Exhibit 99.3

Total Care Auto,

Powered by Landcar

COMBINED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT

For the Years Ended December 31, 2020 and 2019

 

TOTAL CARE AUTO, POWERED BY LANDCAR

C O N T E N T S

 

			Page
Independent Auditor’s Report			2-3
Combined Financial Statements:
Balance Sheets			4-5
Statements of Income			6
Statements of Comprehensive Income			7
Statements of Changes in Stockholders’ Equity			8
Statements of Cash Flows			9-10
Notes to Combined Financial Statements			11-32
Supplementary Information:
Independent Auditor’s Report on Supplementary Information			34
Landcar Agency, Inc. Balance Sheets			35
Landcar Agency, Inc. Statements of Income			36
Landcar Casualty Company Balance Sheets			37
Landcar Casualty Company Statements of Income			38

Independent Auditor’s Report

To the Board of Directors of

Total Care Auto, Powered by Landcar

Opinion

We have audited the accompanying combined financial statements of Total Care Auto, Powered by Landcar which comprise the combined balance sheets as of December 31, 2020 and 2019, and the related combined statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the combined financial statements.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Total Care Auto, Powered by Landcar as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Total Care Auto, Powered by Landcar and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the incurred and paid claims development information, and the historical claims duration information on pages 25 to 27 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Total Care Auto, Powered by Landcar’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with generally accepted auditing standards, we:

 

•

Exercise professional judgment and maintain professional skepticism throughout the audit.

 

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

 

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Total Care Auto, Powered by Landcar ’s internal control. Accordingly, no such opinion is expressed.

 

•

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

 

•

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Total Care Auto, Powered by Landcar ’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

 

Salt Lake City, Utah

April 14, 2021

TOTAL CARE AUTO, POWERED BY LANDCAR

Combined Balance Sheets

As of December 31, 2020 and 2019

 

 

		Combined 2020				Combined 2019 (As Restated)
ASSETS
Current assets:
Cash and cash equivalents, at estimated fair value		$	74,708,047			$	51,031,396
Short-term investments, at estimated fair value			201,310				2,047,247
Premiums receivables			13,577,564				9,048,296
Reinsurance recoverable			1,339				4,088
Other receivable			13,012				8,000,000
Accrued investment income			473,707				656,924
Notes receivable, current portion			—				20,000,000
Prepaid expenses			106,156				155,549
Mortgage loans, at amortized, current portion, net of the uncollectible allowance of $0			86,971				177,506
Deferred acquisition costs, current portion			102,916,570				90,519,088
Related party receivable			—				5,877
Total current assets			192,084,676				181,645,971
Investments
Bonds, available for sale, at estimated fair value (amortized cost: $12,363,757 and $11,517,211)			12,673,890				11,681,105
Bonds, held-to-maturity, amortized cost			33,363,406				29,141,953
Preferred stock, available-for-sale, at estimated fair value			3,445,191				3,984,895
Common stock, available-for-sale, at estimated fair value			35,642,082				28,624,422
Mortgage loans, amortized cost, long-term portion			2,363,317				3,790,450
Alternative investments			197,241				458,432
Related party notes receivable			91,680,000				39,755,061
Notes receivable, non-current portion			—				53,000,000
Deferred acquisition costs, long-term portion			293,521,236				245,330,422
Deferred income tax asset			310,824				645,562
Property and equipment, net of accumulated depreciation of $2,629,659 and $1,731,938			2,167,006				2,908,084
Total noncurrent assets			475,364,193				419,320,386
Total assets		$	667,448,869			$	600,966,357

 

The accompanying notes are an integral part of these combined financial statements

4

TOTAL CARE AUTO, POWERED BY LANDCAR

Combined Balance Sheets (Continued)

As of December 31, 2020 and 2019

 

 

		Combined 2020				Combined 2019 (As Restated)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	9,806,397			$	14,700,811
Securities payable			—				108,987
Taxes, licenses, and fees, excluding income taxes			103,536				87,462
Claims payable			1,100,319				944,236
Interest payable			20,652				—
Unearned premiums, current portion			179,481,064				153,085,550
Line of credit			14,000,000				—
Income taxes payable			21,239				334,234
Total current liabilities			204,533,207				169,261,280
Other liabilities:
Unpaid losses and loss adjustment expenses			2,424,159				2,321,556
Total other liabilities			2,424,159				2,321,556
Noncurrent liabilities:
Unearned premiums, long-term portion			421,345,772				401,882,654
Total noncurrent liabilities			421,345,772				401,882,654
Total liabilities			628,303,138				573,465,490
Stockholders’ equity:
Common stock			2,501,000				2,501,000
Additional paid-in capital			85,125,956				85,125,956
Retained earnings			(48,791,357)				(60,289,983)
Accumulated other comprehensive income (loss), net			310,133				163,894
Total stockholders’ equity			39,145,732				27,500,867
Total liabilities and stockholders’ equity		$	667,448,869			$	600,966,357

