Opendoor Technologies Inc. 10-Q

Item 1. Financial Statements. OPENDOOR TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except s hare data) (Unaudited) June 30, 2021 December 31, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,557,815 $ 1,412,665 Restricted cash 131,652 92,863 Marketable securities 200,143 47,637 Mortgage loans held for sale pledged under agreements to repurchase 25,368 7,529 Escrow receivable 32,848 1,494 Real estate inventory, net 2,723,648 465,936 Other current assets ($ 811 and $ 373 carried at fair value) 67,149 24,987 Total current assets 4,738,623 2,053,111 PROPERTY AND EQUIPMENT – Net 33,962 29,228 RIGHT OF USE ASSETS 45,581 49,517 GOODWILL 30,945 30,945 INTANGIBLES – Net 7,754 8,684 OTHER ASSETS ($ 10,000 and $ 0 carried at fair value) 11,396 4,097 TOTAL ASSETS (1) $ 4,868,261 $ 2,175,582 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and other accrued liabilities $ 70,900 $ 25,270 Current portion of credit facilities and other secured borrowings 1,690,878 346,322 Warrant liabilities - current 38,669 — Interest payable 4,605 1,081 Lease liabilities - current portion 4,999 20,716 Total current liabilities 1,810,051 393,389 CREDIT FACILITIES – Net of current portion 595,579 135,467 WARRANT LIABILITIES — 47,349 LEASE LIABILITIES – Net of current portion 44,593 46,625 OTHER LIABILITIES 117 94 Total liabilities (2) 2,450,340 622,924 COMMITMENTS AND CONTINGENCIES (See Note 17) SHAREHOLDERS’ EQUITY: Common stock, $ 0.0001 par value; 3,000,000,000 shares authorized; 593,838,919 and 540,714,692 shares issued and outstanding, respectively 59 54 Additional paid-in capital 3,875,552 2,596,012 Accumulated deficit ( 1,457,690 ) ( 1,043,449 ) Accumulated other comprehensive income — 41 Total shareholders’ equity 2,417,921 1,552,658 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 4,868,261 $ 2,175,582 ________________ (1) The Company’s consolidated assets at June 30, 2021 and December 31, 2020 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, $ 1,002 and $ 15,849 ; Restricted cash, $ 122,379 and $ 81,408 ; Real estate inventory, net, $ 2,605,155 and $ 460,680 ; Escrow receivable, $ 32,686 and $ 1,364 ; Other current assets, $ 27,761 and $ 5,365 ; and Total assets of $ 2,788,983 and $ 564,666 , respectively. (2) The Company’s consolidated liabilities at June 30, 2021 and December 31, 2020 include the following liabilities for which the VIE creditors do not have recourse to Opendoor: Accounts payable and other accrued liabilities, $ 23,912 and $ 2,335 ; Interest payable, $ 4,541 and $ 1,059 ; Current portion of credit facilities and other secured borrowings, $ 1,666,522 and $ 339,173 ; Credit facilities, net of current portion, $ 599,000 and $ 135,467 ; and Total liabilities, $ 2,293,975 and $ 478,034 , respectively. See accompanying notes to condensed consolidated financial statements. 3 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 REVENUE $ 1,185,386 $ 739,827 $ 1,932,660 $ 1,995,622 COST OF REVENUE 1,026,615 685,253 1,676,757 1,850,001 GROSS PROFIT 158,771 54,574 255,903 145,621 OPERATING EXPENSES: Sales, marketing and operations 96,525 47,265 165,591 128,954 General and administrative 190,611 29,323 412,695 58,906 Technology and development 24,388 16,838 75,065 32,625 Total operating expenses 311,524 93,426 653,351 220,485 LOSS FROM OPERATIONS ( 152,753 ) ( 38,852 ) ( 397,448 ) ( 74,864 ) DERIVATIVE AND WARRANT FAIR VALUE ADJUSTMENT 23,952 122 8,680 ( 890 ) INTEREST EXPENSE ( 15,826 ) ( 17,290 ) ( 26,825 ) ( 45,017 ) OTHER INCOME – Net 1,012 180 1,636 2,855 LOSS BEFORE INCOME TAXES ( 143,615 ) ( 55,840 ) ( 413,957 ) ( 117,916 ) INCOME TAX EXPENSE ( 190 ) ( 79 ) ( 284 ) ( 199 ) NET LOSS $ ( 143,805 ) $ ( 55,919 ) ( 414,241 ) ( 118,115 ) Net loss per share attributable to common shareholders: Basic $ ( 0.24 ) $ ( 0.66 ) $ ( 0.72 ) $ ( 1.40 ) Diluted $ ( 0.24 ) $ ( 0.66 ) $ ( 0.72 ) $ ( 1.40 ) Weighted-average shares outstanding: Basic 588,374 84,588 576,941 84,308 Diluted 588,374 84,588 576,941 84,308 See accompanying notes to condensed consolidated financial statements. 4 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 NET LOSS $ ( 143,805 ) $ ( 55,919 ) $ ( 414,241 ) $ ( 118,115 ) OTHER COMPREHENSIVE INCOME: Unrealized (loss) gain on marketable securities ( 6 ) 583 ( 41 ) 284 COMPREHENSIVE LOSS $ ( 143,811 ) $ ( 55,336 ) $ ( 414,282 ) $ ( 117,831 ) See accompanying notes to condensed consolidated financial statements. 5 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT) (In thousands, except number of shares) (Unaudited) 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) Total Shareholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount BALANCE-March 31, 2021 — — — — — — — — — — 585,691,729 58 3,697,382 ( 1,313,885 ) 6 2,383,561 Issuance of common stock in connection with the February 2021 Offering — — — — — — — — — — — — ( 28 ) — — ( 28 ) Vesting of restricted stock — — — — — — — — — — 329,042 — 29 — — 29 Vesting of restricted stock units — — — — — — — — — — 3,163,113 — — — — Common stock issued upon exercise of warrants — — — — — — — — — — 504,477 — 5,801 — — 5,801 Exercise of stock options — — — — — — — — — — 4,150,558 1 6,470 — — 6,471 Stock-based compensation — — — — — — — — — — — — 165,898 — — 165,898 Other comprehensive loss — — — — — — — — — — — — — — ( 6 ) ( 6 ) Net loss — — — — — — — — — — — — — ( 143,805 ) — ( 143,805 ) BALANCE–June 30, 2021 — $ — — $ — — $ — — $ — — $ — 593,838,919 $ 59 $ 3,875,552 $ ( 1,457,690 ) $ — $ 2,417,921 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) Total Shareholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount BALANCE-December 31, 2020 — — — — — — — — — — 540,714,692 54 2,596,012 ( 1,043,449 ) 41 1,552,658 Issuance of common stock in connection with the February 2021 Offering — — — — — — — — — — 32,817,421 3 857,191 — — 857,194 Vesting of restricted stock — — — — — — — — — — 660,269 — 45 — — 45 Vesting of restricted stock units — — — — — — — — — — 14,899,985 1 — — — 1 Common stock issued upon exercise of warrants — — — — — — — — — — 504,477 — 5,801 — — 5,801 Exercise of stock options — — — — — — — — — — 