in inflation indices. Variable lease payments are excluded from the measurement of right-of-use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As the rates implicit on the Company’s leases for which it is the lessee are not readily determinable, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. When determining the incremental borrowing rate, the Company assesses multiple variables such as lease term, collateral, economic conditions, and creditworthiness. For operating leases, the Company recognizes straight-line rent expense. For finance leases, the Company recognizes interest expense associated with the lease liability and amortization expense associated with the right-of-use asset. For right-of-use assets held under finance leases and leasehold improvements, the estimated useful lives are limited to the shorter of the useful life of the asset or the term of the lease. The Company’s lease arrangements may include options to extend or early terminate a lease, which it does not include in expected lease terms unless they are reasonably certain to be exercised. The Company has lease arrangements with lease and non-lease components. As a lessee, the Company has elected to apply the practical expedient to combine lease and related non-lease components, for all classes of underlying assets, and shall account for the combined component as a lease component. Occasionally, as a lessor, the Company enters into contracts accounted for as leases. As a lessor, the Company elected to apply the practical expedient to combine lease and non-lease components for all classes of underlying assets. Internally Developed Software For software the Company develops for internal use, the costs incurred in the preliminary stages of development are expensed as incurred. Once an application reaches the development stage, the Company capitalizes direct costs incurred (including internal and external) to property and equipment. Maintenance and on-going operating costs of developed applications are expensed as incurred. Amortization expense is recognized on a straight-line basis into technology and development expense. 74 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Goodwill Goodwill represents the difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is not amortized. The Company has a single reporting unit and management reviews goodwill for impairment annually on the first day of the third quarter and also if events or changes in circumstances indicate the occurrence of a triggering event. Goodwill is reviewed for impairment by initially considering 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, including goodwill, as a basis for determining whether it is necessary to perform a quantitative analysis. If it is determined that it is more likely than not that the fair value of reporting unit is less than its carrying amount, a quantitative analysis is performed to identify goodwill impairment. Intangible Assets The Company recorded intangible assets with finite lives, including developed technology, customer relationships, trademarks, and non-competition agreements, as a result of acquisitions as well as internal development. Intangible assets are amortized based on their estimated economic lives, ranging from 2 to 5 years. Impairment of Long-Lived Assets Long-lived assets, such as property and equipment and definite-lived intangible assets, among other long-term assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is recognized to the extent the carrying amount of the underlying asset exceeds its fair value. No impairment loss was recognized for the years ended December 31, 2020, 2019, and 2018. Revenue Recognition The Company generates revenue through home sales, along with other revenue from ancillary real estate services. Other revenue represents an insignificant portion of the Company’s total revenue. The Company recognizes revenue when it satisfies its performance obligations by transferring control of promised goods or services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Home sales revenue consists of selling residential real estate to customers. Revenue is recognized when title to and possession of the property has transferred to the customer and the Company has no continuing involvement with the property, which is generally upon close of escrow. The amount of revenue recognized for each home sale is equal to the sale price of the home net of any concessions. The Company generally provides a 90 -day guarantee on home sales, subject to terms and conditions. Returns on home sales have been limited in the Company’s experience and it does not estimate for returns in recognizing revenue. Other revenue consists primarily of title insurance facilitation revenue, closing and escrow services, real estate broker commissions, and gain (loss) on sale of mortgage loans. These real estate services are provided in conjunction with home sales, and revenue is recognized consistent with home sales revenue, generally upon close of escrow. No customers generated 10% or more of the Company’s total revenue in the years ended December 31, 2020, 2019 or 2018. Cost of Revenue Cost of revenue includes the property purchase price, acquisition costs, direct costs to renovate or repair the home and real estate inventory valuation adjustments, if any. These costs are accumulated in real estate inventory during the property holding period and charged to cost of revenue under the specific identification method when the property is sold. Additionally, for the 75 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Company’s revenues other than home sales revenue, cost of revenue consists of any costs incurred in delivering the service including associated headcount expenses such as salaries, benefits, and stock-based compensation. Sales, Marketing and Operations Expense Sales, marketing and operations expense consists primarily of resale broker commissions, resale closing costs, holding costs related to real estate inventory including utilities, property taxes and maintenance, and expenses associated with product marketing, promotions and brand-building. Sales, marketing and operations expense includes any headcount expenses in support of sales, marketing, and real estate inventory operations such as salaries, benefits, and stock-based compensation. These costs are expensed as incurred. Advertising costs are expensed as incurred. For the years ended December 31, 2020, 2019, and 2018, expenses attributable to advertising totaled $ 33.1 million, $ 75.2 million, and $ 38.9 million, respectively. Technology and Development Technology and development expense consists primarily of amortization expense of capitalized software development costs in addition to headcount expenses, including salaries, benefits, and stock-based compensation for employees in the design, development, testing, maintenance and operation of the Company’s mobile applications, websites, tools and other applications that support its products. Stock-Based Compensation Stock-based compensation awards consist of stock options, restricted stock units (“RSUs”), and shares of restricted stock (“Restricted Shares”). Stock Options The Company has granted stock options with a service condition to vest, which is generally four years. The Company records stock-based compensation expense for service-based stock options on a straight-line basis over the requisite service period, which is generally the option’s vesting period. These amounts are reduced by forfeitures as the forfeitures occur. The Company uses the Black-Scholes-Merton option-pricing model to determine the fair value as of the grant date for stock options. RSUs The Company has granted RSUs with a performance condition, based on a liquidity event, as defined by the share agreement, as well as a service condition to vest, which is generally four years. The Company determines the fair value of RSUs based on the valuation of the Company’s common stock as of the grant date. No compensation expense is recognized for performance-based awards until the liquidity event has occurred. Subsequent to the occurrence of a liquidity event, compensation expense is recognized to the extent the requisite service period has been completed. Compensation expense is recognized on an accelerated attribution basis over the requisite service period of the awards subject to the achievement of the liquidity event. Market Condition RSUs The Company has granted RSUs with a performance condition, based on a liquidity event, as defined by the share agreement, as well as a market condition to vest. Subject to the employee’s continued services to the Company, the market-based conditions are satisfied upon the Company's achievement of share price milestone calculated based on 60-day volume weighted average. For market-based RSUs, the Company determines the grant-date fair value utilizing Monte Carlo simulations, which incorporates various assumptions including expected stock price volatility, contractual term, dividend yield, and stock price at grant date. The Company estimates the volatility of common stock on the date of grant based on the weighted-average historical stock price volatility of comparable publicly-traded companies. As the Company had no history of dividend payments and had not declared any prospective dividends, a 0% dividend yield was assumed. 76 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) For stock-based compensation, each market-based condition is treated as an accounting unit and expense is recognized over the requisite service period with respect to each unit and only if performance-based conditions are considered probable to be satisfied. The Company determines the requisite service period by comparing the derived service period to achieve the market-based condition and the explicit service-based period, if any, using the longer of the two service periods as the requisite service period. Restricted Shares The fair value of the Restricted Shares is equal to the estimated fair value of the Company’s common stock on the grant date. The Company recognizes compensation expense for the shares on a straight-line basis over the requisite service period of the awards. The fair value of these shares will be recognized into common stock and additional paid-in-capital as the shares vest. Income Taxes The Company records income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. The Company recognizes the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process whereby: (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. Consolidation of Variable Interest Entities The Company is a variable interest holder in certain entities in which equity investors at risk do not have the characteristics of a controlling financial interest or where the entity does not have enough equity at risk to finance its activities without additional subordinated financial support from other parties; these entities are VIEs. The Company’s variable interest arises from contractual, ownership or other monetary interest in the entity, which fluctuates based on the VIE’s economic performance. The Company consolidates a VIE if it is the primary beneficiary. The Company is the primary beneficiary if it has a controlling financial interest, which includes both the power to direct the activities that most significantly impact the economic performance of the VIE and a variable interest that obligates the Company to absorb losses or the right to receive benefits that potentially could be significant to the VIE. To determine whether a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of its involvement with the VIE. The Company assesses whether or not the Company is the primary beneficiary of a VIE on an ongoing basis. Recently Issued Accounting Standards Recently Adopted Accounting Standards In September 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The FASB also issued subsequent amendments to the initial guidance, ASU 2019-04, ASU 2019-05, ASU 2019-11, and ASU 2020-03 (collectively, “Topic 326”). 