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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 001-38818
CarLotz, Inc.
(Exact name of registrant as specified in its charter)
Delaware83-2456129
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3301 W. Moore StreetRichmondVirginia23230
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (804) 510-0744

Securities registered pursuant to Section 12(b) of the Act:
Title of each 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 119,703,273 shares of common stock as of November 7, 2022.


CarLotz, Inc.
TABLE OF CONTENTS
Page
1
30


i


PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)
September 30,
2022
December 31,
2021
Assets
Current Assets:
Cash and cash equivalents$84,809 $75,029 
Restricted cash4,049 4,336 
Marketable securities – at fair value28,125 116,589 
Accounts receivable, net4,786 8,206 
Inventories13,062 40,985 
Other current assets4,349 4,705 
Operating and finance lease assets, property, and equipment held for sale20,860  
Total Current Assets160,040 249,850 
Marketable securities – at fair value760 1,941 
Property and equipment, net7,118 22,628 
Capitalized website and internal-use software costs, net12,725 13,716 
Operating lease assets22,092 — 
Finance lease assets, net4,459 — 
Lease vehicles, net2,869 1,596 
Other assets474 558 
Total Assets$210,537 $290,289 
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Current portion of finance lease liabilities$116 $509 
Floor plan notes payable5,433 27,815 
Accounts payable2,236 6,352 
Accrued expenses11,215 14,428 
Current portion of operating lease liabilities4,600 — 
Other current liabilities593 754 
Operating and finance lease liabilities associated with assets held for sale22,294  
Total Current Liabilities46,487 49,858 
Finance lease liabilities, less current portion6,083 12,206 
Operating lease liabilities, less current portion22,384 — 
Earnout shares liability722 7,679 
Merger warrants liability675 6,291 
Other liabilities417 744 
Total Liabilities76,768 76,778 
Commitments and Contingencies (Note 15)  
Stockholders’ Equity (Deficit):
Common stock, $0.0001 par value; 500,000,000 authorized shares, 114,879,689 and 113,996,401 shares issued and outstanding at September 30, 2022 and December 31, 2021
11 11 
Additional paid-in capital291,827 287,509 
Accumulated deficit(157,956)(73,916)
Accumulated other comprehensive loss(113)(93)
Total Stockholders’ Equity (Deficit)133,769 213,511 
Total Liabilities and Stockholders’ Equity (Deficit)$210,537 $290,289 
See notes to condensed consolidated financial statements.
1


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Retail vehicle sales$32,545 $56,284 $142,344 $150,897 
Wholesale vehicle sales16,357 8,989 38,880 18,217 
Finance and insurance, net1,691 2,639 8,591 5,973 
Lease income, net245 129 528 334 
Total Revenues50,838 68,041 190,343 175,421 
Cost of sales (exclusive of depreciation)51,429 66,017 187,375 167,207 
Gross Profit(591)2,024 2,968 8,214 
Operating Expenses:
Selling, general and administrative19,334 24,780 74,017 63,039 
Stock-based compensation expense1,409 3,447 4,234 49,114 
Depreciation and amortization expense2,025 1,214 6,173 1,692 
Management fee expense – related party   2 
Impairment expense420  1,143  
Restructuring expenses1,885  12,616  
Total Operating Expenses25,073 29,441 98,183 113,847 
Loss from Operations(25,664)(27,417)(95,215)(105,633)
Interest expense302 650 1,512 1,009 
Other Income, net
Change in fair value of Merger warrants liability803 12,111 5,616 24,794 
Change in fair value of earnout shares341 12,565 6,957 56,621 
Other income (expense)523 (85)113 (476)
Total Other Income, net1,667 24,591 12,686 80,939 
Loss Before Income Tax Expense(24,299)(3,476)(84,041)(25,703)
Income tax expense    
Net Loss$(24,299)$(3,476)$(84,041)$(25,703)
Net Loss per Share, basic and diluted$(0.21)$(0.03)$(0.74)$(0.23)
Weighted-average Shares used in Computing Net Loss per Share, basic and diluted114,705,449113,707,013114,334,960109,447,939
See notes to condensed consolidated financial statements.
2