4,242,075 1 6,736 — — 6,737 Stock-based compensation — — — — — — — — — — — — 409,767 — — 409,767 Other comprehensive loss — — — — — — — — — — — — — — ( 41 ) ( 41 ) Net loss — — — — — — — — — — — — — ( 414,241 ) — ( 414,241 ) BALANCE–June 30, 2021 — $ — — $ — — $ — — $ — — $ — 593,838,919 $ 59 $ 3,875,552 $ ( 1,457,690 ) $ — $ 2,417,921 6 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT) (In thousands, except number of shares) (Unaudited) 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) Total Shareholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount BALANCE-March 31, 2020 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 84,427,317 — $ 60,794 $ ( 852,679 ) $ ( 281 ) $ ( 792,166 ) Vesting of restricted stock — — — — — — — — — — 345,209 — 38 — — 38 Exercise of stock options — — — — — — — — — — 210,535 — 275 — — 275 Stock-based compensation — — — — — — — — — — — — 3,670 — — 3,670 Other comprehensive gain — — — — — — — — — — — — — — 583 583 Net loss — — — — — — — — — — — — — ( 55,919 ) — ( 55,919 ) BALANCE–June 30, 2020 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 84,983,061 $ — $ 64,777 $ ( 908,598 ) $ 302 $ ( 843,519 ) 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) Total Shareholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount 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 ) Vesting of restricted stock — — — — — — — — — — 786,535 — 74 — — 74 Exercise of stock options — — — — — — — — — — 448,083 — 701 — — 701 Stock-based compensation — — — — — — — — — — — — 6,640 — — 6,640 Other comprehensive gain — — — — — — — — — — — — — — 284 284 Net loss — — — — — — — — — — — — — ( 118,115 ) — ( 118,115 ) BALANCE–June 30, 2020 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 84,983,061 $ — $ 64,777 $ ( 908,598 ) $ 302 $ ( 843,519 ) See accompanying notes to condensed consolidated financial statements. 7 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In t housands) (Unaudited) Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 414,241 ) $ ( 118,115 ) Adjustments to reconcile net loss to cash, cash equivalents, and restricted cash (used in) provided by operating activities: Depreciation and amortization – net of accretion 16,608 20,065 Amortization of right of use asset 4,260 8,712 Impairment of software development costs 2,515 — Stock-based compensation 403,048 6,640 Derivative and warrant fair value adjustment ( 8,680 ) 890 Gain on settlement of lease liabilities ( 5,237 ) — Inventory valuation adjustment 942 7,452 Changes in fair value of derivative instruments ( 438 ) ( 527 ) Payment-in-kind interest — 2,704 Dividend-in-kind 143 — Net fair value adjustments and gain (loss) on sale of mortgage loans held for sale ( 2,032 ) ( 829 ) Origination of mortgage loans held for sale ( 83,360 ) ( 42,636 ) Proceeds from sale and principal collections of mortgage loans held for sale 67,566 34,397 Changes in operating assets and liabilities: Escrow receivable ( 31,354 ) 4,178 Real estate inventories ( 2,249,488 ) 1,035,088 Other assets ( 37,057 ) 10,809 Accounts payable and other accrued liabilities 34,569 ( 8,881 ) Interest payable 96 ( 3,044 ) Lease liabilities ( 9,968 ) ( 6,556 ) Net cash (used in) provided by operating activities ( 2,312,108 ) 950,347 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 10,957 ) ( 10,753 ) Purchase of intangible assets ( 240 ) — Purchase of marketable securities ( 238,464 ) ( 113,833 ) Proceeds from sales, maturities, redemptions and paydowns of marketable securities 85,638 55,666 Purchase of non-marketable equity securities ( 10,000 ) — Net cash used in investing activities ( 174,023 ) ( 68,920 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 6,739 688 Proceeds from warrant exercise 4,823 — Proceeds from the February 2021 Offering 886,067 — Issuance cost of common stock ( 28,876 ) — Proceeds from credit facilities and other secured borrowings 3,241,692 824,597 Principal payments on credit facilities and other secured borrowings ( 1,438,136 ) ( 1,723,443 ) Payment of loan origination fees and debt issuance costs ( 2,239 ) ( 2,386 ) Net cash provided by (used in) financing activities 2,670,070 ( 900,544 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 183,939 ( 19,117 ) CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – Beginning of period 1,505,528 684,822 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – End of period $ 1,689,467 $ 665,705 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION – Cash paid during the period for interest $ 20,526 $ 40,333 RECONCILIATION TO CONDENSED CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 1,557,815 $ 458,058 Restricted cash 131,652 207,647 Cash, cash equivalents, and restricted cash $ 1,689,467 $ 665,705 See accompanying notes to condensed consolidated financial statements. 8 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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. Since its inception through June 30, 2021, the Company had completed over 100,000 home transactions. As of June 30, 2021, the Company operated in 39 markets across the United States. The Company was incorporated in Delaware on December 30, 2013. Correction of Prior Period Amounts On April 12, 2021, subsequent to the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Acting Director of the Division of Corporation Finance and the Acting Chief Accountant of the SEC issued a Staff Statement (the “Staff Statement”) on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”). The Company took into consideration the guidance in the Staff Statement and Accounting Standards Codification 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity ("ASC 815-40") and evaluated the Public and Sponsor Warrants (each as defined herein and collectively the "Warrants"). The Warrants were issued in a private placement simultaneously with the closing of the initial public offering of Social Capital Hedosophia Holdings Corp. II (“SCH”), assumed by the Company through the Business Combination (as defined herein) on December 18, 2020, and classified in shareholders' equity as of and for the year ended December 31, 