 

The accompanying notes are an integral part of these combined financial statements

5

TOTAL CARE AUTO, POWERED BY LANDCAR

Combined Statements of Income

For the Years Ended December 31, 2020 and 2019

 

		Combined 2020				Combined 2019 (As Restated)
Premium and administrative fee income		$	190,896,847				187,810,450
Service and licensing fee income			37,600,000				—
Cost of sales:
Claims expense incurred			42,542,890				44,036,107
Other cost of sales			500,563				289,620
Amortization of deferred acquisition costs			97,928,967				99,721,890
Total cost of sales			140,972,420				144,047,617
Gross profit			87,524,428				43,762,833
Operating expenses:
Salaries and benefits			3,838,243				4,203,057
Rent			238,982				232,237
Depreciation			897,721				586,662
Professional fees			1,003,123				1,182,145
Advertising			—				27,910
Other general and administrative			1,501,661				1,160,461
Total expenses			7,479,730				7,392,472
Gain from operations			80,044,698				36,370,361
Net investment income			7,588,260				8,530,553
Net realized gains			859,376				736,259
Other income			2,173,226				2,279,431
Net income before provision for income taxes			90,665,560				47,916,604
Provision for income taxes			1,559,434				1,516,644
Net income		$	89,106,126			$	46,399,960

 

The accompanying notes are an integral part of these combined financial statements

6

TOTAL CARE AUTO, POWERED BY LANDCAR

Combined Statements of Comprehensive Income

For the Years Ended December 31, 2020 and 2019

 

		Combined 2020				Combined 2019 (As Restated)
Net income		$	89,106,126			$	46,399,960
Other comprehensive income (loss):
Unrealized investment gain (loss) arising during the period			233,879				218,997
Reclassification adjustment for (gains) losses included in net income			(87,640	)			(17,793	)
Other comprehensive income (loss):			146,239				201,204
Income tax expense related to items of other comprehensive income (loss)			—				—
Other comprehensive income (loss), net of income tax			146,239				201,204
Total comprehensive income		$	89,252,365			$	46,601,164

 

The accompanying notes are an integral part of these combined financial statements

7

TOTAL CARE AUTO, POWERED BY LANDCAR

Combined Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2020 and 2019

 

		Common Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income				Total
Combined
Balance at January 1, 2019		$	2,501,000			$	12,325,956			$	33,381,880			$	(37,310	)		$	48,171,526
Change in accounting principles			—				—				(87,621,823	)							(87,621,823	)
Capital contribution			—				73,000,000				—				—				73,000,000
Dissolution of MPA			—				(200,000	)			—				—				(200,000	)
Net income			—				—				46,399,960				—				46,399,960
Dividends paid			—				—				(52,450,000	)			—				(52,450,000	)
Comprehensive income, net			—				—				—				201,204				201,204
Balance at December 31, 2019 (As Restated)			2,501,000				85,125,956				(60,289,983	)			163,894				27,500,867
Net income			—				—				89,106,126				—				89,106,126
Dividends paid			—				—				(77,607,500	)			—				(77,607,500	)
Comprehensive income, net			—				—				—				146,239				146,239
Balance at December 31, 2020		$	2,501,000			$	85,125,956			$	(48,791,357	)		$	310,133			$	39,145,732

 

The accompanying notes are an integral part of these combined financial statements

8

TOTAL CARE AUTO, POWERED BY LANDCAR

Combined Statements of Cash Flows

For the Years Ended December 31, 2020 and 2019

 

