Document

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-252993
PROSPECTUS SUPPLEMENT NO. 4
(to Prospectus dated June 4, 2021)

https://cdn.kscope.io/27cc2224c776de93647cf1688da0698e-carlotzlogoa.jpg
88,159,784 Shares of Class A Common Stock

6,074,310 Warrants

This Prospectus Supplement No. 4 supplements the Prospectus dated June 4, 2021 (the “Prospectus”) of CarLotz, Inc., a Delaware corporation (“we” or the “Company”), that forms a part of the Company’s Registration Statement on Form S-1 (File No. 333-252993). This Prospectus Supplement No. 4 is being filed to update and supplement certain information contained in the Prospectus with the information contained in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, filed with the Securities and Exchange Commission on November 8, 2021. This Prospectus Supplement No. 4 should be read in conjunction with the Prospectus. If there is any inconsistency between the information in the Prospectus and this Prospectus Supplement, you should rely on the information in this Prospectus Supplement.

We are an “emerging growth company,” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings.

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our securities in “Risk Factors” beginning on page 9 of the prospectus and in Section 1A. Risk Factors of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

You should rely only on the information contained in the Prospectus or any prospectus supplement or amendment hereto. We have not authorized anyone to provide you with different information.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is November 8, 2021.


TABLE OF CONTENTS
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.


TABLE OF CONTENTS
CarLotz, Inc.
TABLE OF CONTENTS
Page
1
30


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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 
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 $71,388 
Wholesale vehicle sales8,989 2,088 18,217 7,124 
Finance and insurance, net2,639 910 5,973 2,697 
Lease income, net129 101 334 373 
Total Revenues68,041 29,793 175,421 81,582 
Cost of sales (exclusive of depreciation)66,017 26,217 167,207 72,805 
Gross Profit2,024 3,576 8,214 8,777 
Operating Expenses:
Selling, general and administrative24,780 4,147 63,039 11,136 
Stock-based compensation expense3,447 — 49,114 37 
Depreciation and amortization expense1,214 78 1,692 269 
Management fee expense – related party— 63 195 
Total Operating Expenses29,441 4,288 113,847 11,637 
Loss from Operations(27,417)(712)(105,633)(2,860)
Interest expense650 104 1,009 360 
Other Income, net
Change in fair value of Merger warrants liability12,111 — 24,794 — 
Change in fair value of redeemable convertible preferred stock tranche obligation— 333 — 962 
Change in fair value of earnout shares12,565 — 56,621 — 
Other income (expense)(85)(6)(476)58 
Total Other Income, net24,591 327 80,939 1,020 
Loss Before Income Tax Expense(3,476)(489)(25,703)(2,200)
Income tax expense— — 12 
Net Loss$(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— — — 
Unrealized (losses) gains on marketable securities arising during the period, net of tax(40)(110)14 
Reclassification adjustment for realized losses— (5)
Tax effect— (1)— — 
Reclassification adjustment for realized losses, net of tax— (5)
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 $$3,221 $(34,037)$15 $(30,797)
Retroactive application of recapitalization(2,034,751)(17,560)20,739,607 17,558 — — 17,560 
Adjusted balance, beginning of period— — 58,621,042 20,779 (34,037)15 (13,237)
Net loss— — — — — (15,022)— (15,022)
Other comprehensive income, net of tax
— — — — — — (131)(131)
Accrued dividends on redeemable convertible preferred stock— — — — (19)— — (19)
PIPE issuance— — 12,500,000 124,999 — — 125,000 
Merger financing— — 38,194,390 309,995 — — 309,999 
Consideration to existing shareholders of Former CarLotz, net of accrued dividends— — — — (62,693)— — (62,693)
Transaction costs and advisory fees— — — — (47,579)— — (47,579)
Settlement of redeemable convertible preferred stock tranche obligation— — — — 2,832 — — 2,832 
Cashless exercise of options— — 54,717 — — — — — 
Cash consideration paid to Former Carlotz optionholders— — — — (2,465)— — (2,465)
Stock-based compensation— — — — 41,963 — — 41,963 
Earnout liability— — — — (74,284)— — (74,284)
Merger warrants liability— — — — (39,025)— — (39,025)
KAR/AFC note payable conversion— — 3,546,984 — 3,625 — — 3,625 
KAR/AFC warrant exercise— — 752,927 — 144 — — 144 
Balance March 31, 2021— $— 113,670,060 $11 $278,272 $(49,059)$(116)$229,108 
Net loss— — — — — (7,205)— (7,205)
Other comprehensive income, net of tax— — — — — — 56 56 
Stock-based compensation— — — — 3,704 — — 3,704 
Balance June 30, 2021— $— 113,670,060 $11 $281,976 $(56,264)$(60)$225,663 
Net loss— — — — — (3,476)— (3,476)
Other comprehensive income, net of tax— — — — — — (40)(40)
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 $$5,060 $(27,485)$— $(22,421)
Retroactive application of recapitalization(2,034,751)(17,560)20,739,607 17,558 — — 17,560 
Adjusted balance, beginning of period— — 58,621,042 22,618 (27,485)— (4,861)
Net loss— — — — — (1,507)— (1,507)
Redeemable convertible preferred stock issuance
— — — — — — 
Accrued dividends on redeemable convertible preferred stock— — — — (456)— — (456)
Stock-based compensation— — — — 34 — — 34 
Balance March 31, 2020— $— 58,621,042 $$22,196 $(28,992)$$(6,786)
Net loss— — — — — (213)— (213)
Other comprehensive income, net of tax— — — — — — 
Accrued dividends on redeemable convertible preferred stock— — — — (466)— — (466)
Stock-based compensation— — — — — — 
Balance June 30, 2020— $— 58,621,042 $$21,733 $(29,205)$11 $(7,455)
Net loss— — — — — (492)— (492)
Other comprehensive income, net of tax— — — — — — 
Accrued dividends on redeemable convertible preferred stock— — — — (477)— — (477)
Stock-based compensation— — — — — — — — 
Balance September 30, 2020— $— 58,621,042 $$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 
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 $3,755 $5,665 
Wholesale vehicles:
Wholesale vehicle sales$8,989 $2,088 $18,217 $7,124 
Wholesale vehicle cost of sales9,433 2,040 20,065 7,082 
Gross Profit – Wholesale Vehicles$(444)$48 $(1,848)$42 
Retail Vehicle Sales
The Company sells used vehicles to retail customers through its 18 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 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 policy allows customers to initiate an exchange of a vehicle during the first three days or 500 miles after delivery, whichever comes first. An exchange reserve is immaterial based on the Company’s historical activity.
14


