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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, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 001-38818
CarLotz, Inc.
(Exact name of registrant as specified in its charter)
Delaware 83-2456129
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3301 W. Moore Street Richmond Virginia 23230
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (804) 510-0744

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A common stock, par value $0.0001 per share LOTZ The Nasdaq Global Market
Redeemable warrants, exercisable for Class A common stock at an exercise price of $11.50 per share LOTZW The Nasdaq Global Market
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  x    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  x   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
x
Non-accelerated filer
¨
Smaller reporting company
Emerging growth company
x
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  x

The registrant had outstanding 119,703,273 shares of common stock as of November 7, 2022.


CarLotz, Inc.
TABLE OF CONTENTS


i


PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)
September 30,
2022
December 31,
2021
Assets
Current Assets:
Cash and cash equivalents $ 84,809  $ 75,029 
Restricted cash 4,049  4,336 
Marketable securities – at fair value 28,125  116,589 
Accounts receivable, net 4,786  8,206 
Inventories 13,062  40,985 
Other current assets 4,349  4,705 
Operating and finance lease assets, property, and equipment held for sale 20,860   
Total Current Assets 160,040  249,850 
Marketable securities – at fair value 760  1,941 
Property and equipment, net 7,118  22,628 
Capitalized website and internal-use software costs, net 12,725  13,716 
Operating lease assets 22,092  — 
Finance lease assets, net 4,459  — 
Lease vehicles, net 2,869  1,596 
Other assets 474  558 
Total Assets $ 210,537  $ 290,289 
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Current portion of finance lease liabilities $ 116  $ 509 
Floor plan notes payable 5,433  27,815 
Accounts payable 2,236  6,352 
Accrued expenses 11,215  14,428 
Current portion of operating lease liabilities 4,600  — 
Other current liabilities 593  754 
Operating and finance lease liabilities associated with assets held for sale 22,294  — 
Total Current Liabilities 46,487  49,858 
Finance lease liabilities, less current portion 6,083  12,206 
Operating lease liabilities, less current portion 22,384  — 
Earnout shares liability 722  7,679 
Merger warrants liability 675  6,291 
Other liabilities 417  744 
Total Liabilities 76,768  76,778 
Commitments and Contingencies (Note 15) —  — 
Stockholders’ Equity (Deficit):
Common stock, $0.0001 par value; 500,000,000 authorized shares, 114,879,689 and 113,996,401 shares issued and outstanding at September 30, 2022 and December 31, 2021
11  11 
Additional paid-in capital 291,827  287,509 
Accumulated deficit (157,956) (73,916)
Accumulated other comprehensive loss (113) (93)
Total Stockholders’ Equity (Deficit) 133,769  213,511 
Total Liabilities and Stockholders’ Equity (Deficit) $ 210,537  $ 290,289 
See notes to condensed consolidated financial statements.
1


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenues:
Retail vehicle sales $ 32,545  $ 56,284  $ 142,344  $ 150,897 
Wholesale vehicle sales 16,357  8,989  38,880  18,217 
Finance and insurance, net 1,691  2,639  8,591  5,973 
Lease income, net 245  129  528  334 
Total Revenues 50,838  68,041  190,343  175,421 
Cost of sales (exclusive of depreciation) 51,429  66,017  187,375  167,207 
Gross Profit (591) 2,024  2,968  8,214 
Operating Expenses:
Selling, general and administrative 19,334  24,780  74,017  63,039 
Stock-based compensation expense 1,409  3,447  4,234  49,114 
Depreciation and amortization expense 2,025  1,214  6,173  1,692 
Management fee expense – related party —  —  — 
Impairment expense 420    1,143   
Restructuring expenses 1,885  —  12,616  — 
Total Operating Expenses 25,073  29,441  98,183  113,847 
Loss from Operations (25,664) (27,417) (95,215) (105,633)
Interest expense 302  650  1,512  1,009 
Other Income, net
Change in fair value of Merger warrants liability 803  12,111  5,616  24,794 
Change in fair value of earnout shares 341  12,565  6,957  56,621 
Other income (expense) 523  (85) 113  (476)
Total Other Income, net 1,667  24,591  12,686  80,939 
Loss Before Income Tax Expense (24,299) (3,476) (84,041) (25,703)
Income tax expense —  —  —  — 
Net Loss $ (24,299) $ (3,476) $ (84,041) $ (25,703)
Net Loss per Share, basic and diluted $ (0.21) $ (0.03) $ (0.74) $ (0.23)
Weighted-average Shares used in Computing Net Loss per Share, basic and diluted 114,705,449 113,707,013 114,334,960 109,447,939
See notes to condensed consolidated financial statements.
2


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss)
(Unaudited)
(In thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net loss $ (24,299) $ (3,476) $ (84,041) $ (25,703)
Other Comprehensive (Loss), net of tax:
Unrealized gains (losses) on marketable securities arising during the period 38  (40) (6) (110)
Tax effect —  —  —  — 
Unrealized gains (losses) on marketable securities arising during the period, net of tax 38  (40) (6) (110)
Reclassification adjustment for realized gains (8) —  (14) (5)
Tax effect —  —  —  — 
Reclassification adjustment for realized gains, net of tax (8) —  (14) (5)
Other Comprehensive Income (Loss), net of tax 30  (40) (20) (115)
Total Comprehensive (Loss) $ (24,269) $ (3,516) $ (84,061) $ (25,818)
See notes to condensed consolidated financial statements.
3


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
Nine Months Ended September 30, 2022 and 2021
(Unaudited)
(In thousands, except share data)
Redeemable Convertible Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive (Loss) Income
Stockholders’ Equity (Deficit)
Shares Amount Shares Amount
Balance December 31, 2021 —  $ —  113,996,401  $ 11  $ 287,509  $ (73,916) $ (93) $ 213,511 
Net loss —  —  —  —  —  (24,836) —  (24,836)
Other comprehensive income, net of tax
—  —  —  —  —  —  (73) (73)
Cashless exercise of options —  —  44,424  —  —  —  —  — 
Stock-based compensation —  —  —  —  1,684  —  —  1,684 
Issuance of common stock to settle vested restricted stock units —  —  70,971  —  (2) —  —  (2)
Balance March 31, 2022 —  $ —  114,111,796  $ 11  $ 289,191  $ (98,752) $ (166) $ 190,284 
Net loss —  $ —  —  $ —  $ —  $ (34,905) $ —  $ (34,905)
Other comprehensive income, net of tax —  $ —  —  $ —  $ —  $ —  $ 23  $ 23 
Exercise of options —  $ —  104,818  $ —  $ 66  $ —  $ —  $ 66 
Stock-based compensation —  $ —  —  $ —  $ 1,141  $ —  $ —  $ 1,141 
Issuance of common stock to settle vested restricted stock units —  $ —  263,048  $ —  $ —  $ —  $ —  $ — 
Balance June 30, 2022 —  $ —  114,479,662  $ 11  $ 290,398  $ (133,657) $ (143) $ 156,609 
Net loss —  $ —  —  $ —  $ —  $ (24,299) $ —  $ (24,299)
Other comprehensive income, net of tax —  $ —  —  $ —  $ —  $ —  $ 30  $ 30 
Exercise of options —  $ —  81,541  $ —  $ 20  $ —  $ —  $ 20 
Cashless exercise of options —  $ —  26,435  $ —  —  $ —  $ —  — 
Stock-based compensation —  $ —  —  $ —  $ 1,409  $ —  $ —  $ 1,409 
Issuance of common stock to settle vested restricted stock units —  $ —  292,051  $ —  $ —  $ —  $ —  — 
Balance September 30, 2022 —  $ —  114,879,689  $ 11  $ 291,827  $ (157,956) $ (113) $ 133,769 

