UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For transition period from to
Commission File Number 001-40963
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(628 ) 225-4848
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| ☒ | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of November 30, 2021, the number of shares of the registrant’s Class A common stock outstanding was 25,162,870 and the number of shares of the registrant’s Class B common stock outstanding was 121,683,545 .
TABLE OF CONTENTS
| Page | ||||||||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which statements involve substantial risk and uncertainties. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations, financial condition, business strategy and plans, and objectives of management for future operations, such as statements regarding the benefits and timing of the roll-out of new technology, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
•our expectations regarding our net revenue, expenses, gross margin, adjusted EBITDA, payback period, and other results of operations;
•our ability to acquire new customers and successfully retain existing customers;
•our ability to gauge and adapt to fashion trends and changing consumer preferences in products, sustainability, price-points, and in-store and digital shopping experiences;
•our ability to achieve or sustain profitability;
•future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
•our ability to effectively develop and launch new, innovative, and updated products;
•our ability to effectively manage our inventory and supply chain, including with respect to environmental, social, and governance, or ESG, matters;
•our ability to effectively increase the number of and management of our retail locations;
•the costs and success of our sales and marketing efforts, and our ability to promote our brand;
•our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
•our ability to achieve the sustainability targets and goals that we have announced;
•our commitments to meeting certain threshold ESG criteria and reporting ESG practices in connection with the Sustainability Principles and Objectives Framework, or the SPO Framework;
•our expectations regarding ESG initiatives;
•our ability to effectively manage our growth, including any international expansion;
•our ability to protect our intellectual property rights and any costs associated therewith;
•our dependence on key suppliers and manufacturers;
•the effects of the COVID-19 pandemic or other public health crises;
•our focus on a specific public benefit purpose and potential resulting negative effects on our financial performance;
•our ability to compete effectively with existing competitors and new market entrants; and
•our total addressable market and the growth rates of the markets in which we compete.
i
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks and uncertainties, including the factors described in “Part II, Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in or expressed by, and you should not place undue reliance on, our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Additional Information
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “our company,” and “Allbirds” refer to Allbirds, Inc. and its subsidiaries. The Allbirds design logo, “Allbirds,” and our other registered or common law trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of Allbirds, Inc. Other trade names, trademarks, and service marks used in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, we have omitted the ® and ™ designations, as applicable, for the trademarks we name in this Quarterly Report on Form 10-Q.
We announce material information to the public through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, our website (allbirds.com), the investor relations section of our website (ir.allbirds.com), our Instagram account (@allbirds), our Twitter account (@allbirds), our LinkedIn account (linkedin.com/company/allbirds), our Facebook page (@weareallbirds) and our blog on Medium (allbirdsblog.medium.com). We use these channels to communicate with investors and the public about our company, our products, and other matters. Therefore, we encourage investors, the media and others interested in our company to review the information we make public in these locations, as such information could be deemed to be material information.
ii
RISK FACTORS SUMMARY
Investing in our Class A common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as more fully described in “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects:
•The COVID-19 pandemic has had, and may in the future continue to have, a material adverse impact on our business.
•Economic uncertainty in our key markets may affect consumer purchases of discretionary items, which may adversely affect demand for our products.
•If we are unable to maintain and enhance the value and reputation of our brand and/or counter any negative publicity, we may be unable to sell our products, which would harm our business and could materially adversely affect our financial condition and results of operations.
•We have incurred significant net losses since inception, and anticipate that we will continue to incur losses for the foreseeable future.
•We operate in a highly competitive market; the size and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our net revenue and profitability.
•Our focus on using sustainable materials and environmentally friendly manufacturing processes and supply chain practices may increase our cost of revenue and hinder our growth.
•Climate change and increased focus by governments, organizations, customers, and investors on sustainability issues, including those related to climate change and socially responsible activities, may adversely affect our reputation, business, and financial results.
•If we are unable to anticipate product trends and consumer preferences, or we fail in our technical and materials innovation to successfully develop and introduce new high-quality products, we may not be able to maintain or increase our revenue and profits.
•We utilize a range of marketing, advertising, and other initiatives to increase existing customers’ spend and to acquire new customers; if the costs of advertising or marketing increase, or if our initiatives fail to achieve their desired impact, we may be unable to grow the business profitably.
•As a company that operates retail stores, we are subject to various risks, including commercial real estate and labor and employment risks; additionally, we may be unable to successfully open new store locations in existing or new geographies in a timely manner, if at all, which could harm our results of operations.
•Our business depends on our ability to maintain a strong community of engaged customers and Allgood Collective Ambassadors, including through the use of social media. We may be unable to maintain and enhance our brand if we experience negative publicity related to our marketing efforts or use of social media, we fail to maintain and grow our community of Allgood Collective Ambassadors, or our marketing and social media efforts otherwise fail to meet our customers’ expectations.
