UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )
 
Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:
 
Preliminary Proxy Statement

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

 
Definitive Proxy Statement

 
Definitive Additional Materials

 
Soliciting Material under §240.14a-12

CarLotz, Inc.

(Name of Registrant as Specified In Its Charter)


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

Payment of Filing Fee (Check the appropriate box):

No fee required.

 
Fee paid previously with preliminary materials.

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

   



Filed Pursuant to Rule 424(b)(3)
Registration No. 333-267601
SUPPLEMENT NO. 1, DATED NOVEMBER 8, 2022
(to the Joint Proxy Statement/Prospectus dated November 8, 2022)

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

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

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

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

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

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Merger or the issuance of Shift Common Stock to be issued in the merger or determined if the Joint Proxy Statement/Prospectus or this Supplement is accurate or complete. Any representation to the contrary is a criminal offense.
 
This supplement to the Joint Proxy Statement/Prospectus is dated November 8, 2022

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

Commission file number 001-38818
CarLotz, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
83-2456129
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

3301 W. Moore Street
Richmond
Virginia
23230
(Address of principal executive offices, including zip code)
 
Registrant’s telephone number, including area code: (804) 510-0744
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock, par value $0.0001 per share
LOTZ
The Nasdaq Global Market
Redeemable warrants, exercisable for Class A common stock at an exercise price of $11.50 per share
LOTZW
The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒   No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
​☐
 
Accelerated filer ​
 
Non-accelerated filer
​☐
 
Smaller reporting company
 
 
Emerging growth company ​
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐     No  ☒
 
The registrant had outstanding 119,703,273 shares of common stock as of November 7, 2022.
 

CarLotz, Inc.
 
TABLE OF CONTENTS
 
   
Page
Part I - Financial Information
 
Item 1.
2
Item 2.
38
Item 3.
54
Item 4.
55
Part II - Other Information

Item 1.
57
Item 1A.
57
Item 6.
64
65

PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
 
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)

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

See notes to condensed consolidated financial statements.

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

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

CarLotz, Inc. and Subsidiaries
 
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
 
Nine Months Ended September 30, 2022 and 2021
(Unaudited)
(In thousands, except share data)
 
 
Redeemable Convertible
Preferred Stock
   
Common Stock
     
Additional
Paid-in
Capital
     
Accumulated
Deficit
     
Accumulated
Other
Comprehensive
(Loss) Income
     

Stockholders’
Equity
(Deficit)
  
 
Shares
   
Amount
   
Shares
   
Amount
Balance December 31, 2021
   
   
$
     
113,996,401
   
$
11
   
$
287,509
   
$
(73,916
)
 
$
(93
)
 
$
213,511
 
Net loss
   
     
     
     
     
     
(24,836
)
   
     
(24,836
)
Other comprehensive income, net of tax
   
     
     
     
     
     
     
(73
)
   
(73
)
Cashless exercise of options
   
     
     
44,424
     
     
     
     
     
 
Stock-based compensation
   
     
     
     
     
1,684
     
     
     
1,684
 
Issuance of common stock to settle vested restricted stock units
   
     
     
70,971
     
     
(2
)
   
     
     
(2
)
Balance March 31, 2022
   
   
$
     
114,111,796
   
$
11
   
$
289,191
   
$
(98,752
)
 
$
(166
)
 
$
190,284
 
Net loss
   
   
$
     
   
$
   
$
   
$
(34,905
)
 
$
   
$
(34,905
)
Other comprehensive income, net of tax
   
   
$
     
   
$
   
$
   
$
   
$
23
   
$
23
 
Exercise of options
   
   
$
     
104,818
   
$
   
$
66
   
$
   
$
   
$
66
 
Stock-based compensation
   
   
$
     
   
$
   
$
1,141
   
$
   
$
   
$
1,141
 
Issuance of common stock to settle vested restricted stock units
   
   
$
     
263,048
   
$
   
$
   
$
   
$
   
$
 
Balance June 30, 2022
   
   
$
     
114,479,662
   
$
11
   
$
290,398
   
$
(133,657
)
 