See notes to condensed consolidated financial statements.
4


Redeemable Convertible Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive (Loss) Income
Stockholders’ Equity (Deficit)
Shares Amount Shares Amount
Balance December 31, 2020 2,034,751  $ 17,560  37,881,435  $ $ 3,221  $ (34,037) $ 15  $ (30,797)
Retroactive application of recapitalization (2,034,751) (17,560) 20,739,607  17,558  —  —  17,560 
Adjusted balance, beginning of period —  —  58,621,042  20,779  (34,037) 15  (13,237)
Net loss —  —  —  —  —  (15,022) —  (15,022)
Other comprehensive income, net of tax
—  —  —  —  —  —  (131) (131)
Accrued dividends on redeemable convertible preferred stock —  —  —  —  (19) —  —  (19)
PIPE issuance —  —  12,500,000  124,999  —  —  125,000 
Merger financing —  —  38,194,390  309,995  —  —  309,999 
Consideration to existing shareholders of Former CarLotz, net of accrued dividends —  —  —  —  (62,693) —  —  (62,693)
Transaction costs and advisory fees —  —  —  —  (47,579) —  —  (47,579)
Settlement of redeemable convertible preferred stock tranche obligation —  —  —  —  2,832  —  —  2,832 
Cashless exercise of options —  —  54,717  —  —  —  —  — 
Cash consideration paid to Former Carlotz optionholders —  —  —  —  (2,465) —  —  (2,465)
Stock-based compensation —  —  —  —  41,963  —  —  41,963 
Earnout liability —  —  —  —  (74,284) —  —  (74,284)
Merger warrants liability —  —  —  —  (39,025) —  —  (39,025)
KAR/AFC note payable conversion —  —  3,546,984  —  3,625  —  —  3,625 
KAR/AFC warrant exercise —  —  752,927  —  144  —  —  144 
Balance March 31, 2021 —  $ —  113,670,060  $ 11  $ 278,272  $ (49,059) $ (116) $ 229,108 
Net loss —  —  —  —  —  (7,205) —  (7,205)
Other comprehensive income, net of tax —  —  —  —  —  —  56  56 
Stock-based compensation —  —  —  —  3,704  —  —  3,704 
Balance June 30, 2021 —  $ —  113,670,060  $ 11  $ 281,976  $ (56,264) $ (60) $ 225,663 
Net loss —  —  —  —  —  (3,476) —  (3,476)
Other comprehensive income, net of tax —  —  —  —  —  —  (40) (40)
Issuance of Class A common stock to settle vested restricted stock units —  —  36,953  —  —  —  —  — 
Stock-based compensation —  —  —  —  3,447  —  —  3,447 
Balance September 30, 2021 —  $ —  113,707,013  $ 11  $ 285,423  $ (59,740) $ (100) $ 225,594 
See notes to condensed consolidated financial statements.
5


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
2022 2021
Cash Flow from Operating Activities
Net loss $ (84,041) $ (25,703)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization – property, equipment, ROU assets and capitalized software 8,532  1,623 
Impairment expense 1,143  — 
Non-cash restructuring expenses 10,387  — 
Gain on lease assignment (236) — 
Amortization and accretion - marketable securities 752  1,712 
Depreciation – lease vehicles 360  69 
Provision for doubtful accounts 656  85 
Stock-based compensation expense 4,234  49,114 
Change in fair value of Merger warrants liability (5,616) (24,794)
Change in fair value of earnout shares (6,957) (56,621)
Unpaid interest expense on capital lease obligations —  199 
Change in Operating Assets and Liabilities:
Accounts receivable 2,764  (4,786)
Inventories 27,923  (46,774)
Other current assets 356  (8,414)
Other assets 84  (4,267)
Accounts payable (4,116) 3,541 
Accrued expenses (2,237) 5,441 
Accrued expenses – related party —  (229)
Other current liabilities (161) 382 
Other liabilities (327) (753)
Net Cash Used in Operating Activities (46,500) (110,175)
Cash Flows from Investing Activities
Purchase of property and equipment (5,642) (6,766)
Capitalized website and internal-use software costs (2,958) (11,511)
Purchase of marketable securities (63,858) (359,381)
Proceeds from sales of marketable securities 152,758  212,823 
Purchase of lease vehicles (1,633) (939)
Net Cash Provided by (Used in) Investing Activities 78,667  (165,774)
Cash Flows from Financing Activities
Payments made on finance leases (376) (51)
Advance from holder of marketable securities —  4,722 
Repayment of advance from marketable securities —  (4,722)
PIPE issuance —  125,000 
Merger financing —  309,999 
Payment made on accrued dividends —  (4,853)
Payments to existing shareholders of Former CarLotz —  (62,693)
Transaction costs and advisory fees —  (47,579)
See notes to condensed consolidated financial statements.
6


Payments made on cash considerations associated with stock options —  (2,465)
Repayment of Paycheck Protection Program loan —  (1,749)
Payments made on note payable —  (3,000)
Payments on floor plan notes payable (102,592) (109,034)
Borrowings on floor plan notes payable 80,211  127,279 
Employee stock option exercise 91  — 
Payments made for tax on equity award transactions (8) — 
Net Cash (Used in) Provided by Financing Activities (22,674) 330,854 
Net Change in Cash and Cash Equivalents Including Restricted Cash 9,493  54,905 
Cash and cash equivalents and restricted cash, beginning 79,365  2,813 
Cash and cash equivalents and restricted cash, ending $ 88,858  $ 57,718 
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 1,589  $ 1,000 
Supplementary Schedule of Non-cash Investing and Financing Activities:
Transfer from lease vehicles to inventory $ —  $ 166 
KAR/AFC exercise of stock warrants —  (144)
KAR/AFC conversion of notes payable —  (3,625)
Convertible redeemable preferred stock tranche obligation expiration —  (2,832)
Capitalized website and internal use software costs accrued —  (1,898)
Purchases of property under capital lease obligation (247) (7,651)



See notes to condensed consolidated financial statements.
7


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)

Note 1  Description of Business
Defined Terms

Unless otherwise indicated or unless the context otherwise requires, the following terms used herein shall have the following meanings:

references to “CarLotz,” “we,” “us,” “our” and the “Company” are to CarLotz, Inc. and its consolidated subsidiaries;

references to “Acamar Partners” refer to the Company for periods prior to the consummation of the Merger referred to below;

references to “Acamar Sponsor” are to Acamar Partners Sponsor I LLC; and

references to the “Merger” are to the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020 (as amended by Amendment No. 1, dated December 16, 2020, the “Merger Agreement”), by and among CarLotz, Inc. (f/k/a Acamar Partners Acquisition Corp.) (the “Company”), Acamar Partners Sub, Inc., a wholly owned subsidiary of CarLotz, Inc. (“Merger Sub”), and CarLotz Group, Inc. (f/k/a CarLotz, Inc.) (“Former CarLotz”), pursuant to which Merger Sub merged with and into Former CarLotz, with Former CarLotz surviving as the surviving company and as a wholly owned subsidiary of the Company.
The Company is a used vehicle consignment and Retail RemarketingTM company based in Richmond, Virginia. The Company operates an innovative and one-of-a-kind consumer and commercial used vehicle consignment and sales business model, with an online marketplace and 11 retail hub locations throughout the United States, including in Alabama, California, Colorado, Florida, Illinois, North Carolina, and Virginia.