•We are subject to risks related to our ESG activities and disclosures, and our reputation and brand could be harmed if we fail to meet our public sustainability targets and goals.
•We are subject to risks related to our commitment to certain ESG criteria, which we call the SPO Framework.
•We have a limited operating history, which makes it difficult to predict our future results of operations, particularly in newer geographies.
iii
•Our reliance on a limited number of suppliers and manufacturers to provide materials for and to produce our products could cause problems in our supply chain.
•Failure of our contractors or our licensees’ contractors to comply with our supplier code of conduct, contractual obligations, local laws, and other standards could harm our business.
•The fluctuating cost of raw materials could increase our cost of revenue and cause our results of operations and financial condition to suffer.
•We may fail to protect our intellectual property rights, our trademark and other proprietary rights may conflict with the rights of others, and we may not be able to acquire, use, or maintain our marks and domain names, any of which could harm our brand, business, financial condition, and results of operations.
•If the technology-based systems that give our customers the ability to shop with us online do not function effectively, or we fail to comply with government regulations relating to the internet and eCommerce, our results of operations, as well as our ability to grow our eCommerce business globally, could be materially adversely affected.
•Our international operations expose us to various risks from foreign currency exchange rate fluctuations, tariffs or global trade wars, trade restrictions, and changing tax laws in the United States and elsewhere, among others.
•We are subject to several unique risks as a result of our status as a Delaware public benefit corporation, or PBC, and certified B Corporation, or B Corp, including that our board of directors’ duty to balance various interests and our public benefit purpose may result in actions that do not maximize stockholder value.
•The dual class structure of our common stock has the effect of concentrating voting control with our co-founders and co-Chief Executive Officers, Timothy Brown and Joseph Zwillinger, our other executive officers and directors, our principal stockholders, and their respective affiliates, which limits or precludes the ability of our other stockholders to influence corporate matters, including the election of directors and the approval of any change of control transaction.
If we are unable to adequately address these and other risks we face, our business may be harmed.
iv
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ALLBIRDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| September 30, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| PROPERTY AND EQUIPMENT—Net | |||||||||||
| OTHER ASSETS | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Deferred revenue | |||||||||||
| Total current liabilities | |||||||||||
| NONCURRENT LIABILITIES: | |||||||||||
| Other long-term liabilities | |||||||||||
| Preferred stock warrant liability | |||||||||||
| Total noncurrent liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
| COMMITMENTS AND CONTINGENCIES (Note 15) | |||||||||||
Convertible Preferred Stock, $ | |||||||||||
| STOCKHOLDERS’ DEFICIT: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ deficit | ( | ( | |||||||||
| TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
1
ALLBIRDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share amounts) (Unaudited) | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of Revenue | |||||||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| OPERATING EXPENSE: | |||||||||||||||||||||||
| Selling, General, and Administrative Expense | |||||||||||||||||||||||
| Marketing Expense | |||||||||||||||||||||||
| TOTAL OPERATING EXPENSE | |||||||||||||||||||||||
| LOSS FROM OPERATIONS | ( | ( | ( | ( | |||||||||||||||||||
| Interest Expense | ( | ( | ( | ( | |||||||||||||||||||
| Other (Expense) Income | ( | ( | ( | ||||||||||||||||||||
| Loss Before Provision For Income Taxes | ( | ( | ( | ( | |||||||||||||||||||
| INCOME TAX BENEFIT (PROVISION) | ( | ||||||||||||||||||||||
| NET LOSS | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS): | |||||||||||||||||||||||
| Foreign currency translation gain (loss) | ( | ( | |||||||||||||||||||||
| TOTAL COMPREHENSIVE LOSS | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| PER SHARE DATA | |||||||||||||||||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
ALLBIRDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (In thousands, except share amounts) (Unaudited) | ||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Deficit | Convertible Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE - June 30, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series E Preferred Stock (net of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of unvested common stock shares | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE - September 30, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE - June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Vesting of common stock warrants | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss | — | — | — | ( | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE - September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
ALLBIRDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (In thousands, except share amounts) (Unaudited) | ||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Deficit | Convertible Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE - December 31, 2019 | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series D Preferred Stock (net of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series E Preferred Stock (net of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of unvested common stock shares | ( | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE - September 30, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE - December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | 0 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Vesting of common stock warrants | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss | — | — | — | ( | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE - September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
ALLBIRDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) | ||||||||
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net Loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Stock-based compensation | |||||||||||
| Change in fair value of preferred stock warrant liability | ( | ||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventory | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ||||||||||
| Other long-term liabilities | |||||||||||
| Deferred revenue | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITY: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Changes in security deposits | ( | ||||||||||
| Net cash used in investing activity | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from the issuance of preferred stock, net of issuance costs | |||||||||||
| Proceeds from bank loans | |||||||||||
| Principal payments on bank loans | ( | ||||||||||
| Proceeds from the exercise of stock options | |||||||||||
| Proceeds from the exercise of common stock warrants | |||||||||||
| Payments of deferred offering costs | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | ( | ||||||||||
| NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | ( | ||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period | |||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for taxes | $ | $ | |||||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||
| Purchase of property and equipment included in accrued liabilities | $ | $ | |||||||||
| Repurchase of stock options | $ | $ | |||||||||
| Deferred offering costs included in accrued liabilities | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
5
| ALLBIRDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) | ||||||||
1.DESCRIPTION OF BUSINESS
Allbirds, Inc. (“Allbirds” and, together with its wholly owned subsidiaries, the “Company,” “we,” or “our”) was incorporated in the state of Delaware on May 6, 2015. Allbirds is a global lifestyle brand that innovates with naturally derived materials to make better footwear and apparel products in a better way, while treading lighter on our planet. The majority of our revenue is from sales directly to consumers via our digital and store channels.