$
(143
)
 
$
156,609
 
Net loss
   
   
$
     
   
$
   
$
   
$
(24,299
)
 
$
   
$
(24,299
)
Other comprehensive income, net of tax
   
   
$
     
   
$
   
$
   
$
   
$
30
   
$
30
 
Exercise of options
   
   
$
     
81,541
   
$
   
$
20
   
$
   
$
   
$
20
 
Cashless exercise of options
   
   
$
     
26,435
   
$
     
   
$
   
$
     
 
Stock-based compensation
   
   
$
     
   
$
   
$
1,409
   
$
   
$
   
$
1,409
 
Issuance of common stock to settle vested restricted stock units
   
   
$
     
292,051
   
$
   
$
   
$
   
$
     
 
Balance September 30, 2022
   
   
$
     
114,879,689
   
$
11
   
$
291,827
   
$
(157,956
)
 
$
(113
)
 
$
133,769
 
 
See notes to condensed consolidated financial statements.

 
Redeemable Convertible
Preferred Stock
   
Common Stock
     
Additional
Paid-in
Capital
     
Accumulated
Deficit
     
Accumulated
Other
Comprehensive
(Loss) Income
     
Stockholders’
Equity (Deficit)
  
 
Shares
   
Amount
   
Shares
   
Amount
Balance December 31, 2020
   
2,034,751
   
$
17,560
     
37,881,435
   
$
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.

CarLotz, Inc. and Subsidiaries
 
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Nine Months Ended
September 30,
 
 
2022
   
2021
 
Cash Flow from Operating Activities
 
   
 
Net loss
 
$
(84,041
)
 
$
(25,703
)
Adjustments to reconcile net loss to net cash used in operating activities
         
 
Depreciation and amortization – property, equipment, ROU assets and capitalized software
   
8,532
     
1,623
 
Impairment expense
   
1,143
     
 
Non-cash restructuring expenses
   
10,387
     
 
Gain on lease assignment
   
(236
)
   
 
Amortization and accretion - marketable securities
   
752
     
1,712
 
Depreciation – lease vehicles
   
360
     
69
 
Provision for doubtful accounts
   
656
     
85
 
Stock-based compensation expense
   
4,234
     
49,114
 
Change in fair value of Merger warrants liability
   
(5,616
)
   
(24,794
)
Change in fair value of earnout shares
   
(6,957
)
   
(56,621
)
Unpaid interest expense on capital lease obligations
   
     
199
 
Change in Operating Assets and Liabilities:
 
   
 
Accounts receivable
   
2,764
     
(4,786
)
Inventories
   
27,923
     
(46,774
)
Other current assets
   
356
     
(8,414
)
Other assets
   
84
     
(4,267
)
Accounts payable
   
(4,116
)
   
3,541
 
Accrued expenses
   
(2,237
)
   
5,441
 
Accrued expenses – related party
   
     
(229
)
Other current liabilities
   
(161
)
   
382
 
Other liabilities
   
(327
)
   
(753
)
Net Cash Used in Operating Activities
   
(46,500
)
   
(110,175
)
Cash Flows from Investing Activities
 
   
 
Purchase of property and equipment
   
(5,642
)
   
(6,766
)
Capitalized website and internal-use software costs
   
(2,958
)
   
(11,511
)
Purchase of marketable securities
   
(63,858
)
   
(359,381
)
Proceeds from sales of marketable securities
   
152,758
     
212,823
 
Purchase of lease vehicles
   
(1,633
)
   
(939
)
Net Cash Provided by (Used in) Investing Activities
   
78,667
     
(165,774
)
Cash Flows from Financing Activities
 
   
 
Payments made on finance leases
   
(376
)
   