Subsidiaries are consolidated when the parent is deemed to have control over the subsidiaries’ operations.
Subsidiary Operations
CarLotz, Inc. owns 100% of CarLotz Group, Inc. (a Delaware corporation), which owns 100% of CarLotz, Inc. (an Illinois corporation), CarLotz Nevada, LLC (a Delaware LLC), CarLotz California, LLC (a California LLC), CarLotz Logistics, LLC (a Delaware LLC), Orange Grove Fleet Solutions, LLC (a Virginia LLC), Orange Peel Protection Reinsurance Co. Ltd. (a Turks and Caicos Islands, British West Indies company) and Orange Peel LLC (a Virginia LLC), which owns 100% of Orange Peel Reinsurance, Ltd. (a Turks and Caicos Islands, British West Indies company).

Basis of Presentation

On January 21, 2021 (the “Closing Date”), the Company consummated the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020, by and among the Company, Merger Sub and Former CarLotz, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated December 16, 2020, by and among the Company, Merger Sub and Former CarLotz (See Note 3 “Merger” for further discussion).

Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz continuing as the surviving company. Notwithstanding the legal form of the Merger pursuant to the Merger Agreement, the Merger is accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Under this method of accounting, CarLotz is treated as the acquired company and Former CarLotz is treated as the acquiror for financial statement reporting and accounting purposes.

8


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
As a result of Former CarLotz being the accounting acquirer, the financial reports filed with the U.S. Securities and Exchange Commission (“SEC”) by the Company subsequent to the Merger are prepared “as if” Former CarLotz is the predecessor and legal successor to the Company. The historical operations of Former CarLotz are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Former CarLotz prior to the Merger, (ii) the combined results of the Company and Former CarLotz following the Merger on January 21, 2021, (iii) the assets and liabilities of Former CarLotz at their historical cost and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of Former CarLotz in connection with the Merger is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Merger transaction consistent with the treatment of the transaction as a reverse recapitalization of Former CarLotz.

In connection with the Merger, Acamar Partners Acquisition Corp. changed its name to CarLotz, Inc. The Company’s common stock is now listed on The Nasdaq Global Market under the symbol “LOTZ” and warrants to purchase the common stock at an exercise price of $11.50 per share are listed on The Nasdaq Global Market under the symbol “LOTZW”. Prior to the Merger, the Company neither engaged in any operations nor generated any revenue. Until the Merger, based on the Company’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, except for those related to recent accounting pronouncements adopted in the current fiscal year.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in management’s opinion, include all adjustments, which consist of only normal recurring adjustments, necessary for the fair statement of the Company’s condensed consolidated balance sheet as of September 30, 2022 and its results of operations for the three and nine months ended September 30, 2022 and 2021. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.

Restructuring

On June 21, 2022, we announced the closure of retail operations at 11 hub locations and determined not to commence retail operations at 3 unopened hub locations with executed lease agreements. The costs associated with the hub closures are classified as restructuring expenses. See Note 21 — Restructuring Charges, Asset Impairment, and Assets Held For Sale for further detail.

Shift Merger
On August 9, 2022, the Company entered into the Agreement and Plan of Merger (the “Shift Merger Agreement”) with Shift Technologies, Inc., a Delaware corporation (“Shift”), and Shift Remarketing Operations, Inc., a Delaware corporation and direct wholly owned subsidiary of Shift (“Shift Merger Sub”), pursuant to which, among other things and subject to the terms and conditions contained therein, Shift Merger Sub will be merged with and into CarLotz, with CarLotz continuing as the surviving corporation and as a wholly owned subsidiary of Shift (the “Shift Merger”). The Shift Merger is expected to close in the fourth quarter of 2022, subject to Shift and Company stockholder approval and other customary and regulatory approvals.

Certain transaction expenses (“Shift Merger expenses”) such as financial advisory, legal, accounting costs and associated fees and expenses that will be paid at the close of the Shift Merger are expensed as incurred and included in Accrued Expenses (see Note 12 — Accrued Expenses for further detail).
Note 2 — Summary of Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2 to the audited consolidated financial statements.
9


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
During the nine months ended September 30, 2022, there were no significant revisions to the Company’s significant accounting policies, other than those indicated herein related to the adoption of Leases Topic 842.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.

Following the closing of the Merger, Former CarLotz equity holders at the effective time of the Merger will have the contingent right to receive, in the aggregate, up to 7,500,000 shares of common stock if, from the closing of the Merger until the fifth anniversary thereof, the reported closing trading price of the common stock exceeds certain thresholds. Estimating the change in fair value of the earnout liability for the earnout shares that could be earned by Former CarLotz equity holders at the effective time of the Merger requires determining both the fair value valuation model to use and inputs to the valuation model. The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model, which is a commonly used valuation model for this type of transaction. Inputs that have a significant effect on the earnout shares valuation include the expected volatility, starting stock price, expected term, risk-free interest rate and the earnout hurdles. See Note 6 — Fair Value of Financial Instruments.
Warrants that were issued by Acamar Partners (Merger warrants) and continue to exist following the closing of the Merger are accounted for as freestanding financial instruments. These warrants are classified as liabilities on the Company’s condensed consolidated balance sheets and are recorded at their estimated fair value. The estimated fair value of the warrants is determined by using the market value in an active trading market. See Note 6 — Fair Value of Financial Instruments.
Beginning in the first quarter of 2020, the World Health Organization declared the outbreak and spread of the COVID-19 virus a pandemic. The COVID-19 pandemic and global macroeconomic and geopolitical conditions continue to disrupt supply chains and impact production and sales across a wide range of industries. The full economic impact of the pandemic and global conditions has not been determined, including the impact on the Company’s suppliers, customers and credit markets. Due to the evolving and uncertain nature of COVID-19 and global macroeconomic and geopolitical conditions, it is reasonably possible that it could materially impact the Company’s estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact will depend on numerous evolving factors that the Company may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and other economic and operational conditions the Company may face.
Restricted Cash
As of September 30, 2022 and December 31, 2021, restricted cash included approximately $4,049 and $4,336, respectively. The restricted cash is legally and contractually restricted as collateral for lines of credit, including floorplan, and for the payment of claims on the reinsurance companies.

Advertising Costs
The Company expenses advertising costs as they are incurred. Advertising costs are included in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations. Advertising expenses were approximately $6,237 and $13,674 for the nine months ended September 30, 2022 and 2021, respectively.
Concentration of Credit Risk
Concentrations of credit risk with respect to accounts receivables are limited due to the large diversity and number of customers comprising the Company’s retail customer base.