77 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) The effective date and transition methodology for the amendments in Topic 326 are the same as in ASU 2016-13. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 requires that credit losses be presented as an allowance rather than as a write-down. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company adopted this ASU as of January 1, 2020 and the adoption of this ASU did not have a material impact to the Company’s consolidated financial statements. In August 2018, the FASB issued ASU 2018-15 Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40). ASU 2018-15 amends a customer’s accounting for implementation costs incurred in hosting arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in cloud computing arrangements with the requirements for capitalizing costs to develop or obtain internal-use software. This ASU is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company adopted this ASU as of January 1, 2020 and the adoption of this ASU did not have a material impact to the Company’s consolidated financial statements under the prospective transition method. Recently Issued Accounting Standards Not Yet Adopted In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not believe that the new guidance will have a material effect given that the Company has a full valuation allowance and the scenarios for which the guidance offer simplification are not significant for the Company.. In March 2020, the FASB issued ASU 2020-04 which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Inter- Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. This guidance is effective from March 12, 2020 through December 31, 2022. Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company may elect to take advantage of this optional guidance in its transition away from LIBOR within certain debt contracts. While the goal of the reference rate reform transition is for it to be economically neutral to entities, the Company has not yet adopted this standard nor has the Company determined the impact the adoption of this guidance will have on the Company’s financial position, results of operations or cash flows. 2. BUSINESS COMBINATIONS Opendoor Labs Inc. entered into a merger agreement (the “Merger Agreement”) with Social Capital Hedosophia Holdings Corp. II, (“SCH”) on September 15, 2020. Pursuant to the Merger Agreement, Hestia Merger Sub Inc., a newly formed subsidiary of SCH (“Merger Sub”), merged with and into Opendoor Labs Inc. Upon the completion of the transactions contemplated by the terms of the Merger Agreement (the “Closing”) on December 18, 2020, the separate corporate existence of Merger Sub ceased and Opendoor Labs Inc. survived the merger and became a wholly owned subsidiary of SCH. On December 18, 2020, SCH also filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which SCH was domesticated as a Delaware corporation, changing its name from “Social Capital Hedosophia Holdings Corp. II” to “Opendoor Technologies Inc.” These transactions are collectively referred to as the “Business Combination.” 78 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) The Business Combination was accounted for as a reverse recapitalization whereby SCH was determined as the accounting acquiree and Opendoor Labs Inc. as the accounting acquirer. This accounting treatment is equivalent to Opendoor Labs Inc. issuing stock for the net assets of SCH, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded. Operations prior to the Business Combination are those of Opendoor Labs Inc. At the Closing, the Company received consideration of $ 376.6 million in cash as a result of the reverse recapitalization. In connection with the Business Combination, SCH entered into subscription agreements with certain investors, whereby it issued 60,005,000 shares of common stock at $ 10.00 per share (“PIPE Shares”) for an aggregate purchase price of $ 600.1 million (“PIPE Investment”), which closed simultaneously with the consummation of the Business Combination. Upon the Closing, the PIPE Shares were automatically converted into shares of the Company's common stock on a one-for-one basis. Upon the Closing, holders of Opendoor Labs Inc. common stock received shares of Opendoor Technologies common stock in an amount determined by application of the exchange ratio of 1.618 (“Exchange Ratio”), which was based on Opendoor Labs Inc.’s implied price per share prior to the Business Combination. For periods prior to the Business Combination, the reported share and per share amounts have been retroactively converted (“Retroactive Conversion”) by applying the Exchange Ratio. In connection with the Business Combination, the Company incurred approximately $ 43.6 million of equity issuance costs, consisting of underwriting, legal, and other professional fees, which are recorded to additional paid-in capital as a reduction of proceeds. OSN acquisition On September 4, 2019, the Company acquired 100 % of the outstanding equity of OS National LLC, including its consolidated subsidiaries (“OSN”). OSN, a company based in Duluth, Georgia, provides settlement, escrow and title services to consumers, financial institutions, real estate investment trusts, private equity firms, mortgage servicers and institutional investors to facilitate residential and commercial real estate transactions. The Company acquired OSN with the intent of streamlining the home-buying process for its customers by integrating settlement and escrow services into the Company’s existing product offerings. The Company indirectly acquired OSN’s noncontrolling interest in the title companies originally formed as joint ventures between Opendoor and OSN for $ 4.9 million, which was recorded as an equity transaction. As a result of this business combination, the Company became more vertically integrated with the ability to offer its customers OSN products and create a more seamless home buying experience while reducing its cost structure with respect to real estate transactions. The acquisition-date fair value of the consideration transferred consisted of the following (in thousands): Cash consideration $ 34,300 Equity consideration – common stock 6,700 Total consideration transferred $ 41,000 Acquired intangible assets consist of trademarks and customer relationships valued at $ 5.1 million and $ 6.5 million, respectively. The Company amortizes these acquired intangible assets over 5 years. Open Listings acquisition On September 10, 2018, the Company acquired 100 % of the outstanding equity of Open Listings Co. (now known as OD Homes Brokerage Inc.) (“Open Listings”). Open Listings, a Los Angeles based company, is an online platform that connects self-directed buyers with partner buying agents in an effort to reshape the home buying experience and deliver a lower buyer agent commission by refunding a portion of the agent commission to the buyer. The Company acquired Open Listings with the intent of integrating the Open Listings business model into its business of buying and selling homes. The Open Listings service product has been fully integrated to Opendoor’s services offering under Buy with Opendoor. 79 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) The acquisition-date fair value of the consideration transferred consisted of the following (in thousands): Cash consideration $ 9,370 Equity consideration 6,150 Total consideration transferred $ 15,520 Acquired intangible assets consist of trademarks, non-competition agreements, customer relationships and developed technology valued at $ 0.3 million, $ 0.1 million, $ 0.9 million, and $ 2.9 million, respectively. The Company amortizes these acquired intangible assets over 2 years. Pro forma financial information The results of operations for OSN that have been included in the Company’s consolidated financial statements from the September 4, 2019 acquisition date through December 31, 2019 includes revenue of $ 12.8 million and net loss of $ 4.2 million. The results of operations for Open Listings that have been included in the Company’s consolidated financial statements from the September 10, 2018 acquisition date through December 31, 2018 includes revenue of $ 2.0 million and net loss of $ 2.3 million. The following unaudited pro forma results of operations have been prepared as though the OSN acquisition and the Open Listings acquisition were completed on January 1, 2018 (in thousands). Pro forma amounts are based on the purchase price allocation of the acquisition and are not necessarily indicative of results that may be reported in the future. Non-recurring pro forma adjustments including acquisition-related costs directly attributable to the business combination transactions are included within the reported pro forma revenue and net loss. Year Ended December 31, (unaudited) 2019 2018 Revenue $ 4,763,716 $ 1,883,129 Net loss ( 340,667 ) ( 231,865 ) 3. REAL ESTATE INVENTORY The following table presents the components of inventory, net of applicable real estate inventory valuation adjustments, as of the dates presented (in thousands): December 31, 2020 December 31, 2019 Work-in-process $ 183,004 $ 179,419 Finished goods 282,932 1,132,950 Total real estate inventory $ 465,936 $ 1,312,369 80 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) 4. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES The amortized cost, gross unrealized gains and losses, and fair value of cash, cash equivalents, and marketable securities as of December 31, 2020 and 2019, are as follows (in thousands): December 31, 2020 Cost Basis Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities Cash $ 709,924 $ — $ — $ 709,924 $ 709,924 $ — Money market funds 618,197 — — 618,197 618,197 — Commercial paper 81,037 1 — 81,038 81,038 — Corporate debt securities 29,891 26 ( 2 ) 29,915 3,506 26,409 Asset-backed securities 12,518 19 ( 4 ) 12,533 — 12,533 U.S. agency securities 6,993 2 — 6,995 — 6,995 U.S. Treasury securities 1,700 — — 1,700 — 1,700 Total $ 1,460,260 $ 48 $ ( 6 ) $ 1,460,302 $ 1,412,665 $ 47,637 December 31, 2019 Cost Basis Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities Cash $ 366,358 $ — $ — $ 366,358 $ 366,358 $ — Money market funds 30,935 — — 30,935 30,935 — Commercial paper 19,997 1 ( 4 ) 19,994 7,038 12,956 Corporate debt securities 16,417 12 ( 1 ) 16,428 — 16,428 Asset-backed securities 12,482 12 ( 2 ) 12,492 — 12,492 U.S. agency securities 749 — — 749 749 — U.S. Treasury securities 1,000 — — 1,000 — 1,000 Non-U.S. securities 700 — — 700 — 700 Total $ 448,638 $ 25 $ ( 7 ) $ 448,656 $ 405,080 $ 43,576 81 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) A summary of debt securities with unrealized losses aggregated by period of continuous unrealized loss is as follows (in thousands): Less than 12 Months 12 Months or Greater Total December 31, 2020 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Commercial paper $ 19,296 $ — $ — $ — $ 19,296 $ — Corporate debt securities 7,538 ( 2 ) — — 7,538 ( 2 ) Asset-backed securities 4,611 ( 4 ) — — 4,611 ( 4 ) Total $ 31,445 $ ( 6 ) $ — $ — $ 31,445 $ ( 6 ) Less than 12 Months 12 Months or Greater Total December 31, 2019 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Commercial paper $ 15,059 $ ( 4 ) $ — $ — $ 15,059 $ ( 4 ) Corporate debt securities 3,166 ( 1 ) — — 3,166 ( 1 ) Asset-backed securities 4,258 ( 2 ) — — 4,258 ( 2 ) Non-U.S. securities 700 — — — 700 — Total $ 23,183 $ ( 7 ) $ — $ — $ 23,183 $ ( 7 ) The scheduled contractual maturities of debt securities as of December 31, 2020 are as follows (in thousands): December 31, 2020 Fair Value Within 1 Year After 1 Year through 5 Years Commercial paper $ 81,038 $ 81,038 $ — Corporate-debt securities 29,915 29,915 — Asset-backed securities 12,533 12,533 — U.S. agency securities 6,995 6,995 — U.S. Treasury securities 1,700 1,700 — Total $ 132,181 $ 132,181 $ — 5. DERIVATIVE INSTRUMENTS The Company uses certain types of derivative instruments in the normal course of