		Combined 2020				Combined 2019 (As Restated)
Reconciliation of net income to net cash provided by operating activities:
Net income		$	89,106,126			$	46,399,960
Adjustments to reconcile net income to net cash provided by operating activities:
Realized gain on investments			(859,376	)			(736,259	)
Unrealized (gain) loss on investments			(3,738,782	)			(2,580,188	)
Amortization (accretion) of bonds			660,352				513,530
Change in accounting principle			—				8,922,590
Depreciation			897,721				586,662
Change in:
Premiums receivables			(4,529,268	)			(1,111,537	)
Reinsurance recoverable			2,749				(4,088	)
Accrued investment income			183,217				7,276
Prepaid expenses			49,393				4,212
Deferred acquisition costs			(60,588,296	)			(38,301,209	)
Deferred income tax asset/liability			(123,925	)			428,093
Related party receivable			5,877				(52	)
Income tax recoverable/payable			(312,995	)			213,552
Unpaid losses and loss adjustment expenses			102,603				274,656
Claims payable			156,083				64,728
Interest payable			20,652				—
Accounts payable and accrued expenses			3,092,573				492,501
Securities payable			(108,987	)			108,987
Taxes, licenses, and fees			16,074				(76,486	)
Unearned premiums			45,858,632				69,068,693
Allowance for cancellations			—				(11,987,376	)
Net cash provided by operating activities			69,890,423				72,288,245

 

The accompanying notes are an integral part of these combined financial statements

9

TOTAL CARE AUTO, POWERED BY LANDCAR

Combined Statements of Cash Flows (Continued)

For the Years Ended December 31, 2020 and 2019

 

		Combined 2020				Combined 2019 (As Restated)
Cash flows from investing activities:
Proceeds from short—term investments		$	1,845,937			$	(155,010	)
Proceeds from sale of property and equipment			—				449,380
Proceeds from bonds			36,592,084				22,099,284
Proceeds from stocks			4,809,599				18,913,029
Proceeds from mortgage loan principal collections			1,517,668				1,177,417
Proceeds from other invested assets			261,191				—
Purchase of property and equipment			(156,643	)			(1,788,379	)
Purchase of bonds			(22,451,292	)			(25,316,996	)
Purchase of stocks			(26,095,376	)			(23,125,524	)
Mis cellaneous applications			(8,331	)			(209,583	)
Net cash used by investing activities			(3,685,163	)			(7,956,382	)
Cash flows from financing activities:
Return of capital			—				(200,000	)
Capital contributions			—				73,000,000
Proceeds from line of credit			14,000,000				—
Related party notes receivable funded			(51,924,939	)			(100,000,000	)
Proceeds from related party notes receivable			73,000,000				28,401,894
Dividends paid			(77,607,500	)			(52,450,000	)
Other cash used			3,830				(35,716	)
Net cash used by financing activities			(42,528,609	)			(51,283,822	)
Net increase in cash and cash equivalents			23,676,651				13,048,041
Cash and cash equivalents at beginning of year			51,031,396				37,983,355
Cash and cash equivalents at end of year		$	74,708,047			$	51,031,396
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	—			$	—
Taxes paid		$	1,537,691			$	2,685,000

 

The accompanying notes are an integral part of these combined financial statements

10

TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of the Company

Total Care Auto, Powered by Landcar (“TCA”) is made up of two different entities: Landcar Agency, Inc. (“LCA”), and Landcar Casualty Company (“LCC”).

The combined financial statements presented herein contain the accounts of both of these entities. All significant intercompany balances and transactions have been eliminated in combination.

TCA offers extended vehicle service contracts, prepaid maintenance contracts, vehicle theft assistance contracts, key replacement contracts, guaranteed asset protection (“GAP”) contracts, paintless dent repair contracts, appearance protection contracts, tire and wheel, DrivePur, and lease wear and tear contracts. In addition, TCA provides the required contractual liability insurance if needed. The majority of these warranty contracts are sold through affiliated automobile dealerships.

Basis of Presentation

The accompanying combined financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) using the accrual method of accounting. All income is recorded when earned and all expenses are recorded when incurred regardless of when such amounts are received or paid.

Use of Estimates

The preparation of combined financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the reserve for unpaid losses and loss adjustment expenses, unearned premiums, collectability of the notes receivables and mortgage loans, and fair value of investments.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with a maturity date of three months or less at the time of purchase and are stated at cost, which approximates fair market value. TCA maintains cash balances in demand deposits and money market funds in which the carrying amount approximates fair value.

Short-term investments

Short-term investments are made up of bonds with a maturity date of more than three months, but less than 12 months. These holdings are stated at cost, which approximates fair market value.

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Restricted Cash and Securities

TCA places securities on statutory deposit with certain state agencies to retain the right to do business in those states.

Premiums Receivable/Bad Debts

Receivables are recorded when invoices are issued and are presented in the balance sheet net of the allowance for doubtful accounts. Receivables are written off when they are determined to be uncollectible. TCA believes no allowance for doubtful accounts is necessary as of December 31, 2020 and 2019.

