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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, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-38818
CarLotz, Inc.
(Exact name of registrant as specified in its charter)
Delaware83-2456129
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
611 Bainbridge Street, Suite 100RichmondVirginia23224
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (804) 728-3833

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.0001 per shareLOTZThe Nasdaq Global Market
Redeemable warrants, exercisable for Class A common stock at an exercise price of $11.50 per shareLOTZWThe 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 113,982,884 shares of Class A common stock as of November 8, 2021.


CarLotz, Inc.
TABLE OF CONTENTS
Page
1
30


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,
2021
December 31,
2020
Assets
Current Assets:
Cash and cash equivalents$57,504 $2,208 
Restricted cash214 605 
Marketable securities – at fair value143,460 1,032 
Accounts receivable, net8,833 4,132 
Inventories58,142 11,202 
Other current assets9,201 6,679 
Total Current Assets277,354 25,858 
Marketable securities – at fair value2,432  
Property and equipment, net15,516 1,868 
Capitalized website and internal-use software costs, net12,555  
Lease vehicles, net877 173 
Other assets4,566 299 
Total Assets$313,300 $28,198 
Liabilities, Redeemable Convertible Preferred Stock, Stockholders’ Equity (Deficit)
Current Liabilities:
Long-term debt, current$397 $6,370 
Floor plan notes payable24,284 6,039 
Accounts payable9,824 6,283 
Accrued transaction expenses 6,052 
Accrued expenses10,902 3,563 
Accrued expenses – related party 5,082 
Other current liabilities638 256 
Total Current Liabilities46,045 33,645 
Long-term debt, less current portion8,706 2,999 
Redeemable convertible preferred stock tranche obligation 2,832 
Earnout shares liability17,663  
Merger warrants liability14,231  
Other liabilities1,061 1,959 
Total Liabilities87,706 41,435 
Commitments and Contingencies (Note 15)  
Redeemable Convertible Preferred Stock:
Series A Preferred Stock, $0.0001 stated value; authorized 10,000,000 shares; after recapitalization there are no preferred shares issued or outstanding at September 30, 2021 and December 31, 2020
  
Stockholders’ Equity (Deficit):
Common stock, $0.0001 par value; 500,000,000 authorized shares, 113,707,013 and 58,621,042 shares issued and outstanding at September 30, 2021 and December 31, 2020
11 6 
Additional paid-in capital285,423 20,779 
Accumulated deficit(59,740)(34,037)
Accumulated other comprehensive (loss) income(100)15 
Treasury stock, $0.001 par value; after recapitalization there are no treasury shares issued or outstanding at September 30, 2021 and December 31, 2020
  
Total Stockholders’ Equity (Deficit)225,594 (13,237)
Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)$313,300 $28,198 
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,
2021202020212020
Revenues:
Retail vehicle sales$56,284 $26,694 $150,897 $71,388 
Wholesale vehicle sales8,989 2,088 18,217 7,124 
Finance and insurance, net2,639 910 5,973 2,697 
Lease income, net129 101 334 373 
Total Revenues68,041 29,793 175,421 81,582 
Cost of sales (exclusive of depreciation)66,017 26,217 167,207 72,805 
Gross Profit2,024 3,576 8,214 8,777 
Operating Expenses:
Selling, general and administrative24,780 4,147 63,039 11,136 
Stock-based compensation expense3,447  49,114 37 
Depreciation and amortization expense1,214 78 1,692 269 
Management fee expense – related party 63 2 195 
Total Operating Expenses29,441 4,288 113,847 11,637 
Loss from Operations(27,417)(712)(105,633)(2,860)
Interest expense650 104 1,009 360 
Other Income, net
Change in fair value of Merger warrants liability12,111  24,794  
Change in fair value of redeemable convertible preferred stock tranche obligation 333  962 
Change in fair value of earnout shares12,565  56,621  
Other income (expense)(85)(6)(476)58 
Total Other Income, net24,591 327 80,939 1,020 
Loss Before Income Tax Expense(3,476)(489)(25,703)(2,200)
Income tax expense 3  12 
Net Loss$(3,476)$(492)$(25,703)$(2,212)
Net Loss per Share, basic and diluted$(0.03)$(0.01)$(0.23)$(0.04)
Weighted-average Shares used in Computing Net Loss per Share, basic and diluted113,707,01358,621,041109,447,93958,621,041
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,
2021202020212020
Net loss$(3,476)$(492)$(25,703)$(2,212)
Other Comprehensive (Loss) Income, net of tax:
Unrealized (losses) gains on marketable securities arising during the period(40)(3)(110)14 
Tax effect 4   
Unrealized (losses) gains on marketable securities arising during the period, net of tax(40)1 (110)14 
Reclassification adjustment for realized losses 5 (5)2 
Tax effect (1)  
Reclassification adjustment for realized losses, net of tax 4 (5)2 
Other Comprehensive (Loss) Income, net of tax(40)5 (115)16 
Total Comprehensive (Loss)$(3,516)$(487)$(25,818)$(2,196)
See notes to condensed consolidated financial statements.
3