2020. While the Company concluded the Public Warrants meet the criteria to continue to be classified in shareholders' equity, the Company concluded the Sponsor Warrants do not meet the scope exception from derivative accounting prescribed by ASC 815-40 and should therefore be recorded as a liability on the Company’s consolidated balance sheet at fair value as of the closing of the Business Combination, with subsequent changes in their fair value recognized in the Company’s condensed consolidated statement of operations at each reporting date. The accounting for the Sponsor Warrants does not impact the Company's financial statements in any reporting periods prior to the Business Combination, as the Company assumed the Warrants through the Business Combination which was accounted for as a reverse recapitalization. The fair value of the Sponsor Warrants as of the Closing Date on December 18, 2020 and December 31, 2020 amounted to $ 81.1 million and $ 47.3 million, respectively. The change in fair value from the Closing Date through December 31, 2020 amounted to a gain of $ 33.8 million. The impact of the misstatement as of December 31, 2020 resulted in an understatement of the private warrants liability of $ 47.3 million, and an overstatement of accumulated deficit and additional paid-in capital of $ 33.8 million and $ 81.1 million respectively. The Company evaluated the impact of error related to the accounting treatment of Sponsor Warrants with respect to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and determined, based on consideration of quantitative and qualitative factors, that the error had an immaterial impact, individually and in aggregate. As such, the Company corrected its accounting for Sponsor Warrants in its Quarterly Report on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021. The following table provides the impact of the correction on the Company's consolidated balance sheet as of December 31, 2020, as presented herein (in thousands): Previously Stated Adjustments As Corrected Warrant liabilities $ — 47,349 $ 47,349 Total liabilities $ 575,575 47,349 $ 622,924 Additional paid-in capital $ 2,677,155 ( 81,143 ) $ 2,596,012 Accumulated deficit ( 1,077,243 ) 33,794 ( 1,043,449 ) Total shareholders' equity $ 1,600,007 ( 47,349 ) $ 1,552,658 9 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to generally accepted accounting principles in the United States of America (“GAAP”). The condensed consolidated financial statements as of June 30, 2021 and December 31, 2020 and for the three and six month periods ended June 30, 2021 and 2020 include the accounts of Opendoor, its wholly owned subsidiaries and VIEs where the Company is the primary beneficiary. The accompanying unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements herein. As a result of the Business Combination completed on December 18, 2020, prior period share and per share amounts presented in the accompanying condensed consolidated financial statements and these related notes have been retroactively converted. See “ Note 2— Business Combination” for additional information. The accompanying interim condensed consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”) filed on March 4, 2021. 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. 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. 10 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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. The Company’s significant accounting policies are discussed in “Part II – Item 8 – Financial Statements and Supplementary Data – Note 1. Description of Business and Accounting Policies” in the Annual Report. There have been no changes to these significant accounting policies for the six month period ended June 30, 2021, except as noted below. 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. Beginning in 2021, the Company changed the fair value classification of IRLCs from Level 2 to Level 3 as the Company began to adjust observable input data for the estimated pull-through rate, a Company specific input that is unobservable to market participants. See “Note 5 — Derivative Instruments” and " Note 8 — Fair Value Disclosures " for further discussion. Non-marketable Equity Securities The Company's non-marketable equity securities are strategic investments in a privately held company. Non-marketable equity securities are investments that do not have a readily determinable fair value, which are measured at cost minus impairment, if any, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”). All gains and losses on these investments, realized and unrealized, are recorded in Other income-net on the Company's condensed consolidated statements of operations. The Company assesses whether an impairment loss on its non-marketable equity securities has occurred due to declines in fair value or other market conditions. If any impairment is identified for non-marketable equity securities, the Company writes down the investment to its fair value. 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. Impairment loss of $ 0.9 million and $ 3.5 million was recognized for the three and six months ended June 30, 2021, respectively. Of these amounts, $ 0.6 million and $ 2.5 million are included in Technology and development for the three and six months ended June 30, 2021, respectively, and $ 0.3 million and $ 1.0 million are included in General and administrative for the three and six months ended June 30, 2021, respectively. Impairment loss of $ 1.8 million was recognized for each of the three and six months ended June 30, 2020. Of this amount, $ 0.9 million is included in Technology and development and $ 0.9 million is included in General and administrative, for both the three and six months ended June 30, 2020, respectively. The impairment loss recognized for the three and six months ended June 30, 2021 is related to abandonment of property and equipment and sublease of certain right of use assets. Public and Sponsor Warrants On April 30, 2020, SCH consummated its initial public offering of 41,400,000 units, consisting of one share of Class A common