Investment Securities

Bonds and treasury instruments at December 31, 2020 and 2019 consist of held-to-maturity securities and available-for-sale securities.

Held-to-maturity securities are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using the interest method over the period to maturity. A portion of the bonds are classified as available-for-sale securities. Available-for-sale securities are reported at market value.

Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other than temporary would result in write-downs of the individual securities to their fair value. The related write-downs would be included in earnings as realized losses. During the 2020 and 2019 fiscal years, no such write-downs were noted.

Equity securities are made up of preferred and common stock. These are reported at market value with the change in value being recognized in net income.

Cost Method Investments

During 2012, LCA invested in Mercato Partners Growth II GP, LLC and has accounted for it using the cost method in accordance with FASB Accounting Standards Codification (ASC - 323), Investments – Equity Method and Joint Ventures. The carrying value of this investment as of December 31, 2020 and 2019 was $197,241 and $458,432, respectively. Management performs an annual assessment of these investments for impairment. As of December 31, 2020, there were no identified events or changes in circumstances that had a significant adverse effect on the carrying value of this investment.

Mortgages and Notes Receivable

Mortgage loans and notes receivable are carried at the outstanding principal balances with an allowance for estimated uncollectible amounts, if any.

 

12

TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Deferred Acquisition Costs

Direct expenses paid for the acquisition of contracts on which revenue has been received but not yet earned have been deferred and are amortized over the related contract period.

Property and Equipment

Property and equipment is recorded at cost at the time of purchase and depreciated over the useful life of the assets using the straight-line depreciation method. Acquisitions of under $5,000 are expensed in the year purchased. The estimated useful lives for the various asset classes are as follows:

 

Asset Categories		Useful life
Furniture and equipment		10 years
Computer hardware		3 years
Computer software		5 years
Leasehold improvements		3-5 years

Property and equipment was made up of the following as of December 31:

 

		2020				2019
Property and Equipment
Furniture and fixtures		$	413,894			$	413,894
Computer hardware and office equipment			310,559				302,827
Software			4,069,479				3,923,301
Work in progress			2,733				—
Total			4,796,665				4,640,022
Accumulated depreciation			(2,629,659	)			(1,731,938	)
Net property and equipment		$	2,167,006			$	2,908,084

Depreciation expense for the years ended December 31, 2020 and 2019 amounted to $897,721 and $586,662, respectively.

Costs of software developed for internal use are capitalized in a work in progress account until the project has been placed in service. Depreciation begins once the project has been placed in service.

 

13

TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Unearned Premiums

Revenue is earned over the period of the related warranty contract. Accordingly, TCA records a deferred revenue reserve to ratably recognize revenue over the contract period.

Unpaid Losses and Loss Adjustment Expense Reserve

Losses and loss adjustment expense reserves represent management’s best estimate of the ultimate net cost of all reported and unreported losses incurred through December 31, 2020 and 2019. TCA does not discount liabilities for unpaid losses or unpaid loss adjustment expense reserves. The reserves for unpaid losses and loss adjustment expenses are estimated using individual case-basis valuations and statistical analysis. Those estimates are subject to the effects of trends in loss severity and frequency. Although considerable variability is inherent in such estimates, management believes the reserves for losses and loss adjustment expenses are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations.

Claims are counted when incidents that may result in a liability are reported and are based on policy coverage.

Revenue Recognition

Effective January 1, 2019, the Company adopted new FASB guidance contained in ASU 2014-09, Revenue Recognition (Topic 606): Revenue from Contracts with Customers, using the modified retrospective method applied to all active contracts. The modified retrospective method results in no changes to the December 31, 2018 balances presented in these financial statements, but instead results in adjustments to the January 1, 2019 balances. This standard revises the criteria for revenue recognition. Under the new guidance, the transaction price is attributed to the underlying performance obligations in the contract and revenue is deferred and recognized as income as the Company satisfies the performance obligations in the contract as the obligations under the contracts are performed. Under the new guidance, revenue is recognized more slowly as compared to the historic revenue recognition pattern. Incremental costs of obtaining a contract are capitalized and amortized to the extent the Company expects to recover those costs. The Company considers all revenue other than investment and interest income to be the result of contracts with customers. Each contract is considered to have one performance obligation which extends over the life of the contract. The method for recognizing revenue for the various types of contracts is described in the following paragraphs. Expenses are matched with earned premiums resulting in recognition of profits over the life of the contracts. This has resulted in contract costs that were expensed upon payment last year now being included in the amortization of deferred acquisition costs. Unearned premium reserves are established to cover the unexpired portion of premiums written.