Amended and Restated Certificate of Incorporation
In September 2021, the Company filed its Eighth Amended and Restated Certificate of Incorporation, which established a dual class common stock structure and authorized a total of 2,000,000,000 shares of Class A common stock, 200,000,000 shares of Class B common stock, and 75,812,755 shares of convertible preferred stock. Upon the filing of the Eighth Amended and Restated Certificate of Incorporation, 127,735,199 shares of the Company’s then-outstanding common stock were reclassified into an equivalent number of shares of Class B common stock, which includes our convertible preferred stock on an as-converted basis and warrants being exercised or exchanged in connection with our initial public offering (“IPO”), described below, on an as-exercised or as-exchanged basis, as applicable.
Initial Public Offering
On November 2, 2021, the Company priced its IPO and the Company’s Class A common stock began trading on The Nasdaq Global Select Market on November 3, 2021 under the symbol “BIRD.” In connection with the closing of the IPO on November 5, 2021, 23,221,152 shares of the Company’s Class A common stock were issued and sold at a public offering price of $15.00 per share, which consisted of 16,850,799 shares offered by the Company and 6,370,353 shares offered by certain existing stockholders. The Company received aggregate proceeds of $237.0 million from the IPO, net of the underwriting discounts and commissions of $15.8 million and before offering costs of approximately $6.0 million. The Company did not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders. The condensed consolidated financial statements as of September 30, 2021 and for the period then-ended do not reflect the transaction since the IPO closed subsequent to the period end. Offering costs, including the legal, accounting, printing, and other IPO-related costs paid prior to the IPO, have been capitalized in prepaid expenses and other current assets within the accompanying condensed consolidated balance sheet as of September 30, 2021 and upon completion of the IPO, these deferred offering costs will be reclassified to Additional paid-in capital and recorded against the proceeds from the offering.
In November 2021, immediately prior to the closing of the IPO, all 70,990,919 shares of the Company’s convertible preferred stock then outstanding were converted into an equivalent number of shares of Class B common stock and the Company reclassified $204.0 million of convertible preferred stock to additional paid-in-capital. 1,104,560 shares of Class B common stock were automatically issued pursuant to the terms of outstanding convertible preferred stock warrants, and 714,965 shares of Class B common stock were issued upon the exercise by the holder of an outstanding Class B common stock warrant. In connection with the closing of the IPO, the Company also filed its Ninth Amended and Restated Certificate of Incorporation, which authorized a total of 2,000,000,000 shares of Class A common stock, 200,000,000 shares of Class B common stock, and 20,000,000 shares of preferred stock.
Impacts of the Coronavirus (“COVID-19”) Pandemic
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported, and during 2020 expanded into a worldwide pandemic, leading to significant business and supply chain disruptions. The outbreak was declared a global pandemic by the World Health Organization in March 2020 and has caused governments and public health officials to impose restrictions and to recommend precautions to mitigate the spread of the virus.
In March 2020, we temporarily closed our retail stores. The stores began reopening in accordance with local government and public health authority guidelines during the second quarter of 2020 for most locations. Most retail stores have remained open, while certain locations have closed temporarily based on government and health authority guidance in those markets. No retail stores have been permanently closed.
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Throughout the rest of 2020, our distribution centers and retail stores operated with restrictive and precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels.
In response to the COVID‐19 pandemic, various government programs have been announced which provide financial relief for affected businesses. The most significant relief measures which we qualified for are the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the United States. During fiscal 2020 we recognized payroll subsidies totaling $0.2 million under the wage subsidy programs and similar plans in other jurisdictions. These subsidies were recorded as a reduction in the associated wage costs which we incurred, and were recognized in selling, general, and administrative expense. In addition, in April 2020, we received notification of approval, through JPMorgan Chase Bank, N.A., from the U.S. Small Business Administration (“SBA”) to fund our request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES Act. We received proceeds of $4.3 million from the PPP Loan in April 2020 and repaid the amount in full in May 2020.