stock and one third of one warrant exercisable for Class A common stock, at a price of $ 10.00 per unit. Each whole warrant entitled the holder to purchase one share of Class A common stock at an exercise price of $ 11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, SCH completed the private sale of 6,133,333 warrants to SCH’s 11 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) sponsor at a price of $ 1.50 per warrant (the “Sponsor Warrants”). Each Sponsor Warrant allowed the sponsor to purchase one share of Class A common stock at $ 11.50 per share. The Sponsor Warrants and shares of common stock issuable upon the exercise of Sponsor Warrants were not able to be transferred, assigned, or sold until 30 days after the completion of a Business Combination. Additionally, the Sponsor Warrants were eligible for cash and cashless exercises, at the holder’s option, and were redeemable only if the reference value, as defined in the Warrant Agreement, was less than $ 18.00 per share. If the Sponsor Warrants were held by someone other than the sponsors and certain permitted transferees, the Sponsor Warrants would have been redeemable and exercisable on the same basis as the Public Warrants. The Company evaluated the Public and Sponsor Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity , and concluded that the Sponsor Warrants do not meet the criteria to be classified in shareholders’ equity. Specifically, the exercise and settlement features for the Sponsor Warrants precluded them from being considered indexed to the Company’s own stock, given that a change in the holder of the Sponsor Warrants may alter the settlement of the Sponsor Warrants. Since the holder of the instrument is not an input to a standard option pricing model (a consideration with respect to the indexation guidance), the fact that a change in the holder could impact the value of the Sponsor Warrants means the Sponsor Warrants were not indexed to the Company’s own stock. Since the Private Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the balance sheet at fair value upon the consummation of the Business Combination, with subsequent changes in their respective fair values recognized in the condensed consolidated statement of operations at each reporting period. The Company concluded that the Public Warrants, which do not have the same exercise and settlement features as the Sponsor Warrants, meet the criteria to be classified in shareholders' equity. On June 9, 2021, the Company filed a notice of redemption of all outstanding Public Warrants and Sponsor Warrants. The end of the redemption period was July 9, 2021, at which time the Company redeemed all unexercised warrants at a price of $ 0.10 per Warrant. See “Note 18 — Subsequent Events” for further information. Recently Issued Accounting Standards Not Yet Adopted 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. The Company is currently evaluating the impact of adopting this guidance on the Company's financial position, results of operations or cash flows. 2. BUSINESS COMBINATION 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.” 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 12 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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. 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): June 30, 2021 December 31, 2020 Work-in-process $ 1,025,954 $ 183,004 Finished goods 1,697,694 282,932 Total real estate inventory $ 2,723,648 $ 465,936 4. CASH, CASH EQUIVALENTS, AND INVESTMENTS The amortized cost, gross unrealized gains and losses, and fair value of cash, cash equivalents, and marketable securities as of June 30, 2021 and December 31, 2020, are as follows (in thousands): June 30, 2021 Cost Basis Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities Cash $ 60,674 $ — $ — $ 60,674 $ 60,674 $ — Money market funds 1,197,141 — — 1,197,141 1,197,141 — Time deposit 300,000 — — 300,000 300,000 — Mutual fund 200,143 — — 200,143 — 200,143 Total $ 1,757,958 $ — $ — $ 1,757,958 $ 1,557,815 $ 200,143 13 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 The Company has no debt securities with unrealized losses at June 30, 2021. A summary of debt securities with unrealized losses aggregated by period of continuous unrealized loss at December 31, 2020 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 ) As of June 30, 2021, the Company had $ 10.0 million of non-marketable equity securities without a readily determinable fair value, measured using the Measurement Alternative. The Company did not record any adjustments to the carrying value of its non-marketable equity securities. 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 credit facilities. The interest rate caps were 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 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 14 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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. Prior to extinguishment, the embedded conversion options were measured at fair value 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 June 30, 2021 Asset Liability Interest rate lock commitments $ 57,853 $ 811 $ — Notional Amount Fair Value Derivatives December 31, 2020 Asset Liability Interest rate lock commitments $ 15,130 $ 373 $ — 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): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue $ 397 $ 483 $ 438 $ 531 Derivative and warrant fair value adjustment $ — $ — $ — $ — Other income, net $ — $ — $ — $ ( 4 ) 6. VARIABLE INTEREST ENTITIES The Company utilizes VIEs in the normal course of business to support the Company’s financing needs. The Company determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with the VIE and reconsiders that conclusion on an on-going basis. 