business and the Company’s use of derivatives includes interest rate caps to manage interest rate risk, IRLCs with respect to our MLHFS, and embedded conversion options with respect to the Company’s convertible notes. Derivative transactions can be measured in terms of notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which interest and other payments are determined. Interest Rate Caps The Company uses free-standing derivative instruments in the normal course of business as economic hedges to manage interest rate risks with respect to its variable senior revolving credit facilities. The interest rate caps are carried at fair value in Other current assets with changes in fair value included in Other income. The Company’s interest rate cap position expired in November 2020. Interest Rate Lock Commitments In originating mortgage loans, the Company enters into IRLCs with prospective borrowers which are freestanding derivative instruments. IRLCs are a commitment that binds the Company, subject to loan underwriting and approval process, to 82 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) fund the loan at a specified interest rate, regardless of fluctuations in the market interest rates between commitment date and funding date. The interest rate risk associated with the fluctuations in market interest rates between commitment date and funding date with respect to IRLCs is mitigated as the Company operates under the best effort basis whereby at the time of commitment, the Company enters into a sales commitment with a third-party for the same prospective loan. The fair value of interest rate lock commitments is presented in Other current assets. The change in fair value on IRLCs is a component of Other revenue. Embedded Conversion Options In connection with the Company’s issuance of convertible notes in 2019 (the “Convertible Notes”), the Company bifurcated the embedded conversion features associated with the Convertible Notes. The Convertible Notes and the related bifurcated embedded conversion options were extinguished in September 2020 as discussed in Note 7 — Credit Facilities and Long-Term Debt. Prior to extinguishment, the embedded conversion options were measured at fair value in accordance with the methodology described in Note 8 — Fair Value Disclosures and were presented in Derivative and warrant liabilities. The change in fair value of the embedded conversion options is a component of Derivative and warrant fair value adjustment. The following table presents the total notional amounts and fair values for the Company’s derivatives (in thousands): Notional Amount Fair Value Derivatives As of December 31, 2020 Asset Liability Interest rate lock commitments $ 15,130 $ 373 $ — Notional Amount Fair Value Derivatives As of December 31, 2019 Asset Liability Interest rate caps $ 100,000 $ 4 $ — Interest rate lock commitments $ 3,429 $ 95 $ — Embedded conversion options $ 180,252 $ — $ 41,697 The following table presents the net gains and losses recognized on derivatives within the respective line items in the statement of operations for the periods indicated (in thousands): Year Ended December 31, 2020 2019 2018 Revenue $ 278 $ 95 $ — Derivative and warrant fair value adjustment $ ( 23,317 ) $ — $ — Other income, net $ ( 4 ) $ ( 773 ) $ 420 6. VARIABLE INTEREST ENTITIES The Company utilizes VIEs in the normal course of business to support the Company’s financing needs (“Credit Facility Vehicles”) and to conduct the Company’s title business (“Title Companies”). The Company determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with the VIE and reconsider that conclusion on an on-going basis. See “Note 1 — Description of Business and Accounting Policies” for further discussion of the Company’s “Consolidation of Variable Interest Entities” policy. Credit Facility Vehicles The Company established certain special purpose entities (“SPEs”) for the purpose of financing the Company’s purchase and renovation of real estate inventory through the issuance of senior revolving credit facility debt and mezzanine term debt. The Company is the primary beneficiary of the various VIEs within these financing structures and consolidates these VIEs. The Company is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the SPEs through its role in designing the SPEs and managing the real estate inventory they purchase 83 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) and sell. The Company has a potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs. The following table summarizes the assets and liabilities related to the VIEs consolidated by the Company from the Company’s Credit Facility Vehicles as of December 31, 2020 and December 31, 2019 (in thousands): December 31, 2020 December 31, 2019 Assets Cash and cash equivalents $ 15,849 $ 86,526 Restricted cash 81,408 268,368 Real estate inventory 460,680 1,312,194 Other (1) 6,729 25,793 Total assets $ 564,666 $ 1,692,881 Liabilities Credit facilities $ 474,640 $ 1,264,913 Other (2) 3,394 14,983 Total liabilities $ 478,034 $ 1,279,896 ________________ (1) Includes escrow receivable and other current assets. (2) Includes accounts payable and other accrued liabilities and interest payable. The creditors of the VIEs generally do not have recourse to the Company’s general credit solely by virtue of being creditors of the VIEs, with the exception of limited guarantees provided by an Opendoor subsidiary for credit facilities. See “Note 7 — Credit Facilities and Long-Term Debt” for further discussion of the recourse obligations with respect to the Credit Facility Vehicles. 7. CREDIT FACILITIES AND LONG-TERM DEBT Non-Recourse Asset-backed Financing Facilities The Company utilizes inventory financing facilities consisting of asset-backed senior revolving credit facilities and asset-backed mezzanine term debt facilities to provide financing for the Company’s real estate inventory purchases and renovation. Each SPE is a consolidated subsidiary of Opendoor and a separate legal entity. Neither the assets nor credit of any such SPE are generally available to satisfy the debts and other obligations of any other Opendoor entities, except to the extent other Opendoor entities are also a party to the financing arrangements. The credit facilities are secured by the assets and equity of one or more SPEs. These facilities are non-recourse to Opendoor and, with limited exceptions, non-recourse to other Opendoor subsidiaries. These SPEs are variable interest entities and Opendoor is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the entities through its role in designing the entities and managing the real estate inventory purchased and sold by the entities. The Company has potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs. Asset-backed Senior Revolving Credit Facilities The Company classifies the senior revolving credit facilities as current liabilities on the Company’s consolidated balance sheets as amounts drawn to acquire and renovate homes are required to be repaid as the related real estate inventory is sold, which the Company expects to occur within 12 months. The following table summarizes certain details related to the Company’s credit facilities outstanding as of December 31, 2020 and 2019 (in thousands, except interest rates): 84 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) As of December 31, 2020 Borrowing Capacity Outstanding Amount Weighted Average Interest Rate End of Revolving Period Final Maturity Date Revolving Facility 2018-1 $ 250,000 $ — 4.28 % February 10, 2021 May 10, 2021 Revolving Facility 2018-2 750,000 — 4.36 % September 23, 2022 December 23, 2022 Revolving Facility 2018-3 100,000 25,385 4.19 % June 1, 2023 June 1, 2023 Revolving Facility 2019-1 300,000 32,535 3.58 % March 4, 2022 March 4, 2022 Revolving Facility 2019-2 1,030,000 230,352 3.08 % July 8, 2021 July 7, 2022 Revolving Facility 2019-3 475,000 50,901 3.60 % August 22, 2022 August 21, 2023 Total $ 2,905,000 $ 339,173 As of December 31, 2019 Outstanding Amount Weighted Average Interest Rate Revolving Facility 2016-1 $ 39,346 6.17 % Revolving Facility 2017-1 25,758 7.00 % Revolving Facility 2018-1 126,450 5.62 % Revolving Facility 2018-2 194,293 6.00 % Revolving Facility 2018-3 111,411 4.65 % Revolving Facility 2019-1 206,399 3.81 % Revolving Facility 2019-2 327,226 3.41 % Revolving Facility 2019-3 42,812 3.02 % Total $ 1,073,695 As of December 31, 2020, the Company had multiple senior revolving credit facilities with various financial institutions with a total borrowing capacity of $ 2,905 million. Undrawn borrowing capacity amounts under the senior revolving credit facilities as reflected in the table above are in some cases not fully committed and any borrowings above the fully committed amounts are subject to the applicable lender’s discretion. As of December 31, 2020, the Company had fully committed borrowing capacity with respect to the Company’s senior revolving credit facilities of $ 1,483 million. These facilities are typically structured with an initial 12 to 24 month revolving period during which time amounts can be borrowed, repaid and borrowed again. The borrowing capacity is generally available until the end of the applicable revolving period as reflected in the table above. Outstanding amounts drawn under each senior revolving credit facility are required to be repaid on the facility maturity date or earlier if accelerated due to an event of default or other mandatory repayment event. The final maturity dates and revolving period end dates reflected in the table above are inclusive of any extensions that are at the sole discretion of the Company. The Company’s senior revolving credit facilities may also have extensions subject to lender discretion that are not reflected in the table above. Borrowings accrue interest at a rate based on a LIBOR reference rate plus a margin that varies by facility. The Company may also pay fees on certain unused portions of the committed borrowing capacity, as defined in the respective credit agreements. The Company’s senior revolving credit facility arrangements typically include upfront fees that may be paid at execution of the applicable agreements or be earned at execution and payable over time. These facilities are generally fully prepayable at any time without penalty other than customary LIBOR breakage costs. These borrowings are collateralized by cash, equity in the real estate owning SPEs, and the real estate inventory funded by the relevant revolving credit facility. The lenders have legal recourse only to the real estate-owning SPE borrowers, certain SPE guarantors, and the assets securing the debt, and do not have general recourse to the Company. The senior revolving credit facilities have aggregated borrowing bases, which increase or decrease based on the cost and value of the properties financed under a given facility and the time that those properties are in the Company’s possession. When the Company resells a home, the proceeds are used to reduce the outstanding balance under the related revolving senior credit 85 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) facility. The borrowing base for a given facility may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties or partial repayment of the facility. Asset-backed Mezzanine Term Debt Facilities The Company classifies its mezzanine term debt facilities as long-term liabilities on the Company’s consolidated balance sheets because its borrowings under these facilities are generally not required to be repaid until the applicable final maturity date. These facilities are structurally and contractually subordinated to the related senior revolving credit facilities. The following table summarizes certain details related to the Company’s mezzanine term debt facilities as of December 31, 2020 (in thousands, except interest rates): As of December 31, 2020 Borrowing Capacity Outstanding Amount Interest Rate End of Draw Period Final Maturity Date Term Debt Facility 2016-M1 $ 149,000 $ 40,000 