Assets and Liabilities Held For Sale
As a result of the announced hub closures on June 21, 2022, the ROU and finance lease assets and liabilities associated with hub locations where the Company has or intends to assign the lease to a third-party or terminate the lease agreement (as
10


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
opposed to subleasing to a third-party) are classified as held for sale. The fixed assets associated with all closed hub locations, to the extent they are not impaired, are also classified as held for sale.
Revenues
The Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Control passes to the retail and wholesale vehicle sales customer when the title is delivered to the customer, who then assumes control of the vehicle.
Retail Vehicle Sales
We sell used vehicles to our retail customers through our hubs in various cities. The transaction price for used vehicles is a fixed amount as set forth in the customer contract. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent noncash consideration which we measure at estimated fair value of the vehicle received on trade. We satisfy our performance obligation and recognize revenue for used vehicle sales at a point in time when the title to the vehicle passes to the customer, at which point the customer controls the vehicle. We provide a 12-month/12,000-mile limited warranty on most retail vehicle sales. The limited warranty is not treated as a separate performance obligation given the nature of the limited warranty is to provide assurance as to the quality of the vehicle being sold. The revenue recognized by CarLotz includes the agreed upon transaction price, including any service fees. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers.
We receive payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing.
Our exchange policy allows customers to initiate an exchange during the first seven days or 400 miles after delivery, whichever comes first. If the vehicle is returned, the sale and associated revenue recognition is reversed, and the vehicle is treated as a purchase of inventory.
See the remainder of the Company’s revenue accounting policy related to wholesale, finance and insurance, and other revenue in the Form 10-K for the year ended December 31, 2021 filed on March 15, 2022.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard affected all entities that lease assets and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. ASU 2016-02, as subsequently amended for various technical issues, was effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, and early adoption was permitted.
We adopted ASC 842 for the year beginning January 1, 2022 using the modified retrospective transition approach applied at the beginning of the period of adoption, which did not result in a cumulative-effect adjustment to retained earnings. Comparative periods presented in the financial statements continue to be presented in accordance with ASC 840. As permitted under the standard, we have elected the package of practical expedients for the transition to ASC 842, under which we did not reassess our prior conclusions regarding lease identification, lease classification, or initial direct costs for contracts existing as of the transition date. We have also elected to apply the following practical expedients for contracts existing as of the transition date and all new contracts after our adoption of ASC 842: 1) recognizing lease expense on a straight-line basis over the lease term for leases with a term of 12 months or less and not recognizing them on the balance sheet and 2) accounting for lease and non-lease components for all asset classes as a combined single unit of account. We have not elected the practical expedient related to all land easements nor the hindsight practical expedient.
The adoption of ASC 842 resulted in the recognition of $50.5 million of operating lease assets, which included an adjustment for deferred rent, and $52.6 million of operating lease liabilities on our opening consolidated balance sheet. We have
11


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
implemented new business processes, accounting policies, systems and internal controls as part of adopting the new standard. See Note 14 for additional information on leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. The Company is currently evaluating the impact of this standard to its financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, 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 emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact of this standard on its financial statements.
Note 3 — Merger

On the Closing Date, the Company consummated the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020, by and among the Company, Merger Sub and Former CarLotz, as amended by Amendment No. 1, dated December 16, 2020, by and among the Company, Merger Sub and Former CarLotz.

Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz surviving as the surviving company.
The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Acamar Partners was treated as the “acquired” company for financial reporting purposes (See Note 1 — Description of the Business). Accordingly, for accounting purposes, the Merger was treated as the equivalent of Former CarLotz issuing stock for the net assets of Acamar Partners, accompanied by a recapitalization.
Prior to the Merger, Former CarLotz and Acamar Partners filed separate standalone federal, state and local income tax returns. As a result of the Merger, structured as a reverse acquisition for tax purposes, Acamar Partners was renamed CarLotz, Inc. and became the parent of the consolidated filing group, with Former CarLotz as a subsidiary.
Recapitalization
Cash - Acamar Partners’ trust and cash $ 309,999 
Cash - PIPE 125,000 
Less: consideration delivered to existing stockholders of Former CarLotz (62,693)
Less: consideration to pay accrued dividends (4,853)
Less: transaction costs and advisory fees paid (47,579)
Less: payments on cash considerations associated with stock options (2,465)
Net contributions from Merger and PIPE financing 317,409 
Liabilities relieved: preferred stock obligation 2,832 
Liabilities relieved: KAR/AFC note payable 3,625 
Liabilities relieved: historic warrant liability 144 
Less: earnout shares liability (74,285)
Less: Merger warrants liability (39,024)


12


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Merger warrants
The following is an analysis of the warrants to purchase shares of the Company’s stock deemed acquired as part of the Merger and outstanding during the nine months ended September 30, 2022. There has been no change in outstanding stock warrants since the Merger.

September 30, 2022
Stock warrants outstanding - Public 10,185,774 
Stock warrants outstanding - Private 6,074,310 
Stock warrants cancelled — 
Stock warrants exercised — 
Stock warrants outstanding 16,260,084 

Earnout Shares
Former CarLotz equity holders at the closing of the Merger are entitled to receive up to an additional 6,945,732 earnout shares. The earnout shares will be issued to the beneficiaries if certain targets are met in the post-acquisition period. The earnouts for the earnout shares are subject to an earnout period, which is defined as the date 60 months following the consummation of the Merger. The Merger closed on January 21, 2021, and the earnout period expires January 21, 2026. The earnout shares will be issued if any of the following conditions are achieved following January 21, 2021:
i.If at any time during the 60 months following the Closing Date (the first business day following the end of such period, the “Forfeiture Date”), the closing trading price of the common stock is greater than $12.50 over any 20 trading days within any 30 trading day period (the “First Threshold”), the Company will issue 50% of the earnout shares.
ii.If at any time prior to the Forfeiture Date, the closing trading price of the common stock is greater than $15.00 over any 20 trading days within any 30 trading day period (the “Second Threshold”), the Company will issue 50% of the earnout shares.
iii.If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unissued earnout shares are forfeited. All unissued earnout shares will be issued if there is a change of control of the Company that will result in the holders of the common stock receiving a per share price equal to or in excess of $10.00 (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock) prior to the Forfeiture Date.
Before the contingency is met, the earnout shares will be classified as a liability under the FASB’s Accounting Standards Codification (“ASC”) Topic 815, so changes in the fair value of the earnout shares in future periods will be recognized in the condensed consolidated statement of operations. The estimated fair value of the liability is determined by using a Monte-Carlo simulation model.
Note 4 — Revenue Recognition
Disaggregation of Revenue
The significant majority of the Company’s revenue is derived from contracts with customers related to the sales of vehicles. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. The Company has determined that these categories depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
13