Temporary closures of all stores as a result of COVID‐19 and associated reduction in operating income during fiscal 2020 was considered to be a qualitative indicator of impairment and we performed an assessment of recoverability by asset group for long-lived assets. As a result of the analysis, no impairment charge was considered necessary. As of September 30, 2021, all stores had reopened.
2.SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation—The accompanying unaudited condensed consolidated financial statements have been presented in U.S. dollars and prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on November 4, 2021 (the “Prospectus”).
In the opinion of management, the accompanying unaudited condensed interim financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP.
There have been no changes to the Company’s significant accounting policies as of and for the three and nine months ended September 30, 2021, as compared to the significant accounting policies described in Note 2. Significant Accounting Policies in the notes to the audited consolidated financial statements in the Prospectus.
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Revenue Recognition—For the nine months ended September 30, 2020 and 2021, we recognized $1.7 million and $2.4 million of revenue that was deferred as of December 31, 2019 and 2020, respectively. As of December 31, 2020 and September 30, 2021, we had $0.7 million and $0.4 million, respectively, in cash collections of purchases via our digital channel which had not yet shipped, and $2.2 million and $2.1 million, respectively, in gift card liabilities included in deferred revenue in the condensed consolidated balance sheets. The deferred revenue balance of $2.5 million at September 30, 2021 is expected to be recognized over the next 12 months.
We record a reserve for estimated product returns, based upon historical return trends, in each reporting period against revenue, as a component of net revenue, with an offsetting increase to accrued expenses. We recorded a sales refund reserve of $5.2 million and $3.0 million as of December 31, 2020 and September 30, 2021, respectively. We have also recorded a related inventory returns receivable, with an offsetting decrease to cost of revenue, for product returns of $1.4 million and $0.8 million as of December 31, 2020 and September 30, 2021, respectively. The inventory returns receivable is included in prepaid expenses and other current assets as of December 31, 2020 and September 30, 2021 in the condensed consolidated balance sheets.
| (in thousands) | September 30, 2021 | September 30, 2020 | |||||||||
| Net revenue by primary geographical market: | |||||||||||
| United States | $ | $ | |||||||||
| International | |||||||||||
| $ | $ | ||||||||||
Cash, Cash Equivalents, and Restricted Cash—The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows:
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other current assets | |||||||||||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | $ | |||||||||
Restricted cash serves as collateral for corporate card program obligations of the Company and consists of bank deposits. As of September 30, 2021, we had no restricted cash.
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Fair Value Measurements—Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. It clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Observable inputs, such as quoted prices in active markets
Level 2—Inputs other than the quoted prices in active markets that are observable either directly or indirectly
Level 3—Unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions.
Recent Accounting Pronouncements—As an “emerging growth company,” the Jumpstart Our Business Startups Act, or the JOBS Act, allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. For certain pronouncements, we have elected to use the adoption dates applicable to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). In discussing the topic of cloud computing accounting, ASU 2018-15 aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. ASU 2018-15 can be applied on a retrospective or prospective basis and is effective for financial statements issued for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. On January 1, 2021, we adopted ASU 2018-15 prospectively and cloud computing implementation costs incurred on or after January 1, 2021 are included in other assets in the condensed consolidated balance sheet and are presented within operating cash flows. As of September 30, 2021, capitalized implementation costs for cloud computing arrangements were not material. The adoption did not have a material impact to the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires recognition of lease assets and lease liabilities in the balance sheet by the lessees for lease contracts with a lease term of more than 12 months. ASU 2016-02 can be applied on a modified retrospective basis, in which entities can present all prior periods under previous lease accounting guidance while recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption. In June 2020, the FASB issued ASU No. 2020-05, Effective Dates for Certain Entities, which deferred the effective date for nonpublic entities, including emerging growth companies, that had not yet adopted the
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original ASU. Under the amended guidance, the leasing standard will be effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the effect of adoption of these standards on our condensed consolidated financial statements and related disclosures, but expect to record a material right-of-use asset and liability on the condensed consolidated balance sheet related to our operating leases upon adoption on January 1, 2022.
In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of adoption of this standard on our condensed consolidated financial statements and disclosures.