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

Vehicles that do not meet the Company’s standards for retail vehicle sales, vehicles that did not sell through the retail channel within a reasonable period of time and vehicles that the Company determines offer greater financial benefit through the wholesale channel are sold through various wholesale methods. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales when the vehicle is sold at auction or directly to a wholesaler and title to the vehicle passes to the next owner.
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, 2021 and December 31, 2020:
September 30, 2021
Amortized
Cost/
Cost Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. Treasuries$120 $— $— $120 
Corporate bonds67,599 17 (92)67,524 
Municipal bonds44,371 (17)44,359 
Commercial paper19,982 — — 19,982 
Foreign governments13,404 (15)13,391 
Total Fixed Maturity Debt Securities$145,476 $24 $(124)$145,376 
December 31, 2020
Amortized
Cost/
Cost Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. Treasuries$240 $$— $246 
Corporate bonds261 (1)265 
U.S. states, territories and political subdivisions141 — 146 
Total Fixed Maturity Debt Securities$642 $16 $(1)$657 
15


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The amortized cost and fair value of the Company’s fixed maturity debt securities as of September 30, 2021 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$143,033 $142,944 
Due after one year through five years2,195 2,184 
Due after five years through ten years248 248 
Total$145,476 $145,376 

The following tables summarize the Company’s gross unrealized losses in fixed maturity securities as of September 30, 2021 and December 31, 2020:
September 30, 2021
Less Than 12 Months12 Months or MoreTotal

Fair Value
Unrealized
Losses

Fair Value
Unrealized
Losses

Fair Value
Unrealized
Losses
Corporate bonds$59,997 $(89)$448 $(3)$60,445 $(92)
Municipal bonds37,271(15)315(2)37,586(17)
Foreign governments13,389(15)13,389(15)
Total Fixed Maturity Debt Securities$110,657 $(119)$763 $(5)$111,420 $(124)
December 31, 2020
Less Than 12 Months12 Months or MoreTotal
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Corporate bonds$39 $(1)$— $— $39 $(1)
Total Fixed Maturity Debt Securities$39 $(1)$ $ $39 $(1)

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, 2021, the Company’s fixed maturity portfolio had 10 securities with gross unrealized losses totaling $5 that had been in loss positions in excess of 12 months and 160 securities with gross unrealized losses totaling $119 that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $10, or 0.2% of its amortized cost. As of December 31, 2020, the Company’s fixed maturity portfolio had no securities with gross unrealized losses that had been in loss positions in excess of 12 months and 2 securities with gross unrealized losses totaling $1 that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $325 (actual), or 1.6% of its amortized cost.
The following tables summarize cost and fair values of the Company’s investments in equity securities as of September 30, 2021 and December 31, 2020:
September 30, 2021
Cost

Fair Value
Equity securities$432 $516 
16


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
December 31, 2020
Cost

Fair Value
Equity securities$335 $375 
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, 2021 and 2020 consisted of the following:
September 30, 2021
Proceeds
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
Fixed maturity debt securities$212,822 $$(2)$
Equity securities1 — — — 
Total Marketable Securities$212,823 $7 $(2)$5 
September 30, 2020
Proceeds
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
Fixed maturity debt securities$18 $— $— $— 
Equity securities35 — (2)(2)
Total Marketable Securities$53 $ $(2)$(2)
Note 6 — Fair Value of Financial Instruments
Items Measured at Fair Value on a Recurring Basis
As of September 30, 2021 and December 31, 2020, 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, 2021
Level 1Level 2Level 3Total
Assets:
Money market funds$— $— $— $— 
Equity securities516 — — 516 
Fixed maturity debt securities, including cash equivalents— 155,407 — 155,407 
Total Assets$516 $155,407 $ $155,923 
Liabilities:
Merger warrants liability8,915 5,316 — 14,231 
Earnout shares— — 17,663 17,663 
Total Liabilities$8,915 $5,316 $17,663 $31,894 
17


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
December 31, 2020
Level 1Level 2Level 3Total
Assets:
Money market funds$405 $— $— $405 
Equity securities375 — — 375 
Fixed maturity debt securities246 411 — 657 
Total Assets$1,026 $411 $ $1,437 
Liabilities:
Redeemable convertible preferred stock tranche obligation$— $— $2,832 $2,832 
Historic warrants liability— — 144 144 
Total Liabilities$ $ $2,976 $2,976 

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, 2021 and 2020.
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, 2021 and 2020:
January 1,
2021
IssuancesSettlements
Change in
fair value
September 30,
2021
Redeemable convertible preferred stock tranche obligation$2,832 $— $(2,832)$— $— 
Historic warrants liability144 — (144)— — 
Earnout shares— 74,284 — (56,621)17,663 
Total$2,976 $74,284 $(2,976)$(56,621)$17,663 
January 1,
2020
IssuancesSettlements
Change in
fair value
September 30,
2020
Redeemable convertible preferred stock tranche obligation$3,755 $— $— $(962)$2,793 
Historic warrants liability115 15 — (30)100 
Total$3,870 $15 $ $(992)$2,893 

The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model. 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, 2021January 21, 2021
Expected volatility80.00 %80.00 %
Starting stock price$3.81$11.31
Expected term (in years)4.3 years5 years
Risk-free interest rate0.79 %0.45 %
Earnout hurdle
$12.50-$15.00
$12.50-$15.00
18