10.00 % October 31, 2022 April 30, 2024 Term Debt Facility 2020-M1 300,000 100,000 10.00 % January 23, 2023 January 23, 2026 Total $ 449,000 $ 140,000 Issuance Costs ( 4,533 ) Carrying Value $ 135,467 As of December 31, 2020, the Company had $ 140 million in total principal outstanding under multiple mezzanine term debt facilities with various financial institutions. Undrawn amounts under the mezzanine term debt facilities of $ 309 million as reflected in the table above are fully committed and generally may be drawn at any time during the draw period; however, any amounts repaid reduce total borrowing capacity as repaid amounts are not available to be reborrowed. The final maturity dates as reflected in the table above are inclusive of any extensions at the sole discretion of the Company. The Company’s mezzanine term debt facilities may also have extensions subject to lender discretion that are not reflected in the table above. Borrowings under a given term debt facility accrue interest at a fixed rate. The Company’s mezzanine term debt facility arrangements may include upfront issuance costs that are capitalized as part of the facilities’ respective carrying values. These facilities are fully prepayable at any time but may be subject to certain prepayment penalties. These borrowings are collateralized by cash and equity in certain holding companies that own the Company’s real estate owning SPEs. The lenders generally have legal recourse only to the applicable borrowers of the debt and their assets securing the debt and do not have recourse to Opendoor and, with limited exceptions, do not have recourse to other Opendoor subsidiaries. The facilities have aggregated property borrowing bases, which increase or decrease based on the cost and the value of the properties financed under a given facility and time in the Company’s possession of those properties and the amount of cash collateral pledged by the relevant SPE borrower. The borrowing base for a given facility may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties or cash or through partial repayment of the facility. Covenants The Company’s inventory financing facilities include customary representations and warranties, covenants and events of default. Financed properties are subject to customary eligibility criteria and concentration limits. The terms of these facilities and related financing documents require Opendoor to comply with a number of customary financial and other covenants, such as maintaining certain levels of liquidity, tangible net worth or leverage (ratio of debt to equity). As of December 31, 2020, the Company was in compliance with all financial covenants and no event of default had occurred. 86 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Convertible Notes In July through November 2019, the Company issued Convertible Notes at par for a total of $ 178.2 million in proceeds, net of $ 0.5 million in debt issuance costs. The Convertible Notes had an initial maturity date of July 2026, which the Company could have elected to extend by one year if a material financial market disruption (as defined in the notes) were to exist at initial maturity. The Convertible Notes accrued interest at a rate of 3 % per annum, which was compounded semi-annually and payable by increasing the principal amounts of the Convertible Notes. The Convertible Notes were a hybrid instrument with several features that could accelerate the settlement of the Convertible Notes in such a way that the holder would receive a substantial premium on accrued principal and interest owed. The Company determined these features should be bifurcated and separately accounted for as a derivative and recorded its initial fair value of $ 41.7 million as a discount on the Convertible Notes’ face amount. Refer to Note 5 — Derivative Instruments for further information on the embedded conversion options and Note 8 — Fair Value Disclosures for the fair value methodology. The debt discount is amortized to interest expense at an effective interest rate of 3.8 %. The Company amortizes the discount over the period until the initial maturity date of the respective note. The Convertible Notes are carried on the consolidated balance sheets at their original issuance value in addition to paid-in kind interest, net of unamortized debt discount and issuance costs. On September 14, 2020, the Company entered into a Convertible Notes Exchange Agreement (the “Exchange Agreement”) with the Convertible Note holders. Under the terms of the Exchange Agreement, the Convertible Note holders received rights to 21.5 million shares of the Company’s common stock (“Issuer Stock Rights”) upon the earlier of (i) immediately prior to the consummation of the Business Combination as stipulated in the Merger Agreement and (ii) March 13, 2021. The Issuer Stock Rights were received in full satisfaction of the outstanding principal and accrued interest on the Convertible Notes and such notes were cancelled and of no further force or effect. With the issuance of the Issuer Stock Rights, which the Company has assessed to be an equity classified instrument with a fair value of $ 212.9 million, the convertible notes, including the unamortized debt discount and debt issuance costs, and the related bifurcated embedded conversion options were extinguished. Mortgage Financing The following tables summarize certain details related to the Company’s mortgage financing (in thousands, except interest rates): As of December 31, 2020 Borrowing Capacity Outstanding Amount Weighted Average Interest Rate End of Revolving Period Final Maturity Date Repo Facility 2019-R1 $ 50,000 $ 7,149 1.94 % April 29, 2021 April 29, 2021 As of December 31, 2019 Outstanding Amount Weighted Average Interest Rate Repo Facility 2019-R1 $ 2,021 3.98 % To provide capital for Opendoor Home Loans, we utilize a master repurchase agreement (the “Repurchase Agreement”) which is classified as a current liability on our balance sheets. In March 2019, we entered into the Repurchase Agreement with a lender to provide short-term funding for mortgage loans originated by Opendoor Home Loans. The facility provides short-term financing between the issuance of a mortgage loan and when Opendoor Home Loans sells the loan to an investor. In accordance with the Repurchase Agreement, the lender agrees to pay Opendoor Home Loans a negotiated purchase price for eligible loans and Opendoor Home Loans simultaneously agrees to repurchase such loans from the lender within a specified timeframe and at an agreed upon price that includes interest. Opendoor Labs Inc. is the guarantor with respect to the Repurchase Agreement and the obligation to repurchase loans previously transferred under the arrangement for the benefit of the lender. As of December 31, 2020, the Repurchase Agreement has a borrowing capacity of $ 50.0 million, of which $ 20.0 million is fully committed. The Repurchase Agreement includes customary representations and warranties, covenants and 87 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) provisions regarding events of default. As of December 31, 2020, $ 7.1 million in mortgage loans were financed under the facility, and Opendoor was in compliance with all financial covenants and no event of default had occurred. Transactions under the Repurchase Agreement bear interest at a rate based on one-month LIBOR plus an applicable margin, as defined in the Repurchase Agreement, and are secured by residential mortgage loans available for sale. The Repurchase Agreement contains margin call provisions that provide the lender with certain rights in the event of a decline in the market value of the assets purchased under the Repurchase Agreement. The Repurchase Agreement is recourse to Opendoor Labs Inc. 8. FAIR VALUE DISCLOSURES The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Following is a discussion of the fair value hierarchy and the valuation methodologies used for assets and liabilities recorded at fair value on a recurring and nonrecurring basis and for estimating fair value for financial instruments not recorded at fair value. Fair Value Hierarchy Fair value measurements of assets and liabilities are categorized based on the following hierarchy: Level 1 — Fair value determined based on quoted prices in active markets for identical assets or liabilities. Level 2 — Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means. Level 3 — Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques. 88 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Estimation of Fair Value The following table summarizes the fair value measurement methodologies, including significant inputs and assumptions, and classification of the Company’s assets and liabilities. Asset/Liability Class Valuation Methodology, Inputs and Assumptions Classification Cash and cash equivalents Carrying value is a reasonable estimate of fair value based on short-term nature of the instruments. Estimated fair value classified as Level 1 Restricted cash Carrying value is a reasonable estimate of fair value based on short-term nature of the instruments. Estimated fair value classified as Level 1 Marketable securities Prices obtained from third-party vendors that compile prices from various sources and often apply matrix pricing for similar securities when no price is observable. Level 2 recurring fair value measurement Other current assets Interest rate caps Prices obtained from derivative broker that compiles prices for identical or similar instruments, when available. Level 2 recurring fair value measurement Mortgage loans held for sale pledged under agreements to repurchase Fair value is estimated based on observable market data including quoted market prices, deal price quotes, and sale commitments. Level 2 recurring fair value measurement Credit facilities and other secured borrowings Credit facilities Fair value is estimated using discounted cash flows based on current lending rates for similar credit facilities with similar terms and remaining time to maturity. Carried at amortized cost. Estimated fair value classified as Level 2. Loans sold under agreements to repurchase Fair value is estimated using discounted cash flows based on current lending rates for similar asset-backed financing facilities with similar terms and remaining time to maturity. Carried at amortized cost. Estimated fair value classified as Level 2. Convertible notes Fair value is estimated using discounted cash flows based on current lending rates for term notes with similar remaining time to maturity. Carried at amortized cost. Estimated fair value classified as Level 2 Derivative and warrant liabilities Warrant liabilities Fair value is estimated using the Black-Scholes-Merton option pricing model with inputs and assumptions including the Company’s equity valuation, expected volatility, expected duration of the warrants, and associated risk-free rate. Level 3 recurring fair value measurement Embedded conversion options Fair value is estimated using a lattice model incorporating the probabilities of various conversion scenarios with respect to timing and conversion features under the terms of the convertible notes. Level 3 recurring fair value measurement 89 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following tables present the levels of the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis (in thousands). Fair Value as of December 31, 2020 Level 1 Level 2 Level 3 Marketable securities: Corporate debt securities $ 26,409 $ — $ 26,409 $ — Asset-backed securities 12,533 — 12,533 — U.S. agency securities 6,995 — 6,995 — U.S. Treasury securities 1,700 — 1,700 — Mortgage loans held for sale pledged under agreements to repurchase 7,529 — 7,529 — Other current assets: Interest rate lock commitments 373 373 Total assets $ 55,539 $ — $ 55,539 $ — Fair Value as of December 31, 2019 Level 1 Level 2 Level 3 Marketable securities: Corporate debt securities $ 16,428 $ — $ 16,428 $ — Asset-backed securities 12,492 — 12,492 — Commercial