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The tables below include disaggregated revenue under ASC 606 (Revenue from Contracts with Customers):
Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
Vehicle Sales Fleet Management Total Vehicle Sales
Fleet Management
Total
Retail vehicle sales $ 32,545  $ —  $ 32,545  $ 142,344  $ —  $ 142,344 
Wholesale vehicle sales 16,357  —  16,357  38,880  —  38,880 
Finance and insurance, net $ 1,691  $ —  $ 1,691  8,591  —  8,591 
Lease income, net —  245  245  —  528  528 
Total Revenues $ 50,593  $ 245  $ 50,838  $ 189,815  $ 528  $ 190,343 
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Vehicle Sales Fleet Management Total Vehicle Sales
Fleet Management
Total
Retail vehicle sales $ 56,284  $ —  $ 56,284  $ 150,897  $ —  $ 150,897 
Wholesale vehicle sales 8,989  —  8,989  18,217  —  18,217 
Finance and insurance, net $ 2,639  $ —  $ 2,639  5,973  —  5,973 
Lease income, net —  129  129  —  334  334 
Total Revenues $ 67,912  $ 129  $ 68,041  $ 175,087  $ 334  $ 175,421 
The following table summarizes revenues and cost of sales for retail and wholesale vehicle sales for the periods ended:
Three Months Ended September 30,
Nine Months Ended September 30,
2022 2021 2022 2021
Retail vehicles:
Retail vehicle sales $ 32,545  $ 56,284  $ 142,344  $ 150,897 
Retail vehicle cost of sales 32,141  56,584  144,058  147,142 
Gross Profit – Retail Vehicles $ 404  $ (300) $ (1,714) $ 3,755 
Wholesale vehicles:
Wholesale vehicle sales $ 16,357  $ 8,989  $ 38,880  $ 18,217 
Wholesale vehicle cost of sales 19,288  9,433  43,317  20,065 
Gross Profit – Wholesale Vehicles $ (2,931) $ (444) $ (4,437) $ (1,848)
Retail Vehicle Sales
The Company sells used vehicles to retail customers through its retail hub locations. The transaction price for used vehicles is a fixed amount as set forth in the customer contract, and the revenue recognized by the Company is inclusive of the agreed upon transaction price and any service fees. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent noncash consideration, which the Company measures at estimated fair value of the vehicle received on the trade. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales at a point in time when the title to the vehicle passes to the customer, at which point the customer controls the vehicle. The 12-month/12,000-mile limited warranty included in most retail vehicle sales is not treated as a separate performance obligation given the nature of the limited warranty is to provide assurance as to the quality of the vehicle being sold.
The Company receives payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing.
The Company’s exchange/return policy allows customers to initiate an exchange/return of a vehicle during the first seven days or 400 miles after delivery, whichever comes first. An exchange/return reserve is immaterial based on the Company’s historical activity.
14


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Wholesale Vehicle Sales

Vehicles that do not meet the Company’s standards for retail vehicle sales, vehicles that did not sell through the retail channel within a reasonable period of time and vehicles that the Company determines offer greater financial benefit through the wholesale channel are sold through various wholesale methods. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales when the vehicle is sold at auction or directly to a wholesaler and title to the vehicle passes to the next owner. Additionally, the Company sold or will sell vehicles that were at the closed hub locations through the wholesale channel that may not have been sold through the wholesale channel if the hubs had remained open.
Finance and Insurance, net
The Company provides customers with options for financing, insurance and extended warranties. Certain warranties are serviced by a company owned by a major stockholder. All other services are provided by third-party vendors, and the Company has agreements with each of these vendors giving the Company the right to offer such services.
When a customer selects a service from these third-party vendors, the Company earns a commission based on the actual price paid or financed. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. Accordingly, the Company recognizes finance and insurance revenue at the point in time when the customer enters into the contract.
Note 5 — Marketable Securities
The following table summarizes amortized cost, gross unrealized gains and losses and fair values of the Company’s investments in fixed maturity debt securities as of September 30, 2022 and December 31, 2021:
September 30, 2022
Amortized
Cost/
Cost Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. Treasuries $ —  $ —  $ —  $ — 
Corporate bonds 16,228  (64) 16,165 
Municipal bonds 3,517  (15) 3,507 
Commercial paper 8,375  —  —  8,375 
Foreign governments 417  69  (109) 377 
Total Fixed Maturity Debt Securities $ 28,537  $ 75  $ (188) $ 28,424 
December 31, 2021
Amortized
Cost/
Cost Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. Treasuries $ —  $ —  $ —  $ — 
Corporate bonds 57,460  —  (72) 57,388 
Municipal bonds 28,325  (10) 28,320 
Commercial paper 19,989  —  —  19,989 
Foreign governments 12,291  (18) 12,275 
Total Fixed Maturity Debt Securities $ 118,065  $ 7  $ (100) $ 117,972 
15


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The amortized cost and fair value of the Company’s fixed maturity debt securities as of September 30, 2022 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized Cost
Fair Value
Due in one year or less $ 27,706  $ 27,664 
Due after one year through five years 666  624 
Due after five years through ten years 165  136 
Total $ 28,537  $ 28,424 

The following tables summarize the Company’s gross unrealized losses in fixed maturity securities as of September 30, 2022 and December 31, 2021:
September 30, 2022
Less Than 12 Months 12 Months or More Total

Fair Value
Unrealized
Losses

Fair Value
Unrealized
Losses

Fair Value
Unrealized
Losses
Corporate bonds $ 16,030  $ (47) $ 133  $ (16) $ 16,163  $ (63)
Municipal bonds 3,379 (3) 128 (12) 3,507 (15)
Commercial paper 8,376 0 8,376 0
Foreign governments 183 (78) 88 (32) 271 (110)
Total Fixed Maturity Debt Securities $ 27,968  $ (128) $ 349  $ (60) $ 28,317  $ (188)
December 31, 2021
Less Than 12 Months 12 Months or More Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Corporate bonds $ 56,902  $ (69) $ 376  $ (3) $ 57,278  $ (72)
Municipal bonds $ 19,945  $ (7) $ 340  $ (3) $ 20,285  $ (10)
Foreign governments $ 12,152  $ (18) $ —  $ —  $ 12,152  $ (18)
Total Fixed Maturity Debt Securities $ 88,999  $ (94) $ 716  $ (6) $ 89,715  $ (100)

Unrealized losses shown in the tables above are believed to be temporary. Fair value of investments in fixed maturity debt securities change and are based primarily on market rates. As of September 30, 2022, the Company’s fixed maturity portfolio had 13 securities with gross unrealized losses totaling $(60) that had been in loss positions in excess of 12 months and 21 securities with gross unrealized losses totaling $(128) that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $(43), or 69.3% of its amortized cost. As of December 31, 2021, the Company’s fixed maturity portfolio had 23 securities with gross unrealized losses totaling $(6) that had been in loss positions in excess of 12 months and 106 securities with gross unrealized losses totaling $(94) that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $12 (actual), or 0.4% of its amortized cost.
The following tables summarize cost and fair values of the Company’s investments in equity securities as of September 30, 2022 and December 31, 2021:
September 30, 2022
Cost

Fair Value
Equity securities $ 425  $ 461 
16


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
December 31, 2021
Cost

Fair Value
Equity securities $ 432  $ 558 
Proceeds from sales and maturities, gross realized gains, gross realized losses and net realized gains (losses) from sales and maturities of fixed maturity securities for the nine months ended September 30, 2022 and 2021 consisted of the following:
September 30, 2022
Proceeds
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
Fixed maturity debt securities $ 152,753  $ 14  $ —  $ 14 
Equity securities —  —  — 
Total Marketable Securities $ 152,758  $ 14  $   $ 14 
September 30, 2021
Proceeds
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
Fixed maturity debt securities $ 212,822  $ $ (2) $
Equity securities —  —  — 
Total Marketable Securities $ 212,823  $ 7  $ (2) $ 5 
17