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

Beginning March 10, 2021, the Company entered into a $30,000 floor plan credit facility with Ally Financial. Concurrently, proceeds from the agreement were used to settle outstanding debt obligations on the Company’s preexisting floor plan facility with Automotive Finance Corporation (“AFC”). In June 2021, the Company expanded the floor plan credit facility by $10,000 to a total of $40,000. The carrying value of the Ally Financial floor plan notes payable outstanding as of September 30, 2021 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,
2021
December 31,
2020
Contracts in transit$8,275 $3,321 
Trade376 240 
Finance commission334 132 
Other— 506 
Total8,985 4,199 
Allowance for doubtful accounts(152)(67)
Total Accounts Receivable, net$8,833 $4,132 
Note 8 — Inventory and Floor Plan Notes Payable
The following table summarizes inventory as of:
September 30,
2021
December 31,
2020
Used vehicles$58,109 $11,202 
Parts33 — 
Total$58,142 $11,202 
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, 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, 2021 was 3.25%.
Floor plan notes payable are generally due upon the sale of the related used vehicle inventory.
19


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 9 — Property and Equipment, Net
The following table summarizes property and equipment as of:
September 30,
2021
December 31,
2020
Capital lease assets$8,956 $1,305 
Leasehold improvements2,344 702 
Furniture, fixtures and equipment5,861 760 
Corporate vehicles158 143 
Total property and equipment17,319 2,910 
Less: accumulated depreciation(1,803)(1,042)
Property and Equipment, net$15,516 $1,868 
Depreciation expense for property and equipment was approximately $761 and $148 for the nine months ended September 30, 2021 and 2020, respectively.
Note 10 — Other Assets
The following table summarizes other assets as of:
September 30,
2021
December 31,
2020
Other Current Assets:
Lease receivable, net$26 $36 
Deferred acquisition costs40 72 
Prepaid expenses8,065 679 
Interest receivable1,070 — 
Deferred transaction costs— 5,892 
Total Other Current Assets$9,201 $6,679 
Other Assets:
Lease receivable, net$16 $16 
Deferred acquisition costs54 48 
Security deposits4,496 235 
Total Other Assets$4,566 $299 
Note 11 — Long-term Debt
The following table summarizes long-term debt as of:
September 30,
2021
December 31,
2020
Capital lease obligation$9,103 $1,305 
Promissory note— 2,990 
Convertible notes payable, net— 3,325 
Paycheck Protection Program loan— 1,749 
9,103 9,369 
Current portion of long-term debt(397)(6,370)
Long-term Debt$8,706 $2,999 
20


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
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
On December 20, 2019, the Company entered into a note purchase agreement (“NPA”) with AFC. AFC’s parent company was also a common stockholder of Former CarLotz. For each convertible note of $1,000 or portion thereof that AFC purchased, AFC received warrants (historic warrants) constituting 0.20% of Former CarLotz’ fully-diluted common stock. 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,
2021
December 31,
2020
License and title fees$1,074 $785 
Payroll and bonuses2,264 837 
Deferred rent1,071 199 
Technology2,707 — 
Other 3,786 1,742 
Total Accrued Expenses$10,902 $3,563 
Note 13 — Other Liabilities
The following table summarizes other liabilities as of:
September 30,
2021
December 31,
2020
Other Liabilities, Current
Unearned insurance premiums$638 $256 
Other Liabilities
Unearned insurance premiums942 1,680 
Other long-term liabilities119 135 
Historic warrants liability— 144 
Other Liabilities, Long-term$1,061 $1,959 
21


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 14 — Lease Commitments
The Company leases its operating facilities from various third parties under non-cancelable operating and capital leases. The leases require various monthly rental payments ranging from approximately $3 to $70, with various ending dates through September 2036. The leases are triple net, whereby the Company is liable for taxes, insurance and repairs. Rent expense for all operating facility leases was approximately $3,068 and $1,414 for the nine months ended September 30, 2021 and 2020, respectively. Most of these leases have escalating rent payments, which are being expensed on a straight-line basis and are included in deferred rent, within Accrued expenses.
The following is a table of facility lease commitments due for the next five years, and thereafter, as of September 30, 2021:
Total Per YearTotal Capital Leases
2021 (remaining)$1,344 $200 
20226,707 1,221 
20236,830 1,237 
20245,895 1,252 
20255,791 1,268 
Thereafter23,131 13,238 
Total$49,698 $18,416 
Less: amount representing interest(9,313)
Present value of minimum lease payments9,103 
Less: current obligation(397)
Long-term obligations under capital lease$8,706 
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 $291 to $1,770 (actual) with various ending dates through June 2025.
The following is a schedule of the approximate future minimum lease payments due to third parties and the related expected future receipts related to these lease vehicles as of September 30, 2021:
Payments Due to
Third-Parties
Future Receipts
2021 (remaining)$475 $572 
20221,742 2,083 
20231,129 1,334 
2024703 825 
2025340 396 
Total4,389 5,210 
Note 15 — Commitments and Contingencies
The Company sells retail installment contracts to financial institutions without recourse. Some buyers of the contracts retain portions of the finance commissions as reserves against early payoffs. The Company is subject to chargebacks against such income in the event of a cancellation or early payoff.
The Company’s facilities are subject to federal, state and local provisions regulating the discharge of materials into the environment. Compliance with these provisions has not had, nor does the Company expect such compliance to have, any material effect upon the capital expenditures, net income, financial condition or competitive position of the Company. Management believes that its current practices and procedures for the control and disposition of such materials comply with the applicable federal and state requirements.
22


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Legal Matters
On July 8, 2021, purported CarLotz stockholder Daniel Erdman, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Daniel Erdman v. CarLotz, Inc., et al., Case No. 1:21-cv-05906-RA. The action is stated to be brought on behalf of purchasers of the stock of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
On July 20, 2021, purported CarLotz stockholder Michael Widuck, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Michael Widuck v. CarLotz, Inc., et al., Case No. 1:21-cv-06191-RA. The action is stated to be brought on behalf of purchasers of the stock of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
On August 5, 2021, purported CarLotz stockholder Michael Turk, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Michael Turk v. CarLotz, Inc., et al., Case No. 1:21-cv-06627-RA. The action is stated to be brought on behalf of purchasers of the stock of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.

