Additional Proxy Soliciting Materials (definitive) (defa14a)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:

☐	Preliminary Proxy Statement

☐	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☐	Definitive Proxy Statement

☒	Definitive Additional Materials

☐	Soliciting Material under §240.14a-12

CarLotz, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

☒	No fee required.

☐	Fee paid previously with preliminary materials.

☐	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-267601

SUPPLEMENT NO. 1, DATED NOVEMBER 8, 2022

(to the Joint Proxy Statement/Prospectus dated November 8, 2022)

This Supplement No. 1, dated November 8, 2022 (this “Supplement”), updates and supplements the joint proxy statement/prospectus dated November 8, 2022 (the “Joint Proxy Statement/Prospectus”). Shift Technologies, Inc. (“Shift”) filed the Joint Proxy Statement/Prospectus with the Securities and Exchange Commission as part of a registration statement on Form S-4 (Registration No. 333-267601).

This Supplement is being filed by Shift with the SEC to supplement certain information contained in the Joint Proxy Statement/Prospectus. Except as otherwise set forth below, the information set forth in the Joint Proxy Statement/Prospectus remains unchanged. Capitalized terms used but not defined herein have the meanings ascribed to them in the Joint Proxy Statement/Prospectus.

This Supplement should be read in conjunction with the Joint Proxy Statement/Prospectus. The information in this Supplement modifies and supersedes, in part, the information in the Joint Proxy Statement/Prospectus. If there is any inconsistency between any information in the Joint Proxy Statement/Prospectus and this Supplement, you should rely on the information in this Supplement.

This Supplement is not complete without, and may not be utilized except in connection with, the Joint Proxy Statement/Prospectus, including any supplements and amendments thereto.

You should read carefully and in their entirety this Supplement and the Joint Proxy Statement/Prospectus and all accompanying annexes and exhibits. In particular, you should review and consider carefully the matters discussed under the heading “Risk Factors” beginning on page 34 of the Joint Proxy Statement/Prospectus.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Merger or the issuance of Shift Common Stock to be issued in the merger or determined if the Joint Proxy Statement/Prospectus or this Supplement is accurate or complete. Any representation to the contrary is a criminal offense.

This supplement to the Joint Proxy Statement/Prospectus is dated November 8, 2022

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

☐	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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

CarLotz, Inc.

TABLE OF CONTENTS

		Page
Part I - Financial Information
Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
Part II - Other Information
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 6.	Exhibits	64
Signatures		65

Table of Contents

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.

Table of Contents

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		—			—			—			2
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.

Table of Contents

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.

Table of Contents

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		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Stockholders’ Equity (Deficit)
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.

Table of Contents

	Redeemable Convertible Preferred Stock						Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Stockholders’ Equity (Deficit)
	Shares			Amount			Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Stockholders’ Equity (Deficit)
Balance December 31, 2020		2,034,751		$	17,560			37,881,435	$	4	$	3,221		$	(34,037	)	$	15		$	(30,797	)
Retroactive application of recapitalization		(2,034,751	)		(17,560	)		20,739,607		2		17,558			—			—			17,560
Adjusted balance, beginning of period		—			—			58,621,042		6		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		1		124,999			—			—			125,000
Merger financing		—			—			38,194,390		4		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.

Table of Contents

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	)
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.

Table of Contents

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 Remarketing^TM 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.

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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.

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.

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

(Unaudited)

(In thousands, except share data)

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 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.

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

(Unaudited)

(In thousands, except share data)

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 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.

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

(Unaudited)

(In thousands, except share data)

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.

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	)

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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:

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.

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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.

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

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(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		1		(64	)		16,165
Municipal bonds		3,517		5		(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		5		(10	)		28,320
Commercial paper		19,989		—		—			19,989
Foreign governments		12,291		2		(18	)		12,275
Total Fixed Maturity Debt Securities	$	118,065	$	7	$	(100	)	$	117,972

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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

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

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(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		5		—		—		—
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	$	7	$	(2	)	$	5
Equity securities		1		—		—			—
Total Marketable Securities	$	212,823	$	7	$	(2	)	$	5

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

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

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(In thousands, except share data)

	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.

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

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

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(In thousands, except share data)

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

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.

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

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(In thousands, except share data)

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.

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

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

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(In thousands, except share data)

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.

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

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

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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.

The components of lease expense were as follows:

		Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
Operating lease cost ⁽¹⁾

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