paper 12,956 — 12,956 — Non-U.S. securities 700 — 700 — U.S. Treasury securities 1,000 — 1,000 — Mortgage loans held for sale pledged under agreements to repurchase 2,116 — 2,116 — Other current assets: Interest rate caps 4 — 4 — Interest rate lock commitments 95 — 95 — Total assets $ 45,791 $ — $ 45,791 $ — Derivative and warrant liabilities: Warrants 4,538 — — 4,538 Embedded conversion options 41,697 — — 41,697 Total liabilities $ 46,235 $ — $ — $ 46,235 90 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Fair Value of Financial Instruments The following presents the carrying value, estimated fair value and the levels of the fair value hierarchy for the Company’s financial instruments other than assets and liabilities measured at fair value on a recurring basis (in thousands). As of December 31, 2020 Carrying Value Fair Value Level 1 Level 2 Assets: Cash and cash equivalents $ 1,412,665 $ 1,412,665 $ 1,412,665 $ — Restricted cash 92,863 92,863 92,863 — Liabilities: Credit facilities and other secured borrowings $ 481,789 $ 486,322 $ — $ 486,322 As of December 31, 2019 Carrying Value Fair Value Level 1 Level 2 Assets: Cash and cash equivalents $ 405,080 $ 405,080 $ 405,080 $ — Restricted cash 279,742 279,742 279,742 — Liabilities: Credit facilities and other secured borrowings $ 1,296,054 $ 1,296,054 $ — $ 1,296,054 Convertible notes 140,096 180,252 — 180,252 The following table shows a reconciliation from the opening balances to the closing balances for Level 3 Fair values (in thousands): Warrants Embedded Conversion Option Balance as of December 31, 2018 $ 18,022 $ — Net change in fair value ( 7,413 ) — Issuances 1,170 41,697 Exercise of warrants ( 7,241 ) — Balance as of December 31, 2019 4,538 41,697 Net change in fair value 2,623 23,317 Issuances — — Settlement of convertible notes — ( 65,014 ) Exercise of warrants ( 7,161 ) — Balance as of December 31, 2020 $ — $ — Warrant Liabilities Prior to being exercised, the Company had three different instruments within warrant liabilities, as discussed further in Note 15 — Warrants, the series D preferred warrants, the series E preferred warrants, and a commitment to issue warrants. Prior to being exercised, the series D preferred warrants comprised of warrants with an exercise price of $ 0.01 per share. As these series D preferred warrants are deep in the money, such that the intrinsic value approximates the option value, the key input in valuing these warrants with respect to the Black-Scholes-Merton model is the Company’s equity valuation. With respect to the series E preferred warrants, the Black-Scholes-Merton inputs that most significantly impact the valuation of the warrants are the term and the Company’s equity valuation. 91 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) One of the key inputs in valuing the Company’s commitment to issue warrants is timing to a qualifying liquidity event; this is because the warrant commitment arrangement is stipulated such that the Company no longer has an obligation to issue warrants in periods subsequent to a qualifying liquidity event. Another key input in valuing the Company’s commitment to issue warrants is the number of warrants to be issued, which can vary based on the range prescribed in the agreement. The valuation of the commitment to issue warrants can vary significantly based on the timing to a qualifying liquidity event and the number of warrants to be issued. When the Company entered into the Merger Agreement, the Company updated the expected timing to a change in control and reduced the expected term of outstanding warrants to be consistent with the expected timing of consummation of the Business Combination. As a result of the Business Combination, the Company is no longer obligated to issue warrants under the Warrant Commitment. As of December 31, 2019, in addition to the series D preferred warrants with an exercise price of $ 0.01 per share, the Company also had outstanding warrants with exercise price of $ 6.58 per share. With respect to the series D preferred warrants with an exercise price of $ 6.58 per share, the Black-Scholes-Merton inputs that most significantly impact the valuation of the warrants are the term and the Company’s equity valuation; these warrants are sensitive to term as an input because the warrants have a four -year term subsequent to acceleration due to liquidity events or the Company’s sole discretion after August 17, 2019. Embedded conversion options Embedded conversion options, which are bifurcated embedded derivatives, originate from the convertible notes issued by the Company during 2019. See “Note 7 — Credit Facilities and Long-Term Debt” for further information. The fair value of the embedded conversion options is estimated using a lattice model incorporating the probabilities of various liquidity events which constituted conversion triggering events within the convertible notes. The key input to the valuation model is timing of possible liquidity events. Based on the structure of the convertible notes and that the Company has a redemption option, that if exercised sufficiently in advance of such conversion events, would allow the Company to redeem such notes, the Company valued the embedded conversion options with the assumption that the Company would preempt liquidity events by asserting its redemption option and thereby narrowing the valuation to terms of the redemption option. In addition to the 3 % payment-in-kind interest, the redemption value of the convertible notes accretes with the passage of time. Between the end of the first year to the end of the seven -year note term, accretion ranges from 5.9 % to 79.6 %. As such, the embedded conversion options are highly sensitive to the timing of liquidity events. As discussed in Note 7 — Credit facilities and long-term debt, the convertible notes and related bifurcated embedded conversion options have been extinguished pursuant to the Exchange Agreement on September 14, 2020 and the Company remeasured the embedded conversion options immediately prior to extinguishment based upon the fair value of the Issuer Stock Rights exchanged. 9. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2020 and 2019, consisted of the following (in thousands): 2020 2019 Internally developed software $ 47,823 $ 33,765 Computers 5,511 7,777 Furniture and fixtures 3,279 2,843 Leasehold improvements 2,456 2,748 Office equipment 2,056 1,794 Software implementation costs 1,680 1,214 Security systems 681 4,927 Total 63,486 55,068 Accumulated depreciation and amortization ( 34,258 ) ( 20,462 ) Property and equipment – net $ 29,228 $ 34,606 Depreciation and amortization expense of $ 21.7 million, $ 15.0 million, and $ 4.6 million was recorded for the years ended December 31, 2020, 2019 and 2018, respectively. 92 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) 10. LEASES The Company leases office space throughout the United States under operating and short-term lease agreements. These lease agreements have terms not exceeding 11 years and some contain multi-year renewal options or early termination options that are not considered reasonably certain of exercise except as discussed below. The Company also leases equipment under immaterial finance lease agreements. For the year ended December 31, 2020 operating lease cost was $ 34.3 million, variable lease cost was $ 0.4 million, short-term lease cost was $ 0.9 million, and sublease income was $ 0.1 million. During the years ended December 31, 2019 and 2018, rent expense related to operating leases was $ 11.7 million and $ 7.4 million, respectively. For the year ended December 31, 2020, cash paid for amounts included in the measurement of operating lease liabilities was $ 12.7 million. For the year ended December 31, 2020, right-of-use assets obtained in exchange for new or acquired operating lease liabilities was $ 39.8 million. For the year ended December 31, 2020, terminations of certain operating leases resulted in the reduction of right-of-use assets and lease liabilities of approximately $ 28.3 million. Of this reduction in operating lease liabilities and right-of-use assets, $ 28.1 million is attributable to the Company exercising an option to early terminate the Company’s lease in San Francisco. As the Company does not anticipate returning to the San Francisco space, the Company accelerated amortization of the right-of-use asset by $ 12.5 million for the one year term remaining after exercising the early termination option. In exercising the Company’s early termination option, the Company incurred and paid $ 5.2 million in early termination fees. See “Note 20 —  Restructuring” for further discussion. There were no other material lease modifications for the year ended December 31, 2020. For the year ended December 31, 2019, cash paid for amounts included in the measurement of operating lease liabilities was $ 10.8 million. For the year ended December 31, 2019, right-of-use assets obtained in exchange for new or acquired operating lease liabilities was $ 57.9 million. For the year ended December 31, 2019, terminations of certain operating leases resulted in the reduction of right-of-use assets and lease liabilities of approximately $ 2.9 million. There were no other material lease modifications in the year ended December 31, 2019. As of December 31, 2020 and 2019, for operating leases, the weighted average lease term was 6.5 years and 4.5 years, respectively, and the weighted average discount rate was 9.1 % and 7.2 %, respectively. Maturity of operating lease liabilities as of December 31, 2020 are as follows (in thousands): 2021 $ 25,536 2022 9,151 2023 8,504 2024 8,920 2025 7,555 Thereafter 33,864 Total undiscounted future cash flows $ 93,530 Less: Imputed interest 26,189 Total lease liabilities $ 67,341 11. GOODWILL AND INTANGIBLE ASSETS For the year ended December 31, 2019, the carrying amount of goodwill increased by $ 21.5 million due to the acquisition of OSN (See “Note 2 — Business Combination” ). There were no additions to goodwill for the twelve months ended December 31, 2020. No impairment of goodwill was identified for the years ended December 31, 2020 and 2019. 93 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Intangible assets subject to amortization consisted of the follow as of December 31, 2020 and 2019, respectively(in thousands, except years): As of December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Weighted Average Useful Life (Years) Developed technology $ 2,921 $ ( 2,921 ) $ — 0 Customer relationships 7,400 ( 2,622 ) 4,778 3.7 Trademarks 5,400 ( 1,652 ) 3,748 3.7 Non-competition agreements 100 ( 100 ) — 0 Intangible assets – net $ 15,821 $ ( 7,295 ) $ 8,526 As of December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Weighted Average Useful Life (Years) Developed technology $ 2,921 $ ( 1,879 ) $ 1,042 0.7 Customer relationships 7,400 ( 990 ) 6,410 4.2 Trademarks 5,400 ( 631 ) 4,769 4.7 Non-competition agreements 100 ( 65 ) 35 0.7 Intangible assets – net $ 15,821 $ ( 3,565 ) $ 12,256 The Company also has domain name intangible assets, which are not subject to amortization, with a carrying amount of $ 0.2 million as of both December 31, 2020 and 2019, respectively. Amortization expense for intangible assets was $ 3.7 million, $ 2.9 million, and $ 0.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, expected amortization of intangible assets is as follows: Fiscal Years (In thousands) 2021 $ 2,320 2022 2,320 2023 2,320 2024 1,566 Total $ 8,526 94 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) 12. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES Accounts payable and accrued liabilities as of December 31, 2020 and 2019, consisted of the following (in thousands): 2020 2019 Accrued expenses due to vendors $ 11,002 $ 16,342 Accrued payroll and other employee related expenses 5,758 3,328 Accounts payable due to vendors 2,756 6,453 Accrued property and franchise taxes 733 5,739 Other 5,021 1,115 Total accounts payable and other accrued liabilities $ 25,270 $ 32,977 13. SHAREHOLDERS’ EQUITY Common Stock On December 21, 2020, the Company’s common stock and warrants began trading on the Nasdaq Global Select Market under the ticker symbols “OPEN” and “OPENW,” respectively. Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue 3,000,000,000 shares of common stock with a par value of $ 0.0001 per share. As of December 31, 2020, the Company had 540,714,692 shares of common stock issued and outstanding. Prior to the Business Combination, the Company had outstanding shares of Series A, Series B, Series C, Series C-1, Series D, Series D-1, Series E, Series E-1, and Series E-2 convertible preferred stock (collectively, “Preferred Stock”). Immediately prior to the Business Combination, all shares of the Company’s outstanding Preferred Stock converted into a total of 194.9 million shares of Opendoor Labs Inc. common stock on a one -for-one basis. Upon the Closing, Opendoor Labs Inc. common stock converted to Opendoor Technologies common stock with the application of the Exchange Ratio as discussed in Note 2 — Business Combinations. Preferred Stock Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue 100,000,000 shares of preferred stock having a par value of $ 0.0001 per share (“Opendoor Technologies Preferred Stock”). The Company’s board of directors has the authority to issue Opendoor Technologies Preferred Stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of those shares. As of December 31, 2020, there were no shares of Opendoor Technologies Preferred Stock issued and outstanding. Dividend Common stock is entitled to dividends when and if declared by the Company’s board of directors, subject to the rights of all classes of stock outstanding having priority rights to dividends. The Company has not paid any cash dividends on common stock to date. The Company may retain future earnings, if any, for the further development and expansion of its business and has no current plans to pay cash dividends for the foreseeable future. Any future determination to pay dividends will be made at the discretion of the Company’s board of directors and will depend on, among other things, the Company’s financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as the Company’s board of directors may deem relevant. 14. SHARE-BASED AWARDS 2014 Stock Plan Our 2014 Stock Plan (the “2014 Plan”), as last amended and approved by the board of directors on February 6, 2020, allowed the Company to grant up to 106,320,623 shares of common stock to employees, directors, and non-employees pursuant to awards of stock options, restricted stock or restricted stock units (“RSUs”) granted under the 2014 Plan. Upon the Closing, 95 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) the remaining unallocated share reserve under the 2014 Plan was cancelled and no new awards will be granted under the 2014 Plan. Awards outstanding under the 2014 Plan were assumed by Opendoor Technologies upon the Closing and continue to be governed by the terms of the 2014 Plan. 2020 Equity Incentive Plans In connection with the close of the Business Combination, the Company adopted the 2020 Incentive Award Plan (the “2020 Plan”) under which 43,508,048 shares of common stock were initially reserved for issuance. The 2020 Plan allows for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents and other stock or cash based awards. The number of shares of the Company’s common stock available for issuance under the 2020 Plan automatically increases on the first day of each calendar year, beginning January 1, 2022 and ending on and including January 1, 2030, by the lesser of (a) a number equal to the excess (if any) of (1) 5 % of the aggregate number of shares of common Stock outstanding on the final day of the immediately preceding calendar year over (2) the number of shares of common Stock then reserved for issuance under the 2020 Plan as of such date, and (b) such smaller number of shares determined by the Company’s board of directors. As of December 31, 2020, no awards have been granted under the 2020 Plan. In connection with the close of the Business Combination, the Company’s board of directors approved the 2020 Employee Stock Purchase Plan (“ESPP”). There are 5,438,506 shares of common stock initially reserved for issuance under the ESPP. The number of shares of the Company’s common stock available for issuance under the ESPP automatically increases on the first day of each calendar year, beginning January 1, 2022 and ending on and including January 1, 2030, by the lesser of (a) 1 % of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year and (b) such number of shares as is determined by the Company’s board of directors; provided that, no more than 54,385,060 shares may be issued under the ESPP. As of December 31, 2020, no shares have been issued under the ESPP. Stock options and RSUs Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant. Options are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years . Incentive stock options granted to a 10% shareholder are exercisable over a maximum term of five years from the date of grant. A summary of the stock option activity for the year ended December 31, 2020, is as follows: Number of Options (in thousands) Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Balance – December 31, 2019 22,633 $ 3.00 6.9 $ 110,481 Retroactive conversion of shares due to Business Combination 13,976 ( 1.15 ) Balance – December 31, 2019, as converted 36,609 $ 1.85 6.9 $ 110,481 Granted — Exercised ( 5,649 ) 1.33 Forfeited ( 5,513 ) 2.04 Expired ( 1,289 ) 2.22 Balance – December 31, 2020 24,158 1.91 5.4 $ 502,767 Exercisable – December 31, 2020 18,961 1.55 4.6 $ 401,436 Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company’s common stock. The total intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018, was $ 46.2 million, $ 9.7 million, and $ 39.2 million, respectively. The weighted-average grant date fair value per option granted for the years ended December 31, 2019 and 2018 were $ 1.50 and $ 1.11 , respectively. There were no options granted during the year ended December 31, 2020. 96 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) RSUs typically vest upon both a service-based requirement, generally over a four year period, and a performance condition. For certain awards, the performance condition is met by the completion of a Company liquidity event, which is generally defined as a change of control event or the effective date of a registration statement of the Company filed under the Securities Act for the sale of the Company’s common stock. In February 2021, the Company completed an underwritten public offering, which met the liquidity event vesting condition and triggered the recognition of compensation expense for certain RSUs for which the time-based vesting condition had been satisfied or partially satisfied. For further information on the February 2021 underwritten public offering, see “ Note 21 — Subsequent Events”. If a participant terminates service, any portion of an RSU unit that has met the service-based requirement will remain outstanding and remain eligible to vest when the performance condition has been satisfied. The vesting requirements of the RSUs typically have a maximum term of seven years from the date of grant. A summary of the RSU activity for the year ended December 31, 2020, is as follows: Number of RSUs (in thousands) Weighted- Average Grant-Date Fair Value Unvested and outstanding – December 31, 2019 14,070 6.79 Retroactive conversion of shares due to Business Combination 8,689 ( 2.59 ) Unvested and outstanding – December 31, 2019, as converted 22,759 $ 4.20 Granted 29,189 15.67 Forfeited ( 5,423 ) 4.33 Unvested and outstanding – December 31, 2020 46,525 $ 10.88 Vested and outstanding – December 31, 2020 — — Restricted Shares We have granted Restricted Shares to certain continuing employees, primarily in connection with acquisitions. The Restricted Shares vest upon satisfaction of a service condition, which generally ranges from three to four years . A summary of the Restricted Shares activity for the year ended December 31, 2020 is as follows: Number of Restricted Shares (in thousands) Average Grant-Date Fair Value Unvested – December 31, 2019 2,156 $ 5.98 Retroactive conversion of shares due to Business Combination 1,331 $ ( 2.28 ) Unvested – December 31, 2019, as converted 3,487 $ 3.70 Granted — — Vested ( 1,339 ) 3.63 Unvested – December 31, 2020 2,148 $ 3.74 Vested and outstanding – December 31, 2020 — — The total intrinsic value of Restricted Shares vested for the years ended December 31, 2020, 2019, and 2018 was $ 8.9 million, $ 1.5 million, and $ 0.1 million respectively. 97 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Stock-based compensation expense Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. The following table summarizes total stock-based compensation expense by function as presented in the statements of operations for the years ended December 31, 2020, 2019 and 2018, as follows (in thousands): 2020 2019 2018 General and administrative $ 33,020 $ 6,456 $ 8,424 Sales, marketing and operations 1,203 1,767 1,905 Technology and development 3,782 4,973 4,645 Total stock-based compensation expense $ 38,005 $ 13,196 $ 14,974 During 2020, the Company issued market condition RSUs to certain executives. The grant-date fair value for the awards is $ 357.4 million, which will be recognized over a requisite service period ranging from 6 months to 3.5 years. The Company recognized $ 19.9 million of compensation expense in 2020 related to the executive’s awards. As of December 31, 2020, there was $ 13.5 million of unamortized stock-based compensation costs related to unvested stock options and Restricted Shares for which vesting is not contingent on a qualifying event. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 1.8 years. As of December 31, 2020, there was $ 503.0 million of unrecognized stock-based compensation costs relating to unvested RSUs. Of this amount, $ 80.2 million relates to awards for which the time-based vesting condition had been satisfied or partially satisfied and will be recognized by completion of the liquidity event performance condition; as of December 31, 2020, there were 9,201,201 RSUs which had fully satisfied the time-based vesting condition. Valuation of options The Black-Scholes Model used to value stock options incorporates the following assumptions: Fair Value of Common Stock The fair value of the common stock underlying the stock option awards was determined by the board of directors. Given the absence of a public trading market, the board of directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting at which awards were approved. These factors included, but were not limited to (i) contemporaneous third-party valuations of common stock; (ii) the rights, preferences and privileges of convertible preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) stage and development of the Company’s business; (v) general economic conditions and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale, given prevailing market conditions. Volatility The expected stock price volatilities are estimated based on the historical and implied volatilities of comparable publicly traded companies as the Company does not have sufficient history of trading its common stock. Risk-Free Interest Rate The risk-free interest rates are based on U.S. Treasury yields in effect at the grant date for notes with comparable terms as the awards. 