The above three cases were consolidated by the Court on August 31, 2021 under In re CarLotz, Inc. Securities Litigation, Case No. 1:21-cv-05906-RA. On October 15, 2021, the Court appointed a lead plaintiff and lead counsel for the putative class. On October 26, 2021, the Court entered an order requiring the lead plaintiff to file a consolidated amended complaint on or before December 14, 2021 and requiring that briefing on any motion to dismiss the consolidated amended complaint be completed on or before June 10, 2022.
On September 21, 2021, purported CarLotz stockholder W. Kenmore Cardoza, trustee of the W. Kenmore & Joyce M. Cardoza Revocable Trust, filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the District of Delaware against certain officers and directors of CarLotz. See Cardoza v. Mitchell, et al., Case No. 1:21-cv-01332-CFC. The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Securities Litigation, asserts derivative claims for alleged violations of Sections 10(b) and 21D of the Exchange Act, breach of fiduciary duty and waste. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.
On October 20, 2021, purported CarLotz stockholder Julian Cha filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the Southern District of New York against certain officers and directors of CarLotz. See Julian Cha v. David R. Mitchell, et al., Case No. 1:21-cv-08623-UA. The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Securities Litigation, asserts derivative claims for alleged violations of Sections 10(b), 14(a), and 21D of the Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.
On October 27, 2021, purported CarLotz stockholder Mark Habib filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the Southern District of New York against certain officers and directors of CarLotz. See Mark Habib v. David R. Mitchell, et al., Case No. 1:21-cv-08786-UA. The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Securities Litigation, asserts derivative claims for alleged
23


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
violations of Sections 10(b), 14(a), and 21D of the Exchange Act and breach of fiduciary duty. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.
In addition to the matters above, the Company is involved in certain legal matters that it considers incidental to its business. In management’s opinion, none of these legal matters will have a material effect on the Company’s financial position or results of operations.
Note 16 — Redeemable Convertible Preferred Stock
As of December 31, 2020, the Amended and Restated Certificate of Incorporation of Former CarLotz provided for two classes of ownership: common stock and Series A Preferred Stock. The holder of the Series A Preferred Stock received distribution priority in order of 1.5 times the sum of any unpaid returns and unreturned capital contributions. Preferred returns were calculated at an 8.00% annual rate. Unpaid cumulative distributions were approximately $4,800 as of December 31, 2020, and the Series A Preferred Stock had a liquidation preference of $37,114 as of December 31, 2020. Upon liquidation of Former CarLotz, proceeds in excess of the Series A Preferred Stock would have been shared pro rata among all stockholders based on the number of shares. The unpaid cumulative distributions are included as Accrued expenses — related party on the accompanying condensed consolidated balance sheets. As a result of the Merger, the Company settled Former CarLotz’ redeemable convertible preferred stock and redeemable convertible preferred stock tranche obligation with carrying values of $17,560 and $2,832, respectively, as of December 31, 2020.
Note 17 — Stock-Based Compensation Plan
Stock Option Plans
The Company has three stock incentive plans, the “2011 Stock Option Plan,” the “2017 Stock Option Plan” and the “2020 Incentive Award Plan,” to promote the long-term growth and profitability of the Company. The plans do this by providing senior management and other employees with incentive to improve shareholder value and contribute to the growth and financial success of the Company by granting equity instruments to these stakeholders.
Share-based compensation expense was recorded for the nine months ended September 30, 2021 and 2020 of approximately $49,114 and $37, respectively.
The Company estimates the fair value of stock options using the Black-Scholes pricing model. The Black-Scholes pricing model requires the use of subjective inputs such as stock price volatility. Changes in the inputs can materially affect the fair value estimates and ultimately the amount of stock-based compensation expense that is recognized.
During the nine months ended September 30, 2021 and 2020, there were no grants related to the 2011 Stock Option Plan.
24


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
A summary of activity for the nine months ended September 30, 2021 and 2020 for the 2011 Stock Option Plan is as follows:
Number of
Stock Options
Weighted Average
Exercise Price
Balance (December 31, 2020)1,571,205 $0.59
Granted— 
Exercised(56,059)0.24
Forfeited— 
Balance (September 30, 2021)1,515,146 0.58
Vested (as of September 30, 2021)1,515,146 $0.58
Number of
Stock Options
Weighted Average
Exercise Price
Balance (December 31, 2019)1,571,205 $0.59
Granted— 
Forfeited— 
Balance (September 30, 2020)1,571,205 0.59
Vested (as of September 30, 2020)1,482,528 $0.59
The following summarizes certain information about stock options vested and expected to vest as of September 30, 2021 related to the 2011 Stock Option Plan:
Number of
Stock Options
Weighted Average
Remaining
Contractual Life
Weighted Average
Exercise Price
Outstanding1,515,146 0.92 years$0.58
Exercisable1,515,146 0.92 years$0.58
Aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the option exercise price and the estimated fair value of the Company’s common stock at the time such option exercises. This intrinsic value changes based on changes in the fair value of the Company’s underlying common stock. The aggregate intrinsic value for options outstanding and options exercisable as of September 30, 2021 was $3.23.

The terms of the 2017 Stock Option Plan provide for vesting upon certain market and performance conditions, including achieving certain triggering events, including specified levels of return on investment upon a sale of the Company. Because the 2017 Stock Option Plan has a market-based vesting condition, an open-form valuation model was used to value the options. All
25


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
stock options related to the 2017 Stock Option Plan have an exercise price of $0.92 per share. All stock options related to the 2017 Stock Option Plan expire 10 years after the grant date, which ranges from March 2028 to October 2029.