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
Nine Months Ended September 30, 2021 and 2020
(Unaudited)
(In thousands, except share data)
Redeemable Convertible Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 20202,034,751 $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)
Stock-based compensation— — — — 3,447 — — 3,447 
Issuance of Class A common stock to settle vested restricted stock units— — 36,953 — — — — — 
Balance September 30, 2021 $ 113,707,013 $11 $285,423 $(59,740)$(100)$225,594 

See notes to condensed consolidated financial statements.
4


Redeemable Convertible Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income
Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance January 1, 20202,034,751 $17,560 37,881,435 $4 $5,060 $(27,485)$— $(22,421)
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 22,618 (27,485)— (4,861)
Net loss— — — — — (1,507)— (1,507)
Redeemable convertible preferred stock issuance
— — — — — — 4 4 
Accrued dividends on redeemable convertible preferred stock— — — — (456)— — (456)
Stock-based compensation— — — — 34 — — 34 
Balance March 31, 2020 $ 58,621,042 $6 $22,196 $(28,992)$4 $(6,786)
Net loss— — — — — (213)— (213)
Other comprehensive income, net of tax— — — — — — 7 7 
Accrued dividends on redeemable convertible preferred stock— — — — (466)— — (466)
Stock-based compensation— — — — 3 — — 3 
Balance June 30, 2020 $ 58,621,042 $6 $21,733 $(29,205)$11 $(7,455)
Net loss— — — — — (492)— (492)
Other comprehensive income, net of tax— — — — — — 5 5 
Accrued dividends on redeemable convertible preferred stock— — — — (477)— — (477)
Stock-based compensation— — — — — — — — 
Balance September 30, 2020 $ 58,621,042 $6 $21,256 $(29,697)$16 $(8,419)
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,
20212020
Cash Flow from Operating Activities
Net loss$(25,703)$(2,212)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization – property and equipment and capitalized software1,623 148 
Amortization and accretion - marketable securities1,712  
Depreciation – lease vehicles69 121 
Loss on marketable securities (13)
Provision for doubtful accounts85 5 
Stock-based compensation expense49,114 37 
Change in fair value of Merger warrants liability(24,794) 
Change in fair value of historic warrants liability (30)
Change in fair value of earnout shares(56,621) 
Change in fair value of debt issuance costs and stock warrant 18 
Change in fair value of redeemable convertible preferred stock tranche obligation (962)
Unpaid interest expense on capital lease obligations199  
Change in Operating Assets and Liabilities:
Accounts receivable(4,786)290 
Inventories(46,774)(602)
Other current assets(8,414)(247)
Other assets(4,267)28 
Accounts payable3,541 893 
Accrued expenses5,441 771 
Accrued expenses – related party(229)75 
Other current liabilities382 (115)
Other liabilities(753)756 
Net Cash Used in Operating Activities(110,175)(1,039)
Cash Flows from Investing Activities
Purchase of property and equipment(6,766)(37)
Capitalized website and internal-use software costs(11,511) 
Purchase of marketable securities(359,381)(999)
Proceeds from sales of marketable securities212,823 53 
Purchase of lease vehicles(939)(76)
Net Cash Used in Investing Activities(165,774)(1,059)
Cash Flows from Financing Activities
Payments made on long-term debt(51)(7)
Advance from holder of marketable securities4,722  
Repayment of advance from marketable securities(4,722) 
PIPE issuance125,000  
Merger financing309,999  
Payment made on accrued dividends(4,853) 
Payments to existing shareholders of Former CarLotz(62,693) 
See notes to condensed consolidated financial statements.
6


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) 
Borrowings on long-term debt 2,249 
Payments on floor plan notes payable(109,034)(16,877)
Borrowings on floor plan notes payable127,279 16,834 
Net Cash Provided by Financing Activities330,854 2,199 
Net Change in Cash and Cash Equivalents Including Restricted Cash54,905 101 
Cash and cash equivalents and restricted cash, beginning2,813 4,102 
Cash and cash equivalents and restricted cash, ending$57,718 $4,203 
Supplemental Disclosure of Cash Flow Information
Cash paid for interest$1,000 $248 
Supplementary Schedule of Non-cash Investing and Financing Activities:
Transfer from lease vehicles to inventory$166 $199 
Redeemable convertible preferred stock distributions accrued 1,399 
Issuance of common stock warrants 15 
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(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 previously announced 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 eighteen retail hub locations throughout the United States, including in California, Colorado, Georgia, Florida, Illinois, North Carolina, Tennessee, Texas, Virginia and Washington State.

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), 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 previously announced 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. 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.