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition (Continued)

Earnings methods are assigned based on contract type and expected claim patterns and consist of the pro-rata, rule of 78’s, and reverse rule of 78’s methods. GAP insurance unearned premium reserve is calculated by the rule of 78’s. The other contracts are earned ratably over the contract period.

Extended vehicle service contracts are earned ratably over the contract based on historical claims payment patterns for TCA.

The Company receives monthly retrospective commissions from third party vendors. These commissions are earned when received and are reported as other income on the statement of income and comprehensive income.

Revenue from service and licensing fees is earned monthly as it is received.

The timing of revenue recognition, billings and cash collections results in billed accounts receivables, contract assets (reported as deferred acquisition costs) and contract liabilities (reported as unearned premium) on the Company’s balance sheets. Balances as of December 31 were as follows:

 

		2020				2019
Billed receivables		$	13,577,564			$	9,048,296
Contract assets		$	396,437,806			$	335,849,510
Contract liabilities		$	600,826,836			$	554,968,204

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition (Continued)

Premium and administrative fee income for the years ended December 31, 2020 and 2019 by product is as follows:

 

		2020				2019
Company:
LCC:
Guaranteed asset protection contracts		$	7,756,644			$	6,156,805
Lease, wear and tear			11,858				—
LCA:
Service contracts			93,868,951				91,637,134
Maintenance			29,765,812				31,179,829
Vehicle theft assistance			23,872,592				23,777,389
Paintless dent repair and appearance protection			22,333,895				21,822,613
Guaranteed asset protection administrative fees			4,078,713				5,468,870
Key replacement			5,542,943				4,053,854
Tire and wheel			1,434,348				1,429,905
DrivePur			2,273,601				1,386,357
Lease, wear and tear			(192,274	)			812,096
Other			149,764				85,598
Total		$	190,896,847			$	187,810,450

Dividends

LCA pays monthly dividends to the shareholders that are based on the prior month’s earnings. Dividends are only accrued when they are formally declared by the board. If the board does not make a declaration, then dividends will be accounted for when paid.

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Income Taxes

LCC accounts for income taxes in accordance with FASB ASC 740, Income Taxes. FASB ASC 740 is an asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of certain assets and liabilities. LCC has deferred tax assets and liabilities principally from differences in the methods of accounting for reserves, unamortized acquisition costs and unrealized gain and losses on common and preferred stock.

LCA has elected under IRC Section 1362 to be an S-Corporation. In lieu of corporation income taxes, the stockholders of an S-Corporation are taxed on their proportionate share of LCA’s taxable income.

TCA accounts for uncertain tax positions in accordance with provisions of FASB ASC 740. Management has determined that TCA does not have any uncertain tax positions and associated unrecognized benefits that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that TCA’s tax returns will not be challenged by the taxing authorities and that TCA or their shareholders will not be subject to additional tax, penalties, and interest as a result of such challenge. Generally, LCA’s and LCC’s tax returns remain open for three years for federal and state income tax examination.

Concentration of Credit Risk

Financial instruments, which potentially subject TCA to concentrations of credit risk, consist of temporary cash investments, fixed maturity securities, mortgage loans, notes receivables and other investments.

TCA maintains interest bearing accounts at a financial institution. The accounts at this institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. TCA’s total cash exceeded the insurance limit as of December 31, 2020 and 2019. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risks relating to its cash accounts.

TCA invests in money market funds that are not insured or guaranteed by the FDIC or any other government agency. Although a money market fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the fund. As of December 31, 2020 and 2019, TCA held $3,498,838 and $2,937,941 in money market funds, respectively.

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Fair Value of Financial Instruments

TCA categorizes assets and liabilities measured at fair value into a three -level hierarchy based on the priority of the inputs to the valuation technique used to determine fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounti ng Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities valued at fair value are categorized based on the inputs to the valuation techniques as follows:

Level 1 – Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the financial instrument. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Level 3 – Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

Subsequent to initial recognition, TCA may remeasure the carrying value of assets and liabilities measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their fair value.

Comprehensive Income

TCA presents comprehensive income in accordance with the standards established by the Comprehensive Income topic of FASB ASC 220. Comprehensive income consists of net income and net unrealized gains or losses on debt securities and is presented in the statement of changes in stockholders’ equity and statement of comprehensive income.

Restatement

Subsequent to initial issuance, there was a change in the entities included in the combined financials resulting in a restatement of the 2019 financial statements. The restatements resulted in decrease of $9,864,882 in net income and a decrease of $18,382 ,122 in stockholders’ equity.

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

COVID-19 Uncertainties

The COVID-19 pandemic has not had a significant impact on the Company’s underwriting results and the Company does not expect it to going forward.

 

2.	RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March of 2016, the FASB issued ASU 2016-02, Leases, which requires all leases that have a term of more than 12 months to be recognized as assets and liabilities on the balance sheet at inception. A lessee would recognize a lease liability to make lease payments owed to a lessor (liability) and a benefit for the right to use the leased asset (asset) for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee would depend on whether the lessee is expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset. This new guidance is effective for fiscal years beginning after December 15, 2020. TCA does not anticipate a significant impact on TCA’s results of operations, financial position, or cash flows as a result of this new standard.

In June of 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. This requirement eliminates the probable initial recognition threshold in Current GAAP which has delayed recognition of credit losses until the loss was probable. Instead, the new treatment will better reflect an entity’s current estimate of all expected credit losses. In addition, the new guidance requires that any credit losses on available -for-sale debt securities to be presented as an allowance rather than as a write-down. Initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Subsequent changes in the allowance for credit losses are recorded in credit loss expense. This will allow entities to also record reversals of credit losses in current period net income, whereas the current GAAP prohibits reflecting these improvements in current period earnings. This guidance will become effective for the Company’s year ending on December 31, 2022. The Company does not expect a significant impact to the Company’s financials as a result of this guidance.

 

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Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

3.    INVESTMENTS

 

The carrying amounts of investment securities and their fair values as of December 31, 2020 and 2019 are as follows:

 

		2020
		Cost/ Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Investments:
Common stock		$	26,034,522			$	10,031,833			$	424,273			$	35,642,082
Preferred stock			3,223,872				221,319				—				3,445,191
Bonds, available-for-sale			12,363,757				311,534				1,401				12,673,890
Bonds, held-to-maturity			33,363,406				804,061				11,879				34,155,588
Total investments		$	74,985,557			$	11,368,747			$	437,553			$	85,916,751
		2019
		Cost/ Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Investments:
Common stock		$	22,676,392			$	6,420,199			$	472,169			$	28,624,422
Preferred stock			3,826,329				195,240				36,674				3,984,895
Bonds, available-for-sale			11,517,211				169,444				5,550				11,681,105
Bonds, held-to-maturity			29,141,953				460,804				6,797				29,595,960
Total investments		$	67,161,885			$	7,245,687			$	521,190			$	73,886,382

A summary of amortized cost and fair value of TCA’s investment in bonds at December 31, 2020, is as follows:

 

		Amortized Cost				Fair Value
2021		$	3,108,369			$	3,122,449
2022 through 2025			32,994,981				33,851,489
2026 through 2030			2,969,602				3,102,855
2031 through 2040			4,764,364				4,808,954
After 2041			1,889,847				1,943,731
Total by maturity		$	45,727,163			$	46,829,478

 

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Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

3.	INVESTMENTS (Continued)

 

On a regular basis, TCA reviews its investment portfolios for securities in an unrealized loss position for other-than-temporary impairment. This review for potential impairment is performed on a specific identification basis and requires significant management judgment related to a number of qualitative and quantitative factors including the severity of the impairment, the duration of the impairment, recent trends and expected market performance. Management considers all unrealized losses as of December 31, 2020 to be temporary. The securities summarized below were in an unrealized loss position for which other-than-temporary declines in value have not been recognized as of December 31, 2020.

 

Asset class:		Less than 12 Months
		Cost/ Amortized Cost				Unrealized Loss				Market Value
Bonds		$	4,287,599			$	(13,280	)		$	4,274,319
Common stocks			7,021,225				(311,984	)			6,709,241
Total		$	11,308,824			$	(325,264	)		$	10,983,560
		12 Months or More
Asset class:		Cost/ Amortized Cost				Unrealized Loss				Market Value
Common stocks		$	2,436,874			$	(112,289	)		$	2,324,585
Total		$	2,436,874			$	(112,289	)		$	2,324,585
		Total
Asset class:		Cost/ Amortized Cost				Unrealized Loss				Market Value
Bonds		$	4,287,599			$	(13,280	)		$	4,274,319
Common stocks			9,458,099				(424,273	)			9,033,826
Total		$	13,745,698			$	(437,553	)		$	13,308,145

 

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Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

3.	INVESTMENTS (Continued)

 

The securities summarized below were in an unrealized loss position for which other-than- temporary declines in value have not been recognized as of December 31, 2019.

 

		Less than 12 Months
Asset class:		Cost/ Amortized Cost				Unrealized Loss				Market Value
Bonds		$	6,403,570			$	(11,517	)		$	6,392,053
Preferred stocks			498,200				(2,729	)			495,471
Common stocks			148,961				(1,680	)			147,281
Total		$	7,050,731			$	(15,926	)		$	7,034,805
		12 Months or More
Asset class:		Cost/ Amortized Cost				Unrealized Loss				Market Value
Bonds		$	2,172,349			$	(830	)		$	2,171,519
Preferred stocks			334,065				(33,945	)			300,120
Common stocks			9,114,100				(470,489	)			8,643,611
Total		$	11,620,514			$	(505,264	)		$	11,115,250
		Total
Asset class:		Cost/ Amortized Cost				Unrealized Loss				Market Value
Bonds		$	8,575,919			$	(12,347	)		$	8,563,572
Preferred stocks			832,265				(36,674	)			795,591
Common stocks			9,263,061				(472,169	)			8,790,892
Total		$	18,671,245			$	(521,190	)		$	18,150,055

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

3.	INVESTMENTS (Continued)

 

Assets measured at fair market value are as follows:

 

		Assets Measured at Fair Value
		Fair Value				Level 1				Level 2				Level 3
December 31, 2020
Bonds		$	12,673,890			$	12,673,890			$	—			$	—
Preferred stocks			3,445,191				3,445,191				—				—
Common stocks			35,642,082				35,642,082				—				—
Total		$	51,761,163			$	51,761,163			$	—			$	—
December 31, 2019
Bonds		$	11,681,105			$	11,681,105			$	—			$	—
Preferred stocks			3,984,895				3,984,895				—				—
Common stocks			28,624,422				28,624,422				—				—
Total		$	44,290,422			$	44,290,422			$	—			$	—

Investments held in trust or on deposit with various state insurance departments and reinsurers on December 31, 2020 and 2019 are reported at statement values as follows:

 

		2020				2019
Utah		$	2,098,757			$	2,159,444
Nevada			214,711				218,660
New Mexico			225,012				225,021
Georgia			—				53,070
Total		$	2,538,480			$	2,656,195

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

3.	INVESTMENTS (Continued)

Realized gains and losses by investment class for the years ended December 31, 2020 and 2019 are as follows:

 

		2020				2019
Bonds:
Gross gains from sales		$	341,907			$	111,082
Gross losses from sales			(42,458	)			(33,355	)
Preferred stock:
Gross gains from sales			102,633				—
Gross losses from sales			(34,065	)			(5,883	)
Common stock:
Gross gains from sales			1,392,085				813,530
Gross losses from sales			(903,229	)			(149,115	)
Short-term investments			2,503				—
Net capital gains		$	859,376			$	736,259

Mortgage Loans

Mortgage loans at December 31, 2020 and 2019 totaled $2,450,288 and $3,967,956, respectively. The maximum and minimum lending rates for mortgage loans during the year were 7.50% and 4.40%.

 

4.	UNAMORTIZED ACQUISITION COST S

Commissions paid for premiums received but not yet earned have been deferred. These deferred acquisition costs are being amortized over the contracts term. For the years ended December 31, 2020 and 2019, commissions and insurance capitalized were as follows:

 

		2020				2019
Company:
LCC:
Guaranteed asset protection contracts		$	8,976,206			$	8,877,895
Lease, wear and tear			604,879				—
LCA:
Vehicle theft assistance contracts			22,328,741				17,625,697
Extended vehicle service contracts			116,904,142				87,288,533
Paintless dent repair and appearance protection			20,207,398				17,454,861
Key replacement contracts			6,737,425				4,446,220
Maintenance contracts			2,370,527				2,496,901
Tire and wheel			388,039				415,360
DrivePur			1,357,528				273,418
Lease, wear and tear			296,193				—
Other			653,781				657734
Guaranteed asset protection contracts admin			7,416,748				1,066,769
Total		$	188,241,607			$	140,603,388

Total amortization expense for the years ended December 31, 2020 and 2019 amounted to $97,358,258 and $99,721,890 respectively.