A summary of activity for the nine months ended September 30, 2021 and 2020 for the 2017 Stock Option Plan is as follows:
Number of Units
Weighted Averaged
Exercise Price
Balance (December 31, 2020)3,961,658 $0.92 
Granted— — 
Forfeited— — 
Balance (September 30, 2021)3,961,658 $0.92 
Vested (as of September 30, 2021)
3,538,672 $0.92 
Number of Units
Weighted Averaged
Exercise Price
Balance (December 31, 2019)2,845,557 $0.92 
Granted1,116,106 0.92 
Forfeited— — 
Balance (September 30, 2020)3,961,663 $0.92 
The 2017 options vest upon a change of control. Although the Merger did not meet the definition of a change of control, the Company modified the awards in connection with the Merger such that all vesting conditions were waived for 3,538,672 of the options. This modification impacted 8 employees and resulted in $38,800 of share-based compensation on the modification date. The remaining options were also modified but will vest over a service period of four years and impacted 16 employees. These options resulted in $186 of cash consideration and $4,462 of share based compensation that will be recognized over the service period of four years. For the nine months ended September 30, 2021, $772 of share-based compensation was recognized.
The following summarizes certain information about stock options vested and expected to vest as of September 30, 2021 related to the 2017 Stock Option Plan:
Number of
Stock Options
Weighted Average
Remaining
Contractual Life
Weighted Average
Exercise Price
Outstanding3,961,658 7.81 years$0.92
Exercisable3,538,672 7.68 years$0.92
The aggregate intrinsic value for options outstanding and options exercisable as of September 30, 2021 was $2.89.
26


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The inputs used for the 2017 Stock Option Plan were as follows:
Balance (Expected volatility)80.00 %
Expected dividend yield— %
Expected term (in years)
3.6 - 4.8 years
Risk-free interest rate
0.32% - 0.45%
The options associated with the 2020 Incentive Award Plan vest over a service period of four years. A summary of activity for the nine months ended September 30, 2021 for the options associated with the 2020 Incentive Award Plan is as follows:
Balance (Number of Units
Weighted Averaged
Exercise Price
Balance (December 31, 2020)— $— 
Granted1,463,242 11.16 
Forfeited(1,723)10.14 
Balance (September 30, 2021)
1,461,519 $11.16 
Exercisable— $— 
The grant date fair value of the options was between $3.00 to $7.77. For the nine months ended September 30, 2021, $1,914 of share based compensation was recognized. As of September 30, 2021, there was approximately $9,236 of total unrecognized compensation cost related to unvested options related to the 2020 Stock Incentive Award Plan.

The following summarizes certain information about stock options vested and expected to vest as of September 30, 2021 related to the 2020 Stock Option Plan:
Number of
Stock Options
Weighted Average
Remaining
Contractual Life
Weighted Average
Exercise Price
Outstanding1,461,519 9.33 years$11.16
Exercisable— — $—
27


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

The inputs used for the 2020 Incentive Award Plan options were as follows for the nine months ended September 30, 2021:

Balance (Expected volatility)
80% - 85%
Expected dividend yield— %
Expected term (in years)
6.25 years
Risk-free interest rate
0.62% - 0.96%
The restricted shares associated with the 2020 Incentive Award Plan vest over a service period. A summary of activity for the nine months ended September 30, 2021 for the restricted shares associated with the 2020 Incentive Award Plan is as follows:
Balance (Number of Units
Weighted Average Grant Date Fair Value
Balance (December 31, 2020)— $— 
Granted679,412 5.67 
Forfeited(3,135)5.69 
Balance (September 30, 2021)
676,277 $5.67 
Vested (as of September 30, 2021)36,953 $6.15 
The grant date fair value of the restricted shares was between $4.16 and $6.15. For the nine months ended September 30, 2021, $1,028 of share based compensation cost was recognized. As of September 30, 2021, there was approximately $2,146 of unrecognized compensation cost that vests over a service period of four years and $658 of unrecognized compensation cost that vests over a service period of one year related to unvested restricted shares related to the 2020 Stock Incentive Award Plan.
Earnout Restricted Stock Units

Former CarLotz option holders as of the effective time of the Merger received 640,421 earnout restricted stock units (Earnout RSUs). The Earnout RSUs vest if certain targets are met in the post-Merger period. The earnouts for the Earnout RSUs 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. Earnout RSUs will vest 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”), 50% of the Earnout RSUs will vest.
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”), 50% of the Earnout RSUs will vest.
iii.If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unvested Earnout RSUs are forfeited. All unvested Earnout RSUs will vest 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.

The estimated fair value of the liability is determined by using a Monte-Carlo simulation model, which incorporates various assumptions, including expected stock price volatility, contractual term, dividend yield and stock price at grant date. The Company estimates the volatility of common stock on the date of grant based on the weighted-average historical stock price volatility of comparable publicly-traded companies.
28


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
A summary of activity for the nine months ended September 30, 2021 for the RSUs is as follows:

Number of Units
Weighted Average
grant date fair value
Balance (December 31, 2020)— $— 
Granted640,421 10.70 
Forfeited— — 
Balance (September 30, 2021)
640,421 $10.70 
During the nine months ended September 30, 2021, the Company recognized $6,007 of stock-based compensation cost. As of September 30, 2021, there was approximately $842 of total unrecognized compensation cost related to the RSUs that will be recognized during 2021.

The inputs used to value the Earnout RSUs were as follows at January 21, 2021:

Expected volatility80.00 %
Starting stock price$11.31 
Expected term (in years)5 years
Risk-free interest rate0.45 %
Earnout hurdle
$12.50-$15.00
Note 18 — Income Taxes
During the nine months ended September 30, 2021, the Company recorded no income tax benefits for the net operating losses incurred in the period due to its uncertainty of realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the United States.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception through September 30, 2021 and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Management reevaluates the positive and negative evidence at each reporting period. As of September 30, 2021 and December 31, 2020, no facts or circumstances arose that affected the Company’s determination as to the full valuation allowance established against the net deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of September 30, 2021 and December 31, 2020.
Note 19 — Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30,
Nine Months Ended September 30,
2021202020212020
Numerator:
Net Loss$(3,476)$(492)$(25,703)$(2,212)
Denominator:
Weighted average common shares outstanding, basic and diluted113,707,013 58,621,041 109,447,939 58,621,041 
Net Loss per Share Attributable to Common Stockholders, basic and diluted$(0.03)$(0.01)$(0.23)$(0.04)
29


CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The following table summarizes the outstanding potentially dilutive securities that were excluded from the computation of diluted net loss per share attributable to common stockholders because the impact of including them would have been antidilutive for the three and nine months ended September 30, 2021 and 2020:
20212020
Public warrants10,185,774 — 
Private warrants6,074,310 — 
Earnout RSUs640,421 — 
Earnout shares6,945,732 — 
Convertible notes payable— 3,503,781 
Historic warrants— 776,684 
Stock options outstanding to purchase shares of common stock6,903,318 5,532,863 
Unvested RSUs639,324 — 
Total31,388,879 9,813,328 
Note 20 — Concentrations
The suppliers that accounted for 10% or more of the Company’s vehicle purchases are presented as follows:

Total vehicle purchases from vendor to total vehicle purchases for the nine months period ended September 30,
Vendor20212020
Vendor A27%23%
Vendor B13%—%
Vendor A is a corporate vehicle sourcing partner. Typically, we purchase the vehicles from our corporate vehicle sourcing partners at the time of sale to a retail customer.
For the periods ended September 30, 2021 and 2020, no retail or wholesale customers accounted for more than 10% of the Company’s revenue.
Note 21 — Subsequent Events
In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 8, 2021, the date the financial statements were available to be issued.
Additional Hub Locations
Subsequent to the quarter ended September 30, 2021, CarLotz expanded into two new locations with hub openings in Plano, Texas and Pomona, California. The Plano and Pomona hubs are CarLotz’ second locations in the states of Texas and California, respectively. The two new locations bring total hubs to twenty locations.
30


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained herein and the consolidated financial statements and notes thereto for the year ended December 31, 2020 contained in our Current Report on Form 8-K/A filed with the SEC on March 15, 2021. Unless the context otherwise requires, references to “we”, “us”, “our” and the “Company” are intended to mean the business and operations of CarLotz, Inc. and its consolidated subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of our management team. Although we believe our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. Such statements, including statements regarding our ability to: execute our geographic expansion policy; manage our business through the COVID-19 pandemic; achieve our expected revenue growth and effectively manage growth; achieve and maintain profitability in the future; innovate and expand our technological leadership; invest in additional reconditioning capacity; further penetrate existing accounts and key vehicle channels; add new corporate vehicle sourcing partners; increase our service offerings and price optimization; effectively promote our brand and increase brand awareness; expand our product offerings and introduce additional products and services; enhance future operating and financial results; acquire and protect intellectual property; attract, train and retain key personnel, including sales and customer service personnel; acquire and integrate other companies and technologies; remediate material weakness in internal control over financial reporting; comply with laws and regulations applicable to our business; and successfully defend litigation, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results or other outcomes to differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed on March 15, 2021, and those described from time to time in our future reports filed with the SEC. Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this document are made as of the date on which they are made and we do not undertake to update our forward-looking statements.

Overview
CarLotz is a leading consignment-to-retail used vehicle marketplace that provides our corporate vehicle sourcing partners and retail sellers of used vehicles with the ability to easily access the retail sales channel. Our mission is to create the world’s greatest vehicle buying and selling experience. We operate a technology-enabled buying, sourcing and selling model that offers an omni-channel experience and comprehensive selection of vehicles. Our proprietary technology provides our corporate vehicle sourcing partners with real-time performance metrics and data analytics along with custom business intelligence reporting that enables vehicle triage optimization between the wholesale and retail channels.
We offer our products and services to (i) corporate vehicle sourcing partners, (ii) retail sellers of used vehicles and (iii) retail customers seeking to buy used vehicles. Our corporate vehicle sourcing partners include fleet leasing companies, vehicle rental companies, banks, finance companies, third-party remarketers, wholesalers, corporations managing their own fleets and OEMs. We offer our corporate vehicle sourcing partners a pioneering, Retail Remarketing™ service that can fully integrate with their existing technology platforms. For individuals who are our retail sellers, we offer a hassle-free selling experience that allows them to stay fully informed by tracking the sale process through our easy to navigate online portal. We offer our retail customers a hassle-free vehicle buying experience. Buyers can browse our inventory online through our website or at our locations as well as select from our integrated financing and insurance products with ease.
Founded in 2011, CarLotz currently operates twenty retail hub locations in the U.S., initially launched in the Mid-Atlantic region and since expanded to the Southeast, Southcentral, Midwest, West and Pacific Northwest regions of the United States.
31


Our current facilities are located in California, Colorado, Georgia, Florida, Illinois, North Carolina, Tennessee, Texas, Virginia and Washington State.
Generally, our hubs act as both physical showrooms with retail sales and as consignment centers where we can source, process and recondition newly acquired vehicles. Our ability to source vehicles through these locations is important to our asset-light business model. At these hubs, our vehicles undergo an extensive 133-point inspection and reconditioning process in preparation for resale.
For our corporate vehicle sourcing partners, we have developed proprietary technology that can integrate with their internal systems and supports every step in the consignment, reconditioning and sales process. To supplement these systems, we have developed custom-built data analytics tools that provide real time information to our corporate vehicle sourcing partners, retail sellers, and ourselves. For our retail buyers, we offer a digital and hassle-free process that offers our full range of services, as we continue to expand our technological solutions. Our strategy is to roll out a fully integrated mobile application while continuing to expand our digital car buying platform.

Business Update

During the nine months ended September 30, 2021 and continuing in the fourth quarter to date, due to the continuing semi-conductor chip shortage and COVID-related supply chain issues constraining supply, there has been compression of the margin between retail and wholesale prices, which has reduced the incremental value we can deliver to our corporate vehicle sourcing partners via Retail Remarketing™, making consignment less attractive to partners than quickly selling vehicles through the wholesale channel. Supply of used vehicles from our corporate vehicle sourcing partners is severely constrained by the lack of new vehicle supply due to the semi-conductor chip shortage. Due to the continued uncertainty influencing the used vehicle market, we are unable to predict when there will be a return to a more normalized used vehicle market.