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 6 — Fair Value of Financial Instruments
Items Measured at Fair Value on a Recurring Basis
As of September 30, 2022 and December 31, 2021, the Company held certain assets and liabilities that were required to be measured at fair value on a recurring basis.
The following tables are summaries of fair value measurements and hierarchy level as of:
September 30, 2022
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ —  $ —  $ —  $ — 
Equity securities 461  —  —  461 
Fixed maturity debt securities, including cash equivalents —  60,034  —  60,034 
Total Assets $ 461  $ 60,034  $   $ 60,495 
Liabilities:
Merger warrants liability 423  252  —  675 
Earnout shares liability —  —  722  722 
Total Liabilities $ 423  $ 252  $ 722  $ 1,397 
December 31, 2021
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ —  $ —  $ —  $ — 
Equity securities 558  —  —  558 
Fixed maturity debt securities —  135,346  —  135,346 
Total Assets $ 558  $ 135,346  $   $ 135,904 
Liabilities:
Merger warrants liability $ 3,941  $ 2,350  $ —  $ 6,291 
Earnout shares liability —  —  7,679  7,679 
Total Liabilities $ 3,941  $ 2,350  $ 7,679  $ 13,970 

Money market funds consist of highly liquid investments with original maturities of three months or less and classified in restricted cash in the accompanying condensed consolidated balance sheets.
The Company recognizes transfers between the levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between the levels during the nine months ended September 30, 2022 and 2021.
18


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The following tables set forth a summary of changes in the estimated fair value of the Company’s Level 3 redeemable convertible preferred stock tranche obligation, historic warrants liability and earnout shares for the nine months ended September 30, 2022 and 2021:
January 1,
2022
Issuances Settlements
Change in
fair value
September 30,
2022
Earnout shares 7,679  —  —  (6,957) 722 
Total $ 7,679  $   $   $ (6,957) $ 722 
January 1,
2021
Issuances Settlements
Change in
fair value
September 30,
2021
Redeemable convertible preferred stock tranche obligation $ 2,832  $ —  $ (2,832) $ —  $ — 
Historic warrants liability 144  —  (144) —  — 
Earnout shares —  74,284  —  (56,621) 17,663 
Total $ 2,976  $ 74,284  $ (2,976) $ (56,621) $ 17,663 

The fair value of the earnout shares was estimated by using a model based on previous Monte-Carlo simulation models. The inputs into the Monte-Carlo pricing model included significant unobservable inputs. The table below summarizes the significant observable inputs used when valuing the earnout shares as of:
September 30, 2022 September 30, 2021
Expected volatility 120.00  % 80.00  %
Starting stock price $0.30 $3.81
Expected term (in years) 3.3 years 4.30 years
Risk-free interest rate 4.25  % 0.79  %
Earnout hurdle
$12.50-$15.00
$12.50-$15.00
Fair Value of Financial Instruments Not Measured at Fair Value on a Recurring Basis
The carrying amounts of restricted cash, accounts receivable and accounts payable approximate fair value because their respective maturities are less than three months.

The Company has entered a $25,000 floor plan credit facility with Ally Financial. The carrying value of the Ally Financial floor plan notes payable outstanding as of September 30, 2022 approximates fair value due to its variable interest rate determined to approximate current market rates.
Note 7 — Accounts Receivable, Net
The following table summarizes accounts receivable as of:
September 30,
2022
December 31,
2021
Contracts in transit $ 3,974  $ 7,540 
Trade 962  386 
Finance commission 193  284 
Other 614  296 
Total 5,743  8,506 
Allowance for doubtful accounts (957) (300)
Total Accounts Receivable, net $ 4,786  $ 8,206 
19


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 8 — Inventory and Floor Plan Notes Payable
The following table summarizes inventory as of:
September 30,
2022
December 31,
2021
Used vehicles $ 13,062  $ 40,739 
Parts —  246 
Total $ 13,062  $ 40,985 
Beginning March 10, 2021, the Company entered into a $30,000 floor plan credit facility, which was expanded to $40,000 in the second quarter of 2021, with Ally Financial to finance the acquisition of used vehicle inventory. Concurrently, proceeds from the agreement were used to settle outstanding debt obligations on the Company’s preexisting floor plan facility with AFC. Borrowings under the Ally Financial facility accrue interest at a variable rate based on the most recent prime rate plus 2.50% per annum. The prime rate as of September 30, 2022 was 6.25%. Effective as of October 1, 2022, the maximum available credit line under the floor plan credit facility was reduced from $40,000 to $25,000.
Floor plan notes payable are generally due upon the sale of the related used vehicle inventory.
Note 9 — Property and Equipment, Net
The following table summarizes property and equipment as of:
September 30,
2022
December 31,
2021
Capital lease assets —  12,566 
Leasehold improvements 4,880  4,628 
Furniture, fixtures and equipment 4,964  7,993 
Corporate vehicles 74  158 
Total property and equipment 9,918  25,345 
Less: accumulated depreciation (2,800) (2,609)
Less: impairment —  (108)
Property and Equipment, net $ 7,118  $ 22,628 
Depreciation expense for property and equipment was approximately $1,776 and $761 for the nine months ended September 30, 2022 and 2021, respectively.

As a result of the hub closures on June 21, 2022, we classified $7,497 and $1,228 of gross property and equipment and accumulated depreciation, respectively, associated with property and equipment at the closed hub locations as held-for-sale. See Note 21 — Restructuring Charges, Asset Impairment, and Assets Held For Sale for further information regarding the property and equipment at the closed hub locations.
20


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 10 — Other Assets
The following table summarizes other assets as of:
September 30,
2022
December 31,
2021
Other Current Assets:
Lease receivable, net $ 20  $ 29 
Deferred acquisition costs 26  46 
Prepaid expenses 4,131  3,664 
Interest receivable 172  966 
Total Other Current Assets $ 4,349  $ 4,705 
Other Assets:
Lease receivable, net $ 16  $ 16 
Deferred acquisition costs 26  35 
Security deposits 432  507 
Total Other Assets $ 474  $ 558 
Note 11 — Long-term Debt
The following table summarizes long-term debt as of:
September 30,
2022
December 31,
2021
Capital lease obligation $ —  $ 12,715 
Finance lease liabilities $ 6,199  $ — 
6,199  12,715 
Current portion of long-term debt —  (509)
Current portion of finance lease liabilities (116) — 
Long-term Debt $ 6,083  $ 12,206 
Promissory Note
Concurrently with the closing of the Merger on January 21, 2021, the promissory note was extinguished through a cash payment of $3,000.

Convertible Notes Payable
As of December 31, 2020, the Company had a convertible note balance of $3,500. The note accrued interest at 6.00% on a 365-day basis and the outstanding interest payable as of December 31, 2020 was approximately $212. Concurrently with the closing of the Merger on January 21, 2021, the historic warrants and the note were converted to a fixed number of shares pursuant to a conversion agreement with AFC. The convertible notes were extinguished by issuing AFC 347,992 shares of Former CarLotz common stock and the warrants were exercised into 73,869 shares of Former CarLotz common stock. There are no historic warrants outstanding subsequent to the exercise.
Payroll Protection Program Loan
In April 2020, the Company received a Paycheck Protection Program (“PPP”) loan, a new loan program under the Small Business Administration’s 7(a) program providing loans to qualifying businesses, totaling approximately $1,749. As of December 31, 2020, the Company had an outstanding PPP loan balance of $1,749, which was extinguished concurrently with the closing of the Merger.
21