98 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Expected Life The expected term of options granted to employees is determined using the simplified method, which allows the Company to estimate the expected life as the midpoint between the vesting period and the contractual term, as the Company's historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term. Dividend Yield The expected dividend yield assumption is based on the Company’s current expectations about its anticipated dividend policy. The range of assumptions used in the Black-Scholes Model for employee and non-employee stock options for 2019, and 2018 are as follows: 2019 Range 2018 Range Fair value $ 4.22 – $ 4.29 $ 1.42  – $ 3.02 Volatility 32 % –  45 % 32 % –  34 % Risk-free rate 1.63 % –  2.34 % 2.68 % –  3.17 % Expected life (in years) 5  –  7 5  –  7 Expected dividend $ — $ — Valuation of RSUs and Restricted Stock Prior to the Business Combination, given the absence of a public trading market, the Company’s board of directors considered numerous objective and subjective factors to determine the fair value of common stock at each meeting at which awards were approved. These factors include, but were not limited to, contemporaneous valuations of common stock performed by an independent valuation specialist; developments in the Company’s business and stage of development; the Company’s operational and financial performance and condition; issuances of preferred stock and the rights and preferences of preferred stock relative to common stock; current condition of capital markets and the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company; and the lack of marketability of the Company’s common stock. For financial reporting purposes, the Company considers the amount of time between the valuation date and the grant date to determine whether to use the latest common stock valuation or a straight-line interpolation between the two valuation dates. The determination includes an evaluation of whether the subsequent valuation indicates that any significant change in valuation had occurred between the previous valuation and the grant date. 15. WARRANTS Public and Sponsor Warrants Prior to the Business Combination, SCH issued 6,133,333 private placement warrants (“Sponsor Warrants”) and 13,800,000 public warrants (“Public Warrants” and collectively “Warrants”). Upon Closing, the Company assumed the Warrants. Each whole warrant entitles the holder to purchase one share of the Company’s common stock at a price of $ 11.50 per share, subject to adjustments. The Warrants are exercisable at any time commencing the later of a) 30 days after the completion of the Business Combination and b) 12 months from the date of the closing of the SCH’s initial public offering on April 30, 2020, and terminating five years after the Business Combination. Once the public warrants become exercisable, the Company may redeem the outstanding warrants, in whole and not in part, upon a minimum of 30 days’ prior written notice of redemption (“Redemption Period”). There are two scenarios in which the Company may redeem the Warrants. For purposes of the redemption scenarios, “Reference Value” shall mean the last reported sales price of the Company’s common stock for any twenty trading days within the thirty trading-day period ending on the third trading day prior to the date on which notice of the redemption is given. The Company may redeem the outstanding Warrants for cash at a price of $ 0.01 per warrant if the Reference Value equals or exceeds $ 18.00 per share. The warrant holders have the right to exercise their outstanding warrants prior to the 99 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) scheduled redemption date during the Redemption Period at $ 11.50 per share. The Sponsor Warrants are exempt from redemption if the Reference Value is at or above $ 18.00 and the Sponsor Warrants continue to be held by the original warrant holder (“Sponsor") or a permitted transferee. The Company may redeem the outstanding Warrants at a price of $ 0.10 per warrant if the Reference Value equals or exceeds $ 10.00 per share. If the Reference Value is less than $ 18.00 , the Sponsor Warrants must also be concurrently called for redemption with the Public Warrants. The warrant holders have the right to exercise their outstanding warrants prior to the scheduled redemption date during the Redemption Period on a cashless basis. The cashless exercise entitles the warrant holders to receive a set number of shares based on the redemption date and the redemption fair value as defined in the warrant agreement. In connection with the Business Combination, on January 12, 2021, the Company filed a Registration Statement on Form S-1. This Registration Statement relates to the issuance of an aggregate of up to 19,933,333 shares of common stock issuable upon the exercise of its publicly-traded warrants. As of December 31, 2020, there were 19,933,333 warrants outstanding and no warrants have been exercised. Warrants to Purchase Series D Preferred Stock On June 12, 2018, the Company issued warrants to purchase 485,262 shares of Series D Preferred Stock at a price of $ 0.006 (“Penny Warrants”). On November 12, 2020, the Penny Warrants were exercised and the Company issued 485,262 shares of Series D Preferred Stock in exchange for proceeds of $ 3.0 thousand. As of December 31, 2020 there were no Penny Warrants outstanding. Commitment to Issue Warrants In June 2018, the Company entered into a commitment to issue warrants (“Warrant Commitment”). The Warrant Commitment obligates the Company to issue warrants on an annual basis until 2025 (“Issuance Date”). The Warrant Commitment and the Company’s obligation to issue warrants was terminated upon the consummation of the Business Combination through notice provided by the Company and acknowledged by the counterparty. On each Warrant Commitment Issuance date in June 2019 and June 2020, the Company issued warrants to purchase 121,356 shares and 242,713 shares of Series E Preferred Stock at a price of $ 5.92 per share (“Series E Warrants”). On November 7, 2020 the Series E Warrants were exercised and the Company issued 364,069 shares of Series E in exchange for proceeds of $ 2.2 million. As of December 31, 2020 there were no Series E Warrants outstanding. The Penny Warrants, the Warrant Commitment, and the Series E Warrants have been determined to be liabilities under ASC 480 as the underlying preferred shares have certain liquidation preferences in the event of a deemed liquidation. As of December 31, 2020, there are no warrants outstanding. The Company recorded an increase to the warrant fair value adjustments of $ 2.6 million and $ 6.2 million in 2020 and 2019, respectively. 16. INCOME TAXES Income before income taxes consisted entirely of losses from domestic operations of $ 286.7 million, $ 338.9 million and $ 239.6 million for the years ended December 31, 2020, 2019, and 2018, respectively. For the years ended December 31, 2020, 2019, and 2018, the Company did not record any federal income tax expense or benefit due to the full valuation allowance. For the years ended December 31, 2020, 2019 and 2018, the Company incurred state income tax expense of $ 0.1 million, $ 0.3 million and $ 0.4 million, respectively. 100 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) The following table summarizes the components of the Company’s provision for income taxes for the periods presented (in thousands): Year Ended December 31, 2020 2019 2018 Current income tax expense: Federal $ — $ — $ — State 63 252 377 Total current income tax expense 63 252 377 Deferred income tax benefit: Federal — — — State — — — Total deferred income tax benefit — — — Income Tax Provision $ 63 $ 252 $ 377 Effective Tax Rate The following table presents a reconciliation of the U.S. federal statutory income tax rates to the Company’s effective income tax rate for the periods presented: Year Ended December 31, 2020 2019 2018 U. S. Federal tax benefit at statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.0 3.2 2.6 Non-deductible expenses and other 0.3 ( 0.1 ) ( 0.9 ) Non-deductible warrant expenses — 0.4 ( 1.6 ) Loss on convertible note exchange ( 2.0 ) — — Share-based compensation 0.3 ( 0.4 ) 0.4 Deduction limitation on executive compensation ( 1.8 ) — — Change in valuation allowance, net ( 21.0 ) ( 25.2 ) ( 22.6 ) Research and development credits 0.1 1.0 0.9 Effective tax rate ( 0.1 ) % ( 0.1 ) % ( 0.2 ) % For the years ended December 31, 2020, 2019 and 2018, the Company’s effective tax rate differs from the amount computed by applying the U.S. federal statutory and state income tax rates to net loss before income tax, primarily as the result of state income taxes, loss on convertible note exchange, deduction limitation on executive compensation, and changes in the Company’s valuation allowance. 101 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Deferred Taxes Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income taxes purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019, are as follows (in thousands): December 31, 2020 December 31, 2019 Deferred tax assets: Accrued and reserves $ 4,008 $ 4,231 Inventory 10,554 15,181 Tax credits 12,953 10,880 Lease Liabilities 16,262 14,800 Net operating loss 205,995 149,141 Total gross deferred tax assets 249,772 194,233 Depreciation and amortization ( 2,746 ) ( 4,749 ) Goodwill ( 290 ) ( 114 ) Right-of-use assets ( 11,562 ) ( 14,507 ) Valuation allowance ( 235,174 ) ( 174,863 ) Net deferred tax assets $ — $ — A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized in a particular tax jurisdiction. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a deferred tax asset. Due to the losses the Company generated in the current and prior years, the Company believes it is not more likely than not that all of the deferred tax assets can be realized. Accordingly, the Company established and recorded a full valuation allowance on its net deferred tax assets of $ 235.2 million as of December 31, 2020 and a full valuation allowance on its net deferred tax assets of $ 174.9 million as of December 31, 2019. The valuation allowance increased by $ 60.3 million and $ 86.2 million for 2020 and 2019, respectively primarily as a result of current year losses. As of December 31, 2020, the Company had U.S. federal and state net operating loss (“NOL”) carryforwards of $ 870.2 million and $ 585.9 million, respectively, which will each begin to expire in 2034 if not utilized. For NOLs arising after December 31, 2017, the Tax Cuts and Jobs Act of 2017 limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income and can be carried forward indefinitely (carryback is generally prohibited). In the Company’s case this would apply to federal NOLs generated in 2020, 2019 and 2018 of $ 236.1 million, $ 350.6 million, and $ 166.9 million, respectively. NOLs generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation and will continue to have a two-year carryback and twenty-year carryforward period. California NOLs have a carryover period of 20 taxable years following the year of the loss. Additionally, the Company has U.S. federal research tax credit carryforwards of $ 11.0 million that begin to expire in 2034. The Company also has state research tax credit carryforwards of $ 9.4 million that have an indefinite carryforward period. Section 382 of the Internal Revenue Code (the “Code”) limits the use of net operating losses and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. Utilization of the net operating loss carryforwards are subject to various limitations due to the ownership change limitations provided by Internal Revenue Code (IRC) Section 382 and similar state provisions.The Company performed an ownership analysis and identified three previous ownership changes in 2014, 2016 and 2020, as defined under Section 382 and 383 of the IRC, however none of the previous ownership changes resulted in a material limitation that will reduce the total amount of net operating loss carryforwards and credits that can be utilized. 102 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Unrecognized Tax Benefits The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands): Year Ended December 31, 2020 2019 2018 Unrecognized tax benefits as of the beginning of the year $ 5,033 $ 2,433 $ 862 Increases related to prior year tax provisions 182 383 197 Decrease related to prior year tax provisions ( 888 ) ( 247 ) — Increase related to current year tax provisions 1,812 2,464 1,374 Unrecognized tax benefits as of the end of the year $ 6,139 $ 5,033 $ 2,433 Due to the full valuation allowance at December 31, 2020, current adjustments to the unrecognized tax benefit will have no impact on the Company’s effective income tax rate. There would be an impact of $ 5.5 million to the effective tax rate if adjustments are made after the valuation allowance is released. The Company does not anticipate any significant change in its uncertain tax positions within 12 months of this reporting date. The Company’s policy is to recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on the Company’s consolidated balance sheets. To date, the Company has not recognized any interest and penalties in its consolidated statements of operations, nor has it accrued for or made payments for interest and penalties. The Company is subject to income tax in the U.S. and in various states. Due to the history of net operating losses, the Company is subject to U.S. federal, state and local examinations by tax authorities for all years since incorporation but as of December 31, 2020 are not currently under any audits. 17. RELATED PARTIES Prior to the Business Combination, one of the Preferred Stock investors held more than a 10 % interest in the Company and had one seat as a member of the board of directors and another seat as an observer of the board of directors. In 2019, an executive early exercised their option to purchase 1,479,459 shares of unvested common stock at a price per share of $ 1.01 by issuing a promissory note to the Company for a total price of $ 1.5 million with an interest rate of 2.31 % per annum. The Warrant Commitment and the subsequent Series E Warrants were issued to a counterparty that has an equity interest in the Company and a seat on the Company’s board of directors. The board member has significant influence with respect to the counterparty to the Warrant Commitment. The issuance of the Warrant Commitment and Series E Warrants was in exchange for on-going advisory services that the entity provided to the Company. See “Note 15 — Warrants” for further information. During 2019, the Company acquired OSN. See “Note 2 — Business Combination” for further information on the acquisition and the pro forma results of operations, reflecting OSN as if it had been acquired January 1, 2018. Prior to the acquisition, OSN conducted business with the Company as the noncontrolling member of the Company’s Title Companies. The Company paid the member title and due diligence fees in the member’s capacity as a title and escrow agent. Additionally, the Company paid the member management and administrative service fees, rent, and purchases of fixed assets in the member’s capacity as management and administrative service provider and lessor to the subsidiaries of OD Title Holdings and OD Title Sidecar. 18. NET LOSS PER SHARE The Company uses the two-class method to calculate basic net loss per share and apply the more dilutive of the two-class method, treasury stock method or if-converted method to calculate diluted net loss per share. No dividends were declared or paid for the years ended December 31, 2020, 2019 or 2018. Undistributed earnings for each period are allocated to participating securities, including the Preferred Stock for applicable periods, based on the contractual participation rights of the security to share in the current earnings as if all current period earnings had been distributed. As there is no contractual obligation for the 103 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) Preferred Stock to share in losses, the Company’s basic net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted-average shares of common stock outstanding during periods with undistributed losses. The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common shareholders for the years ended December 31, 2020, 2019, and 2018 (in thousands): Year Ended December 31, 2020 2019 2018 Basic net loss per share: Numerator: Net loss $ ( 286,760 ) $ ( 339,170 ) $ ( 239,929 ) Minus: Deemed dividend — $ — 7,224 Minus: Net income attributable to noncontrolling interests $ — $ 1,847 $ 1,362 Net loss attributable to common shareholders – basic $ ( 286,760 ) $ ( 341,017 ) $ ( 248,515 ) Denominator: Weighted average shares outstanding – basic and diluted 109,301 79,977 78,564 Basic net loss per share $ ( 2.62 ) $ ( 4.26 ) $ ( 3.16 ) Diluted net loss per share: Numerator: Net loss $ ( 286,760 ) $ ( 339,170 ) $ ( 239,929 ) Minus: Deemed dividend — $ — 7,224 Minus: Net income attributable to noncontrolling interests $ — $ 1,847 $ 1,362 Minus: Gain on liability-classified warrants $ — 8,132 — Net loss attributable to common shareholders – diluted $ ( 286,760 ) $ ( 349,149 ) $ ( 248,515 ) Denominator: Weighted average shares outstanding – basic and diluted 109,301 79,977 78,564 Diluted net loss per share $ ( 2.62 ) $ ( 4.37 ) $ ( 3.16 ) There were no preferred dividends declared or accumulated for the period. In determining diluted EPS for the year ended December 31, 2019, the Company adjusted the numerator for fair value adjustments related to its Series D Preferred Warrants; however, the exercise of the warrants results in additional participating securities being issued and the Company assumed such participating securities did not convert into additional common stock as that is the most dilutive settlement assumption. The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive, or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period (in thousands): Year Ended December 31, 2020 2019 2018 Common Stock Warrants 19,933 3,370 3,366 Series D Preferred Stock Warrants — 485 9,090 Series E Preferred Stock Warrants — 121 — RSUs 46,525 22,758 912 Options 24,158 36,609 44,066 Unvested Shares from Early Exercise 57 187 1,120 Restricted Shares 2,148 3,689 2,994 Redeemable convertible preferred stock — 314,424 271,490 Total anti-dilutive securities 92,821 381,643 333,038 104 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) 19. COMMITMENTS AND CONTINGENCIES Interest Rate Lock Commitments The Company entered into interest rate lock commitments with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rate to the borrower. These commitments are treated as derivatives and are carried at fair value. See “Note 5 — Derivative Instruments” for more information. Purchase Commitments As of December 31, 2020, the Company was in contract to purchase 1,742 homes for an aggregate purchase price of $ 466.4 million. Lease Commitments The Company has entered into various non-cancelable operating lease agreements for certain of its office space. See “Note 10 — Leases” for further discussion. Legal Matters From time to time, the Company may be subject to potential liability relating to the ownership and operations of the Company’s properties. Accruals are recorded when the outcome is probable and can be reasonably estimated. There are various claims and lawsuits arising in the normal course of business pending against the Company, some of which seek damages and other relief which, if granted, may require future cash expenditures. In addition, from time to time the Company receives inquiries and audit requests from various government agencies and fully cooperates with these requests. The Company does not believe that it is reasonably possible that the resolution of these matters would result in any liability that would materially affect the Company’s consolidated results of operations or financial condition except as noted below. On December 23, 2020, the Federal Trade Commission (“FTC”) notified the Company that they intend to recommend that the agency pursue an enforcement action against the Company and certain of its officers, if the Company is unable to reach a negotiated settlement acceptable to all parties. This notice is related to an initial FTC civil investigative demand sent to the Company in August 2019 seeking documents and information relating primarily to statements in Opendoor’s advertising and website comparing selling homes to Opendoor with selling homes in a traditional manner using an agent and relating to statements that Opendoor’s offers reflect or are based on market prices. The Company is engaged in settlement negotiations with the FTC and has accrued an immaterial amount for this matter. Any settlement could result in material monetary remedies and/or compliance requirements that could have a materially adverse impact on its financial results. The Company cannot make an estimate of the possible loss or range of loss incremental to the amount accrued, if any, resulting from negotiations with the FTC at this time. 20. RESTRUCTURING On April 15, 2020, the Company initiated a reduction in workforce of 600 employees to achieve a more resilient cost structure in response to the uncertainties caused by COVID-19. As a result, for the year ended December 31, 2020, the Company recorded $ 11.4 million of restructuring charges for employee termination benefits. All employee termination benefits were paid prior to December 31, 2020. Additionally, the Company incurred $ 18.4 million of costs related to the exiting of certain non-cancelable leases with no future benefits to the Company. This includes the Company’s exercise of the early termination option related to the Company’s San Francisco space as discussed in Note 10 — Leases as well as the termination of other real estate leases. Of the restructuring charges with respect to employee termination benefits and lease modifications, the Company presented $ 1.9 million in Cost of revenue, $ 5.2 million in Sales, marketing and operations expense, $ 2.1 million in Technology and development and $ 20.6 million in General and administrative in the Company’s consolidated statement of operations. 105 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) 21. SUBSEQUENT EVENTS On February 9, 2021, the Company completed an underwritten public offering (the “Offering”) in which the Company sold 32,817,421 shares of its common stock at a public offering price of $ 27.00 per share, including the exercise in full by the underwriters of their option to purchase up to 4,280,533 additional shares of common stock, which was completed on February 11, 2021. The Company received aggregate net proceeds from the Offering of approximately $ 859.5 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. The Offering satisfied the liquidity event vesting condition of certain RSUs. This caused the Company to recognize $ 80.2 million in compensation expense in the first quarter of 2021 for RSUs for which the time-based vesting condition had been satisfied or partially satisfied as of December 31, 2020 . For further information on the RSUs, see “ Note 14 — Share-Based Awards”. 22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following tables contain selected unaudited financial information for each of the eight quarters ended December 31, 2020. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Unaudited quarterly results are as follows (in thousands, except per share data): Quarter Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Revenue $ 248,886 $ 338,613 $ 739,827 $ 1,255,795 Gross profit $ 38,365 $ 35,811 $ 54,574 $ 91,047 Net loss $ ( 87,792 ) $ ( 80,853 ) $ ( 55,919 ) $ ( 62,196 ) Net loss per share: Basic $ ( 0.49 ) $ ( 0.91 ) $ ( 0.66 ) $ ( 0.74 ) Diluted $ ( 0.49 ) $ ( 0.91 ) $ ( 0.66 ) $ ( 0.74 ) Quarter Ended December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Revenue $ 1,255,654 $ 1,210,645 $ 1,260,312 $ 1,013,972 Gross profit $ 73,961 $ 77,160 $ 81,547 $ 68,582 Net loss $ ( 91,722 ) $ ( 89,736 ) $ ( 75,139 ) $ ( 82,573 ) Net loss per share: Basic $ ( 1.10 ) $ ( 1.12 ) $ ( 0.96 ) $ ( 1.07 ) Diluted $ ( 1.11 ) $ ( 1.15 ) $ ( 1.03 ) $ ( 1.08 ) ****** 106 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The information required by this Item 9 was previously reported in our Current Report on Form 8-K that was filed with the Securities and Exchange Commission on December 18, 2020.