Due to sourcing constraints in the second and third quarters of 2021, we sourced a significant majority of our vehicles via wholesale auction during a period of severe supply constraints, and our current inventory is limited to the types of cars that were available to us. The inventory that was available to purchase, some of which remains in inventory, is generally less desirable, lower aged vehicles with higher average price points than in prior quarters. This difference in inventory has resulted in a portion of our inventory being held for sale longer than in prior periods and has increased our exposure to erosion in selling prices as well as lower unit sales. We experienced erosion in retail gross profit in the third quarter, and we expect gross profit to be under pressure until the used vehicle market normalizes and the mix of inventory changes.

Hubs opened in 2021 have not been ramping to expected results and consequently have not provided the expected contribution to unit sales, revenue, and gross profit. Also, we experienced a weaker retail GPU and gross profit performance for the three months ended September 30, 2021, as we reduced prices on aging inventory which reduced the margin between our selling prices and vehicle acquisition costs on owned inventory.

Additionally, as previously disclosed, in mid-May 2021, the corporate vehicle sourcing partner that accounted for more than 60% of the cars we sold during the fourth quarter of 2020 and the three months ended March 31, 2021 informed us that it would be pausing its consignment of vehicles to us due to the strength of the wholesale market for vehicles. The corporate vehicle sourcing partner resumed its consignment of vehicles with us in the third quarter. Although the corporate vehicle sourcing partner resumed its consignment of vehicles with us in the third quarter, they have not returned to the same volume of vehicles and we cannot provide assurance that they will return to the same volume of vehicles, and if the price, types and quality of vehicles will be attractive to us.

As inventory levels increased and we moved through the quarter, we decreased our purchasing of vehicles through wholesale auctions as we increased our sourcing of non-competitively sourced vehicles. At September 30, 2021, consigned vehicles represented approximately 21% of our vehicle inventory.
Revenue Generation
CarLotz generates a significant majority of its revenue from contracts with retail customers related to the sales of vehicles. We sell used vehicles to our retail customers from our hubs located throughout the U.S. Customers also may trade-in their existing vehicle to apply toward the transaction price of a used vehicle, for which we generate revenue on the sale of a used vehicle to the customer trading-in their vehicle and on the traded-in vehicle when it is sold to a new owner. We also sell vehicles to wholesalers or other dealers, primarily at auctions. Generally, the vehicles sold through the wholesale channel are vehicles acquired via trade-in, acquired via consignment that do not meet our quality standards for sale to retail customers, vehicles that remain unsold at the end of the consignment period, retail vehicles that did not sell through the retail channel
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within a reasonable period of time, or vehicles that the Company determines offer greater financial benefit through the wholesale channel. CarLotz generates revenue from providing retail vehicle buyers with options for financing, insurance and extended warranties. Our revenue for the nine months ended September 30, 2021 and 2020 was $175.4 million and $81.6 million, respectively.
Inventory Sourcing