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 asset-backed 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 and sell. The Company has a potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs. 15 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) The following table summarizes the assets and liabilities related to the VIEs consolidated by the Company as of June 30, 2021 and December 31, 2020 (in thousands): June 30, 2021 December 31, 2020 Assets Cash and cash equivalents $ 1,002 $ 15,849 Restricted cash 122,379 81,408 Real estate inventory 2,605,155 460,680 Other (1) 60,447 6,729 Total assets $ 2,788,983 $ 564,666 Liabilities Credit facilities $ 2,265,522 $ 474,640 Other (2) 28,453 3,394 Total liabilities $ 2,293,975 $ 478,034 ________________ (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 VIEs. 7. CREDIT FACILITIES AND LONG-TERM DEBT Non-Recourse Asset-backed Financing Facilities The Company utilizes inventory financing facilities consisting of asset-backed senior credit facilities and asset-backed mezzanine term debt facilities to provide financing for the Company’s real estate inventory purchases and renovation. The credit facilities are secured by the assets and equity of one or more SPEs. 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. 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 Credit Facilities The Company classifies the senior revolving credit facilities as current liabilities on the Company’s condensed 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 Company classifies its senior term debt facility as a long-term liability on the Company's condensed consolidated balance sheets because its borrowings under this facility are 16 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) generally not required to be repaid until the final maturity date. The following table summarizes certain details related to the Company’s credit facilities outstanding as of June 30, 2021 and December 31, 2020 (in thousands, except interest rates): June 30, 2021 Borrowing Capacity Outstanding Amount Weighted Average Interest Rate End of Revolving / Withdrawal Period Final Maturity Date Revolving Facility 2018-2 $ 750,000 $ 8,003 2.85 % September 23, 2022 December 23, 2022 Revolving Facility 2018-3 400,000 80,897 3.25 % May 26, 2024 May 26, 2024 Revolving Facility 2019-1 600,000 202,672 2.85 % June 30, 2023 June 30, 2023 Revolving Facility 2019-2 1,030,000 1,003,609 2.66 % July 8, 2023 July 8, 2023 Revolving Facility 2019-3 675,000 371,342 3.25 % August 22, 2022 August 21, 2023 Term Debt Facility 2021-S1 $ 400,000 $ 150,000 3.48 % April 1, 2024 April 1, 2025 Total $ 3,855,000 $ 1,816,523 December 31, 2020 Outstanding Amount Weighted Average Interest Rate Revolving Facility 2018-1 $ — 4.28 % Revolving Facility 2018-2 — 4.36 % Revolving Facility 2018-3 25,385 4.19 % Revolving Facility 2019-1 32,535 3.58 % Revolving Facility 2019-2 230,352 3.08 % Revolving Facility 2019-3 50,901 3.60 % Total $ 339,173 Undrawn borrowing capacity amounts under the senior 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 June 30, 2021, the Company had fully committed borrowing capacity with respect to the Company’s senior credit facilities of $ 2,057.7 million. The total outstanding amount presented above includes $ 1,666.5 million of current liabilities and $ 150.0 million of non-current liabilities; the carrying value of the non-current liabilities is reduced by issuance costs of $ 267 thousand. The senior revolving credit facilities are typically structured with an initial 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. For the senior term debt facility, the outstanding principal is generally not required to be repaid when homes financed through that facility are sold and instead is intended to remain outstanding until final maturity. 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 under the senior revolving credit facilities 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. Borrowings under the senior term debt facility accrue interest at a fixed rate. 17 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 senior revolving credit 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. The senior term debt facility has an aggregated property borrowing base, which increases or decreases based on the cost and the value of the properties financed under the facility, how long the Company has possessed such properties and the amount of cash collateral pledged by the SPE borrower. The borrowing base for the facility may be reduced as properties age beyond certain thresholds and any borrowing base deficiencies may be satisfied through contributions of additional properties, cash or through 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 condensed 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 June 30, 2021 (in thousands, except interest rates): June 30, 2021 Borrowing Capacity Outstanding Amount Interest Rate End of Draw Period Final Maturity Date Term Debt Facility 2016-M1 $ 149,000 $ 149,000 10.00 % October 31, 2023 March 31, 2025 Term Debt Facility 2020-M1 300,000 300,000 10.00 % January 23, 2023 January 23, 2026 Total $ 449,000 $ 449,000 Issuance Costs ( 3,154 ) Carrying Value $ 445,846 As of June 30, 2021, there were no undrawn amounts under the mezzanine term debt facilities. 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 mezzanine term debt 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. 18 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 inventory financing 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 June 30, 2021, the Company was in compliance with all financial covenants and no event of default had occurred. Mortgage Financing The following tables summarize certain details related to the Company’s mortgage financing (in thousands, except interest rates): June 30, 2021 Borrowing Capacity Outstanding Amount Weighted Average Interest Rate End of Revolving Period Final Maturity Date Repo Facility 2019-R1 $ 50,000 $ 24,355 1.85 % May 26, 2022 May 26, 2022 December 31, 2020 Outstanding Amount Weighted Average Interest Rate Repo Facility 2019-R1 $ 7,149 1.94 % To provide capital for Opendoor Home Loans, the Company utilizes a master repurchase agreement (the “Repurchase Agreement”) which is classified as a current liability on its condensed consolidated balance sheets. In March 2019, the Company 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 June 30, 2021, 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 provisions regarding events of default. As of June 30, 2021, $ 25.4 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. 