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss)
(Unaudited)
(In thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net loss$(24,299)$(3,476)$(84,041)$(25,703)
Other Comprehensive (Loss), net of tax:
Unrealized gains (losses) on marketable securities arising during the period38 (40)(6)(110)
Tax effect    
Unrealized gains (losses) on marketable securities arising during the period, net of tax38 (40)(6)(110)
Reclassification adjustment for realized gains(8) (14)(5)
Tax effect    
Reclassification adjustment for realized gains, net of tax(8) (14)(5)
Other Comprehensive Income (Loss), net of tax30 (40)(20)(115)
Total Comprehensive (Loss)$(24,269)$(3,516)$(84,061)$(25,818)
See notes to condensed consolidated financial statements.
3


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

See notes to condensed consolidated financial statements.
4


Redeemable Convertible Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive (Loss) Income
Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 20202,034,751 $17,560 37,881,435 $4 $3,221 $(34,037)$15 $(30,797)
Retroactive application of recapitalization(2,034,751)(17,560)20,739,607 2 17,558  — 17,560 
Adjusted balance, beginning of period  58,621,042 6 20,779 (34,037)15 (13,237)
Net loss— — — — — (15,022)— (15,022)
Other comprehensive income, net of tax
— — — — — — (131)(131)
Accrued dividends on redeemable convertible preferred stock— — — — (19)— — (19)
PIPE issuance— — 12,500,000 1 124,999 — — 125,000 
Merger financing— — 38,194,390 4 309,995 — — 309,999 
Consideration to existing shareholders of Former CarLotz, net of accrued dividends— — — — (62,693)— — (62,693)
Transaction costs and advisory fees— — — — (47,579)— — (47,579)
Settlement of redeemable convertible preferred stock tranche obligation— — — — 2,832 — — 2,832 
Cashless exercise of options— — 54,717 — — — — — 
Cash consideration paid to Former Carlotz optionholders— — — — (2,465)— — (2,465)
Stock-based compensation— — — — 41,963 — — 41,963 
Earnout liability— — — — (74,284)— — (74,284)
Merger warrants liability— — — — (39,025)— — (39,025)
KAR/AFC note payable conversion— — 3,546,984 — 3,625 — — 3,625 
KAR/AFC warrant exercise— — 752,927 — 144 — — 144 
Balance March 31, 2021 $ 113,670,060 $11 $278,272 $(49,059)$(116)$229,108 
Net loss— — — — — (7,205)— (7,205)
Other comprehensive income, net of tax— — — — — — 56 56 
Stock-based compensation— — — — 3,704 — — 3,704 
Balance June 30, 2021 $ 113,670,060 $11 $281,976 $(56,264)$(60)$225,663 
Net loss— — — — — (3,476)— (3,476)
Other comprehensive income, net of tax— — — — — — (40)(40)
Issuance of Class A common stock to settle vested restricted stock units— — 36,953 — — — — — 
Stock-based compensation— —  — 3,447 — — 3,447 
Balance September 30, 2021 $ 113,707,013 $11 $285,423 $(59,740)$(100)$225,594 
See notes to condensed consolidated financial statements.
5


CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20222021
Cash Flow from Operating Activities
Net loss$(84,041)$(25,703)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization – property, equipment, ROU assets and capitalized software8,532 1,623 
Impairment expense1,143  
Non-cash restructuring expenses10,387  
Gain on lease assignment(236) 
Amortization and accretion - marketable securities752 1,712 
Depreciation – lease vehicles360 69 
Provision for doubtful accounts656 85 
Stock-based compensation expense4,234 49,114 
Change in fair value of Merger warrants liability(5,616)(24,794)
Change in fair value of earnout shares(6,957)(56,621)
Unpaid interest expense on capital lease obligations 199 
Change in Operating Assets and Liabilities:
Accounts receivable2,764 (4,786)
Inventories27,923 (46,774)
Other current assets356 (8,414)
Other assets84 (4,267)
Accounts payable(4,116)3,541 
Accrued expenses(2,237)5,441 
Accrued expenses – related party (229)
Other current liabilities(161)382 
Other liabilities(327)(753)
Net Cash Used in Operating Activities(46,500)(110,175)
Cash Flows from Investing Activities
Purchase of property and equipment(5,642)(6,766)
Capitalized website and internal-use software costs(2,958)(11,511)
Purchase of marketable securities(63,858)(359,381)
Proceeds from sales of marketable securities152,758 212,823 
Purchase of lease vehicles(1,633)(939)
Net Cash Provided by (Used in) Investing Activities78,667 (165,774)
Cash Flows from Financing Activities
Payments made on finance leases(376)(51)
Advance from holder of marketable securities 4,722 
Repayment of advance from marketable securities (4,722)
PIPE issuance 125,000 
Merger financing 309,999 
Payment made on accrued dividends (4,853)
Payments to existing shareholders of Former CarLotz (62,693)
Transaction costs and advisory fees (47,579)
See notes to condensed consolidated financial statements.
6


Payments made on cash considerations associated with stock options (2,465)
Repayment of Paycheck Protection Program loan (1,749)
Payments made on note payable (3,000)
Payments on floor plan notes payable(102,592)(109,034)
Borrowings on floor plan notes payable80,211 127,279 
Employee stock option exercise91  
Payments made for tax on equity award transactions(8) 
Net Cash (Used in) Provided by Financing Activities(22,674)330,854 
Net Change in Cash and Cash Equivalents Including Restricted Cash9,493 54,905 
Cash and cash equivalents and restricted cash, beginning79,365 2,813 
Cash and cash equivalents and restricted cash, ending$88,858 $57,718 
Supplemental Disclosure of Cash Flow Information
Cash paid for interest$1,589 $1,000 
Supplementary Schedule of Non-cash Investing and Financing Activities:
Transfer from lease vehicles to inventory$ $166 
KAR/AFC exercise of stock warrants (144)
KAR/AFC conversion of notes payable (3,625)
Convertible redeemable preferred stock tranche obligation expiration (2,832)
Capitalized website and internal use software costs accrued (1,898)
Purchases of property under capital lease obligation(247)(7,651)



See notes to condensed consolidated financial statements.
7


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

Note 1  Description of Business
Defined Terms

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

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

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

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

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

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

Basis of Presentation

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

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

8


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

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

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

Restructuring

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

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

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


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

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

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

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


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


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

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

Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz surviving as the surviving company.
The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Acamar Partners was treated as the “acquired” company for financial reporting purposes (See Note 1 — Description of the Business). Accordingly, for accounting purposes, the Merger was treated as the equivalent of Former CarLotz issuing stock for the net assets of Acamar Partners, accompanied by a recapitalization.
Prior to the Merger, Former CarLotz and Acamar Partners filed separate standalone federal, state and local income tax returns. As a result of the Merger, structured as a reverse acquisition for tax purposes, Acamar Partners was renamed CarLotz, Inc. and became the parent of the consolidated filing group, with Former CarLotz as a subsidiary.
Recapitalization
Cash - Acamar Partners’ trust and cash$309,999 
Cash - PIPE125,000 
Less: consideration delivered to existing stockholders of Former CarLotz(62,693)
Less: consideration to pay accrued dividends(4,853)
Less: transaction costs and advisory fees paid(47,579)
Less: payments on cash considerations associated with stock options(2,465)
Net contributions from Merger and PIPE 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, 2022. There has been no change in outstanding stock warrants since the Merger.

September 30, 2022
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