(51
)
Advance from holder of marketable securities
   
     
4,722
 
Repayment of advance from marketable securities
   
     
(4,722
)
PIPE issuance
   
     
125,000
 
Merger financing
   
     
309,999
 
Payment made on accrued dividends
   
     
(4,853
)
Payments to existing shareholders of Former CarLotz
   
     
(62,693
)
Transaction costs and advisory fees
   
     
(47,579
)
Payments made on cash considerations associated with stock options
   
     
(2,465
)
Repayment of Paycheck Protection Program loan
   
     
(1,749
)
Payments made on note payable
   
     
(3,000
)
Payments on floor plan notes payable
   
(102,592
)
   
(109,034
)
Borrowings on floor plan notes payable
   
80,211
     
127,279
 
Employee stock option exercise
   
91
     
 
Payments made for tax on equity award transactions
   
(8
)
   
 
Net Cash (Used in) Provided by Financing Activities
   
(22,674
)
   
330,854
 
Net Change in Cash and Cash Equivalents Including Restricted Cash
   
9,493
     
54,905
 
Cash and cash equivalents and restricted cash, beginning
   
79,365
     
2,813
 
Cash and cash equivalents and restricted cash, ending
 
$
88,858
   
$
57,718
 
Supplemental Disclosure of Cash Flow Information
               
Cash paid for interest
 
$
1,589
   
$
1,000
 
Supplementary Schedule of Non-cash Investing and Financing Activities:
         
 
Transfer from lease vehicles to inventory
 
$
   
$
166
 
KAR/AFC exercise of stock warrants
   
     
(144
)
KAR/AFC conversion of notes payable
   
     
(3,625
)
Convertible redeemable preferred stock tranche obligation expiration
   
     
(2,832
)
Capitalized website and internal use software costs accrued
   
     
(1,898
)
Purchases of property under capital lease obligation
   
(247
)
   
(7,651
)

See notes to condensed consolidated financial statements.

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

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

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

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

Restructuring

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

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

Certain transaction expenses (“Shift Merger expenses”) such as financial advisory, legal, accounting costs and associated fees and expenses that will be paid at the close of the Shift Merger are expensed as incurred and included in Accrued Expenses (see Note 12 — Accrued Expenses for further detail).
 
Note 2 — Summary of Significant Accounting Policies
 
For a detailed discussion about the Company’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2 to the audited consolidated financial statements.
 
During the nine months ended September 30, 2022, there were no significant revisions to the Company’s significant accounting policies, other than those indicated herein related to the adoption of Leases Topic 842.

9

Table of Contents
CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.

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

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

Assets and Liabilities Held For Sale
 
As a result of the announced hub closures on June 21, 2022, the ROU and finance lease assets and liabilities associated with hub locations where the Company has or intends to assign the lease to a third-party or terminate the lease agreement (as opposed to subleasing to a third-party) are classified as held for sale.  The fixed assets associated with all closed hub locations, to the extent they are not impaired, are also classified as held for sale.
 
10

Table of Contents
CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Revenues
 
The Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Control passes to the retail and wholesale vehicle sales customer when the title is delivered to the customer, who then assumes control of the vehicle.
 
Retail Vehicle Sales
 
We sell used vehicles to our retail customers through our hubs in various cities. The transaction price for used vehicles is a fixed amount as set forth in the customer contract. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent noncash consideration which we measure at estimated fair value of the vehicle received on trade. We satisfy our performance obligation and recognize revenue for used vehicle sales at a point in time when the title to the vehicle passes to the customer, at which point the customer controls the vehicle. We provide a 12-month/12,000-mile limited warranty on most retail vehicle sales. The limited warranty is not treated as a separate performance obligation given the nature of the limited warranty is to provide assurance as to the quality of the vehicle being sold. The revenue recognized by CarLotz includes the agreed upon transaction price, including any service fees. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers.
 
We receive payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing.
 
Our exchange policy allows customers to initiate an exchange during the first seven days or 400 miles after delivery, whichever comes first. If the vehicle is returned, the sale and associated revenue recognition is reversed, and the vehicle is treated as a purchase of inventory.
 
See the remainder of the Company’s revenue accounting policy related to wholesale, finance and insurance, and other revenue in the Form 10-K for the year ended December 31, 2021 filed on March 15, 2022.
 
Recently Issued Accounting Pronouncements
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard affected all entities that lease assets and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. ASU 2016-02, as subsequently amended for various technical issues, was effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, and early adoption was permitted.
 
We adopted ASC 842 for the year beginning January 1, 2022 using the modified retrospective transition approach applied at the beginning of the period of adoption, which did not result in a cumulative-effect adjustment to retained earnings. Comparative periods presented in the financial statements continue to be presented in accordance with ASC 840. As permitted under the standard, we have elected the package of practical expedients for the transition to ASC 842, under which we did not reassess our prior conclusions regarding lease identification, lease classification, or initial direct costs for contracts existing as of the transition date.  We have also elected to apply the following practical expedients for contracts existing as of the transition date and all new contracts after our adoption of ASC 842: 1) recognizing lease expense on a straight-line basis over the lease term for leases with a term of 12 months or less and not recognizing them on the balance sheet and 2) accounting for lease and non-lease components for all asset classes as a combined single unit of account.  We have not elected the practical expedient related to all land easements nor the hindsight practical expedient.
 
The adoption of ASC 842 resulted in the recognition of $50.5 million of operating lease assets, which included an adjustment for deferred rent, and $52.6 million of operating lease liabilities on our opening consolidated balance sheet. We have implemented new business processes, accounting policies, systems and internal controls as part of adopting the new standard.  See Note 14 for additional information on leases.
 
11

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

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

Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz surviving as the surviving company.
 
The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Acamar Partners was treated as the “acquired” company for financial reporting purposes (See Note 1 — Description of the Business). Accordingly, for accounting purposes, the Merger was treated as the equivalent of Former CarLotz issuing stock for the net assets of Acamar Partners, accompanied by a recapitalization.
 
Prior to the Merger, Former CarLotz and Acamar Partners filed separate standalone federal, state and local income tax returns. As a result of the Merger, structured as a reverse acquisition for tax purposes, Acamar Partners was renamed CarLotz, Inc. and became the parent of the consolidated filing group, with Former CarLotz as a subsidiary.

 
Recapitalization
 
Cash - Acamar Partners’ trust and cash
 
$
309,999
 
Cash - PIPE
   
125,000
 
Less: consideration delivered to existing stockholders of Former CarLotz
   
(62,693
)
Less: consideration to pay accrued dividends
   
(4,853
)
Less: transaction costs and advisory fees paid
   
(47,579
)
Less: payments on cash considerations associated with stock options
   
(2,465
)
Net contributions from Merger and PIPE financing
   
317,409
 
Liabilities relieved: preferred stock obligation
   
2,832
 
Liabilities relieved: KAR/AFC note payable
   
3,625
 
Liabilities relieved: historic warrant liability
   
144
 
Less: earnout shares liability
   
(74,285
)
Less: Merger warrants liability
   
(39,024
)
 
12

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

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

Earnout Shares
 
Former CarLotz equity holders at the closing of the Merger are entitled to receive up to an additional 6,945,732 earnout shares.  The earnout shares will be issued to the beneficiaries if certain targets are met in the post-acquisition period. The earnouts for the earnout shares are subject to an earnout period, which is defined as the date 60 months following the consummation of the Merger. The Merger closed on January 21, 2021, and the earnout period expires January 21, 2026. The earnout shares will be issued if any of the following conditions are achieved following January 21, 2021:
 

i.
If at any time during the 60 months following the Closing Date (the first business day following the end of such period, the “Forfeiture Date”), the closing trading price of the common stock is greater than $12.50 over any 20 trading days within any 30 trading day period (the “First Threshold”), the Company will issue 50% of the earnout shares.

ii.
If at any time prior to the Forfeiture Date, the closing trading price of the common stock is greater than $15.00 over any 20 trading days within any 30 trading day period (the “Second Threshold”), the Company will issue 50% of the earnout shares.

iii.
If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unissued earnout shares are forfeited. All unissued earnout shares will be issued if there is a change of control of the Company that will result in the holders of the common stock receiving a per share price equal to or in excess of $10.00 (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock) prior to the Forfeiture Date.
 
Before the contingency is met, the earnout shares will be classified as a liability under the FASB’s Accounting Standards Codification (“ASC”) Topic 815, so changes in the fair value of the earnout shares in future periods will be recognized in the condensed consolidated statement of operations. The estimated fair value of the liability is determined by using a Monte-Carlo simulation model.
 
Note 4 — Revenue Recognition
 
Disaggregation of Revenue
 
The significant majority of the Company’s revenue is derived from contracts with customers related to the sales of vehicles. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. The Company has determined that these categories depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
 
13

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

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

Vehicles that do not meet the Company’s standards for retail vehicle sales, vehicles that did not sell through the retail channel within a reasonable period of time and vehicles that the Company determines offer greater financial benefit through the wholesale channel are sold through various wholesale methods. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales when the vehicle is sold at auction or directly to a wholesaler and title to the vehicle passes to the next owner.  Additionally, the Company sold or will sell vehicles that were at the closed hub locations through the wholesale channel that may not have been sold through the wholesale channel if the hubs had remained open.
 
Finance and Insurance, net
 
The Company provides customers with options for financing, insurance and extended warranties. Certain warranties are serviced by a company owned by a major stockholder. All other services are provided by third-party vendors, and the Company has agreements with each of these vendors giving the Company the right to offer such services.
 
When a customer selects a service from these third-party vendors, the Company earns a commission based on the actual price paid or financed. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. Accordingly, the Company recognizes finance and insurance revenue at the point in time when the customer enters into the contract.
 
Note 5 — Marketable Securities
 
The following table summarizes amortized cost, gross unrealized gains and losses and fair values of the Company’s investments in fixed maturity debt securities as of September 30, 2022 and December 31, 2021:
 
   
September 30, 2022
 
 
Amortized
Cost/​
Cost Basis
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
U.S. Treasuries
 
$
   
$
   
$
   
$
 
Corporate bonds
   
16,228
     
1
     
(64
)
   
16,165
 
Municipal bonds
   
3,517
     
5
     
(15
)
   
3,507
 
Commercial paper
   
8,375
     
     
     
8,375
 
Foreign governments
   
417
     
69
     
(109
)
   
377
 
Total Fixed Maturity Debt Securities
 
$
28,537
   
$
75
   
$
(188
)
 
$
28,424
 

   
December 31, 2021
 
 
Amortized
Cost/​
Cost Basis
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
U.S. Treasuries
 
$
   
$
   
$
   
$
 
Corporate bonds
   
57,460
     
     
(72
)
   
57,388
 
Municipal bonds
   
28,325
     
5
     
(10
)
   
28,320
 
Commercial paper
   
19,989
     
     
     
19,989
 
Foreign governments
   
12,291
     
2
     
(18
)
   
12,275
 
Total Fixed Maturity Debt Securities
 
$
118,065
   
$
7
   
$
(100
)
 
$
117,972
 
 
15

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

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

The following tables summarize the Company’s gross unrealized losses in fixed maturity securities as of September 30, 2022 and December 31, 2021:
 
         
September 30, 2022
       
   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
Corporate bonds
 
$
16,030
   
$
(47
)
 
$
133
   
$
(16
)
 
$
16,163
   
$
(63
)
Municipal bonds
   
3,379
     
(3
)
   
128
     
(12
)
   
3,507
     
(15
)
Commercial paper
   
8,376
     
0
     
     
     
8,376
     
0
 
Foreign governments
   
183
     
(78
)
   
88
     
(32
)
   
271
     
(110
)
Total Fixed Maturity Debt Securities
 
$
27,968
   
$
(128
)
 
$
349
   
$
(60
)
 
$
28,317
   
$
(188
)
 
         
December 31, 2021
       
   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
Corporate bonds
 
$
56,902
   
$
(69
)
 
$
376
   
$
(3
)
 
$
57,278
   
$
(72
)
Municipal bonds
 
$
19,945
   
$
(7
)
 
$
340
   
$
(3
)
 
$
20,285
   
$
(10
)
Foreign governments
 
$
12,152
   
$
(18
)
 
$
   
$
   
$
12,152
   
$
(18
)
Total Fixed Maturity Debt Securities
 
$
88,999
   
$
(94
)
 
$
716
   
$
(6
)
 
$
89,715
   
$
(100
)

Unrealized losses shown in the tables above are believed to be temporary. Fair value of investments in fixed maturity debt securities change and are based primarily on market rates. As of September 30, 2022, the Company’s fixed maturity portfolio had 13 securities with gross unrealized losses totaling $(60) that had been in loss positions in excess of 12 months and 21 securities with gross unrealized losses totaling $(128) that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $(43), or 69.3% of its amortized cost. As of December 31, 2021, the Company’s fixed maturity portfolio had 23 securities with gross unrealized losses totaling $(6) that had been in loss positions in excess of 12 months and 106 securities with gross unrealized losses totaling $(94) that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $12 (actual), or 0.4% of its amortized cost.
 
The following tables summarize cost and fair values of the Company’s investments in equity securities as of September 30, 2022 and December 31, 2021:
 
   
September 30, 2022
 
 
Cost
   
Fair Value
 
Equity securities
 
$
425
   
$
461
 
 
16

Table of Contents
CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
   
December 31, 2021
 
 
Cost
   
Fair Value
 
Equity securities
 
$
432
   
$
558
 
 
Proceeds from sales and maturities, gross realized gains, gross realized losses and net realized gains (losses) from sales and maturities of fixed maturity securities for the nine months ended September 30, 2022 and 2021 consisted of the following:
 
   
September 30, 2022
 
 
Proceeds
   
Gross
Realized
Gains
   
Gross
Realized
Losses
   
Net
Realized
Gain
 
Fixed maturity debt securities
 
$
152,753
   
$
14
   
$
   
$
14
 
Equity securities
   
5
     
     
     
 
Total Marketable Securities
 
$
152,758
   
$
14
   
$
   
$
14
 
 
   
September 30, 2021
 
 
Proceeds
   
Gross
Realized
Gains
   
Gross
Realized
Losses
   
Net
Realized
Gain
 
Fixed maturity debt securities
 
$
212,822
   
$
7
   
$
(2
)
 
$
5
 
Equity securities
   
1
     
     
     
 
Total Marketable Securities
 
$
212,823
   
$
7
   
$
(2
)
 
$
5
 

Note 6 — Fair Value of Financial Instruments
 
Items Measured at Fair Value on a Recurring Basis
 
As of September 30, 2022 and December 31, 2021, the Company held certain assets and liabilities that were required to be measured at fair value on a recurring basis.
 
The following tables are summaries of fair value measurements and hierarchy level as of:
 
 
September 30, 2022
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
 
   
   
   
 
Money market funds
 
$
   
$
   
$
   
$
 
Equity securities
   
461
     
     
     
461
 
Fixed maturity debt securities, including cash equivalents
   
     
60,034
     
     
60,034
 
Total Assets
 
$
461
   
$
60,034
   
$
   
$
60,495
 
Liabilities:
 
   
   
   
 
Merger warrants liability
   
423
     
252
     
     
675
 
Earnout shares liability
   
     
     
722
     
722
 
Total Liabilities
 
$
423
   
$
252
   
$
722
   
$
1,397
 
 
17

Table of Contents
CarLotz, Inc. and Subsidiaries — Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
 
December 31, 2021
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
 
   
   
   
 
Money market funds
 
$
   
$
   
$
   
$
 
Equity securities
   
558
     
     
     
558
 
Fixed maturity debt securities
   
     
135,346
     
     
135,346
 
Total Assets
 
$
558
   
$
135,346
   
$
   
$
135,904
 
Liabilities:
 
   
   
   
 
Merger warrants liability
 
$
3,941
   
$
2,350
   
$
   
$
6,291
 
Earnout shares liability
   
     
     
7,679
     
7,679
 
Total Liabilities
 
$
3,941
   
$
2,350
   
$
7,679
   
$
13,970
 

Money market funds consist of highly liquid investments with original maturities of three months or less and classified in restricted cash in the accompanying condensed consolidated balance sheets.
 
The Company recognizes transfers between the levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between the levels during the nine months ended September 30, 2022 and 2021.
 
The following tables set forth a summary of changes in the estimated fair value of the Company’s Level 3 redeemable convertible preferred stock tranche obligation, historic warrants liability and earnout shares for the nine months ended September 30, 2022 and 2021:
 
 
January 1,
2022
   
Issuances
   
Settlements
   
Change in
fair value
   
September 30,
2022
 
Earnout shares
   
7,679
     
     
     
(6,957
)
   
722
 
Total
 
$
7,679
   
$
   
$
   
$
(6,957
)
 
$
722
 

 
January 1,
2021
   
Issuances
   
Settlements
   
Change in
fair value
   
September 30,
2021
 
Redeemable convertible preferred stock tranche obligation
 
$
2,832
   
$
   
$
(2,832
)
 
$
   
$
 
Historic warrants liability
   
144
     
     
(144
)
   
     
 
Earnout shares
   
     
74,284
     
     
(56,621
)
   
17,663
 
Total
 
$
2,976
   
$
74,284
   
$
(2,976
)
 
$
(56,621
)
 
$
17,663
 

The fair value of the earnout shares was estimated by using a model based on previous Monte-Carlo simulation models. The inputs into the Monte-Carlo pricing model included significant unobservable inputs. The table below summarizes the significant observable inputs used when valuing the earnout shares as of:
 
 
September 30, 2022
   
September 30, 2021
 
Expected volatility
   
120.00
%
   
80.00
%
Starting stock price
 
$
0.30
   
$
3.81
 
Expected term (in years)
 
3.3 years
   
4.30 years
 
Risk-free interest rate
   
4.25
%
   
0.79
%
Earnout hurdle
 
$
12.50-$15.00
   
$
12.50-$15.00
 
 
18

Table of Contents
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.

The Company has entered a $25,000 floor plan credit facility with Ally Financial. The carrying value of the Ally Financial floor plan notes payable outstanding as of September 30, 2022 approximates fair value due to its variable interest rate determined to approximate current market rates.
 
Note 7 — Accounts Receivable, Net
 
The following table summarizes accounts receivable as of:
 
 
September 30,
2022
   
December 31,
2021
 
Contracts in transit
 
$
3,974
   
$
7,540
 
Trade
   
962
     
386
 
Finance commission
   
193
     
284
 
Other
   
614
     
296
 
Total
   
5,743
     
8,506
 
Allowance for doubtful accounts
   
(957
)
   
(300
)
Total Accounts Receivable, net
 
$
4,786
   
$
8,206
 
 
Note 8 — Inventory and Floor Plan Notes Payable
 
The following table summarizes inventory as of:
 
 
September 30,
2022
   
December 31,
2021
 
Used vehicles
 
$
13,062
   
$
40,739
 
Parts
   
     
246