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

5.	UNEARNED PREMIUMS

Extended vehicle service, prepaid maintenance, vehicle theft assistance, key replacement, GAP, paintless dent repair, and appearance protection contract income received but not yet earned has been deferred. These unearned premiums are being amortized over the contract term of the related policies. For the years ended December 31, 2020 and 2019, premiums capitalized were as follows:

 

		2020				2019
Company:
LCC:
Guaranteed asset protection contracts		$	9,377,303			$	8,975,757
Lease, wear and tear			579,018				—
LCA:
Vehicle theft assistance contracts			25,709,523				24,701,205
Extended vehicle service contracts			145,127,956				136,965,743
Paintless dent repair and appearance protection			24,635,884				23,798,766
Key replacement contracts			8,842,696				8,234,377
Maintenance contracts			29,386,242				30,699,477
Guaranteed asset protection contracts admin fee			6,407,749				5,997,150
Tire and wheel			1,446,744				1,097,866
DrivePur			2,731,430				2,270,237
Lease, wear and tear			602,978				661,517
Total		$	254,847,523			$	243,402,095

Total earned premiums for the years ended December 31, 2020 and 2019 amounted to $190,896,847 and $187,810,304, respectively.

 

6.	UNPAID CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES

Reserves for incurred losses and loss adjustment expenses attributable to insured events of prior years has increased (decreased) by approximately ($126,000) and ($57,000) as of December 31, 2020 and 2019, respectively, as a result of re-estimation of unpaid losses and loss adjustment expenses. This change is generally a result of on -going analysis of recent loss development trends. Original estimates change as additional information becomes known regarding individual claims.

 

		2020				2019
(In thousands)
Balance at January 1		$	2,115			$	2,047
Incurred, related to:
Current year			7,414				8,542
Prior year			(126	)			(57	)
Total incurred			7,288				8,485
Paid, related to:
Current year			5,260				6,465
Prior year			1,942				1,952
Total paid			7,202				8,417
Balance at December 31		$	2,201			$	2,115

 

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TOTAL CARE AUTO, POWERED BY LANDCAR

Notes to Combined Financial Statements

For the Years Ended December 31, 2020 and 2019

 

6.	UNPAID CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES (Continued)

The following is information about incurred claims development as of December 31, 2020 as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts.

The information about incurred claims development for the years ended December 31, 2011 to 2019, is presented as supplementary information and is unaudited.

 

		Incurred Claims and Allocated Claims Adjustment Expenses (000s)																																								As of December 31, 2020
		For the Years Ended December 31,																																								Total of Incurred- but-Not-Reported Liabilities Plus Expected Development of Reported Claims				Cumulative Number of Reported Claims
Accident Year		2011				2012				2013				2014				2015				2016				2017				2018				2019				2020
2011			987				800				801				802				802				802				802				802				802				802				—				330
2012							848				936				936				936				936				936				936				936				936				—				373
2013											1,326				1,330				1,333				1,333				1,333				1,333				1,333				1,333				—				551
2014															2,413				2,671				2,680				2,681				2,681				2,681				2,681				—				916
2015																			4,389				4,489				4,502				4,501				4,501				4,501				—				1,510
2016																							6,978				7,202				7,224				7,226				7,226				—				2,057
2017																											10,045				9,186				9,165				9,163				—				2,412
2018																															8,502				8,471				8,478				4				2,526
2019																																			8,502				8,304				37				2,487
2020																																							7,288				1,321				1,692
																																						$	50,712
Ultimate incurred
		Cumulative Paid Claims and Allocated Claims Adjustment Expenses (000s)
		For the Years Ended December 31,
Accident Year		2011				2012				2013				2014				2015				2016				2017				2018				2019				2020
2011			633				800				801				802				802				802				802				802				802				802
2012							649				936				936				936				936				936				936				935				935
2013											980				1,330				1,333				1,333				1,333				1,333				1,333				1,333
2014															1,879				2,670				2,680				2,681				2,681				2,681				2,681
2015																			3,211				4,474				4,501				4,501				4,501				4,501
2016																							5,105				7,172				7,222				7,226				7,226
2017																											7,388				9,145				9,163				9,163
2018																															6,528				8,437				8,473
2019																																			6,528				8,261
2020																																							5,166
																			Total cumulative paid																				48,541
																			All o/s liabilities before 2010																				—
																			Liabilities for losses and LAE, net of reinsurance																			$	2,171

Below is a reconciliation of the disclosure of incurred and paid claims development to the liability for unpaid loss and loss adjustment expenses.

 

		December 31, 2020				December 31, 2019
Net liability for losses & LAE (000s)		$	2,171			$	2,017
Unallocated claims adjustment expense			30				30
Adjusting and other expense liability (000s)			30				30
Total gross liability for unpaid claims and claims adjustment expense		$	2,201			$	2,047

 

26