As a result of Former CarLotz being the accounting acquirer, the financial reports filed with the SEC by the Company subsequent to the Merger are prepared “as if” Former CarLotz is the predecessor and legal successor to the Company. The
8


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
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. generally accepted accounting principles (U.S. GAAP) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“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 of Former CarLotz as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 (audited consolidated financial statements) contained in Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 filed with the SEC on May 25, 2021. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited consolidated financial statements of Former CarLotz as of that date contained in Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 filed with the SEC on May 25, 2021.
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, 2021 and its results of operations for the three and nine months ended September 30, 2021 and 2020. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.
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, 2021, there were no significant revisions to the Company’s significant accounting policies, other than those indicated herein.
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.
9


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
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.
Beginning in the first quarter of 2020, the World Health Organization declared the outbreak and spread of the COVID-19 virus a pandemic. The outbreak is disrupting supply chains and impacting production and sales across a wide range of industries. The full economic impact of this pandemic 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, 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, 2021 and December 31, 2020, restricted cash included approximately $214 and $605, respectively. The restricted cash is legally and contractually restricted as collateral for a letter of credit issued on behalf of CarLotz Group, Inc. and for the payment of claims on the reinsurance companies.
Marketable Securities
The Company and its reinsurance subsidiaries invest excess cash in marketable securities in the ordinary course of conducting their operations and maintain a portfolio of marketable securities primarily comprised of fixed income debt securities. The Company has investments in marketable securities that are classified as available-for-sale securities and are reported at fair value. Unrealized gains and losses related to changes in the fair value of equity securities are recognized in other income (expense) in the Company’s condensed consolidated statements of operations. Unrealized gains and losses related to changes in the fair value of debt securities are recognized in Accumulated Other Comprehensive Income in the Company’s condensed consolidated balance sheets. Changes in the fair value of available-for-sale debt securities impact the Company’s net income only when such securities are sold or when other-than-temporary impairment is recognized. Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis and are recognized on the trade date.
Management determines the appropriate classification of its investments at the time of purchase and re-evaluates the designations at each balance sheet date. The Company may sell certain of the Company’s marketable securities prior to their stated maturities for strategic reasons, including, but not limited to, anticipation of credit deterioration and duration management. The Company reviews its debt securities on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer and the Company’s intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized cost basis. If the Company believes that an other-than-temporary decline exists in one of these securities, the Company will write down these investments to fair value through earnings.
Capitalized website and internal-use software costs
The Company capitalizes costs associated with customized internal-use software systems that have reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for its intended purpose. Amortization is computed using the straight-line method over 3 years.




10


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
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 $13,674 and $1,406 for the nine months ended September 30, 2021 and 2020, 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.
Recently Issued Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Subsequently, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall. ASU 2016-01 requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. ASU 2016-01 is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company adopted ASU 2016-01 on January 1, 2019 for annual periods and on January 1, 2020 for interim periods within annual periods. The adoption of ASU 2016-01 did not have a material impact on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard will affect all entities that lease assets and will require 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, 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, and early adoption is permitted. For leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. While the Company expects the adoption of this standard to result in an increase to the reported assets and liabilities, it has not yet determined the full impact the adoption of this standard will have on its financial statements and related disclosures.
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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, and early adoption is permitted. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. The Company adopted ASU 2018-13 on January 1, 2020, and the adoption of this standard did not have a material impact on the condensed consolidated financial statements or related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.
11


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The Company adopted ASU 2018-15 on January 1, 2020 for annual periods, and the adoption of this standard did not have a material impact on the condensed consolidated financial statements or related disclosures.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities, which addresses the cost and complexity of financial reporting associated with consolidation of variable interest entities (“VIE”). The new guidance must be applied on a retrospective basis as a cumulative-effect adjustment as of the date of adoption. The Company adopted ASU 2018-17 on January 1, 2020, and the adoption of this standard did not have a material impact on the consolidated financial statements or related disclosures because the Company does not currently have any indirect interests through related parties under common control for which it receives decision making fees.
In December 2020, 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 previously announced 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 is 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 - PIPE125,000 
Less: consideration delivered to existing shareholders 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 financing317,409 
Liabilities relieved: preferred stock obligation2,832 
Liabilities relieved: KAR/AFC note payable3,625 
Liabilities relieved: historic warrant liability144 
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, 2021:

September 30, 2021
Stock warrants outstanding - Public10,185,774 
Stock warrants outstanding - Private6,074,310 
Stock warrants cancelled— 
Stock warrants exercised— 
Stock warrants outstanding16,260,084 

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 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, 2021Nine Months Ended September 30, 2021
Vehicle SalesFleet ManagementTotalVehicle Sales
Fleet Management
Total
Retail vehicle sales$56,284 $— $56,284 $150,897 $— $150,897 
Wholesale vehicle sales8,989 — 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 
Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
Vehicle SalesFleet ManagementTotalVehicle Sales
Fleet Management
Total
Retail vehicle sales$26,694 $— $26,694 $71,388 $— $71,388 
Wholesale vehicle sales2,088 — 2,088 7,124 — 7,124 
Finance and insurance, net$910 $— $910 2,697 — 2,697 
Lease income, net— 101 101 — 373 373 
Total Revenues$29,692 $101 $29,793 $81,209 $373 $81,582 
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,
2021202020212020
Retail vehicles:
Retail vehicle sales$56,284 $26,694 $150,897 $71,388 
Retail vehicle cost of sales56,584 24,177 147,142 65,723 
Gross Profit – Retail Vehicles$(300)$2,517 $