3.INVENTORY
Inventory consisted of the following as of December 31, 2020 and September 30, 2021:
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Finished goods | $ | $ | |||||||||
| Reserve to reduce inventories to net realizable value | ( | ( | |||||||||
| $ | $ | ||||||||||
4.PROPERTY AND EQUIPMENT - NET
Property and equipment consisted of the following as of December 31, 2020 and September 30, 2021:
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Leasehold improvements | $ | $ | |||||||||
| Furniture and fixtures | |||||||||||
| Internal use software | |||||||||||
| Machinery and equipment | |||||||||||
| Computers and equipment | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| $ | $ | ||||||||||
Depreciation and amortization expense for the nine months ended September 30, 2020 and 2021 was $4.5 million and $6.7 million, respectively, recognized in selling, general, and administrative expense in the condensed consolidated statements of operations and comprehensive loss. There were $0.0 million and $0.2 million of assets disposed of in the nine months ended September 30, 2020 and 2021, respectively. As of December 31, 2020 and September 30, 2021, unamortized capitalized internal use software costs were $6.7 million and $9.9 million, respectively.
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| ALLBIRDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) | ||||||||
Geographic Information
The following table summarizes our long-lived assets by geographic area, which consist of property and equipment, net. No individual foreign country represented in excess of 10% of total long-lived assets balance as of December 31, 2020 and September 30, 2021:
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Long-lived assets: | |||||||||||
| United States | $ | $ | |||||||||
| International | |||||||||||
| $ | $ | ||||||||||
5.PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following as of December 31, 2020 and September 30, 2021:
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Accounts and other receivable | $ | $ | |||||||||
| Inventory returns receivable | |||||||||||
| Security deposits | |||||||||||
| Prepaid expenses | |||||||||||
| Tax receivable | |||||||||||
| Deferred offering costs | |||||||||||
| Restricted cash | $ | $ | |||||||||
| $ | $ | ||||||||||
6.OTHER ASSETS
Other assets consisted of the following as of December 31, 2020 and September 30, 2021:
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Investment in equity securities | $ | $ | |||||||||
| Security deposits | |||||||||||
| Intangible assets | |||||||||||
| Debt issuance costs | |||||||||||
| Deferred tax assets | |||||||||||
| $ | $ | ||||||||||
Investment in equity securities—On November 20, 2020, we entered into an agreement to make a minority equity investment of $2 million in Natural Fiber Welding, Inc. in exchange for 201,207 shares of Series A-3 Preferred Stock. Our investment is carried at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. There were no no
Intangible assets include intellectual property purchased from West Harbor Technologies, LLC for $1.3 million, including transaction costs of $0.1 million, in January 2020. The intangible asset has an estimated useful life of 3
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7.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consisted of the following as of December 31, 2020 and September 30, 2021:
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Sales-refund reserve | $ | $ | |||||||||
| Taxes payable | |||||||||||
| Employee-related liabilities | |||||||||||
| Accrued expenses | |||||||||||
| $ | $ | ||||||||||
8.FAIR VALUE MEASUREMENTS
We record cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses at cost. The carrying values of these instruments approximate their fair value due to their short‐term maturities. Refer to Note 2, Significant Accounting Policies to our audited consolidated financial statements, contained in our Prospectus for additional detail regarding our fair value measurement methodology.
The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and September 30, 2021 and indicate the level in the fair value hierarchy in which we classify the fair value measurement.
| December 31, 2020 | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Warrant liability | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| September 30, 2021 | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Warrant liability | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Warrant Liability—The fair value of our preferred stock warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the convertible preferred stock warrant liability, we used the probability weighted average values from (i) a Black-Scholes calculation and (ii) an option pricing model. We measure and report our preferred stock warrant liability at the estimated fair value on a recurring basis. As discussed further in Note 11, the preferred stock warrant liability was estimated using assumptions related to the remaining contractual term of the warrants, the risk-free interest rate and volatility of our comparable public companies over the remaining term, and the fair value of underlying shares. The significant unobservable inputs used in the fair value measurement of the preferred stock warrant liability are the fair value of the underlying stock at the valuation date and the estimated term of the warrants. The value from the Black-Scholes calculation reflects the value in an initial public offering scenario with the contractual term of the warrants, which was weighted by management’s estimated probability of a potential initial public offering at the applicable valuation date. The value from the option pricing model reflects the value in an alternative exit scenario at which point the warrants were expected to be exercised. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.
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The following table presents a summary of the changes in fair value of our Level 3 liabilities for the nine months ended September 30, 2020 and 2021, included within Other (expense) income in our condensed consolidated statements of operations and comprehensive loss:
| (in thousands) | Warrants | ||||
| Balance at December 31, 2019 | |||||
| Decrease in fair value | ( | ||||
| Balance at September 30, 2020 | $ | ||||
| Balance at December 31, 2020 | $ | ||||
| Increase in fair value | |||||
| Balance at September 30, 2021 | $ | ||||
9.LONG-TERM DEBT
Long-Term Debt—On February 20, 2019, we entered into a credit agreement with JPMorgan Chase Bank, N.A. (the “Credit Agreement”). The Credit Agreement is an asset-based loan with a revolving line of credit of up to $40.0 million and an optional accordion, which, if exercised, would allow the Company to increase the aggregate commitment by up to $35.0 million, subject to obtaining additional lender commitments and satisfying certain conditions. Pursuant to the terms of the revolving credit facility, we may reduce the total amount available for borrowing under such facility, subject to certain conditions. The Credit Agreement has a maturity date of February 20, 2024.
Borrowings under our revolving credit facility use the London Interbank Offered Rate (“LIBOR”) as a reference rate. Interest on borrowings under the revolving credit facility accrues at a variable rate equal to (i) the one-month LIBOR (adjusted LIBOR Rate for a one month interest period on a given day) plus 2.50 %, plus (ii) a specified spread of 1.25 % or 1.5 % dependent on the average quarterly loan balance, calculated on the last day of each fiscal quarter being less than $32.0 million or greater than or equal to $32.0 million, respectively. The commitment fee under the Credit Agreement is 0.20 % per annum on the average daily unused portion of each lender’s commitment. In addition, we are required to pay a fronting fee of 0.125 % per annum on the average daily aggregate face amount of issued and outstanding letters of credit. Interest, commitment fees and fronting fees are payable monthly, in arrears.
The Credit Agreement contains customary events of default and financial covenants. As of December 31, 2020 and September 30, 2021, we were in compliance with these covenants.
During the nine months ended September 30, 2020, we drew down $14.0 million from the line of credit. As of December 31, 2020 and September 30, 2021, there were no
10.STOCKHOLDERS’ DEFICIT
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At September 30, 2021, convertible preferred stock consisted of the following:
Preferred stock
| September 30, 2021 | |||||||||||||||||||||||
| (in thousands, except share amounts) | Shares Authorized | Shares Issued and Outstanding | Aggregate Liquidation Preference | Carrying Value, net of issuance cost | |||||||||||||||||||
| Series Seed | $ | $ | |||||||||||||||||||||
| Series A | |||||||||||||||||||||||
| Series B | |||||||||||||||||||||||
| Series C | |||||||||||||||||||||||
| Series D | |||||||||||||||||||||||
| Series E | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
As of September 30, 2021, the Series Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock (together, the “Preferred Stock”) had the following rights, preferences, privileges, and restrictions:
Voting—Each holder of Preferred Stock was entitled to 10 votes per share of Class B common stock into which the shares of Preferred Stock held by such holder could be converted as of the record date. The holders of shares of the Preferred Stock were entitled to vote on all matters on which the common stock shall be entitled to vote. Holders of Preferred Stock were entitled to notice of any stockholders’ meeting in accordance with our bylaws. Fractional votes were not, however, permitted and any fractional voting rights would be disregarded. The holders of Preferred Stock had the right to elect separate directors to our board of directors. The holders of Preferred Stock had protective rights to vote separately to approve significant changes to our operating agreement and major transactions.
Dividends—Dividends on shares of Preferred Stock were 8 % per annum, when and if declared by our board of directors. The dividends were noncumulative. No distribution would have been made with respect to the common stock until all declared but unpaid dividends on the Preferred Stock were paid or set aside for payment to the holders of the Preferred Stock. After the payment or setting aside for payment of the dividends and additional dividends (other than dividends on common stock payable solely on common stock) in any fiscal year among the holders of the Preferred Stock, the holders of the Preferred Stock and common stock then outstanding would be eligible to have dividends paid or set aside for payment in proportion to the greatest whole number of shares of common stock held by each holder if all shared of Preferred Stock were converted at the then-effective conversion rate.
Liquidation—In the event of certain deemed liquidation events where dissolution of the Company did not occur, the holders of the Preferred Stock had the ability to voluntarily require us to redeem their shares at the liquidation preference using the remaining assets after the deemed liquidation event. The liquidation preference meant $11.56 per share of Series E Preferred Stock, $12.89 per share of Series D Preferred Stock, $10.97 per share of Series C Preferred Stock, $3.00 per share of Series B Preferred Stock, $0.28 per share of Series A Preferred Stock, and $0.10 per share of Series Seed Preferred Stock, subject to adjustment as outlined below. In a liquidation event where dissolution occurred, the holders of the Preferred Stock would be paid any amounts out of our remaining assets before holders of the common stock were paid. Any distributions that were below the liquidation preference amounts would be paid pro rata to holders of the Preferred Stock. Each share of Preferred Stock shall automatically have been converted into fully paid, nonassessable shares of common stock at the then-effective conversion rate for such share (i) immediately prior to the closing of an underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act, covering the offer and sale of our common stock, on the New York Stock Exchange or Nasdaq, resulting in at least $50.0 million of gross proceeds (a “Qualified IPO”), (ii) upon the settlement of the initial trade of shares of common stock on the New York Stock Exchange or Nasdaq by means of an effective registration statement under the Securities Act that registers shares of existing Common Stock of the Corporation for resale (a “Direct Listing”), or (iii) upon our receipt of a written request for
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such conversion from a majority of the holders of Preferred Stock, or, if later, the effective date for conversion specified in such request.
Conversion—Each share of Preferred Stock was convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Company or any transfer agent for the Preferred Stock, into that number of fully paid, nonassessable shares of common stock determined by multiplying such share by the Conversion Rate for such series. The conversion rate of a series of Preferred Stock meant a number equal to the then-applicable original issue rate for such series divided by the then-applicable conversion rate for such series. The original issue price and conversion rate at the date of the issuance meant $11.56 per share of Series E Preferred Stock, $12.89 per share of Series D Preferred Stock, $10.97 per share of Series C Preferred Stock, $3.00 per share of Series B Preferred Stock, $0.28 per share of Series A Preferred Stock, and $0.10 per share of Series Seed Preferred Stock. Each share of Preferred Stock shall automatically have been converted into fully paid, nonassessable shares of common stock at the then-effective conversion rate for such share (i) immediately prior to the closing of a Qualified IPO, (ii) upon a Direct Listing, or (iii) upon our receipt of a written request for such conversion from a majority of the holders of Preferred Stock, or, if later, the effective date for conversion specified in such request.
Redemption—The Preferred Stock was not redeemable.
Protective Provisions—In the event we issued additional shares of common stock after the Preferred Stock original issue date without consideration or for a consideration per share less than the conversion rate in effect immediately prior to such issuance, then and in each such event the conversion rate shall have been reduced to a price equal to such conversion rate multiplied by the following fraction: the numerator of which was equal to the number of shares of common stock outstanding or deemed to be outstanding immediately prior to such issuance plus the number of shares of common stock, which the aggregate consideration we received for the total number of additional shares of common stock so issued would purchase at the conversion rate in effect immediately prior to such issuance; and the denominator of which would have been equal to the number of shares of common stock outstanding or deemed to be outstanding immediately prior to such issuance plus the number of additional shares of common stock actually issued.
In November 2021, immediately prior to the completion of the IPO and subsequent to September 30, 2021, all 70,990,919 shares of convertible preferred stock converted into an equivalent number of shares of Class B common stock.
Common Stock
As of December 31, 2020, the Company had one class of common stock at a par value of $0.0001 .
As of September 30, 2021, the Company had two classes of common stock: Class A common stock and Class B common stock. Each class had a par value of $0.0001
In September 2021, prior to the completion of the IPO, the Company filed its Eighth Amended and Restated Certificate of Incorporation and implemented a dual class common stock structure where all existing shares of common stock were reclassified into Class B common stock on a one -to-one basis and the Company also authorized a new class of common stock, the Class A common stock. Authorized capital stock was 2,275,812,755 shares, of which 2,000,000,000 shares was Class A common stock, 200,000,000 shares was Class B common stock, and 75,812,755 shares was preferred stock. The common stock and the preferred stock each had a par value of $0.0001
Voting—Holders of Class A common stock are entitled to one vote per share on all matters to be voted upon by the stockholders, and holders of Class B common stock are entitled to 10 votes per share on all matters to be voted upon by the stockholders. The holders of our Class A common stock and Class B common stock generally vote together as a single class on all matters submitted to a vote of our stockholders, unless otherwise required by Delaware law or our amended and restated certificate of incorporation. Delaware law could require either holders of our Class A common stock or Class B common stock to vote separately as a single class in the following circumstances: (i) if we were to seek to amend our amended and restated certificate of incorporation to increase or decrease the number of authorized shares of a class of our capital stock, then that class would be required to vote
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separately to approve the proposed amendment; (ii) if we were to seek to amend our amended and restated certificate of incorporation to increase or decrease the par value of a class of our capital stock, then that class would be required to vote separately to approve the proposed amendment; and (iii) if we were to seek to amend our amended and restated certificate of incorporation in a manner that alters or changes the powers, preferences or special rights of a class of our capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment. As a result, in these limited instances, the holders of a majority of the Class A common stock could defeat an amendment to our amended and restated certificate of incorporation. Our amended and restated certificate of incorporation does not provide for cumulative voting for the election of directors.
Dividends—Holders of Class A common stock and Class B common stock are entitled to ratably receive dividends if, as and when declared from time to time by our board of directors at its own discretion out of funds legally available for that purpose, after payment of dividends required to be paid on outstanding preferred stock, if any. Under Delaware law, we can only pay dividends either out of “surplus” or out of the current or the immediately preceding year’s net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal their book value.
Right to Receive Liquidation Distributions—Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our Class A common stock and Class B common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Conversion—Each share of our Class B common stock is convertible at any time at the option of the holder into one share of our Class A common stock. Each share of our Class B common stock will convert automatically into one share of our Class A common stock upon any transfer, whether or not for value, except for (i) certain permitted transfers to entities, to the extent the transferor retains sole dispositive power and exclusive voting control with respect to the shares of Class B common stock, and (ii) certain other permitted transfers described in our amended and restated certificate of incorporation. In addition, if held by a natural person (including a natural person serving in a sole trustee capacity), each share of our Class B common stock will convert automatically into one share of our Class A common stock upon the death or incapacity of such natural person as described in our amended and restated certificate of incorporation. All outstanding shares of our Class B common stock will convert automatically into an equivalent number of shares of our Class A common stock upon the final conversion date, defined as the later of (a) the last trading day of the fiscal quarter immediately following the tenth anniversary of September 21, 2021 and (b) the date fixed by our board of directors that is no less than 61 days and no more than 180 days following the date on which the outstanding shares of Class B common stock first represent less than 10 % of the aggregate number of the then outstanding shares of Class A common stock and Class B common stock (except if the final conversion date determined according to (a) or (b) would otherwise occur on or after the record date of any meeting of stockholders and before or at the time the vote at such meeting is taken, then the final conversion date shall instead be the last trading day of the fiscal quarter during which such vote was taken).
Other Matters—The Class A common stock and Class B common stock have no preemptive rights pursuant to the terms of our amended and restated certificate of incorporation and our amended and restated bylaws. There are no redemption or sinking fund provisions applicable to the Class A common stock and Class B common stock. All outstanding shares of our Class A common stock are fully paid and non-assessable.
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| ALLBIRDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) | ||||||||
Class B Common stock reserved for future issuance as of September 30, 2021 consists of the following:
| September 30, 2021 | |||||
| Shares reserved for preferred stock outstanding | |||||
| Options issued and outstanding under the 2015 Equity Incentive Plan | |||||
| Shares available for future option grants under the 2015 Equity Incentive Plan | |||||
Upon the completion of the IPO on November 5, 2021, our board of directors may, without further action by our stockholders, fix the rights, preferences, privileges, and restrictions of up to an aggregate of 20,000,000 shares of preferred stock in one or more series and authorize their issuance. The voting, dividend, and liquidation rights of the holders of common stock are subject to and qualified by the rights, powers, and preferences of the holders of preferred stock. There are no shares of preferred stock outstanding upon the completion of the IPO.
11.WARRANTS
Preferred Stock Warrants—In connection with a 2015 agreement with Venture Lending and Leasing VII and Venture Lending and Leasing VIII (the “VLL Agreement”), we issued warrants to purchase 1,104,560 shares of our Preferred Stock at an exercise price of $0.10 that expire on September 30, 2026 with an initial fair value of $0.8 million. The preferred stock warrants contained a down round and anti-dilution adjustment provision on the exercise price. The Company would have recognized on a prospective basis the value of the effect of the down round feature in the warrant when it was triggered (i.e., when the exercise price is adjusted downward). This value is measured as the difference between (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price and (2) the financial instrument’s fair value (with the down round feature) using the reduced exercise price. The value of the effect of the down round feature would have been reflected in the change in fair value of the warrant liability. The preferred stock warrants could have been exercised in whole or in part at any time and included a cashless exercise option which would have allowed the holder to receive fewer shares of stock in exchange for the warrants rather than paying cash to exercise. The preferred stock warrants could have been exercised for either Series Seed Preferred Stock or Series A Preferred Stock. All of the preferred stock warrants were outstanding at December 31, 2020 and September 30, 2021.
The preferred stock warrants were classified as a liability and initially recorded at fair value upon entering the VLL Agreement. It was subsequently remeasured to fair value at each reporting date and the changes in the fair value of the warrant liability are recognized in other expense in the condensed consolidated statements of operations and comprehensive loss.
The value of our Preferred Stock warrants were estimated using the probability weighted-average values from (i) a Black-Scholes calculation and (ii) an option pricing model. The following assumptions were used to estimate the fair value of the preferred stock warrants as of December 31, 2020 and September 30, 2021:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Expected term (in years) | |||||||||||
| Fair value of underlying shares | $ | $ | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Volatility | % | % | |||||||||
| Expected dividend yield | % | % | |||||||||
In November 2021, immediately prior to the completion of the IPO and subsequent to September 30, 2021, the convertible preferred stock warrants then outstanding were automatically exchanged for 1,104,560 shares of Class B common stock and the Company reclassified the preferred stock warrant liability to additional paid-in capital upon the conversion.
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| ALLBIRDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) | ||||||||
Common Stock Warrants—Through 2018, we issued warrants to purchase common stock to various third parties. We determined the fair value of these warrants using the Black-Scholes option pricing model.