We source vehicles from both corporate and consumer sellers, and auctions. We source vehicles non-competitively through the industry’s leading consignment to retail sales model, and we also source vehicles competitively through purchase as necessary to provide inventory at our newer hub locations, to round out our inventory and during periods such as the one we are currently experiencing when market conditions reduce the incremental value we are able to provide to our sourcing partners through the retail channel, as compared to the wholesale channel. We maintain long-term sourcing relationships with numerous key blue-chip national accounts and have a sales pipeline of potential new accounts. We support our corporate vehicle sourcing partners by offering an integrated technology platform that allows our supply partners to track the sale process of their vehicles in real-time, along with a custom system for managing customer leads and leads from third party providers.
Our proprietary application includes a suite of features tailored to create significant value for sellers with tools for documenting and transmitting vehicle information. This includes a proprietary custom-built vehicle retailing and wholesaling platform that creates and verifies all documents for the purchase or sale in-hub. Our technology offers a custom system for managing customer leads, scheduling appointments and test drives from our applications and websites as well as from third party providers.
In addition to our flat fee model, we also enter into alternative fee arrangements with certain corporate vehicle sourcing partners based on a return above a wholesale index or based on a profit share program. Under these alternative fee arrangements, our gross profit for a particular unit could be higher or lower than the gross profit per unit we would realize under our flat fee pricing model depending on the unit’s sale price, and fees we are able to charge in connection with the sale. As we do not have long-term contracts with any of our corporate vehicle sourcing partners and do not require them to make vehicles available to us, our volume and mix of vehicles from our corporate vehicle sourcing partners has and will continue to fluctuate over time.
We also have dealer owned inventory that operates in a similar manner to traditional used car dealers and which exposes us more directly to the effects of changes in vehicle prices and, particularly when sourcing via wholesale auction purchase, to the margin between retail and wholesale prices. Our gross profit per unit is therefore likely to fluctuate from period to period, perhaps significantly, due to our mix of flat fee, dealer owned and alternative fee arrangements as well as due to our acquisition costs and the sales prices and fees we are able to collect on the vehicles.
Generally, our hubs have integrated vehicle processing centers, which allows us to recondition vehicles at the hub. Our step-by-step process includes most aspects of preparing a vehicle for sale, including a 133-point inspection, mechanical and cosmetic reconditioning, detailing and merchandising. As we scale our business, each new hub provides us increased processing capacity. In addition to achieving cost savings and operational efficiencies, we aim to lower our days to sale. Going forward, our strategy is to make capital investments in additional hubs with integrated vehicle processing centers to lower reconditioning costs per unit.
Regional Hub Network
Through our full service e-commerce website and twenty regional hubs, we provide a shopping experience for today’s modern vehicle buyer, allowing our nationwide retail customers to transact online, in-person or a combination of both. We offer a full-spectrum of inventory, including high-value and commercial vehicles, available for delivery anywhere in the U.S. Our regional hubs allow for test drives and on-site purchase, which we plan to expand to nationwide coverage.
Finance and Insurance (F&I)
CarLotz also generates revenue from providing retail vehicle buyers with options for financing, insurance and extended warranties; these services are provided by third parties that pay CarLotz a commission based on our customers’ purchases. Since we do not control these products before they are transferred to the consumer, we recognize commission revenue at the time of sale. We plan to expand our F&I product offering to drive additional gross profit.
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Factors Affecting our Performance
Expansion into New Geographic Markets
We actively monitor attractive markets to enter, with a focus on highly concentrated or growing demographic areas and attractive start-up costs. Our real estate team has identified new hub locations in furtherance of our goal of opening at least 14 new hubs in 2021. Ten new hubs were opened in the nine months ended September 30, 2021 in Texas, Florida, Tennessee, Virginia, California, Illinois, Georgia, Colorado and Washington. We believe an expanded footprint will enable us to increase our vehicle sales and further penetrate our national vehicle sourcing partners while also attracting new corporate vehicle sourcing partners that were previously unavailable due to our geographic limitations. The laws of certain states that we enter may currently or in the future restrict our operations or limit the fees we can charge for certain services.
Further Penetration of Existing Accounts and Key Vehicle Channels
We believe that we can benefit from significant untapped volume with existing corporate vehicle sourcing partners and that our growing footprint will allow us to better serve our national accounts. Many of our existing sourcing partners still sell less than 5% of their volumes through the retail channel. As Retail Remarketing™ continues to develop as a more established alternative and as CarLotz expands to serve buyers and sellers nationwide, we anticipate growth with our existing commercial sellers, after the supply constraints return to normal.
Innovation and Expanded Technological Leadership
We are constantly reviewing our technology platform, and our strategy is to leverage our existing technological leadership through our end-to-end e-commerce platform to continually enhance both the car buying and selling experience, while generating insightful data analytics in real time. Over the next two years, we plan to invest significantly in our core suite of technology to enhance the buyer and seller experience, improve our B2B vehicle sourcing and enhance our business intelligence capabilities with increased machine learning and artificial intelligence. In addition, we plan to invest significant amounts for various retail and processing enhancements.
Investments in Additional Processing Capacity
As we scale our business, our plan is to invest in increased processing capacity. In addition to achieving cost savings and operational efficiencies, we aim to lower our days to sale. Going forward, our strategy is to make capital investments in additional processing centers by leveraging our data analytics and industry experience and taking into account a combination of factors, including proximity to buyers and sellers, transportation costs and access to inbound inventory. All of these initiatives are designed to lower reconditioning costs per unit and thereby improve per unit economics.
Addition of New Corporate Vehicle Sourcing Accounts
We plan to leverage our national footprint in order to access new corporate vehicle sourcing partners, which may not have been accessible in the past due to our current limited geographic reach. Additional vehicle volume from new accounts would allow us to improve our consigned vehicle market share at existing and new locations.
Investment in Brand and Tactical Marketing
With a portion of the additional capital we raised in connection with the Merger, we ramped up our local advertising and began to focus on a more national audience. Our plan includes analytics-driven, targeted marketing investments to accelerate growth while being accretive to margins. With improved awareness of our brand and our services, we plan to identify, attract and convert new corporate vehicle sourcing partners at optimized cost.
Increased Service Offerings and Price Optimization
As we further develop the CarLotz brand, we believe our enhanced platform will support increased revenue from product sales and optimized vehicle pricing. Areas of potential further investment in service offerings include (i) expansion of existing and new F&I products that may cover appearance, roadside assistance, key insurance and wheel and tire production and (ii) further development of a front-end digital solution to source more vehicles from consumers.
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Seasonality
Used vehicle sales exhibit seasonality with sales typically peaking late in the first calendar quarter and diminishing through the rest of the year, with the lowest relative level of vehicle sales expected to occur in the fourth calendar quarter. Used vehicle prices also exhibit seasonality, with used vehicle prices declining at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year. Historically, this has led our gross profit per unit to be higher on average in the first half of the year than in the second half of the year. Because of the market dynamics related to the continuing semi-conductor chip shortage and COVID-related supply chain issues constraining supply, we have not seen the typical seasonality related to used vehicle prices. Average used vehicle prices began to level off at the beginning of the third quarter before continuing to appreciate throughout the third quarter.
Impact of COVID-19

Our ability to acquire and sell used vehicles can be negatively impacted by a number of factors that are outside of our control. Due to the impacts of the COVID-19 pandemic and shortages of semi-conductor chips and other automotive supplies starting in 2020, certain automobile manufacturers have slowed production of new vehicles. The reduction in supply of new vehicles has limited the supply of used vehicles available through our corporate sourcing partners and is likely to continue to do so for the remainder of 2021 and beyond. To address the reduction from this supply source, we have sourced a higher percentage of our vehicles through wholesale auction channels than we have historically. Because we are purchasing these vehicles, there is greater risk to the Company on the margin between the cost of the vehicle and the selling price, and we have seen compression of gross profit during the third quarter, which we expect to continue through the balance of the year. This risk could be compounded by our inability to turn inventory quickly and the pace at which used vehicles depreciate.

We cannot provide assurance of the ultimate significance and duration of COVID-19 and the variants’ disruption to our operations for several reasons, including, but not limited to, uncertainty regarding the duration of the pandemic and related disruptions, the impact of governmental orders and regulations that have been, and may in the future be, imposed, and the impact of COVID-19 and the variants on our customers and corporate vehicle sourcing partners.

Like many companies, COVID-19 has increased our focus on the health and safety of our guests, employees and their families. To maintain a safe work environment, we have implemented procedures aligned with the Centers for Disease Control and Prevention to limit the spread of the virus and provide a safe environment for our guests and teammates. Some of the measures taken include encouraging our teammates to take advantage of flexible work arrangements, acquiring additional corporate office space and mandating social distancing.
Key Operating Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our progress and make strategic decisions. Our operating metrics (which may be changed or adjusted over time as our business scales up or industry dynamics change) measure the key drivers of our growth, including opening new hubs, increasing our brand awareness through unique site visitors and continuing to offer a full spectrum of used vehicles to service all types of customers.
Three Months Ended September 30,
Nine Months Ended September 30,
2021202020212020
Retail vehicles sold2,490 1,571 7,053 4,400 
Number of hubs18 18