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 12 — Accrued Expenses
The following table summarizes accrued expenses as of:
September 30,
2022
December 31,
2021
License and title fees $ 535  $ 903 
Payroll and bonuses 2,303  2,047 
Deferred rent —  1,636 
Technology 1,504  1,127 
Inventory 839  2,542 
Shift Merger 3,044  — 
Other 2,990  6,173 
Total Accrued Expenses $ 11,215  $ 14,428 
Note 13 — Other Liabilities
The following table summarizes other liabilities as of:
September 30,
2022
December 31,
2021
Other Current Liabilities
Unearned insurance premiums $ 593  $ 754 
Other Liabilities
Unearned insurance premiums 298  622 
Other long-term liabilities 119  122 
Other Liabilities $ 417  $ 744 
Note 14 — Leases
The Company leases its operating facilities from various third parties under non-cancelable operating and finance leases. The leases require various monthly rental payments ranging from approximately $3 to $70, with various ending dates through September 2036. The initial term for real property leases is typically 5 to 15 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. We include options to renew (or terminate) in our lease term, and as part of our right-of-use ("ROU") assets and lease liabilities, when it is reasonably certain that we will exercise that option. ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. The leases are triple net, whereby the Company is liable for taxes, insurance and repairs. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability. Most of these leases have escalating rent payments, which are being expensed on a straight-line basis and are included in operating lease amounts on the balance sheet.
The Company also leases vehicles from a third party under noncancelable operating leases and leases these same vehicles to end customers with similar lease terms, with the exception of the interest rate. The leases require various monthly rental payments from the Company ranging from $229 to $2,356 (actual) with various ending dates through March 2027. The initial term for vehicle leases is typically 36 to 72 months. Most leases do not include an option to renew. The lease payments are generally fixed throughout the term and any variable lease payments (non-recurring maintenance, taxes, registration) are not included in the measurement of the ROU asset and lease liability.
As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We have elected the practical expedient on not separating lease components from non-lease components. All leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
22


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)

The components of lease expense were as follows:

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
Operating lease cost (1)
$ 2,343  $ 7,080 
Finance lease cost:
Depreciation of lease assets 95  621 
Interest on lease liabilities 283  856 
Total finance lease cost 378  1,477 
Total lease cost 2,721  8,557 
(1) Includes short-term leases and variable lease costs, which are immaterial.

Supplemental balance sheet information related to leases was as follows:

Classification
As of September 30, 2022
Assets:
Operating lease assets Operating lease assets 22,092 
Operating and finance lease assets, property, and equipment held for sale 15,906 
Finance lease assets Finance lease assets 4,459 
Operating and finance lease assets, property, and equipment held for sale 4,668 
Total lease assets 47,125 
Liabilities:
Current:
Operating leases Current portion of operating lease liabilities 4,600 
Operating and finance lease liabilities associated with assets held for sale 17,123 
Finance leases Current portion of finance lease liabilities 116 
Operating and finance lease liabilities associated with assets held for sale 5,171 
Long-term:
Operating leases, less current portion 22,384 
Finance leases, less current portion 6,083 
Total lease liabilities 55,477 
(1) Finance lease assets are recorded net of accumulated depreciation of $846 as of September 30, 2022.
(2) Operating lease assets are recorded net of impairment of $420 and $1,020 in the three and nine months ended September 30, 2022, respectively, due to a change in the physical condition of a right-of-use asset.

23


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Lease term and discount rate information related to leases was as follows:

Lease Term and Discount Rate As of September 30, 2022
Weighted Average Remaining Lease Term (in years)
Operating leases 7.69 years
Finance leases 11.34 years
Weighted Average Discount Rate
Operating leases 5.90  %
Finance leases 9.99  %

Supplemental cash flow information related to leases was as follows:

Nine Months Ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases 6,991 
Operating cash flows from finance leases 621 
Financing cash flows from finance leases 376 
Lease assets obtained in exchange for lease obligation
Operating leases 49,183 
Finance leases 247 

24


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Maturities of lease liabilities were as follows:

As of September 30, 2022
Operating Leases (1)
Finance Leases (1)
Fiscal 2022, remaining 2,174  382 
Fiscal 2023 8,572  1,539 
Fiscal 2024 7,797  1,561 
Fiscal 2025 7,050  1,583 
Fiscal 2026 5,969  1,625 
Thereafter 23,835  13,447 
Total lease payments 55,397  20,137 
Less: interest (11,290) (8,767)
Present value of lease liabilities 44,107  11,370 
(1) There are no legally binding minimum lease payments for leases signed but not yet commenced excluded from the table.
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 and under the previous lease accounting standard, the following is a table of facility lease commitments due for the next five years, and thereafter, as of December 31, 2021:
Total Per Year Total Capital Leases
2022 $ 6,788  $ 1,643 
2023 6,931  1,669 
2024 6,657  1,695 
2025 6,832  1,721 
2026 5,884  1,766 
Thereafter 23,715  14,322 
Total $ 56,807  $ 22,816 
Less: amount representing interest (10,101)
Present value of minimum lease payments 12,715 
Less: current obligation (509)
Long-term obligations under capital lease $ 12,206 
The following is a schedule of the approximate future minimum lease payments due to third parties and the related expected future receipts related to these lease vehicles as of December 31, 2021:
Payments Due to
Third-Parties
Future Receipts
2022 $ 1,435  $ 1,721 
2023 1,017  1,205 
2024 605  716 
2025 180  216 
2026 55  69 
Total 3,292  3,927 

In the three months ended September 30, 2022, the Company guaranteed the lease obligation of one of its closed hub locations assigned to a third-party that operates a used vehicle dealership. The Company continues as guarantor of such lease
25


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
obligation with maximum total payments of $1,695 and will continue as the guarantor through March 2031. The Company would be required to perform under the guarantee if the third-party is in default. Given the assignment took place in September 2022, there is not a substantial risk that the third-party will default and the Company will have to perform under the guarantee. We have not recognized a liability associated with this guarantee.
Note 15 — Commitments and Contingencies
The Company’s facilities are subject to federal, state and local provisions regulating the discharge of materials into the environment. Compliance with these provisions has not had, nor does the Company expect such compliance to have, any material effect upon the capital expenditures, net income, financial condition or competitive position of the Company. Management believes that its current practices and procedures for the control and disposition of such materials comply with the applicable federal and state requirements.
Legal Matters
Federal Securities Litigation
On July 8, 2021, purported CarLotz stockholder Daniel Erdman, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its current and former executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Daniel Erdman v. CarLotz, Inc., et al., 21-cv-5906 (S.D.N.Y.) The action is stated to be brought on behalf of purchasers of the securities of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
On July 20, 2021, purported CarLotz stockholder Michael Widuck, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its current and former executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Michael Widuck v. CarLotz, Inc., et al., 21-cv-6191 (S.D.N.Y.). The action is stated to be brought on behalf of purchasers of the securities of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
On August 5, 2021, purported CarLotz stockholder Michael Turk, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its current and former executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Michael Turk v. CarLotz, Inc., et al., 21-cv-6627 (S.D.N.Y.) The action is stated to be brought on behalf of purchasers of the securities of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
The above three cases were consolidated by the Court on August 31, 2021 under In re CarLotz, Inc. Sec. Litig., 21-cv-05906 (S.D.N.Y.). On October 15, 2021, the Court appointed David Berger lead plaintiff and Kahn Swick & Foti, LLC lead counsel for the putative class. On December 14, 2021, Lead Plaintiff Berger and Additional Plaintiff Craig Bailey filed an Amended Complaint against CarLotz, various current and former directors and officers of CarLotz, Acamar, various directors of Acamar, Acamar Partners Sponsor I LLC, and Acamar Partners Sub, Inc., purporting to assert claims on behalf of purchasers of Acamar and CarLotz securities during the period from October 22, 2020 through May 25, 2021. The Amended Complaint alleges that the defendants made various false and misleading statements or omissions about CarLotz’ business, operations, financial performance and prospects in violation of Sections 10(b), 14(a) and 20(a) of the Exchange Act; and Sections 11, 12(a)(2) and 15 of the Securities Act. The Amended Complaint sought a declaration that it is a proper class action pursuant to Fed. R. Civ. P. 23, as well as unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses, and any further relief that the Court may deem proper.
26


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
On February 17, 2022, Plaintiffs filed a Letter Motion for Leave to File Second Amended Complaint, citing the need “to resolve certain factual and legal issues bearing on the viability of certain of plaintiffs’ claims and named defendants.” On February 18, 2022, the Court granted Plaintiffs’ letter motion for leave to file a Second Amended Complaint and ordered that the Second Amended Complaint be filed by March 4, 2022.