19 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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. 20 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 Debt 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 Mutual fund Price is quoted given the security is traded on an exchange. Level 1 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 Other current assets Interest rate lock commitments Fair value of the underlying loan based on observable quoted market prices in the secondary market and sale commitments, with adjustments for the estimated pull-through rate. Level 2 recurring fair value measurement for fair value based on observable inputs. Level 3 recurring fair value measurement for fair value with unobservable inputs. Other assets Non-marketable equity securities Fair value is estimated using the observable transaction price. Level 2 non-recurring fair value measurement for fair value based on transaction price. 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. Warrant liabilities Sponsor Warrants Fair value is estimated using the price of the Public Warrants or their settlement value. Level 2 recurring fair value measurement 21 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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). June 30, 2021 Balance at Fair Value Level 1 Level 2 Level 3 Marketable securities: Mutual fund $ 200,143 $ 200,143 $ — $ — Mortgage loans held for sale pledged under agreements to repurchase 25,368 — 25,368 — Other current assets: Interest rate lock commitments 811 — 811 Total assets $ 226,322 $ 200,143 $ 25,368 $ 811 Warrant liabilities - current: Sponsor Warrants 38,669 — 38,669 — Total liabilities $ 38,669 $ — $ 38,669 $ — December 31, 2020 Balance at Fair Value 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 $ — Warrant liabilities: Sponsor Warrants 47,349 — $ 47,349 — Total liabilities $ 47,349 $ — $ 47,349 $ — 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). June 30, 2021 Carrying Value Fair Value Level 1 Level 2 Assets: Cash and cash equivalents $ 1,557,815 $ 1,557,815 $ 1,557,815 $ — Restricted cash 131,652 131,652 131,652 — Other assets: Non-marketable equity securities 10,000 10,000 — 10,000 Liabilities: Credit facilities and other secured borrowings $ 2,286,457 $ 2,289,878 $ — $ 2,289,878 22 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 The following tables show a reconciliation from the opening balances to the closing balances for Level 3 Fair values for the three and six months ended June 30, 2021 and 2020 (in thousands): Warrants Embedded Conversion Option Interest rate lock commitments Balance as of March 31, 2021 $ — $ — $ 414 Additions — — 1,934 Origination/Terminations ( 1,667 ) Net change in fair value — — 130 Balance as of June 30, 2021 $ — $ — $ 811 Balance as of December 31, 2020 — — $ — Additions — — 2,348 Origination/Terminations ( 1,667 ) Net change in fair value 130 Balance as of June 30, 2021 $ — $ — $ 811 Warrants Embedded Conversion Option Interest rate lock commitments Balance as of March 31, 2020 $ 5,550 $ 41,697 $ — Net change in fair value ( 122 ) — — Balance as of June 30, 2020 $ 5,428 $ 41,697 $ — Balance as of December 31, 2019 4,538 41,697 $ — Net change in fair value 890 Balance as of June 30, 2020 $ 5,428 $ 41,697 $ — 23 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 9. PROPERTY AND EQUIPMENT Property and equipment as of June 30, 2021 and December 31, 2020, consisted of the following (in thousands): June 30, 2021 December 31, 2020 Internally developed software $ 57,128 $ 47,823 Computers 7,999 5,511 Security systems 3,246 681 Furniture and fixtures 2,791 3,279 Software implementation costs 1,962 1,680 Leasehold improvements 1,959 2,456 Office equipment 1,936 2,056 Total 77,021 63,486 Accumulated depreciation and amortization ( 43,059 ) ( 34,258 ) Property and equipment – net $ 33,962 $ 29,228 Depreciation and amortization expense of $ 6.1 million and $ 11.7 million was recorded for the three and six months ended June 30, 2021, respectively. Depreciation and amortization expense of $ 5.9 million and $ 10.9 million was recorded for the three and six months ended June 30, 2020, respectively. 10. GOODWILL AND INTANGIBLE ASSETS There were no additions to goodwill for the six months ended June 30, 2021 or twelve months ended December 31, 2020. No impairment of goodwill was identified for the three and six months ended June 30, 2021 and 2020. Intangible assets subject to amortization consisted of the follow as of June 30, 2021 and December 31, 2020, respectively (in thousands, except years): June 30, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Weighted Average Useful Life (Years) Customer relationships $ 7,400 $ ( 3,272 ) $ 4,128 3.2 Trademarks 5,400 ( 2,162 ) 3,238 3.2 Developed technology 3,161 ( 2,932 ) 229 1.0 Non-competition agreements 100 ( 100 ) — 0 Intangible assets – net $ 16,061 $ ( 8,466 ) $ 7,595 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Weighted Average Useful Life (Years) Customer relationships $ 7,400 $ ( 2,622 ) $ 4,778 3.7 Trademarks 5,400 ( 1,652 ) 3,748 3.7 Developed technology 2,921 ( 2,921 ) — 0 Non-competition agreements 100 ( 100 ) — 0 Intangible assets – net $ 15,821 $ ( 7,295 ) $ 8,526 24 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 June 30, 2021 and December 31, 2020, respectively. Amortization expense for intangible assets was $ 0.6 million and $ 1.2 million for the three and six months ended June 30, 2021, respectively. Amortization expense for intangible assets was $ 1.1 million and $ 2.2 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2021, expected amortization of intangible assets is as follows: Fiscal Years (In thousands) Remainder of 2021 $ 1,281 2022 2,428 2023 2,320 2024 1,566 Total $ 7,595 11. SHAREHOLDERS’ EQUITY On February 9, 2021, the Company completed an underwritten public offering (the “February 2021 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 February 2021 Offering of approximately $ 859.5 million after deducting underwriting discounts and commissions and offering expenses payable by the Company upon closing. The February 2021 Offering satisfied the liquidity event vesting condition of certain restricted stock units ("RSUs"). For further information on the RSUs, see “ Note 12 — Share-Based Awards”. 12. SHARE-BASED AWARDS 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 six months ended June 30, 2021, 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, 2020 24,158 $ 1.91 5.4 $ 502,767 Exercised ( 4,242 ) 1.63 Forfeited ( 173 ) 2.72 Expired ( 2 ) 3.02 Balance-June 30, 2021 19,741 $ 1.84 5.0 $ 310,914 Exercisable-June 30, 2021 16,305 $ 1.66 4.5 $ 261,938 There were no options granted during the six months ended June 30, 2021. 25 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) Beginning in 2021, RSUs typically vest upon a service-based requirement, generally over a four year period. Prior to 2021, certain awards also had a performance condition to vesting, which was satisfied upon completion of the February 2021 Offering and triggered the recognition of compensation expense for certain RSUs for which the time-based vesting condition had been satisfied or partially satisfied. Subsequent to the February 2021 Offering, the RSUs are only subject to time-based vesting conditions. 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 six months ended June 30, 2021, is as follows: Number of RSUs (in thousands) Weighted- Average Grant-Date Fair Value Unvested and outstanding-December 31, 2020 46,525 $ 10.88 Granted 24,470 20.96 Vested ( 14,900 ) 6.62 Forfeited ( 547 ) 8.93 Unvested and outstanding-June 30, 2021 55,548 $ 16.48 Restricted Shares The Company has 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 six months ended June 30, 2021 is as follows: Number of Restricted Shares (in thousands) Average Grant-Date Fair Value Unvested-December 31, 2020 2,148 $ 3.74 Granted — — Vested ( 621 ) 3.58 Unvested-June 30, 2021 1,527 $ 3.80 Vested and outstanding-June 30, 2021 — — 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 condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020, as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 General and administrative $ 155,707 $ 2,032 $ 352,743 $ 3,586 Sales, marketing and operations 1,864 404 8,270 756 Technology and development 6,645 1,234 42,035 2,298 Total stock-based compensation expense $ 164,216 $ 3,670 $ 403,048 $ 6,640 During the six months ended June 30, 2021, the Company issued market condition RSUs to certain executives with a grant-date fair value of $ 22.4 million, which will be recognized over a requisite service period ranging from six months to three years . There were no market condition RSUs granted in the three months ended June 30, 2021. The Company recognized 26 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) $ 117.7 million and $ 250.9 million of compensation expense during the three and six months ended June 30, 2021, respectively, related to all market condition awards outstanding. In June 2021, the market condition for two market condition awards was satisfied, which resulted in the accelerated recognition of $ 2.2 million of stock based compensation expense in the three months ended June 30, 2021. As of June 30, 2021, there was $ 613.9 million of unamortized stock-based compensation costs related to unvested RSUs, stock options, and Restricted Shares. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately three years . Valuation of options The Black-Scholes Model used to value stock options incorporates the following assumptions: Fair Value of Common Stock Prior to the Company's common stock becoming publicly traded, 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. 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. 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, (i) contemporaneous valuations of common stock performed by an independent valuation specialist; (ii) developments in the Company’s business and stage of development; the Company’s operational and financial performance and condition; (iii) issuances of preferred stock and the rights and preferences of preferred stock relative to common stock; (iv) 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 (v) 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 27 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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. 13. WARRANTS Public and Sponsor Warrants Prior to the Business Combination, SCH issued 6,133,333 Sponsor Warrants and 13,800,000 Public Warrants (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 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 June 30, 2021, there were 19.4 million warrants outstanding and 0.5 million warrants have been exercised. As of June 30, 2021, the Company had current warrant liabilities of $ 38.7 million related to the Sponsor Warrants and recorded a Derivative and warrant fair value adjustment of $ 24.0 million and $ 8.7 million for the change in fair value of the Sponsor Warrants for the three and six months ended June 30, 2021, respectively. On June 9, 2021, the Company filed a notice of redemption of all outstanding Public Warrants and Sponsor Warrants. The end of the redemption period was July 9, 2021, at which time the Company redeemed all unexercised warrants at a price of $ 0.10 per Warrant. See “Note 18 — Subsequent Events” for further information. 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 June 30, 2021, 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 28 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 June 30, 2021, there were no Series E Warrants or Warrant Commitments 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. For the Penny Warrants, the Warrant Commitment, and the Series E Warrants, the Company recorded no warrant fair value adjustments for the three and six months ended June 30, 2021 and a (decrease) increase to the warrant fair value adjustments of $( 0.1 ) million and $ 0.9 million for the three and six months ended June 30, 2020, respectively. 14. INCOME TAXES The Company’s provision for income taxes has not been historically significant to the business as the Company has incurred operating losses to date. Due to projected and actual losses in the current and prior years, the Company believes that based on the weight of available evidence, it is more likely than not that all of the deferred tax assets will not be realized and recorded a full valuation allowance on its net deferred tax assets as of June 30, 2021 and December 31, 2020. The Company’s provision for income taxes, which was primarily composed of state tax expense, was $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2021, respectively, with an effective tax rate of ( 0.13 )% and ( 0.07 )%, respectively. The Company's provision for income taxes was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020, respectively, with an effective tax rate of ( 0.14 )% and ( 0.17 )%, respectively. The effective tax rate differs from the U.S. statutory tax rate primarily due to the recording of a full valuation allowance against the net deferred tax assets. 15. 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 2018, 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. On June 29, 2021, the outstanding balance under the promissory note of $ 1.6 million was repaid in full. 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 counterparty provided to the Company. See “Note 13 — Warrants” for further information. 16. NET LOSS PER SHARE Basic net loss per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. During the periods when there is a net loss, potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive. No dividends were declared or paid for the three and six months ended June 30, 2021 or 2020. For applicable periods, the company uses the two-class method to calculate 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. 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 Preferred Stock to share in losses, the Company’s 29 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) 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 three and six months ended June 30, 2021 and 2020 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Basic and diluted net loss per share: Numerator: Net loss attributable to common shareholders – basic and diluted $ ( 143,805 ) $ ( 55,919 ) $ ( 414,241 ) $ ( 118,115 ) Denominator: Weighted average shares outstanding – basic and diluted 588,374 84,588 576,941 84,308 Basic and diluted net loss per share $ ( 0.24 ) $ ( 0.66 ) $ ( 0.72 ) $ ( 1.40 ) There were no preferred dividends declared or accumulated for the period. 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): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Common Stock Warrants 19,429 3,370 19,429 3,370 Series D Preferred Stock Warrants — 485 — 485 Series E Preferred Stock Warrants — 363 — 363 RSUs 55,548 27,265 55,548 27,265 Options 19,741 31,155 19,741 31,155 Unvested Shares from Early Exercise 18 100 18 100 Restricted Shares 1,527 2,767 1,527 2,767 Redeemable convertible preferred stock — 314,424 — 314,424 Total anti-dilutive securities 96,263 379,929 96,263 379,929 17. 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 June 30, 2021, the Company was in contract to purchase 8,158 homes for an aggregate purchase price of $ 2,962.3 million. 30 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands, except share and per share amounts, ratios, or as noted) (Unaudited) Lease Commitments During the six months ended June 30, 2021, the Company did not enter into any material new leases, lease renewals, or lease modifications. On September 25, 2020, the Company exercised an option to early terminate the San Francisco headquarters lease, effective September 30, 2021. In September 2020, the Company did not anticipate returning to the San Francisco space, so the Company accelerated amortization of the right-of-use asset and incurred and paid early termination fees. In January 2021, the Company terminated the San Francisco lease prior to the anticipated termination date of September 30, 2021, which resulted in a $ 5.2 million gain recognized in the condensed consolidated statements of operations for the six months ended June 30, 2021. 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 condensed 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. 18. SUBSEQUENT EVENTS On July 9, 2021, the Company completed the redemption of all of its outstanding Public and Sponsor Warrants to purchase shares of the Company's common stock, par value $ 0.0001 per share, that were issued under the Warrant Agreement, dated April 27, 2020. Of the 13,799,947 Public Warrants that were outstanding as of the time of the Business Combination, 874,739 were exercised for cash at an exercise price of $ 11.50 per share of Common Stock and 12,521,776 were exercised on a cashless basis in exchange for an aggregate of 4,452,659 shares of Common Stock. In addition, of the 6,133,333 Private Warrants that were outstanding as of the date of the Business Combination, 1,073,333 were exercised for cash at an exercise price of $ 11.50 per share of Common Stock and 5,060,000 were exercised on a cashless basis in exchange for an aggregate of 1,799,336 shares of Common Stock. Total cash proceeds to the Company generated from exercises of the Warrants were $ 22.4 million. In connection with the redemption, the Public Warrants stopped trading on the Nasdaq Global Select Market and were delisted after close of market on July 9, 2021. On July 30, 2021, the Company entered into a senior revolving credit facility, Revolving Facility 2021-1, which has a final maturity date of October 31, 2022. As a result of entering in this new senior revolving credit facility and other amendments to existing credit facilities, the Company has an aggregate borrowing capacity of $ 3,980.0 million and fully committed borrowing capacity of $ 2,255.0 million for its senior credit facilities. ******* 31 TABLE OF CONTENTS OPENDOOR TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular amounts in thousands, except share and per share data and ratios, or as noted)