On March 4, 2022, Lead Plaintiff Berger and Additional Plaintiff Bailey filed a Second Amended Complaint against CarLotz, various current and former directors and officers of CarLotz, Acamar, various directors of Acamar, and Acamar Partners Sponsor I LLC, purporting to assert claims on behalf of purchasers of Acamar and CarLotz securities during the period from October 22, 2020 through May 25, 2021. The Second Amended Complaint alleges that the defendants made various false and misleading statements or omissions about CarLotz’ business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act; and Sections 11, 12(a)(2) and 15 of the Securities Act. The Second Amended Complaint seeks a declaration that it is a proper class action pursuant to Fed. R. Civ. P. 23, as well as unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses, and any further relief that the Court may deem proper. On June 21, 2022, Defendants moved to dismiss the Second Amended Complaint. On August 22, 2022, Lead Plaintiff Berger and Additional Plaintiff Bailey filed a memorandum of law in opposition to Defendants’ motion to dismiss. On October 20, 2022, Defendants filed a reply memorandum of law in further support of their motion to dismiss.
Delaware Stockholder Derivative Litigation
On September 21, 2021, purported CarLotz stockholder W. Kenmore Cardoza, trustee of the W. Kenmore & Joyce M. Cardoza Revocable Trust, filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the District of Delaware against certain current and former officers and directors of CarLotz. See Cardoza v. Mitchell, et al., 21-cv-1332 (D. Del.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., asserts derivative claims for alleged violations of Sections 10(b) and 21D of the Exchange Act, breach of fiduciary duty and waste. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses, and other relief. On April 1, 2022, Plaintiff filed an amended complaint asserting derivative claims for alleged violations of Sections 10(b), 14(a), and 21D of the Exchange Act, breach of fiduciary duty, waste, and unjust enrichment.

On March 31, 2022, purported CarLotz stockholder Mohammad Osman filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the District of Delaware against certain current and former officers and directors of CarLotz. See Osman v. Bor, et al., 22-cv-0431 (D. Del.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., asserts derivative claims for alleged violations of Sections 10(b), 20(a), and 21D of the Exchange Act, breach of fiduciary duty and unjust enrichment. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses, and other relief.

On June 16, 2022, the Court issued an order consolidating the Cardoza and Osman actions under the caption In re CarLotz, Inc. S’holder Deriv. Litig., 21-cv-1332, and appointing co-lead counsel. On July 13, 2022, the Court so-ordered the parties’ stipulation, staying the consolidated action pending the resolution of Defendants’ motion to dismiss the Second Amended Complaint in In re CarLotz, Inc. Sec. Litig.
New York Stockholder Derivative Litigation
On October 20, 2021, purported CarLotz stockholder Julian Cha filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the Southern District of New York against certain current and former officers and directors of CarLotz. See Julian Cha v. David R. Mitchell, et al., 21-cv-8623 (S.D.N.Y.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., asserts derivative claims for alleged violations of Sections 10(b), 14(a), and 21D of the Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.
On October 27, 2021, purported CarLotz stockholder Mark Habib filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the Southern District of New York against certain current and former officers and directors of CarLotz. See Mark Habib v. David R. Mitchell, et al., 21-cv-8786 (S.D.N.Y.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., asserts derivative claims for
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CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
alleged violations of Sections 10(b), 14(a), and 21D of the Exchange Act and breach of fiduciary duty. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.
On November 15, 2021, the Court issued an order¸ inter alia, consolidating Cha and Habib under In re CarLotz, Inc. Deriv. Litig., 21-cv-8623 and appointing co-lead counsel. On February 15, 2022, the Court so-ordered the parties’ stipulation, staying the consolidated action pending the resolution of Defendants’ motion to dismiss the Second Amended Complaint in In re CarLotz, Inc. Sec. Litig.
Shift Merger Disclosure Litigation
On November 4, 2022, two actions were filed in the Court of Chancery of the State of Delaware and the United States District Court for the Southern District of New York in connection with the transaction contemplated by the Shift Merger Agreement: Sholom D. Keller v. Carlotz, Inc., et al., C.A. 2022-1006 (Del. Ch.); and Derek Dorrien v. Carlotz, Inc., et al., 22-cv-9463 (S.D.N.Y.) (together, the “Shift Merger Disclosure Actions”). The Shift Merger Disclosure Actions, which name CarLotz and the members of its board of directors as defendants, allege that the Shift Merger Registration Statement is materially misleading, assert claims for breach of fiduciary duties and violations of Section 14(a) and 20(a) of the Securities Exchange Act of 1934, and seek, among other relief, a preliminary and permanent injunction, rescission, and/or damages, as well as an award of attorneys’ fees and costs.
In addition to the matters above, the Company is involved in certain legal matters that it considers incidental to its business. In management’s opinion, none of these legal matters will have a material effect on the Company’s financial position or results of operations.
Note 16 — Redeemable Convertible Preferred Stock
Unpaid cumulative distributions were approximately $4,800 as of December 31, 2020, and the Series A Preferred Stock had a liquidation preference of $37,114 as of December 31, 2020. Upon liquidation of Former CarLotz, proceeds in excess of the Series A Preferred Stock would have been shared pro rata among all stockholders based on the number of shares. The unpaid cumulative distributions are included as Accrued expenses — related party on the accompanying condensed consolidated balance sheets. As a result of the Merger, the Company settled Former CarLotz’ redeemable convertible preferred stock and redeemable convertible preferred stock tranche obligation with carrying values of $17,560 and $2,832, respectively, as of December 31, 2020.
Note 17 — Stock-Based Compensation Plan
Stock Option Plans
The Company has four stock incentive plans, the “2011 Stock Option Plan,” the “2017 Stock Option Plan,” the “2020 Incentive Award Plan,” and the “Inducement Plan” to promote the long-term growth and profitability of the Company. The plans do this by providing senior management and other employees with incentive to improve stockholder value and contribute to the growth and financial success of the Company by granting equity instruments to these stakeholders.
Share-based compensation expense was recorded for the nine months ended September 30, 2022 and 2021 of approximately $4,234 and $49,114, respectively.
The Company estimates the fair value of stock options using the Black-Scholes pricing model. The Black-Scholes pricing model requires the use of subjective inputs such as stock price volatility. Changes in the inputs can materially affect the fair value estimates and ultimately the amount of stock-based compensation expense that is recognized.







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CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements