UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q/A~~

~~(Amendment No. 1)~~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 ~~June~~September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-38818

CarLotz, Inc.

(Exact name of registrant as specified in its charter)


Delaware			83-2456129
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
611 Bainbridge Street, Suite 100	Richmond	Virginia	23224
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (804) 728-3833

Securities registered pursuant to Section 12(b) of the Act:


Title of each 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 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

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 x

The registrant had outstanding ~~113,670,060~~113,982,884 shares of Class A common stock as of ~~August 9,~~November 8, 2021.

~~TABLE OF CONTENTS~~

~~EXPLANATORY NOTE~~

CarLotz, Inc. is filing this Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) to amend its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 filed with the Securities and Exchange Commission on August 9, 2021 (the “Original Report”). The purpose of this Form 10-Q/A is to correct statements with respect to same-hub retail unit sales in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations to reflect that the statements refer to the percentage of the Company’s period-over-period increase in retail unit sales that was attributable to same-hub retail unit sales rather than stating that the percentages represented the percentage of the total increase in retail units associated with same-hub retail unit sales with the balance of the increase coming from hubs opened in 2021.

For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, in its entirety, as amended to reflect the corrections described above. Accordingly, this Form 10-Q/A does not reflect events occurring after the filing of the Original Filing or modify or update those disclosures affected by subsequent events. Information not affected by the corrections referred to above is unchanged and reflects disclosures made at the time of the filing of the Original Filing.

In accordance with applicable SEC rules, this Form 10-Q/A includes new certifications required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended, from the Company’s Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Form 10-Q/A.

TABLE OF CONTENTS

CarLotz, Inc.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Assets	Assets					Assets
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	83,576	$	2,208	Cash and cash equivalents	$	57,504	$	2,208
Restricted cash	Restricted cash	226		605		Restricted cash	214		605
Marketable securities – at fair value	Marketable securities – at fair value	175,424		1,032		Marketable securities – at fair value	143,460		1,032
Accounts receivable, net	Accounts receivable, net	5,411		4,132		Accounts receivable, net	8,833		4,132
Inventories	Inventories	47,469		11,202		Inventories	58,142		11,202
Other current assets	Other current assets	6,253		6,679		Other current assets	9,201		6,679
Total Current Assets	Total Current Assets	318,359		25,858		Total Current Assets	277,354		25,858
Marketable securities – at fair value	Marketable securities – at fair value	3,481		0		Marketable securities – at fair value	2,432		—
Property and equipment, net	Property and equipment, net	11,662		1,868		Property and equipment, net	15,516		1,868
Capitalized website and internal-use software costs, net	Capitalized website and internal-use software costs, net	9,898		0		Capitalized website and internal-use software costs, net	12,555		—
Lease vehicles, net	Lease vehicles, net	337		173		Lease vehicles, net	877		173
Other assets	Other assets	4,390		299		Other assets	4,566		299
Total Assets	Total Assets	$	348,127	$	28,198	Total Assets	$	313,300	$	28,198
Liabilities, Redeemable Convertible Preferred Stock, Stockholders’ Equity (Deficit)	Liabilities, Redeemable Convertible Preferred Stock, Stockholders’ Equity (Deficit)					Liabilities, Redeemable Convertible Preferred Stock, Stockholders’ Equity (Deficit)
Current Liabilities:	Current Liabilities:					Current Liabilities:
Long-term debt, current	Long-term debt, current	$	212	$	6,370	Long-term debt, current	$	397	$	6,370
Floor plan notes payable	Floor plan notes payable	29,427		6,039		Floor plan notes payable	24,284		6,039
Accounts payable	Accounts payable	8,782		6,283		Accounts payable	9,824		6,283
Accrued transaction expenses	Accrued transaction expenses	0		6,052		Accrued transaction expenses	—		6,052
Accrued expenses	Accrued expenses	13,238		3,563		Accrued expenses	10,902		3,563
Accrued expenses – related party	Accrued expenses – related party	0		5,082		Accrued expenses – related party	—		5,082
Other current liabilities	Other current liabilities	5,425		256		Other current liabilities	638		256
Total Current Liabilities	Total Current Liabilities	57,084		33,645		Total Current Liabilities	46,045		33,645
Long-term debt, less current portion	Long-term debt, less current portion	7,579		2,999		Long-term debt, less current portion	8,706		2,999
Redeemable convertible preferred stock tranche obligation	Redeemable convertible preferred stock tranche obligation	0		2,832		Redeemable convertible preferred stock tranche obligation	—		2,832
Earnout shares liability	Earnout shares liability	30,228		0		Earnout shares liability	17,663		—
Merger warrants liability	Merger warrants liability	26,341		0		Merger warrants liability	14,231		—
Other liabilities	Other liabilities	1,232		1,959		Other liabilities	1,061		1,959
Total Liabilities	Total Liabilities	122,464		41,435		Total Liabilities	87,706		41,435
Commitments and Contingencies (Note 15)	Commitments and Contingencies (Note 15)	0		0		Commitments and Contingencies (Note 15)	—		—
Redeemable Convertible Preferred Stock:	Redeemable Convertible Preferred Stock:					Redeemable Convertible Preferred Stock:
Series A Preferred Stock, $0.001 stated value; authorized 3,052,127 shares; after recapitalization there are no preferred shares issued or outstanding at June 30, 2021 and December 31, 2020		0		0
Series A Preferred Stock, $0.0001 stated value; authorized 10,000,000 shares; after recapitalization there are no preferred shares issued or outstanding at September 30, 2021 and December 31, 2020						Series A Preferred Stock, $0.0001 stated value; authorized 10,000,000 shares; after recapitalization there are no preferred shares issued or outstanding at September 30, 2021 and December 31, 2020	—		—
Stockholders’ Equity (Deficit):	Stockholders’ Equity (Deficit):					Stockholders’ Equity (Deficit):
Common stock, $0.0001 par value; 500,000,000 authorized shares, 113,670,060 and 58,621,042 shares issued and outstanding at June 30, 2021 and December 31, 2020		11		6
Common stock, $0.0001 par value; 500,000,000 authorized shares, 113,707,013 and 58,621,042 shares issued and outstanding at September 30, 2021 and December 31, 2020						Common stock, $0.0001 par value; 500,000,000 authorized shares, 113,707,013 and 58,621,042 shares issued and outstanding at September 30, 2021 and December 31, 2020	11		6
Additional paid-in capital	Additional paid-in capital	281,976		20,779		Additional paid-in capital	285,423		20,779
Accumulated deficit	Accumulated deficit	(56,264)		(34,037)		Accumulated deficit	(59,740)		(34,037)
Accumulated other comprehensive income (loss)		(60)		15
Treasury stock, $0.001 par value; after recapitalization there are no treasury shares issued or outstanding at June 30, 2021 and December 31, 2020		0		0
Accumulated other comprehensive (loss) income						Accumulated other comprehensive (loss) income	(100)		15
Treasury stock, $0.001 par value; after recapitalization there are no treasury shares issued or outstanding at September 30, 2021 and December 31, 2020						Treasury stock, $0.001 par value; after recapitalization there are no treasury shares issued or outstanding at September 30, 2021 and December 31, 2020	—		—
Total Stockholders’ Equity (Deficit)	Total Stockholders’ Equity (Deficit)	225,663		(13,237)		Total Stockholders’ Equity (Deficit)	225,594		(13,237)
Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	$	348,127	$	28,198	Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	$	313,300	$	28,198

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Revenues:	Revenues:									Revenues:
Retail vehicle sales	Retail vehicle sales	$	44,230	$	23,652	$	94,613	$	44,694	Retail vehicle sales	$	56,284	$	26,694	$	150,897	$	71,388
Wholesale vehicle sales	Wholesale vehicle sales	4,660		1,725		9,228		5,036		Wholesale vehicle sales	8,989		2,088		18,217		7,124
Finance and insurance, net	Finance and insurance, net	1,780		895		3,334		1,787		Finance and insurance, net	2,639		910		5,973		2,697
Lease income, net	Lease income, net	98		127		205		272		Lease income, net	129		101		334		373
Total Revenues	Total Revenues	50,768		26,399		107,380		51,789		Total Revenues	68,041		29,793		175,421		81,582
Cost of sales (exclusive of depreciation)	Cost of sales (exclusive of depreciation)	46,586		23,670		101,190		46,588		Cost of sales (exclusive of depreciation)	66,017		26,217		167,207		72,805
Gross Profit	Gross Profit	4,182		2,729		6,190		5,201		Gross Profit	2,024		3,576		8,214		8,777
Operating Expenses:	Operating Expenses:									Operating Expenses:
Selling, general and administrative	Selling, general and administrative	19,386		3,073		38,259		6,989		Selling, general and administrative	24,780		4,147		63,039		11,136
Stock-based compensation expense	Stock-based compensation expense	3,704		3		45,667		37		Stock-based compensation expense	3,447		—		49,114		37
Depreciation and amortization expense	Depreciation and amortization expense	95		91		478		191		Depreciation and amortization expense	1,214		78		1,692		269
Management fee expense – related party	Management fee expense – related party	0		70		2		132		Management fee expense – related party	—		63		2		195
Total Operating Expenses	Total Operating Expenses	23,185		3,237		84,406		7,349		Total Operating Expenses	29,441		4,288		113,847		11,637
Loss from Operations	Loss from Operations	(19,003)		(508)		(78,216)		(2,148)		Loss from Operations	(27,417)		(712)		(105,633)		(2,860)
Interest expense	Interest expense	184		107		359		256		Interest expense	650		104		1,009		360
Other Income, net	Other Income, net									Other Income, net
Change in fair value of Merger warrants liability	Change in fair value of Merger warrants liability	325		0		12,683		0		Change in fair value of Merger warrants liability	12,111		—		24,794		—
Change in fair value of redeemable convertible preferred stock tranche obligation	Change in fair value of redeemable convertible preferred stock tranche obligation	0		345		0		629		Change in fair value of redeemable convertible preferred stock tranche obligation	—		333		—		962
Change in fair value of earnout provision		12,210		0		44,056		0
Change in fair value of earnout shares										Change in fair value of earnout shares	12,565		—		56,621		—
Other income (expense)	Other income (expense)	(553)		61		(391)		64		Other income (expense)	(85)		(6)		(476)		58
Total Other Income, net	Total Other Income, net	11,982		406		56,348		693		Total Other Income, net	24,591		327		80,939		1,020
Loss Before Income Tax Expense	Loss Before Income Tax Expense	(7,205)		(209)		(22,227)		(1,711)		Loss Before Income Tax Expense	(3,476)		(489)		(25,703)		(2,200)
Income tax expense	Income tax expense	0		4		0		9		Income tax expense	—		3		—		12
Net Loss	Net Loss	$	(7,205)	$	(213)	$	(22,227)	$	(1,720)	Net Loss	$	(3,476)	$	(492)	$	(25,703)	$	(2,212)
Net Loss per Share, basic and diluted	Net Loss per Share, basic and diluted	$	(0.06)	$	0.00	$	(0.21)	$	(0.03)	Net Loss per Share, basic and diluted	$	(0.03)	$	(0.01)	$	(0.23)	$	(0.04)
Weighted-average Shares used in Computing Net Loss per Share, basic and diluted	Weighted-average Shares used in Computing Net Loss per Share, basic and diluted	113,670,060		58,621,041		107,279,227		58,621,041		Weighted-average Shares used in Computing Net Loss per Share, basic and diluted	113,707,013		58,621,041		109,447,939		58,621,041

See notes to condensed consolidated financial statements.

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive ~~Income~~ (Loss)

(Unaudited)

(In thousands)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Net loss	Net loss	$	(7,205)	$	(213)	$	(22,227)	$	(1,720)	Net loss	$	(3,476)	$	(492)	$	(25,703)	$	(2,212)
Other Comprehensive Income (Loss), net of tax:
Unrealized gains (losses) on marketable securities arising during the period		61		10		(70)		17
Other Comprehensive (Loss) Income, net of tax:										Other Comprehensive (Loss) Income, net of tax:
Unrealized (losses) gains on marketable securities arising during the period										Unrealized (losses) gains on marketable securities arising during the period	(40)		(3)		(110)		14
Tax effect	Tax effect	0		(4)		0		(4)		Tax effect	—		4		—		—
Unrealized gains (losses) on marketable securities arising during the period, net of tax		61		6		(70)		13
Unrealized (losses) gains on marketable securities arising during the period, net of tax										Unrealized (losses) gains on marketable securities arising during the period, net of tax	(40)		1		(110)		14
Reclassification adjustment for realized losses	Reclassification adjustment for realized losses	(5)		0		(5)		(3)		Reclassification adjustment for realized losses	—		5		(5)		2
Tax effect	Tax effect	0		1		0		1		Tax effect	—		(1)		—		—
Reclassification adjustment for realized losses, net of tax	Reclassification adjustment for realized losses, net of tax	(5)		1		(5)		(2)		Reclassification adjustment for realized losses, net of tax	—		4		(5)		2
Other Comprehensive Income (Loss), net of tax		56		7		(75)		11
Total Comprehensive Income (Loss)		$	(7,149)	$	(206)	$	(22,302)	$	(1,709)
Other Comprehensive (Loss) Income, net of tax										Other Comprehensive (Loss) Income, net of tax	(40)		5		(115)		16
Total Comprehensive (Loss)										Total Comprehensive (Loss)	$	(3,516)	$	(487)	$	(25,818)	$	(2,196)

See notes to condensed consolidated financial statements.

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020

(Unaudited)

(In thousands, except share data)


		Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital				Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)				Stockholders’ Equity (Deficit)				Redeemable Convertible Preferred Stock								Common Stock				Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Stockholders’ Equity (Deficit)
		Shares	Amount		Shares	Amount								Shares								Amount					Shares		Amount
Balance December 31, 2020	Balance December 31, 2020	2,034,751	$	17,560	37,881,435	$	4			$	3,221						$	(34,037)			$	15		$	(30,797)	Balance December 31, 2020		2,034,751		$	17,560			37,881,435			$	4			$	3,221			$	(34,037)			$	15	$	(30,797)
Retroactive application of recapitalization	Retroactive application of recapitalization	(2,034,751)	(17,560)		20,739,607	2		17,558				0			0				17,560			Retroactive application of recapitalization	(2,034,751)			(17,560)					20,739,607	2				17,558				—				—				17,560
Adjusted balance, beginning of period	Adjusted balance, beginning of period	0	0		58,621,042	6		20,779				(34,037)			15				(13,237)			Adjusted balance, beginning of period	—			—					58,621,042	6			20,779				(34,037)				15				(13,237)
Net loss	Net loss	—	—		—	—		—				(15,022)			—				(15,022)			Net loss	—			—					—	—			—				(15,022)				—				(15,022)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—	—		—				—			(131)				(131)			Other comprehensive income, net of tax	—			—					—	—			—				—				(131)				(131)
Accrued dividends on redeemable convertible preferred stock	Accrued dividends on redeemable convertible preferred stock	—	—		—	—		(19)				—			—				(19)			Accrued dividends on redeemable convertible preferred stock	—			—					—	—			(19)				—				—				(19)
PIPE issuance	PIPE issuance	—	—		12,500,000	1		124,999				—			—				125,000			PIPE issuance	—			—					12,500,000	1			124,999				—				—				125,000
Merger financing	Merger financing	—	—		38,194,390	4		309,995				—			—				309,999			Merger financing	—			—					38,194,390	4			309,995				—				—				309,999
Consideration to existing shareholders of Former CarLotz, net of accrued dividends	Consideration to existing shareholders of Former CarLotz, net of accrued dividends	—	—		—	—		(62,693)				—			—				(62,693)			Consideration to existing shareholders of Former CarLotz, net of accrued dividends	—			—					—	—			(62,693)				—				—				(62,693)
Transaction costs and advisory fees	Transaction costs and advisory fees	—	—		—	—		(47,579)				—			—				(47,579)			Transaction costs and advisory fees	—			—					—	—			(47,579)				—				—				(47,579)
Settlement of redeemable convertible preferred stock tranche obligation	Settlement of redeemable convertible preferred stock tranche obligation	—	—		—	—		2,832				—			—				2,832			Settlement of redeemable convertible preferred stock tranche obligation	—			—					—	—			2,832				—				—				2,832
Cashless exercise of options	Cashless exercise of options	—	—		54,717	—		—				—			—				—			Cashless exercise of options	—			—					54,717	—			—				—				—				—
Cash consideration paid to Former Carlotz optionholders	Cash consideration paid to Former Carlotz optionholders	—	—		—	—		(2,465)				—			—				(2,465)			Cash consideration paid to Former Carlotz optionholders	—			—					—	—			(2,465)				—				—				(2,465)
Stock-based compensation	Stock-based compensation	—	—		—	—		41,963				—			—				41,963			Stock-based compensation	—			—					—	—			41,963				—				—				41,963
Earnout liability	Earnout liability	—	—		—	—		(74,284)				—			—				(74,284)			Earnout liability	—			—					—	—			(74,284)				—				—				(74,284)
Merger warrants liability	Merger warrants liability	—	—		—	—		(39,025)				—			—				(39,025)			Merger warrants liability	—			—					—	—			(39,025)				—				—				(39,025)
KAR/AFC note payable conversion	KAR/AFC note payable conversion	—	—		3,546,984	—		3,625				—			—				3,625			KAR/AFC note payable conversion	—			—					3,546,984	—			3,625				—				—				3,625
KAR/AFC warrant exercise	KAR/AFC warrant exercise	—	—		752,927	—		144				—			—				144			KAR/AFC warrant exercise	—			—					752,927	—			144				—				—				144
Balance March 31, 2021	Balance March 31, 2021	0	$	0	113,670,060	$	11	$	278,272			$	(49,059)		$	(116)			$	229,108		Balance March 31, 2021	—			$	—				113,670,060	$	11		$	278,272			$	(49,059)			$	(116)			$	229,108
Net loss	Net loss	—	—		—	—		—				(7,205)			—				(7,205)			Net loss	—			—					—	—			—				(7,205)				—				(7,205)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—	—		—				—			56				56			Other comprehensive income, net of tax	—			—					—	—			—				—				56				56
Stock-based compensation	Stock-based compensation	—	—		—	—		3,704				—			—				3,704			Stock-based compensation	—			—					—	—			3,704				—				—				3,704
Balance June 30, 2021	Balance June 30, 2021	0	$	0	113,670,060	$	11	$	281,976			$	(56,264)		$	(60)			$	225,663		Balance June 30, 2021	—			$	—				113,670,060	$	11		$	281,976			$	(56,264)			$	(60)			$	225,663
Net loss																						Net loss	—			—					—	—			—				(3,476)				—				(3,476)
Other comprehensive income, net of tax																						Other comprehensive income, net of tax	—			—					—	—			—				—				(40)				(40)
Stock-based compensation																						Stock-based compensation	—			—					—	—			3,447				—				—				3,447
Issuance of Class A common stock to settle vested restricted stock units																						Issuance of Class A common stock to settle vested restricted stock units	—			—					36,953	—			—				—				—				—
Balance September 30, 2021																						Balance September 30, 2021	—			$	—				113,707,013	$	11		$	285,423			$	(59,740)			$	(100)			$	225,594

See notes to condensed consolidated financial statements.


		Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital				Accumulated Deficit			Accumulated Other Comprehensive Income				Stockholders’ Equity (Deficit)				Redeemable Convertible Preferred Stock								Common Stock				Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Income				Stockholders’ Equity (Deficit)
		Shares	Amount		Shares	Amount								Shares								Amount					Shares		Amount
Balance January 1, 2020	Balance January 1, 2020	2,034,751	$	17,560	37,881,435	$	4			$	5,060						$	(27,485)			$	—		$	(22,421)	Balance January 1, 2020		2,034,751		$	17,560			37,881,435			$	4			$	5,060			$	(27,485)			$	—	$	(22,421)
Retroactive application of recapitalization	Retroactive application of recapitalization	(2,034,751)	(17,560)		20,739,607	2		17,558				0			—				17,560			Retroactive application of recapitalization	(2,034,751)			(17,560)					20,739,607	2				17,558				—				—				17,560
Adjusted balance, beginning of period	Adjusted balance, beginning of period	0	0		58,621,042	6		22,618				(27,485)			—				(4,861)			Adjusted balance, beginning of period	—			—					58,621,042	6			22,618				(27,485)				—				(4,861)
Net loss	Net loss	—	—		—	—		—				(1,507)			—				(1,507)			Net loss	—			—					—	—			—				(1,507)				—				(1,507)
Redeemable convertible preferred stock issuance	Redeemable convertible preferred stock issuance	—	—		—	—		—				—			4				4			Redeemable convertible preferred stock issuance	—			—					—	—			—				—				4				4
Accrued dividends on redeemable convertible preferred stock	Accrued dividends on redeemable convertible preferred stock	—	—		—	—		(456)				—			—				(456)			Accrued dividends on redeemable convertible preferred stock	—			—					—	—			(456)				—				—				(456)
Stock-based compensation	Stock-based compensation	—	—		—	—		34				—			—				34			Stock-based compensation	—			—					—	—			34				—				—				34
Balance March 31, 2020	Balance March 31, 2020	0	$	0	58,621,042	$	6	$	22,196			$	(28,992)		$	4			$	(6,786)		Balance March 31, 2020	—			$	—				58,621,042	$	6		$	22,196			$	(28,992)			$	4			$	(6,786)
Net loss	Net loss	—	—		—	—		—				(213)			—				(213)			Net loss	—			—					—	—			—				(213)				—				(213)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—	—		—				—			7				7			Other comprehensive income, net of tax	—			—					—	—			—				—				7				7
Accrued dividends on redeemable convertible preferred stock	Accrued dividends on redeemable convertible preferred stock	—	—		—	—		(466)				—			—				(466)			Accrued dividends on redeemable convertible preferred stock	—			—					—	—			(466)				—				—				(466)
Stock-based compensation	Stock-based compensation	—	—		—	—		3				—			—				3			Stock-based compensation	—			—					—	—			3				—				—				3
Balance June 30, 2020	Balance June 30, 2020	0	$	0	58,621,042	$	6	$	21,733			$	(29,205)		$	11			$	(7,455)		Balance June 30, 2020	—			$	—				58,621,042	$	6		$	21,733			$	(29,205)			$	11			$	(7,455)
Net loss																						Net loss	—			—					—	—			—				(492)				—				(492)
Other comprehensive income, net of tax																						Other comprehensive income, net of tax	—			—					—	—			—				—				5				5
Accrued dividends on redeemable convertible preferred stock																						Accrued dividends on redeemable convertible preferred stock	—			—					—	—			(477)				—				—				(477)
Stock-based compensation																						Stock-based compensation	—			—					—	—			—				—				—				—
Balance September 30, 2020																						Balance September 30, 2020	—			$	—				58,621,042	$	6		$	21,256			$	(29,697)			$	16			$	(8,419)

See notes to condensed consolidated financial statements.

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2021		2020			2021		2020
Cash Flow from Operating Activities	Cash Flow from Operating Activities					Cash Flow from Operating Activities
Net loss	Net loss	$	(22,227)	$	(1,720)	Net loss	$	(25,703)	$	(2,212)
Adjustments to reconcile net loss to net cash used in operating activities	Adjustments to reconcile net loss to net cash used in operating activities					Adjustments to reconcile net loss to net cash used in operating activities
Depreciation – property and equipment		448		101
Depreciation and amortization – property and equipment and capitalized software						Depreciation and amortization – property and equipment and capitalized software	1,623		148
Amortization and accretion - marketable securities	Amortization and accretion - marketable securities	788		0		Amortization and accretion - marketable securities	1,712		—
Depreciation – lease vehicles	Depreciation – lease vehicles	30		90		Depreciation – lease vehicles	69		121

Loss on marketable securities	Loss on marketable securities	0		(3)		Loss on marketable securities	—		(13)
Provision for doubtful accounts	Provision for doubtful accounts	0		6		Provision for doubtful accounts	85		5
Stock-based compensation expense	Stock-based compensation expense	45,667		37		Stock-based compensation expense	49,114		37
Change in fair value of Merger warrants liability	Change in fair value of Merger warrants liability	(12,683)		0		Change in fair value of Merger warrants liability	(24,794)		—
Change in fair value of historic warrants liability	Change in fair value of historic warrants liability	0		(31)		Change in fair value of historic warrants liability	—		(30)
Change in fair value of earnout shares	Change in fair value of earnout shares	(44,056)		0		Change in fair value of earnout shares	(56,621)		—
Change in fair value of debt issuance costs and stock warrant	Change in fair value of debt issuance costs and stock warrant	0		12		Change in fair value of debt issuance costs and stock warrant	—		18
Change in fair value of redeemable convertible preferred stock tranche obligation	Change in fair value of redeemable convertible preferred stock tranche obligation	0		(629)		Change in fair value of redeemable convertible preferred stock tranche obligation	—		(962)
Unpaid interest expense on capital lease obligations						Unpaid interest expense on capital lease obligations	199		—
Change in Operating Assets and Liabilities:	Change in Operating Assets and Liabilities:					Change in Operating Assets and Liabilities:
Accounts receivable	Accounts receivable	(1,279)		(336)		Accounts receivable	(4,786)		290
Inventories	Inventories	(36,117)		5,064		Inventories	(46,774)		(602)
Other current assets	Other current assets	(5,466)		(39)		Other current assets	(8,414)		(247)
Other assets	Other assets	(4,091)		5		Other assets	(4,267)		28
Accounts payable	Accounts payable	2,499		719		Accounts payable	3,541		893
Accrued expenses	Accrued expenses	6,187		1,048		Accrued expenses	5,441		771
Accrued expenses – related party	Accrued expenses – related party	(229)		13		Accrued expenses – related party	(229)		75
Other current liabilities	Other current liabilities	447		117		Other current liabilities	382		(115)
Other liabilities	Other liabilities	(582)		248		Other liabilities	(753)		756
Net Cash (Used in)/Provided by Operating Activities		(70,664)		4,702
Net Cash Used in Operating Activities						Net Cash Used in Operating Activities	(110,175)		(1,039)
Cash Flows from Investing Activities	Cash Flows from Investing Activities					Cash Flows from Investing Activities
Purchase of property and equipment	Purchase of property and equipment	(3,548)		(14)		Purchase of property and equipment	(6,766)		(37)
Capitalized website and internal-use software costs	Capitalized website and internal-use software costs	(6,601)		0		Capitalized website and internal-use software costs	(11,511)		—
Purchase of marketable securities	Purchase of marketable securities	(307,560)		(711)		Purchase of marketable securities	(359,381)		(999)
Proceeds from sales of marketable securities	Proceeds from sales of marketable securities	128,954		21		Proceeds from sales of marketable securities	212,823		53
Purchase of lease vehicles	Purchase of lease vehicles	(344)		(87)		Purchase of lease vehicles	(939)		(76)
Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(189,099)		(791)		Net Cash Used in Investing Activities	(165,774)		(1,059)
Cash Flows from Financing Activities	Cash Flows from Financing Activities					Cash Flows from Financing Activities

Payments made on long-term debt	Payments made on long-term debt	(18)		(5)		Payments made on long-term debt	(51)		(7)
Advance from holder of marketable securities	Advance from holder of marketable securities	4,722		0		Advance from holder of marketable securities	4,722		—
Repayment of advance from marketable securities						Repayment of advance from marketable securities	(4,722)		—
PIPE issuance	PIPE issuance	125,000		0		PIPE issuance	125,000		—
Merger financing	Merger financing	309,999		0		Merger financing	309,999		—
Payment made on accrued dividends	Payment made on accrued dividends	(4,853)		0		Payment made on accrued dividends	(4,853)		—
Payments to existing shareholders of Former CarLotz	Payments to existing shareholders of Former CarLotz	(62,693)		0		Payments to existing shareholders of Former CarLotz	(62,693)		—
Transaction costs and advisory fees		(47,579)		0
Payments made on cash considerations associated with stock options		(2,465)		0

See notes to condensed consolidated financial statements.


Transaction costs and advisory fees						Transaction costs and advisory fees	(47,579)		—
Payments made on cash considerations associated with stock options						Payments made on cash considerations associated with stock options	(2,465)		—
Repayment of Paycheck Protection Program loan	Repayment of Paycheck Protection Program loan	(1,749)		0		Repayment of Paycheck Protection Program loan	(1,749)		—
Payments made on note payable	Payments made on note payable	(3,000)		0		Payments made on note payable	(3,000)		—
Borrowings on long-term debt	Borrowings on long-term debt	0		2,249		Borrowings on long-term debt	—		2,249
Payments on floor plan notes payable	Payments on floor plan notes payable	(29,056)		(13,394)		Payments on floor plan notes payable	(109,034)		(16,877)
Borrowings on floor plan notes payable	Borrowings on floor plan notes payable	52,444		8,598		Borrowings on floor plan notes payable	127,279		16,834
Net Cash Provided by/( Used in) Financing Activities		340,752		(2,552)
Net Cash Provided by Financing Activities						Net Cash Provided by Financing Activities	330,854		2,199
Net Change in Cash and Cash Equivalents Including Restricted Cash	Net Change in Cash and Cash Equivalents Including Restricted Cash	80,989		1,359		Net Change in Cash and Cash Equivalents Including Restricted Cash	54,905		101
Cash and cash equivalents and restricted cash, beginning	Cash and cash equivalents and restricted cash, beginning	2,813		4,102		Cash and cash equivalents and restricted cash, beginning	2,813		4,102
Cash and cash equivalents and restricted cash, ending	Cash and cash equivalents and restricted cash, ending	$	83,802	$	5,461	Cash and cash equivalents and restricted cash, ending	$	57,718	$	4,203
Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information					Supplemental Disclosure of Cash Flow Information
Cash paid for interest	Cash paid for interest	$	490	$	307	Cash paid for interest	$	1,000	$	248
Supplementary Schedule of Non-cash Investing and Financing Activities:	Supplementary Schedule of Non-cash Investing and Financing Activities:					Supplementary Schedule of Non-cash Investing and Financing Activities:

Transfer from lease vehicles to inventory	Transfer from lease vehicles to inventory	$	150	$	199	Transfer from lease vehicles to inventory	$	166	$	199
Redeemable convertible preferred stock distributions accrued	Redeemable convertible preferred stock distributions accrued	0		923		Redeemable convertible preferred stock distributions accrued	—		1,399
Issuance of common stock warrants	Issuance of common stock warrants	0		15		Issuance of common stock warrants	—		15
KAR/AFC exercise of stock warrants	KAR/AFC exercise of stock warrants	(144)		0		KAR/AFC exercise of stock warrants	(144)		—
KAR/AFC conversion of notes payable	KAR/AFC conversion of notes payable	(3,625)		0		KAR/AFC conversion of notes payable	(3,625)		—
Convertible redeemable preferred stock tranche obligation expiration	Convertible redeemable preferred stock tranche obligation expiration	(2,832)		0		Convertible redeemable preferred stock tranche obligation expiration	(2,832)		—
Capitalized website and internal use software costs accrued	Capitalized website and internal use software costs accrued	(3,488)		0		Capitalized website and internal use software costs accrued	(1,898)		—
Purchases of property under capital lease obligation	Purchases of property under capital lease obligation	(6,504)		0		Purchases of property under capital lease obligation	(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 previously announced merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020 (as amended by Amendment No. 1, dated December 16, 2020, the “Merger Agreement”), by and among CarLotz, Inc. (f/k/a Acamar Partners Acquisition Corp.) (the “Company”), Acamar Partners Sub, Inc., a wholly owned subsidiary of CarLotz, Inc. (“Merger Sub”), and CarLotz Group, Inc. (f/k/a CarLotz, Inc.) (“Former CarLotz”), pursuant to which Merger Sub merged with and into Former CarLotz, with Former CarLotz surviving as the surviving company and as a wholly owned subsidiary of the Company.

The Company is a used vehicle consignment and Retail RemarketingTM company based in Richmond, Virginia. The Company ~~offers~~operates an innovative and one-of-a-kind consumer and commercial used vehicle consignment and sales business model, with an online marketplace and 1518 retail hub locations throughout the United States, including in California, Colorado, Georgia, Florida, Illinois, North Carolina, Tennessee, Texas, Virginia ~~Tennessee, California~~ and Washington State.

Subsidiaries are consolidated when the parent is deemed to have control over the subsidiaries’ operations.

Subsidiary Operations

CarLotz, Inc. owns 100% of CarLotz Group, Inc. (a Delaware corporation), which owns 100% of CarLotz, Inc. (an Illinois corporation), CarLotz Nevada, LLC (a Delaware LLC), CarLotz California, LLC (a California LLC), Orange Grove Fleet Solutions, LLC (a Virginia LLC), Orange Peel Protection Reinsurance Co. Ltd. (a Turks and Caicos Islands, British West Indies company) and Orange Peel LLC (a Virginia LLC), which owns 100% of Orange Peel Reinsurance, Ltd. (a Turks and Caicos Islands, British West Indies company).

Basis of Presentation

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

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

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

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

(Unaudited)

(In thousands, except share data)

historical operations of Former CarLotz are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Former CarLotz prior to the Merger, (ii) the combined results of the Company and Former CarLotz following the Merger on January 21, 2021, (iii) the assets and liabilities of Former CarLotz at their historical cost and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of Former CarLotz in connection with the Merger is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Merger transaction consistent with the treatment of the transaction as a reverse recapitalization of Former CarLotz.

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

The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes of Former CarLotz as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 (audited consolidated financial statements) ~~filed as Exhibit 99.1~~contained in Post-Effective Amendment No. 1 to ~~the Company’s Current Report~~our Registration Statement on Form ~~8-K/A~~S-1 filed with the SEC on ~~March 15,~~May 25, 2021. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited consolidated financial statements of Former CarLotz as of that date ~~filed as Exhibit 99.1~~contained in Post-Effective Amendment No. 1 to ~~the Company’s Current Report~~our Registration Statement on Form ~~8-K/A~~S-1 filed with the SEC on ~~March 15,~~May 25, 2021.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in management’s opinion, include all adjustments, which consist of only normal recurring adjustments, necessary for the fair statement of the Company’s condensed consolidated balance sheet as of ~~June~~September 30, 2021 and its results of operations for the ~~six~~three and nine months ended ~~June~~September 30, 2021 and 2020. The results for the ~~six~~three and nine months ended ~~June~~September 30, 2021 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.

Note 2 — Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2 to the audited consolidated financial statements.

During the ~~six~~nine months ended ~~June~~September 30, 2021, there were no significant revisions to the Company’s significant accounting policies, other than those indicated herein.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.

Following the closing of the Merger, Former CarLotz equity holders at the effective time of the Merger will have the contingent right to receive, in the aggregate, up to 7,500,000 shares of common stock if, from the closing of the Merger until the fifth anniversary thereof, the reported closing trading price of the common stock exceeds certain thresholds. Estimating the change in fair value of the earnout liability for the earnout shares that could be earned by Former CarLotz equity holders at the effective time of the Merger requires determining both the fair value valuation model to use and inputs to the valuation model. The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model, which is a commonly used valuation model for this type of transaction. Inputs that have a significant effect on the earnout shares valuation include the expected volatility, starting stock price, expected term, risk-free interest rate and the earnout hurdles. See Note 6 — Fair Value of Financial Instruments.

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

(Unaudited)

(In thousands, except share data)

Warrants that were issued by Acamar Partners (Merger warrants) and continue to exist following the closing of the Merger are accounted for as freestanding financial instruments. These warrants are classified as liabilities on the Company’s condensed

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

consolidated balance sheets and are recorded at their estimated fair value. The estimated fair value of the warrants is determined by using the market value in an active trading market.

Beginning in the first quarter of 2020, the World Health Organization declared the outbreak and spread of the COVID-19 virus a pandemic. The outbreak is disrupting supply chains and impacting production and sales across a wide range of industries. The full economic impact of this pandemic has not been determined, including the impact on the Company’s suppliers, customers and credit markets. Due to the evolving and uncertain nature of COVID-19, it is reasonably possible that it could materially impact the Company’s estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact will depend on numerous evolving factors that the Company may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and other economic and operational conditions the Company may face.

Restricted Cash

As of ~~June~~September 30, 2021 and December 31, 2020, restricted cash included approximately ~~$226~~$214 and $605, respectively. The restricted cash is legally and contractually restricted as collateral for ~~2 letters~~a letter of credit issued on behalf of CarLotz Group, Inc. and ~~of the reinsurance companies~~ for the payment of ~~claims.~~claims on the reinsurance companies.

Marketable Securities

The Company and its reinsurance subsidiaries invest excess cash in marketable securities in the ordinary course of conducting their operations and maintain a portfolio of marketable securities primarily comprised of fixed income debt securities. The Company has investments in marketable securities that are classified as available-for-sale securities and are reported at fair value. Unrealized gains and losses related to changes in the fair value of equity securities are recognized in other income (expense) in the Company’s condensed consolidated statements of operations. Unrealized gains and losses related to changes in the fair value of debt securities are recognized in Accumulated Other Comprehensive Income in the Company’s condensed consolidated balance sheets. Changes in the fair value of available-for-sale debt securities impact the Company’s net income only when such securities are sold or when other-than-temporary impairment is recognized. Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis and are recognized on the trade date.

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates the designations at each balance sheet date. The Company may sell certain of the Company’s marketable securities prior to their stated maturities for strategic reasons, including, but not limited to, anticipation of credit deterioration and duration management. The Company reviews its debt securities on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer and the Company’s intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized cost basis. If the Company believes that an other-than-temporary decline exists in one of these securities, the Company will write down these investments to fair value through earnings.

Capitalized website and internal-use software costs

The Company capitalizes costs associated with customized internal-use software systems that have reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for its intended purpose. Amortization is computed using the straight-line method over 3 years.

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

(Unaudited)

(In thousands, except share data)

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising costs are included in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations. Advertising expenses were approximately ~~$6,432~~$13,674 and ~~$940~~$1,406 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

Concentration of Credit Risk

Concentrations of credit risk with respect to accounts receivables are limited due to the large diversity and number of customers comprising the Company’s retail customer base.

Recently Issued Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Subsequently, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall. ASU 2016-01 requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. ASU 2016-01 is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company adopted ASU 2016-01 on January 1, 2019 for annual periods and on January 1, 2020 for interim periods within annual periods. The adoption of ASU 2016-01 did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard will affect all entities that lease assets and will require lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. ASU 2016-02, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, and early adoption is permitted. For leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. While the Company expects the adoption of this standard to result in an increase to the reported assets and liabilities, it has not yet determined the full impact the adoption of this standard will have on its financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. The Company is currently evaluating the impact of this standard to its financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, and early adoption is permitted. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. The Company adopted ASU 2018-13 on January 1, 2020, and the adoption of this standard did not have a material impact on the condensed consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

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

(Unaudited)

(In thousands, except share data)

The Company adopted ASU 2018-15 on January 1, 2020 for annual periods, and the adoption of this standard did not have a material impact on the condensed consolidated financial statements or related disclosures.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities, which addresses the cost and complexity of financial reporting associated with consolidation of variable interest entities (“VIE”). The new guidance must be applied on a retrospective basis as a ~~cumulative-~~

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

~~effect~~cumulative-effect adjustment as of the date of adoption. The Company adopted ASU 2018-17 on January 1, 2020, and the adoption of this standard did not have a material impact on the consolidated financial statements or related disclosures because the Company does not currently have any indirect interests through related parties under common control for which it receives decision making fees.

In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact of this standard on its financial statements.

Note 3 — Merger

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

The Merger is accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Acamar Partners was treated as the “acquired” company for financial reporting purposes (See Note 1 - Description of the Business). Accordingly, for accounting purposes, the Merger was treated as the equivalent of Former CarLotz issuing stock for the net assets of Acamar Partners, accompanied by a recapitalization.

Prior to the Merger, Former CarLotz and Acamar Partners filed separate standalone federal, state and local income tax returns. As a result of the Merger, structured as a reverse acquisition for tax purposes, Acamar Partners was renamed CarLotz, Inc. and became the parent of the consolidated filing group, with Former CarLotz as a subsidiary.


	Recapitalization
Cash - Acamar Partners’ trust and cash	$	309,999
Cash - PIPE	125,000
Less: consideration delivered to existing shareholders of Former CarLotz	(62,693)
Less: consideration to pay accrued dividends	(4,853)
Less: transaction costs and advisory fees paid	(47,579)
Less: payments on cash considerations associated with stock options	(2,465)
Net contributions from Merger and PIPE 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)

~~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 six months ended June 30, 2021:~~

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

(Unaudited)

(In thousands, except share data)

Merger warrants

The following is an analysis of the warrants to purchase shares of the Company’s stock deemed acquired as part of the Merger and outstanding during the nine months ended September 30, 2021:


			~~June~~September 30, 2021
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~~Date (the first business day following the end of such period, the “Forfeiture Date”), the closing trading price of the common stock is greater than $12.50 over any 20 trading days within any 30 trading day period (the “First Threshold”), the Company will issue 50% of the earnout shares.

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

iii.If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unissued earnout shares are forfeited. All unissued earnout shares will be issued if there is a change of control of the Company that will result in the holders of the common stock receiving a per share price equal to or in excess of $10.00 (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock) prior to the Forfeiture Date.

Before the contingency is met, the earnout shares will be classified as a liability under the FASB’s Accounting Standards Codification (“ASC”) Topic 815, so changes in the fair value of the earnout shares in future periods will be recognized in the statement of operations. The estimated fair value of the liability is determined by using a Monte-Carlo simulation model.

Note 4 — Revenue Recognition

Disaggregation of Revenue

The significant majority of the Company’s revenue is derived from contracts with customers related to the sales of vehicles. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. The Company has determined that these categories depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

~~The tables below include disaggregated revenue under ASC 606 (Revenue from Contracts with Customers~~):

Six Months Ended June 30, 2021
Vehicle Sales Fleet Management Total
Retail vehicle sales $ 94,613 $ — $ 94,613
Wholesale vehicle sales 9,228 — 9,228
Finance and insurance, net 3,334 — 3,334
Lease income, net — 205 205
Total Revenues $ 107,175 $ 205 $ 107,380

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

(Unaudited)

(In thousands, except share data)

Six Months Ended June 30, 2020
Vehicle Sales Fleet Management Total
Retail vehicle sales $ 44,694 $ — $ 44,694
Wholesale vehicle sales 5,036 — 5,036
Finance and insurance, net 1,787 — 1,787
Lease income, net — 272 272
Total Revenues $ 51,517 $ 272 $ 51,789
The tables below include disaggregated revenue under ASC 606 (Revenue from Contracts with Customers):


	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


	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Vehicle Sales		Fleet Management		Total		Vehicle Sales		Fleet Management		Total
Retail vehicle sales	$	26,694	$	—	$	26,694	$	71,388	$	—	$	71,388
Wholesale vehicle sales	2,088		—		2,088		7,124		—		7,124
Finance and insurance, net	$	910	$	—	$	910	2,697		—		2,697
Lease income, net	—		101		101		—		373		373
Total Revenues	$	29,692	$	101	$	29,793	$	81,209	$	373	$	81,582

The following table summarizes revenues and cost of sales for retail and wholesale vehicle sales for the periods ended:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Retail vehicles:	Retail vehicles:									Retail vehicles:
Retail vehicle sales	Retail vehicle sales	$	44,230	$	23,652	$	94,613	$	44,694	Retail vehicle sales	$	56,284	$	26,694	$	150,897	$	71,388
Retail vehicle cost of sales	Retail vehicle cost of sales	41,641		21,991		90,558		41,546		Retail vehicle cost of sales	56,584		24,177		147,142		65,723
Gross Profit – Retail Vehicles	Gross Profit – Retail Vehicles	$	2,589	$	1,661	$	4,055	$	3,148	Gross Profit – Retail Vehicles	$	(300)	$	2,517	$	3,755	$	5,665
Wholesale vehicles:	Wholesale vehicles:									Wholesale vehicles:
Wholesale vehicle sales	Wholesale vehicle sales	$	4,660	$	1,725	$	9,228	$	5,036	Wholesale vehicle sales	$	8,989	$	2,088	$	18,217	$	7,124
Wholesale vehicle cost of sales	Wholesale vehicle cost of sales	4,945		1,679		10,632		5,042		Wholesale vehicle cost of sales	9,433		2,040		20,065		7,082
Gross Profit – Wholesale Vehicles	Gross Profit – Wholesale Vehicles	$	(285)	$	46	$	(1,404)	$	(6)	Gross Profit – Wholesale Vehicles	$	(444)	$	48	$	(1,848)	$	42

Retail Vehicle Sales

The Company sells used vehicles to retail customers through its 1518 retail hub locations. The transaction price for used vehicles is a fixed amount as set forth in the customer contract, and the revenue recognized by the Company is inclusive of the agreed upon transaction price and any service fees. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent noncash consideration, which the Company measures at estimated fair value of the vehicle received on the trade. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales at a point in time when the title to the vehicle passes to the customer, at which point the customer controls the vehicle.

The Company receives payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing.

The Company’s exchange policy allows customers to initiate an exchange of a vehicle during the first three days or 500 miles after delivery, whichever comes first. An exchange reserve is immaterial based on the Company’s historical activity.

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

(Unaudited)

(In thousands, except share data)

Wholesale Vehicle Sales

~~The Company sells wholesale vehicles primarily through auction as wholesale vehicles often~~

Vehicles that do not meet the Company’s standards for retail vehicle ~~sales.~~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 ~~customer.~~next owner.

Finance and Insurance, net

The Company provides customers with options for financing, insurance and extended warranties. Certain warranties are serviced by a company owned by a major stockholder. All other services are provided by third-party vendors, and the Company has agreements with each of these vendors giving the Company the right to offer such services.

When a customer selects a service from these third-party vendors, the Company earns a commission based on the actual price paid or financed. The Company concluded that it is an agent for these transactions because it does not control the products

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

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 ~~June~~September 30, 2021 and December 31, 2020:


		June 30, 2021									September 30, 2021
		Amortized Cost/ Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost/ Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasuries	U.S. Treasuries	$	180	$	3	$	0	$	183	U.S. Treasuries	$	120	$	—	$	—	$	120
Corporate bonds	Corporate bonds	50,546		6		(57)		50,495		Corporate bonds	67,599		17		(92)		67,524
Municipal bonds	Municipal bonds	56,323		7		(15)		56,315		Municipal bonds	44,371		5		(17)		44,359
Commercial paper	Commercial paper	69,469		0		0		69,469		Commercial paper	19,982		—		—		19,982
Foreign governments	Foreign governments	1,927		0		(4)		1,923		Foreign governments	13,404		2		(15)		13,391
Total Fixed Maturity Debt Securities	Total Fixed Maturity Debt Securities	$	178,445	$	16	$	(76)	$	178,385	Total Fixed Maturity Debt Securities	$	145,476	$	24	$	(124)	$	145,376


		December 31, 2020									December 31, 2020
		Amortized Cost/ Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost/ Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasuries	U.S. Treasuries	$	240	$	6	$	0	$	246	U.S. Treasuries	$	240	$	6	$	—	$	246
Corporate bonds	Corporate bonds	261		5		(1)		265		Corporate bonds	261		5		(1)		265
U.S. states, territories and political subdivisions	U.S. states, territories and political subdivisions	141		5		0		146		U.S. states, territories and political subdivisions	141		5		—		146
Total Fixed Maturity Debt Securities	Total Fixed Maturity Debt Securities	$	642	$	16	$	(1)	$	657	Total Fixed Maturity Debt Securities	$	642	$	16	$	(1)	$	657

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 ~~June~~September 30, 2021 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	173,660	$	173,603	Due in one year or less	$	143,033	$	142,944
Due after one year through five years	Due after one year through five years	4,537		4,531		Due after one year through five years	2,195		2,184
Due after five years through ten years	Due after five years through ten years	248		251		Due after five years through ten years	248		248
Total	Total	$	178,445	$	178,385	Total	$	145,476	$	145,376

The following tables summarize the Company’s gross unrealized losses in fixed maturity securities as of ~~June~~September 30, 2021 and December 31, 2020:


				June 30, 2021													September 30, 2021
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate bonds	Corporate bonds	$	49,253	$	(56)	$	59	$	(1)	$	49,312	$	(57)	Corporate bonds	$	59,997	$	(89)	$	448	$	(3)	$	60,445	$	(92)
Municipal bonds	Municipal bonds	33,813		(15)		0		0		33,813		(15)		Municipal bonds	37,271		(15)		315		(2)		37,586		(17)
Foreign governments	Foreign governments	1,922		(4)		0		0		1,922		(4)		Foreign governments	13,389		(15)		—		—		13,389		(15)
Total Fixed Maturity Debt Securities	Total Fixed Maturity Debt Securities	$	84,988	$	(75)	$	59	$	(1)	$	85,047	$	(76)	Total Fixed Maturity Debt Securities	$	110,657	$	(119)	$	763	$	(5)	$	111,420	$	(124)

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

~~(Unaudited)~~

~~(In thousands, except share data)~~


				December 31, 2020													December 31, 2020
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate bonds	Corporate bonds	$	39	$	(1)	$	0	$	0	$	39	$	(1)	Corporate bonds	$	39	$	(1)	$	—	$	—	$	39	$	(1)
Total Fixed Maturity Debt Securities	Total Fixed Maturity Debt Securities	$	39	$	(1)	$	0	$	0	$	39	$	(1)	Total Fixed Maturity Debt Securities	$	39	$	(1)	$	—	$	—	$	39	$	(1)

Unrealized losses shown in the tables above are believed to be temporary. Fair value of investments in fixed maturity debt securities change and are based primarily on market rates. As of ~~June~~September 30, 2021, the Company’s fixed maturity portfolio had 310 securities with gross unrealized losses totaling $1$5 that had been in loss positions in excess of 12 months and ~~146~~160 securities with gross unrealized losses totaling ~~$75~~$119 that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than ~~$7,~~$10, or ~~0.3%~~0.2% of its amortized cost. As of December 31, 2020, the Company’s fixed maturity portfolio had 0no securities with gross unrealized losses that had been in loss positions in excess of 12 months and 32 securities with gross unrealized losses totaling $1 that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $325 (actual), or 1.6% of its amortized cost.

The following tables summarize cost and fair values of the Company’s investments in equity securities as of ~~June~~September 30, 2021 and December 31, 2020:

June 30, 2021
Cost

Fair Value
Equity securities $ 432 $ 520


	September 30, 2021
	Cost		Fair Value
Equity securities	$	432	$	516

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

(Unaudited)

(In thousands, except share data)


	December 31, 2020
	Cost		Fair Value
Equity securities	$	335	$	375

Proceeds from sales and maturities, gross realized gains, gross realized losses and net realized gains (losses) from sales and maturities of fixed maturity securities for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 consisted of the following:


		June 30, 2021									September 30, 2021
		Proceeds		Gross Realized Gains		Gross Realized Losses		Net Realized Gain			Proceeds		Gross Realized Gains		Gross Realized Losses		Net Realized Gain
Fixed maturity debt securities	Fixed maturity debt securities	$	128,954	$	7	$	(2)	$	5	Fixed maturity debt securities	$	212,822	$	7	$	(2)	$	5
Equity securities	Equity securities	0		0		0		0		Equity securities	1		—		—		—
Total Marketable Securities	Total Marketable Securities	$	128,954	$	7	$	(2)	$	5	Total Marketable Securities	$	212,823	$	7	$	(2)	$	5


		June 30, 2020									September 30, 2020
		Proceeds		Gross Realized Gains		Gross Realized Losses		Net Realized Gain			Proceeds		Gross Realized Gains		Gross Realized Losses		Net Realized Gain
Fixed maturity debt securities	Fixed maturity debt securities	$	15	$	0	$	0	$	0	Fixed maturity debt securities	$	18	$	—	$	—	$	—
Equity securities	Equity securities	6		3		0		3		Equity securities	35		—		(2)		(2)
Total Marketable Securities	Total Marketable Securities	$	21	$	3	$	0	$	3	Total Marketable Securities	$	53	$	—	$	(2)	$	(2)

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

Note 6 — Fair Value of Financial Instruments

Items Measured at Fair Value on a Recurring Basis

As of ~~June~~September 30, 2021 and December 31, 2020, the Company held certain assets and liabilities that were required to be measured at fair value on a recurring basis.

The following tables are summaries of fair value measurements and hierarchy level as of:


		June 30, 2021									September 30, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	26	$	0	$	0	$	26	Money market funds	$	—	$	—	$	—	$	—
Equity securities	Equity securities	520		0		0		520		Equity securities	516		—		—		516
Fixed maturity debt securities, including cash equivalents	Fixed maturity debt securities, including cash equivalents	0		205,043		0		205,043		Fixed maturity debt securities, including cash equivalents	—		155,407		—		155,407
Total Assets	Total Assets	$	546	$	205,043	$	0	$	205,589	Total Assets	$	516	$	155,407	$	—	$	155,923
Liabilities:	Liabilities:									Liabilities:

Merger warrants liability	Merger warrants liability	16,501		9,840		0		26,341		Merger warrants liability	8,915		5,316		—		14,231
Earnout shares	Earnout shares	0		0		30,228		30,228		Earnout shares	—		—		17,663		17,663
Total Liabilities	Total Liabilities	$	16,501	$	9,840	$	30,228	$	56,569	Total Liabilities	$	8,915	$	5,316	$	17,663	$	31,894

December 31, 2020
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 405 $ 0 $ 0 $ 405
Equity securities 375 0 0 375
Fixed maturity debt securities 246 411 0 657
Total Assets $ 1,026 $ 411 $ 0 $ 1,437
Liabilities:
Redeemable convertible preferred stock tranche obligation $ 0 $ 0 $ 2,832 $ 2,832
Historic warrants liability 0 0 144 144
Total Liabilities $ 0 $ 0 $ 2,976 $ 2,976

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

(Unaudited)

(In thousands, except share data)


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	405	$	—	$	—	$	405
Equity securities	375		—		—		375
Fixed maturity debt securities	246		411		—		657
Total Assets	$	1,026	$	411	$	—	$	1,437
Liabilities:
Redeemable convertible preferred stock tranche obligation	$	—	$	—	$	2,832	$	2,832
Historic warrants liability	—		—		144		144
Total Liabilities	$	—	$	—	$	2,976	$	2,976

Money market funds consist of highly liquid investments with original maturities of three months or less and classified in restricted cash in the accompanying condensed consolidated balance sheets.

The Company recognizes transfers between the levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between the levels during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

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 ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


		January 1, 2021		Issuances		Settlements		Change in fair value		June 30, 2021			January 1, 2021		Issuances		Settlements		Change in fair value		September 30, 2021
Redeemable convertible preferred stock tranche obligation	Redeemable convertible preferred stock tranche obligation	$	2,832	$	0	$	(2,832)	$	0	$	0	Redeemable convertible preferred stock tranche obligation	$	2,832	$	—	$	(2,832)	$	—	$	—
Historic warrants liability	Historic warrants liability	144		0		(144)		0		0		Historic warrants liability	144		—		(144)		—		—
Earnout shares	Earnout shares	0		74,284		0		(44,056)		30,228		Earnout shares	—		74,284		—		(56,621)		17,663
Total	Total	$	2,976	$	74,284	$	(2,976)	$	(44,056)	$	30,228	Total	$	2,976	$	74,284	$	(2,976)	$	(56,621)	$	17,663


		January 1, 2020		Issuances		Settlements		Change in fair value		June 30, 2020			January 1, 2020		Issuances		Settlements		Change in fair value		September 30, 2020
Redeemable convertible preferred stock tranche obligation	Redeemable convertible preferred stock tranche obligation	$	3,755	$	0	$	0	$	(284)	$	3,471	Redeemable convertible preferred stock tranche obligation	$	3,755	$	—	$	—	$	(962)	$	2,793
Historic warrants liability	Historic warrants liability	115		0		0		(13)		102		Historic warrants liability	115		15		—		(30)		100
Total	Total	$	3,870	$	0	$	0	$	(297)	$	3,573	Total	$	3,870	$	15	$	—	$	(992)	$	2,893

The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model. The inputs into the Monte-Carlo pricing model included significant unobservable inputs. The table below summarizes the significant observable inputs used when valuing the earnout shares as of:


		June 30, 2021		January 21, 2021			September 30, 2021		January 21, 2021
Expected volatility	Expected volatility	85.00	%	80.00	%	Expected volatility	80.00	%	80.00	%
Starting stock price	Starting stock price	$5.46		$11.31		Starting stock price	$3.81		$11.31
Expected term (in years)	Expected term (in years)	4.6 years		5 years		Expected term (in years)	4.3 years		5 years
Risk-free interest rate	Risk-free interest rate	0.79	%	0.45	%	Risk-free interest rate	0.79	%	0.45	%
Earnout hurdle	Earnout hurdle	$12.50-$15.00		$12.50-$15.00		Earnout hurdle	$12.50-$15.00		$12.50-$15.00

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

(Unaudited)

(In thousands, except share data)

Fair Value of Financial Instruments Not Measured at Fair Value on a Recurring Basis

The carrying amounts of restricted cash, accounts receivable and accounts payable approximate fair value because their respective maturities are less than three months.

Beginning March 10, 2021, the Company entered into a $30,000 floor plan credit facility with Ally Financial. Concurrently, proceeds from the agreement were used to settle outstanding debt obligations on the Company’s preexisting floor plan facility with Automotive Finance Corporation (“AFC”). In June 2021, the Company expanded the floor plan credit facility by $10,000 to a total of $40,000. The carrying value of the Ally Financial floor plan notes payable outstanding as of ~~June~~September 30, 2021 approximates fair value due to its variable interest rate determined to approximate current market rates.

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

Note 7 — Accounts Receivable, Net

The following table summarizes accounts receivable as of:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Contracts in transit	Contracts in transit	$	4,939	$	3,321	Contracts in transit	$	8,275	$	3,321
Trade	Trade	295		240		Trade	376		240
Finance commission	Finance commission	244		132		Finance commission	334		132
Other	Other	0		506		Other	—		506
Total	Total	5,478		4,199		Total	8,985		4,199
Allowance for doubtful accounts	Allowance for doubtful accounts	(67)		(67)		Allowance for doubtful accounts	(152)		(67)
Total Accounts Receivable, net	Total Accounts Receivable, net	$	5,411	$	4,132	Total Accounts Receivable, net	$	8,833	$	4,132

Note 8 — Inventory and Floor Plan Notes Payable

The following table summarizes inventory as of:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Used vehicles	Used vehicles	$	47,454	$	11,202	Used vehicles	$	58,109	$	11,202
Parts	Parts	15		0		Parts	33		—
Total	Total	$	47,469	$	11,202	Total	$	58,142	$	11,202

Beginning March 10, 2021, the Company entered into a $30,000 floor plan credit facility, which was expanded to $40,000 in the second quarter, with Ally Financial to finance the acquisition of used vehicle inventory. Concurrently, proceeds from the agreement were used to settle outstanding debt obligations on the Company’s preexisting floor plan facility with AFC. Borrowings under the Ally Financial facility accrue interest at a variable rate based on the most recent prime rate plus 2.50% per annum. The prime rate as of ~~June~~September 30, 2021 was 3.25%.

Floor plan notes payable are generally due upon the sale of the related used vehicle inventory.

~~Note 9 — Property and Equipment, Net~~

~~The following table summarizes property and equipment as of:~~

June 30,
2021 December 31,
2020
Capital lease assets $ 7,809 $ 1,305
Leasehold improvements 1,361 702
Furniture, fixtures and equipment 3,649 760
Corporate vehicles 143 143
Total property and equipment 12,962 2,910
Less: accumulated depreciation (1,300) (1,042)
Property and Equipment, net $ 11,662 $ 1,868

~~Depreciation expense for property and equipment was approximately $258 and $101 for the six months ended June 30, 2021 and 2020, respectively.~~

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

(Unaudited)

(In thousands, except share data)

Note 9 — Property and Equipment, Net

The following table summarizes property and equipment as of:


	September 30, 2021		December 31, 2020
Capital lease assets	$	8,956	$	1,305
Leasehold improvements	2,344		702
Furniture, fixtures and equipment	5,861		760
Corporate vehicles	158		143
Total property and equipment	17,319		2,910
Less: accumulated depreciation	(1,803)		(1,042)
Property and Equipment, net	$	15,516	$	1,868

Depreciation expense for property and equipment was approximately $761 and $148 for the nine months ended September 30, 2021 and 2020, respectively.

Note 10 — Other Assets

The following table summarizes other assets as of:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Other Current Assets:	Other Current Assets:					Other Current Assets:
Lease receivable, net	Lease receivable, net	$	23	$	36	Lease receivable, net	$	26	$	36
Deferred acquisition costs	Deferred acquisition costs	45		72		Deferred acquisition costs	40		72
Prepaid expenses	Prepaid expenses	4,957		679		Prepaid expenses	8,065		679
Interest receivable	Interest receivable	1,228		0		Interest receivable	1,070		—
Deferred transaction costs	Deferred transaction costs	0		5,892		Deferred transaction costs	—		5,892
Total Other Current Assets	Total Other Current Assets	$	6,253	$	6,679	Total Other Current Assets	$	9,201	$	6,679
Other Assets:	Other Assets:					Other Assets:
Lease receivable, net	Lease receivable, net	$	16	$	16	Lease receivable, net	$	16	$	16
Deferred acquisition costs	Deferred acquisition costs	64		48		Deferred acquisition costs	54		48
Security deposits	Security deposits	4,310		235		Security deposits	4,496		235
Total Other Assets	Total Other Assets	$	4,390	$	299	Total Other Assets	$	4,566	$	299

Note 11 — Long-term Debt

The following table summarizes long-term debt as of:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020

Capital lease obligation	Capital lease obligation	7,791		1,305		Capital lease obligation	$	9,103	$	1,305
Promissory note	Promissory note	0		2,990		Promissory note	—		2,990
Convertible notes payable, net	Convertible notes payable, net	0		3,325		Convertible notes payable, net	—		3,325
Paycheck Protection Program loan	Paycheck Protection Program loan	0		1,749		Paycheck Protection Program loan	—		1,749
		7,791		9,369			9,103		9,369
Current portion of long-term debt	Current portion of long-term debt	(212)		(6,370)		Current portion of long-term debt	(397)		(6,370)
Long-term Debt	Long-term Debt	$	7,579	$	2,999	Long-term Debt	$	8,706	$	2,999

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

(Unaudited)

(In thousands, except share data)

Promissory Note

Concurrently with the closing of the Merger on January 21, 2021, the promissory note was extinguished through a cash payment of $3,000.

Convertible Notes Payable

On December 20, 2019, the Company entered into a note purchase agreement (“NPA”) with AFC. AFC’s parent company was also a common stockholder of Former CarLotz. For each convertible note of $1,000 or portion thereof that AFC purchased, AFC received warrants (historic warrants) constituting 0.20% of Former CarLotz’ fully-diluted common stock. As of December 31, 2020, the Company had a convertible note balance of $3,500. The note accrued interest at 6.00% on a 365-day basis and the outstanding interest payable as of December 31, 2020 was approximately $212. Concurrently with the closing of the Merger on January 21, 2021, the historic warrants and the note were converted to a fixed number of shares pursuant to a conversion agreement with AFC. The convertible notes were extinguished by issuing AFC 347,992 shares of Former CarLotz common stock and the warrants were exercised into 73,869 shares of Former CarLotz common stock. There are no historic warrants outstanding subsequent to the exercise.

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

Payroll Protection Program Loan

In April 2020, the Company received a Paycheck Protection Program (“PPP”) loan, a new loan program under the Small Business Administration’s 7(a) program providing loans to qualifying businesses, totaling approximately $1,749. As of December 31, 2020, the Company had an outstanding PPP loan balance of $1,749, which was extinguished concurrently with the closing of the Merger.

Note 12 — Accrued Expenses

The following table summarizes accrued expenses as of:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
License and title fees	License and title fees	$	797	$	785	License and title fees	$	1,074	$	785
Payroll and bonuses	Payroll and bonuses	2,200		837		Payroll and bonuses	2,264		837
Deferred rent	Deferred rent	535		199		Deferred rent	1,071		199
Technology	Technology	5,007		0		Technology	2,707		—
Other	Other	4,699		1,742		Other	3,786		1,742
Total Accrued Expenses	Total Accrued Expenses	$	13,238	$	3,563	Total Accrued Expenses	$	10,902	$	3,563

Note 13 — Other Liabilities

The following table summarizes other liabilities as of:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Other Liabilities, Current	Other Liabilities, Current					Other Liabilities, Current
Unearned insurance premiums	Unearned insurance premiums	$	703	$	256	Unearned insurance premiums	$	638	$	256
Other payables - marketable securities		4,722		0
Other Liabilities, Current		$	5,425	$	256

Other Liabilities	Other Liabilities					Other Liabilities
Unearned insurance premiums	Unearned insurance premiums	1,106		1,680		Unearned insurance premiums	942		1,680
Other long-term liabilities	Other long-term liabilities	126		135		Other long-term liabilities	119		135
Historic warrants liability	Historic warrants liability	—		144		Historic warrants liability	—		144
Other Liabilities, Long-term	Other Liabilities, Long-term	$	1,232	$	1,959	Other Liabilities, Long-term	$	1,061	$	1,959

~~On June~~

21 ~~2021, the Company withdrew $50,000 from the institution holding its marketable securities. As of June 30, 2021, the Company had paid $45,278 from money market funds, maturities~~

CarLotz, Inc. and ~~sales of marketable securities~~Subsidiaries — Notes to ~~the institution holding its marketable securities. The remaining cash withdrawn is payable upon the maturity or sale of the Company’s investments.~~Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share data)

Note 14 — Lease Commitments

The Company leases its operating facilities from various third parties under non-cancelable operating and capital leases. The leases require various monthly rental payments ranging from approximately $3 to ~~$48,~~$70, with various ending dates through September 2036. The leases are triple net, whereby the Company is liable for taxes, insurance and repairs. Rent expense for all operating facility leases was approximately ~~$1,599~~$3,068 and ~~$462~~$1,414 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Most of these leases have escalating rent payments, which are being expensed on a straight-line basis and are included in deferred rent, within Accrued expenses.

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

The following is a table of facility lease commitments due for the next five years, and thereafter, as of ~~June~~September 30, 2021:


		Total Per Year		Total Capital Leases			Total Per Year		Total Capital Leases
2021 (remaining)	2021 (remaining)	$	1,719	$	269	2021 (remaining)	$	1,344	$	200
2022	2022	4,298		1,037		2022	6,707		1,221
2023	2023	4,161		1,048		2023	6,830		1,237
2024	2024	3,184		1,058		2024	5,895		1,252
2025	2025	2,976		1,069		2025	5,791		1,268
Thereafter	Thereafter	9,168		10,643		Thereafter	23,131		13,238
Total	Total	$	25,506	$	15,124	Total	$	49,698	$	18,416
Less: amount representing interest	Less: amount representing interest			(7,333)		Less: amount representing interest			(9,313)
Present value of minimum lease payments	Present value of minimum lease payments			7,791		Present value of minimum lease payments			9,103
Less: current obligation	Less: current obligation			(212)		Less: current obligation			(397)
Long-term obligations under capital lease	Long-term obligations under capital lease			$	7,579	Long-term obligations under capital lease			$	8,706

The Company also leases vehicles from a third party under noncancelable operating leases and leases these same vehicles to end customers with similar lease terms, with the exception of the interest rate. The leases require various monthly rental payments from the Company ranging from $291 to $1,770 (actual) with various ending dates through June 2025.

The following is a schedule of the approximate future minimum lease payments due to third parties and the related expected future receipts related to these lease vehicles as of ~~June~~September 30, 2021:


		Payments Due to Third-Parties		Future Receipts			Payments Due to Third-Parties		Future Receipts
2021 (remaining)	2021 (remaining)	$	964	$	1,164	2021 (remaining)	$	475	$	572
2022	2022	1,713		2,048		2022	1,742		2,083
2023	2023	1,089		1,286		2023	1,129		1,334
2024	2024	664		779		2024	703		825
2025	2025	293		340		2025	340		396
Total	Total	$	4,723	$	5,617	Total	4,389		5,210

Note 15 — Commitments and Contingencies

The Company sells retail installment contracts to financial institutions without recourse. Some buyers of the contracts retain portions of the finance commissions as reserves against early payoffs. The Company is subject to chargebacks against such income in the event of a cancellation or early payoff.

The Company’s facilities are subject to federal, state and local provisions regulating the discharge of materials into the environment. Compliance with these provisions has not had, nor does the Company expect such compliance to have, any material effect upon the capital expenditures, net income, financial condition or competitive position of the Company. Management believes that its current practices and procedures for the control and disposition of such materials comply with the applicable federal and state requirements.

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

(Unaudited)

(In thousands, except share data)

Legal Matters

On July 8, 2021, purported CarLotz stockholder Daniel Erdman, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. SeeDaniel Erdman v. CarLotz, Inc., et al., Case No. 1:21-cv-05906-RA. The action is stated to be brought on behalf of purchasers of the stock of Acamar Partners Acquisition Corp. and CarLotz during the period

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.

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

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

The above 3 cases were consolidated by the Court on August 31, 2021 under In re CarLotz, Inc. Securities Litigation, Case No. 1:21-cv-05906-RA. On October 15, 2021, the Court appointed a lead plaintiff and lead counsel for the putative class. On October 26, 2021, the Court entered an order requiring the lead plaintiff to file a consolidated amended complaint on or before December 14, 2021 and requiring that briefing on any motion to dismiss the consolidated amended complaint be completed on or before June 10, 2022.

On September 21, 2021, purported CarLotz stockholder W. Kenmore Cardoza, trustee of the W. Kenmore & Joyce M. Cardoza Revocable Trust, filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the District of Delaware against certain officers and directors of CarLotz. See Cardoza v. Mitchell, et al., Case No. 1:21-cv-01332-CFC. The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Securities Litigation, asserts derivative claims for alleged violations of Sections 10(b) and 21D of the Exchange Act, breach of fiduciary duty and waste. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.

On October 20, 2021, purported CarLotz stockholder Julian Cha filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the Southern District of New York against certain officers and directors of CarLotz. See Julian Cha v. David R. Mitchell, et al., Case No. 1:21-cv-08623-UA. The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Securities Litigation, asserts derivative claims for alleged violations of Sections 10(b), 14(a), and 21D of the Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.

On October 27, 2021, purported CarLotz stockholder Mark Habib filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the Southern District of New York against certain officers and directors of CarLotz. See Mark Habib v. David R. Mitchell, et al., Case No. 1:21-cv-08786-UA. The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Securities Litigation, asserts derivative claims for alleged

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

(Unaudited)

(In thousands, except share data)

violations of Sections 10(b), 14(a), and 21D of the Exchange Act and breach of fiduciary duty. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief.

In addition to the matters above, the Company is involved in certain legal matters that it considers incidental to its business. In management’s opinion, none of these legal matters will have a material effect on the Company’s financial position or results of operations.

Note 16 — Redeemable Convertible Preferred Stock

As of December 31, 2020, the Amended and Restated Certificate of Incorporation of Former CarLotz provided for 2 classes of ownership: common stock and Series A Preferred Stock. The holder of the Series A Preferred Stock received distribution priority in order of 1.5 times the sum of any unpaid returns and unreturned capital contributions. Preferred returns were calculated at an 8.00% annual rate. Unpaid cumulative distributions were approximately $4,800 as of December 31, 2020, and the Series A Preferred Stock had a liquidation preference of $37,114 as of December 31, 2020. Upon liquidation of Former CarLotz, proceeds in excess of the Series A Preferred Stock would have been shared pro rata among all stockholders based on the number of shares. The unpaid cumulative distributions are included as Accrued expenses — related party on the accompanying condensed consolidated balance sheets. As a result of the Merger, the Company settled Former CarLotz’ redeemable convertible preferred stock and redeemable convertible preferred stock tranche obligation with carrying values of $17,560 and $2,832, respectively, as of December 31, 2020.

Note 17 — Stock-Based Compensation Plan

Stock Option Plans

The Company has 3 stock incentive plans, the “2011 Stock Option Plan,” the “2017 Stock Option Plan” and the “2020 Incentive Award Plan,” to promote the long-term growth and profitability of the Company. The plans do this by providing senior management and other employees with incentive to improve shareholder value and contribute to the growth and financial success of the Company by granting equity instruments to these stakeholders.

Share-based compensation expense was recorded for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 of approximately ~~$45,667~~$49,114 and $37, respectively.

The Company estimates the fair value of stock options using the Black-Scholes pricing model. The Black-Scholes pricing model requires the use of subjective inputs such as stock price volatility. Changes in the inputs can materially affect the fair value estimates and ultimately the amount of stock-based compensation expense that is recognized.

During the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, there were 0no grants related to the 2011 Stock Option Plan.

2324

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

(Unaudited)

(In thousands, except share data)

A summary of activity for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 for the 2011 Stock Option Plan is as follows:


		Number of Stock Options	Weighted Average Exercise Price		Number of Stock Options	Weighted Average Exercise Price
Balance (December 31, 2020)	Balance (December 31, 2020)	1,571,205	$0.59	Balance (December 31, 2020)	1,571,205	$0.59
Granted	Granted	0	0	Granted	—	—
Exercised	Exercised	(56,059)	0.24	Exercised	(56,059)	0.24
Forfeited	Forfeited	0	0	Forfeited	—	—
Balance (June 30, 2021)		1,515,146	0.58
Vested (as of June 30, 2021)		1,515,146	$0.58
Balance (September 30, 2021)				Balance (September 30, 2021)	1,515,146	0.58
Vested (as of September 30, 2021)				Vested (as of September 30, 2021)	1,515,146	$0.58


		Number of Stock Options	Weighted Average Exercise Price		Number of Stock Options	Weighted Average Exercise Price
Balance (December 31, 2019)	Balance (December 31, 2019)	1,571,205	$0.59	Balance (December 31, 2019)	1,571,205	$0.59
Granted	Granted	0	0	Granted	—	—
Forfeited	Forfeited	0	0	Forfeited	—	—
Balance (June 30, 2020)		1,571,205	0.59
Vested (as of June 30, 2020)		1,482,528	$0.59
Balance (September 30, 2020)				Balance (September 30, 2020)	1,571,205	0.59
Vested (as of September 30, 2020)				Vested (as of September 30, 2020)	1,482,528	$0.59

The following summarizes certain information about stock options vested and expected to vest as of ~~June~~September 30, 2021 related to the 2011 Stock Option Plan:

Number of

Stock Options

Weighted Average

Remaining

Contractual Life

Weighted Average

Exercise Price

Number of

Stock Options

Weighted Average

Remaining

Contractual Life

Weighted Average

Exercise Price

Outstanding

1,515,146

1.17 years

$0.58

Outstanding

1,515,146

0.92 years

$0.58

Exercisable

1,515,146

1.17 years

$0.58

Exercisable

1,515,146

0.92 years

$0.58

Aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the option exercise price and the estimated fair value of the Company’s common stock at the time such option exercises. This intrinsic value changes based on changes in the fair value of the Company’s underlying common stock. The aggregate intrinsic value for options outstanding and options exercisable as of ~~June~~September 30, 2021 ~~and December 31, 2020~~ was ~~$4.88.~~$3.23.

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

2425

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

(Unaudited)

(In thousands, except share data)

stock options related to the 2017 Stock Option Plan have an exercise price of $0.92 per share. All stock options related to the 2017 Stock Option Plan expire 10 years after the grant date, which ranges from March 2028 to October 2029.

A summary of activity for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 for the 2017 Stock Option Plan is as follows:


		Number of Units	Weighted Averaged Exercise Price			Number of Units	Weighted Averaged Exercise Price
Balance (December 31, 2020)	Balance (December 31, 2020)	3,961,658	$	0.92	Balance (December 31, 2020)	3,961,658	$	0.92
Granted	Granted	0	0		Granted	—	—
Forfeited	Forfeited	0	0		Forfeited	—	—
Balance (June 30, 2021)		3,961,658	$	0.92
Vested (as of June 30, 2021)		3,538,672	$	0.92
Balance (September 30, 2021)					Balance (September 30, 2021)	3,961,658	$	0.92
Vested (as of September 30, 2021)					Vested (as of September 30, 2021)	3,538,672	$	0.92


		Number of Units	Weighted Averaged Exercise Price			Number of Units	Weighted Averaged Exercise Price
Balance (December 31, 2019)	Balance (December 31, 2019)	2,845,557	$	0.96	Balance (December 31, 2019)	2,845,557	$	0.92
Granted	Granted	509,635	0.96		Granted	1,116,106	0.92
Forfeited	Forfeited	0	0		Forfeited	—	—
Balance (June 30, 2020)		3,355,192	$	0.96
Balance (September 30, 2020)					Balance (September 30, 2020)	3,961,663	$	0.92

The 2017 options vest upon a change of control. Although the Merger did not meet the definition of a change of control, the Company modified the awards in connection with the Merger such that all vesting conditions were waived for 3,538,672 of the options. This modification impacted 8 employees and resulted in $38,800 of share-based compensation on the modification date. The remaining options were also modified but will vest over a service period of four years and impacted 16 employees. These options resulted in $186 of cash consideration and $4,462 of share based compensation that will be recognized over the service period of four years. For the ~~six~~nine months ended ~~June~~September 30, 2021, ~~$493~~$772 of share-based compensation was recognized.

The following summarizes certain information about stock options vested and expected to vest as of ~~June~~September 30, 2021 related to the 2017 Stock Option Plan:

Number of

Stock Options

Weighted Average

Remaining

Contractual Life

Weighted Average

Exercise Price

Number of

Stock Options

Weighted Average

Remaining

Contractual Life

Weighted Average

Exercise Price

Outstanding

3,961,658

8.06 years

$0.92

Outstanding

3,961,658

7.81 years

$0.92

Exercisable

3,538,672

7.93 years

$0.92

Exercisable

3,538,672

7.68 years

$0.92

The aggregate intrinsic value for options outstanding and options exercisable as of ~~June~~September 30, 2021 ~~and December 31, 2020~~ was ~~$4.51.~~$2.89.

2526

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

(Unaudited)

(In thousands, except share data)

The inputs used for the 2017 Stock Option Plan were as follows:


Balance (Expected volatility)	80.00	%
Expected dividend yield	0—	%
Expected term (in years)	3.6 - 4.8 years
Risk-free interest rate	0.32% - 0.45%

The options associated with the 2020 Incentive Award Plan vest over a service period of four years. A summary of activity for the ~~six~~nine months ended ~~June~~September 30, 2021 for the options associated with the 2020 Incentive Award Plan is as follows:


		Balance (Number of Units	Weighted Averaged Exercise Price			Balance (Number of Units	Weighted Averaged Exercise Price
Balance (December 31, 2020)	Balance (December 31, 2020)	0	$	0	Balance (December 31, 2020)	—	$	—
Granted	Granted	1,426,514	11.34		Granted	1,463,242	11.16
Forfeited	Forfeited	0	0		Forfeited	(1,723)	10.14
Balance (June 30, 2021)		1,426,514	$	11.34
Balance (September 30, 2021)					Balance (September 30, 2021)	1,461,519	$	11.16
Exercisable	Exercisable	0	$	0	Exercisable	—	$	—

The grant date fair value of the options was between ~~$6.70~~$3.00 to $7.77. For the ~~six~~nine months ended ~~June~~September 30, 2021, ~~$1,222~~$1,914 of share based compensation was recognized. As of ~~June~~September 30, 2021, there was approximately ~~$9,845~~$9,236 of total unrecognized compensation cost related to unvested options related to the 2020 Stock Incentive Award Plan.

The following summarizes certain information about stock options vested and expected to vest as of September 30, 2021 related to the 2020 Stock Option Plan:


	Number of Stock Options	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
Outstanding	1,461,519	9.33 years	$11.16
Exercisable	—	—	$—

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

(Unaudited)

(In thousands, except share data)

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

The restricted shares associated with the 2020 Incentive Award Plan vest over a service period. A summary of activity for the ~~six~~nine months ended ~~June~~September 30, 2021 for the restricted shares associated with the 2020 Incentive Award Plan is as follows:


		Balance (Number of Units	Weighted Average Grant Date Fair Value			Balance (Number of Units	Weighted Average Grant Date Fair Value
Balance (December 31, 2020)	Balance (December 31, 2020)	0	$	0	Balance (December 31, 2020)	—	$	—
Granted	Granted	616,224	5.97		Granted	679,412	5.67
Vested		0	0
Forfeited	Forfeited	(1,044)	0		Forfeited	(3,135)	5.69
Balance (June 30, 2021)		615,180	$	5.97
Balance (September 30, 2021)					Balance (September 30, 2021)	676,277	$	5.67
Vested (as of September 30, 2021)					Vested (as of September 30, 2021)	36,953	$	6.15

The grant date fair value of the restricted shares was ~~$5.97.~~between $4.16 and $6.15. For the ~~six~~nine months ended ~~June~~September 30, 2021, ~~$417~~$1,028 of share based compensation cost was recognized. As of ~~June~~September 30, 2021, there was approximately ~~$2,306~~$2,146 of unrecognized compensation cost that vests over a service period of four years and ~~$949~~$658 of unrecognized compensation cost that vests over a service period of one year related to unvested restricted shares related to the 2020 Stock Incentive Award Plan.

Earnout Restricted Stock Units

Former CarLotz option holders as of the effective time of the Merger received 640,421 earnout restricted stock units (Earnout RSUs). The Earnout RSUs vest if certain targets are met in the post-Merger period. The earnouts for the Earnout RSUs are subject to an earnout period, which is defined as the date 60 months following the consummation of the Merger. The

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

Merger closed on January 21, 2021, and the earnout period expires January 21, 2026. Earnout RSUs will vest if any of the following conditions are achieved following January 21, 2021:

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

iii.If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unvested Earnout RSUs are forfeited. All unvested Earnout RSUs will vest if there is a change of control of the Company that will result in the holders of the common stock receiving a per share price equal to or in excess of $10.00 (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock) prior to the Forfeiture Date.

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

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

(Unaudited)

(In thousands, except share data)

A summary of activity for the ~~six~~nine months ended ~~June~~September 30, 2021 for the RSUs is as follows:


		Number of Units	Weighted Average grant date fair value			Number of Units	Weighted Average grant date fair value
Balance (December 31, 2020)	Balance (December 31, 2020)	0	$	0	Balance (December 31, 2020)	—	$	—
Granted	Granted	640,421	10.70		Granted	640,421	10.70
Forfeited	Forfeited	0	0		Forfeited	—	—
Balance (June 30, 2021)		640,421	$	10.70
Balance (September 30, 2021)					Balance (September 30, 2021)	640,421	$	10.70

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recognized ~~$4,065~~$6,007 of stock-based compensation cost. As of ~~June~~September 30, 2021, there was approximately ~~$2,785~~$842 of total unrecognized compensation cost related to the RSUs that will be recognized during 2021.

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


Expected volatility	80.00		%
Starting stock price	$	11.31
Expected term (in years)	5 years
Risk-free interest rate	0.45		%
Earnout hurdle	$12.50-$15.00

Note 18 — Income Taxes

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded no income tax benefits for the net operating losses incurred in the period due to its uncertainty of realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the United States.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception through ~~June~~September 30, 2021 and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets.

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

Management reevaluates the positive and negative evidence at each reporting period. As of ~~June~~September 30, 2021 and December 31, 2020, no facts or circumstances arose that affected the Company’s determination as to the full valuation allowance established against the net deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of ~~June~~September 30, 2021 and December 31, 2020.

Note 19 — Net Loss Per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Numerator:	Numerator:									Numerator:
Net Loss	Net Loss	$	(7,205)	$	(213)	$	(22,227)	$	(1,720)	Net Loss	$	(3,476)	$	(492)	$	(25,703)	$	(2,212)
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding, basic and diluted	Weighted average common shares outstanding, basic and diluted	113,670,060		58,621,041		107,279,227		58,621,041		Weighted average common shares outstanding, basic and diluted	113,707,013		58,621,041		109,447,939		58,621,041
Net Loss per Share Attributable to Common Stockholders, basic and diluted	Net Loss per Share Attributable to Common Stockholders, basic and diluted	$	(0.06)	$	0.00	$	(0.21)	$	(0.03)	Net Loss per Share Attributable to Common Stockholders, basic and diluted	$	(0.03)	$	(0.01)	$	(0.23)	$	(0.04)

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

(Unaudited)

(In thousands, except share data)

The following table summarizes the outstanding potentially dilutive securities that were excluded from the computation of diluted net loss per share attributable to common stockholders because the impact of including them would have been antidilutive for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


		2021	2020		2021	2020
Public warrants	Public warrants	10,185,774	0	Public warrants	10,185,774	—
Private warrants	Private warrants	6,074,310	0	Private warrants	6,074,310	—
Earnout RSUs	Earnout RSUs	640,421	0	Earnout RSUs	640,421	—
Earnout shares	Earnout shares	6,945,732	0	Earnout shares	6,945,732	—
Convertible notes payable	Convertible notes payable	0	3,452,002	Convertible notes payable	—	3,503,781
Historic warrants	Historic warrants	0	776,143	Historic warrants	—	776,684
Stock options outstanding to purchase shares of common stock	Stock options outstanding to purchase shares of common stock	6,903,318	4,926,397	Stock options outstanding to purchase shares of common stock	6,903,318	5,532,863
Unvested RSUs	Unvested RSUs	615,180	0	Unvested RSUs	639,324	—
Total	Total	31,364,735	9,154,542	Total	31,388,879	9,813,328

Note 20 — Concentrations

~~In mid-May 2021, the corporate vehicle sourcing partner~~The suppliers that accounted for 10% or more of the Company’s ~~total~~vehicle purchases ~~informed the Company that it would be pausing its consignment of vehicles to the Company, with immediate effect, due to the current strength of the wholesale market for vehicles. The~~are presented as follows:


	Total vehicle purchases from vendor to total vehicle purchases for the nine months period ended September 30,
Vendor	2021	2020
Vendor A	27%	23%
Vendor B	13%	—%

Vendor A is a corporate vehicle sourcing ~~partner that paused its consignments represented 32% of~~partner. Typically, we purchase the vehicles the Company sold for the three months ended June 30, 2021 and 48% of the vehicles the Company sold for the six months ended June 30, 2021. The Company primarily replaced the supply by sourcing vehicles at auction as well as some increased supply from ~~other~~our corporate vehicle sourcing ~~partners.~~partners at the time of sale to a retail customer.

For the periods ended ~~June~~September 30, 2021 and 2020, no retail or wholesale customers accounted for more than 10% of the Company’s revenue.

Note 21 — Subsequent Events

In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through ~~August 9,~~November 8, 2021, the date the financial statements were available to be issued.

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

~~(Unaudited)~~

~~(In thousands, except share data)~~

Additional Hub Locations

Subsequent to the quarter ended ~~June~~September 30, 2021, CarLotz expanded into 12 new ~~location~~locations with a hub ~~opening~~openings in ~~Denver, Colorado.~~Plano, Texas and Pomona, California. The ~~Denver hub is~~Plano and Pomona hubs are CarLotz’ ~~first location~~second locations in the ~~state~~states of ~~Colorado~~Texas and ~~16th location overall.~~California, respectively. The 2 new locations bring total hubs to 20 locations.

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

Introduction

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained herein and the consolidated financial statements and notes thereto for the year ended December 31, 2020 contained in our Current Report on Form 8-K/A filed with the SEC on March 15, 2021. Unless the context otherwise requires, references to “we”, “us”, “our” and the “Company” are intended to mean the business and operations of CarLotz, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

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

Overview

CarLotz is a leading consignment-to-retail used vehicle marketplace that provides our corporate vehicle sourcing partners and retail sellers of used vehicles with the ability to easily access the retail sales channel. Our mission is to create the world’s greatest vehicle buying and selling experience. We operate a technology-enabled buying, sourcing and selling model that offers ~~a seamless~~an omni-channel experience and comprehensive selection of vehicles. Our proprietary technology provides our corporate vehicle sourcing partners with real-time performance metrics and data analytics along with custom business intelligence reporting that enables ~~price and~~ vehicle triage optimization between the wholesale and retail channels.

We offer our products and services to (i) corporate vehicle sourcing partners, (ii) retail sellers of used vehicles and (iii) retail customers seeking to buy used vehicles. Our corporate vehicle sourcing partners include fleet leasing companies, vehicle rental ~~car~~ companies, banks, ~~captive~~ finance companies, third-party remarketers, wholesalers, corporations managing their own fleets and OEMs. We offer our corporate vehicle sourcing partners a pioneering, Retail Remarketing™ service that can fully ~~integrates~~integrate with their existing technology platforms. For individuals who are our retail sellers, we offer a hassle-free selling experience that allows them to stay fully informed by tracking the sale process through our easy to navigate online portal. We offer our retail customers a hassle-free vehicle buying experience. Buyers can browse our inventory online through our website or at our locations as well as select from our ~~fully~~ integrated financing and insurance products with ease.

Founded in 2011, CarLotz currently operates ~~sixteen~~twenty retail hub locations in the U.S., initially launched in the Mid-Atlantic region and since expanded to the Southeast, Southcentral, Midwest, West and Pacific Northwest regions of the United States.

3031

Our current facilities are located in ~~Virginia,~~California, Colorado, Georgia, Florida, Illinois, North Carolina, ~~Florida, Illinois,~~Tennessee, Texas, ~~Tennessee, California, Colorado~~Virginia and Washington State.

~~Our~~Generally, our hubs act as both physical showrooms with retail sales ~~volumes~~ and as consignment centers where we can source, process and recondition newly acquired vehicles. Our ability to source vehicles through these locations is important to our asset-light business model. At these hubs, our vehicles undergo an extensive 133-point inspection and reconditioning process in preparation for resale. Our hubs are more than just locations to buy, sell and repair vehicles and are crucial to the information and data-analytics that we make available to our corporate vehicle sourcing partners and retail customers.

For our corporate vehicle sourcing partners, we have developed proprietary technology that ~~integrates~~can integrate with their internal systems and supports every step in the consignment, reconditioning and sales ~~process. For our retail buyers, we have developed a fully digital, end-to-end e-commerce platform that includes every step in the vehicle selection, financing and check-out~~ process. To supplement these systems, we have developed custom-built data analytics tools that provide real time information to our corporate vehicle sourcing partners, retail sellers, ~~retail buyers~~ and ourselves. For our retail buyers, we offer a ~~fully~~ digital and hassle-free process that offers our full range of services, as we continue to expand our technological solutions. Our strategy is to roll out a fully integrated mobile application while continuing to expand our digital car buying platform.

Business Update

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

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

Hubs opened in 2021 have not been ramping to expected results and consequently have not provided the expected contribution to unit sales, revenue, and gross profit. Also, we experienced a weaker retail GPU and gross profit performance for the three months ended ~~June~~September 30, 2021, ~~due primarily to higher average~~as we reduced prices on aging inventory which reduced the margin between our selling prices ~~for vehicles sourced in the first half of the quarter via purchase~~ and ~~consignment at lower relative cost~~vehicle acquisition costs on owned inventory.

Additionally, as ~~average used vehicle selling prices were appreciating, resulting from high consumer demand. As~~ previously disclosed, in mid-May 2021, the corporate vehicle sourcing partner that accounted for more than 60% of the cars we sold during the fourth quarter of 2020 and the three months ended March 31, 2021 informed us that it would be pausing its consignment of vehicles to us ~~with immediate effect,~~ due to the ~~current~~ strength of the wholesale market for vehicles. In order to secure sufficient inventory for sale following such pause in consignments, we significantly increased our purchasing of vehicles through wholesale auctions. At June 30, 2021, consigned vehicles represented approximately 20% of our vehicle inventory. This mix has continued into the third quarter to date. Retail GPU and gross profit decreased during the second half of the quarter as average used vehicle sale prices began to level off, reducing the margin between our selling prices and vehicle acquisition costs that we benefited from in the first half of the quarter.

~~In the past few weeks, we began discussions with our~~The corporate vehicle sourcing partner ~~that paused their consignments~~resumed its consignment of vehicles with ~~respect to the potential resumption of consignments. We have consigned several vehicles~~us in the ~~last week. We cannot provide assurance, though, as to when this~~third quarter. Although the corporate vehicle sourcing partner resumed its consignment of vehicles with us in the third quarter, they have not returned to the same volume of vehicles and we cannot provide assurance that they will ~~consign a material~~return to the same volume of vehicles, and if the price, types and quality of ~~such~~ vehicles will be attractive to us.

~~During~~As inventory levels increased and we moved through the ~~first half~~quarter, we decreased our purchasing of 2021 and continuing in the third quarter to date, due to the continuing chip shortage and COVID-related supply chain issues constraining supply coupled with significant consumer demand influenced by COVID-related financial stimulus, there has been a sustained compression of the margin between retail and wholesale prices, which has reduced the value we can deliver to our corporate vehicle sourcing partners via Retail Remarketing™, making consignment less attractive to partners than quickly selling vehicles through ~~the~~ wholesale ~~channel. While this gap between retail and wholesale prices is beginning to return, supply~~auctions as we increased our sourcing of ~~used~~non-competitively sourced vehicles. At September 30, 2021, consigned vehicles from our corporate vehicle sourcing partners is severely constrained by the lack of new vehicle supply due to the chip shortage. Due to the continued uncertainty influencing the used vehicle market, we are unable to predict when there will be a return to a more normalized used vehicle market.

~~Having to source a significant majority~~represented approximately 21% of our vehicles via wholesale auction during a period of severe supply constraints has limited the types of cars available to us for purchase to generally lower aged vehicles with higher average price points than in prior quarters. This difference in inventory has resulted in increasing average days to sale and increasing our exposure to depreciation in selling prices as well as lower unit sales. We have experienced depreciation in retail gross profit in the third quarter, and we expect gross profit to be at decreased levels until the used vehicle ~~market normalizes and the mix of inventory changes.~~

As a result of the factors described above, our hubs opened in 2021 have not been ramping to expected results and consequently have not provided the expected contribution to gross profit. We expect a similar extended ramp up period to profitability and unit sales with additional hubs that we open prior to market conditions normalizing.

inventory.

Revenue Generation

CarLotz generates a significant majority of its revenue from contracts with retail customers related to the sales of vehicles. We sell used vehicles to our retail customers from our hubs located throughout the U.S. Customers also ~~frequently~~may trade-in their existing vehicle to apply toward the transaction price of a used vehicle, for which we generate revenue on the sale of a used vehicle to the customer trading-in their vehicle and on the traded-in vehicle when it is sold to a new owner. We also sell vehicles to wholesalers or other dealers, primarily at auctions. Generally, the vehicles sold ~~to wholesalers or other dealers~~through the wholesale channel are vehicles acquired via trade-in, acquired via consignment that do not meet our quality standards for sale to retail customers, or vehicles that remain unsold at the end of the consignment ~~period.~~period, retail vehicles that did not sell through the retail channel

within a reasonable period of time, or vehicles that the Company determines offer greater financial benefit through the wholesale channel. CarLotz generates revenue from providing retail vehicle buyers with options for financing, insurance and extended warranties. Our revenue for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was ~~$94.6~~$175.4 million and ~~$44.7~~$81.6 million, respectively.

Inventory Sourcing

We source vehicles from both corporate and consumer sellers, and auctions. We source vehicles non-competitively through the industry’s leading consignment to retail sales model, and we also source vehicles competitively through purchase as necessary to provide inventory at our newer hub locations, to round out our inventory and during periods such as the one we are currently experiencing when market conditions reduce the incremental value we are able to provide to our sourcing partners through the retail channel, as compared to the wholesale channel. We maintain long-term sourcing relationships with numerous key blue-chip national accounts and have a sales pipeline of potential new accounts. We support our corporate vehicle sourcing partners by offering an integrated technology platform that allows our supply partners to track the sale process of their vehicles in real-time, along with a custom system for managing customer leads and leads from third party providers.

Our proprietary application includes a suite of features tailored to create significant value for ~~both buyers and~~ sellers with tools for ~~photographing,~~ documenting and transmitting vehicle information. This includes a proprietary custom-built vehicle retailing and wholesaling platform that creates and verifies all documents for the purchase or sale ~~and financing over the web or~~ in-hub. Our technology offers a custom system for managing customer leads, scheduling appointments and test drives from our applications and websites as well as from third party providers.

In addition to our flat fee model, we also enter into alternative fee arrangements with certain corporate vehicle sourcing partners based on a return above a wholesale index or based on a profit share program. Under these alternative fee arrangements, our gross profit for a particular unit could be higher or lower than the gross profit per unit we would realize under our flat fee pricing model depending on the unit’s sale price, and fees we are able to charge in connection with the sale. As we do not have long-term contracts with any of our corporate vehicle sourcing partners and do not require them to make vehicles available to us, our volume and mix of vehicles from our corporate vehicle sourcing partners has and will continue to fluctuate over time.

We also have dealer owned inventory that operates in a similar manner to traditional used car dealers and which exposes us more directly to the effects of changes in vehicle prices and, particularly when sourcing via wholesale auction purchase, to the margin between retail and wholesale prices. Our gross profit per unit is therefore likely to fluctuate from period to period, perhaps significantly, due to our mix of flat fee, dealer owned and alternative fee arrangements as well as due to our acquisition costs and the sales prices and fees we are able to collect on the vehicles.

Generally, our hubs have integrated vehicle processing centers, which allows us to recondition vehicles at the hub. Our step-by-step process includes ~~all~~most aspects of preparing a vehicle for sale, including a 133-point inspection, mechanical and ~~body~~cosmetic reconditioning, ~~detail, merchandising~~detailing and ~~imaging.~~merchandising. As we scale our business, ~~our plan is to invest in~~each new hub provides us increased processing capacity. In addition to achieving cost savings and operational efficiencies, we aim to lower our days to sale. Going forward, our strategy is to make capital investments in additional hubs with integrated vehicle processing centers by leveraging our data analytics and industry experience and taking into account a combination of factors, including proximity to buyers and sellers, transportation costs and access to inbound inventory. All of these initiatives are designed to lower reconditioning costs per unit.

Regional Hub Network

Through our full service e-commerce website and ~~sixteen~~twenty regional hubs, we provide a ~~seamless~~ shopping experience for today’s modern vehicle buyer, allowing our nationwide retail customers to transact online, in-person or a combination of both. We offer a full-spectrum of inventory, including high-value and commercial vehicles, available for delivery anywhere in the U.S. Our regional hubs allow for test drives and on-site purchase, which we plan to expand to nationwide coverage.

Finance and Insurance (F&I)

CarLotz also generates revenue from providing retail vehicle buyers with options for financing, insurance and extended warranties; these services are provided by third parties that pay CarLotz a commission based on our customers’ purchases. Since we do not control these products before they are transferred to the consumer, we recognize commission revenue at the time of sale. We plan to expand our F&I product offering to drive additional gross profit.

Factors Affecting our Performance

Expansion into New Geographic Markets

We actively monitor attractive markets to enter, with a focus on highly concentrated or growing demographic areas and attractive start-up costs. Our real estate team has identified new hub locations in furtherance of our goal of opening at least 14 ~~to 16~~ new hubs in 2021. ~~Seven~~Ten new hubs were opened in the ~~six~~nine months ended ~~June~~September 30, ~~2020~~2021 in Texas, Florida, Tennessee, Virginia, California, Illinois, Georgia, Colorado and Washington. ~~In addition, we had a new hub open in Colorado on July 26, 2021.~~ We believe an expanded footprint will enable us to increase our vehicle sales and further penetrate our national vehicle sourcing partners while also attracting new corporate vehicle sourcing partners that were previously unavailable due to our geographic limitations. The laws of certain states that we enter may currently or in the future restrict our operations or limit the fees we can charge for certain services.

Further Penetration of Existing Accounts and Key Vehicle Channels

We believe that we can benefit from significant untapped volume with existing corporate vehicle sourcing partners and that our growing footprint will allow us to better serve our national accounts. Many of our existing sourcing partners still sell less than 5% of their volumes through the retail channel. As Retail Remarketing™ continues to develop as a more established alternative and as CarLotz expands to ~~service~~serve buyers and sellers nationwide, we anticipate growth with our existing commercial sellers, after the supply constraints return to normal.

Innovation and Expanded Technological Leadership

We are constantly reviewing our technology platform, and our strategy is to leverage our existing technological leadership through our end-to-end e-commerce platform to continually enhance both the car buying and selling experience, while ~~providing~~generating insightful data analytics in real time. Over the next two years, we plan to invest significantly in our core suite of technology to enhance the buyer and seller experience, improve our B2B vehicle sourcing and enhance our business intelligence capabilities with increased machine learning and artificial intelligence. In addition, we plan to invest significant amounts for various retail and processing enhancements.

Investments in Additional Processing Capacity

As we scale our business, our plan is to invest in increased processing capacity. In addition to achieving cost savings and operational efficiencies, we aim to lower our days to sale. Going forward, our strategy is to make capital investments in additional processing centers by leveraging our data analytics and industry experience and taking into account a combination of factors, including proximity to buyers and sellers, transportation costs and access to inbound inventory. All of these initiatives are designed to lower reconditioning costs per unit and thereby improve per unit economics.

Addition of New Corporate Vehicle Sourcing Accounts

We plan to leverage our national footprint in order to access new corporate vehicle sourcing partners, which may not have been accessible in the past due to our current limited geographic reach. Additional vehicle volume from new accounts would allow us to improve our consigned vehicle market share at existing and new locations.

Investment in Brand and Tactical Marketing

With a portion of the additional capital we raised in connection with the Merger, we ramped up our local advertising and began to focus on a more national audience. Our plan includes analytics-driven, targeted marketing investments to accelerate growth while being accretive to margins. With improved awareness of our brand and our services, we plan to identify, attract and convert new corporate vehicle sourcing partners at optimized cost.

Increased Service Offerings and Price Optimization

As we further develop the CarLotz brand, we believe our enhanced platform will support increased revenue from product sales and optimized vehicle pricing. Areas of potential further investment in service offerings include (i) expansion of existing and new F&I products that may cover appearance, roadside assistance, key insurance and wheel and tire production and (ii) further development of a front-end digital solution to source more vehicles from consumers.

Seasonality

Used vehicle sales exhibit seasonality with sales typically peaking late in the first calendar quarter and diminishing through the rest of the year, with the lowest relative level of vehicle sales expected to occur in the fourth calendar quarter. Used vehicle prices also exhibit seasonality, with used vehicle prices ~~depreciating~~declining at a faster rate in the last two quarters of each year and a slower rate in the first two quarters of each year. Historically, this has led our gross profit per unit to be higher on average in the first half of the year than in the second half of the year. Because of the market dynamics ~~that drove up~~related to the ~~average sales price of~~continuing semi-conductor chip shortage and COVID-related supply chain issues constraining supply, we have not seen the typical seasonality related to used ~~cars, we could see~~vehicle prices. Average used ~~car~~vehicle prices ~~depreciating~~began to level off at ~~a faster rate than historically seen in~~ the ~~last two quarters~~beginning of the ~~year.~~third quarter before continuing to appreciate throughout the third quarter.

Impact of COVID-19

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

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

Like many companies, COVID-19 has increased our focus on the health and safety of our guests, employees and their families. To maintain a safe work environment, we have implemented procedures aligned with the Centers for Disease Control and Prevention to limit the spread of the virus and provide a safe environment for our guests and teammates. Some of the measures taken include encouraging our teammates to take advantage of flexible work arrangements, acquiring additional corporate office space and mandating social distancing.

Key Operating Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our progress and make strategic decisions. Our operating metrics (which may be changed or adjusted over time as our business scales up or industry dynamics change) measure the key drivers of our growth, including opening new hubs, increasing our brand awareness through unique site visitors and continuing to offer a full spectrum of used vehicles to service all types of customers.

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Retail vehicles sold 2,009 1,376 4,563 2,829
Number of hubs 15 8 15 8
Average monthly unique visitors 177,377 52,236 178,080 57,346
Vehicles available for sale 1,431 819 1,431 819
Retail gross profit per unit $ 2,175 $ 1,858 $ 1,619 $ 1,744
Percentage of unit sales via consignment 60 % 60 % 72 % 55 %


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Retail vehicles sold	2,490			1,571			7,053			4,400
Number of hubs	18			8			18			8
Average monthly unique visitors	291,948			54,294			216,036			54,294
Vehicles available for sale	2,594			1,567			2,594			1,567
Retail gross profit per unit	$	939		$	2,181		$	1,379		$	1,900
Percentage of unit sales via consignment	19		%	63		%	53		%	63		%

Retail Vehicles Sold

We define retail vehicles sold as the number of vehicles sold to customers in a given period, net of returns. We currently have a three-day, 500 mile exchange policy. The number of retail vehicles sold is the primary contributor to our revenues and gross profit, since retail vehicles enable multiple complementary revenue streams, including all finance and insurance products. We view retail vehicles sold as a key measure of our growth, as growth in this metric is an indicator of our ability to successfully scale our operations while maintaining product integrity and customer satisfaction.

Number of Hubs

We define a hub as a physical location at which we may recondition and store vehicles purchased and sold within a market. Our hubs cover a geographic area of approximately 300 miles, while some of our commercial accounts expand our coverage up to 1,000 miles, based on available inventory type. This is a key metric as each hub expands our service area, vehicle sourcing, reconditioning and storage capacity.

Average Monthly Unique Visitors

We define a monthly unique visitor as an individual who has visited our website within a calendar month, based on data provided by Google Analytics. We calculate average monthly unique visitors as the sum of monthly unique visitors in a given period, divided by the number of months in that period. We view average monthly unique visitors as a key indicator of the strength of our brand, the effectiveness of our advertising and merchandising campaigns and consumer awareness.

Vehicles Available-for-Sale

We define vehicles available-for-sale as the number of vehicles listed for sale on our website on the last day of a given reporting period. Along with our hub expansion, we view vehicles available-for-sale as a key measure of our growth. Growth in vehicles available-for-sale increases the selection of vehicles available to consumers in all of our markets simultaneously, which we believe will allow us to increase the number of vehicles we sell. Moreover, growth in inventory units available is an indicator of our ability to scale our vehicle sourcing, inspection and reconditioning operations.

Retail Gross Profit per Unit

We define retail gross profit per unit as the aggregate retail and F&I gross profit in a given period divided by retail vehicles sold during that period. Total retail gross profit per unit is driven by sales of used vehicles and the profit margin and fees on sale of those vehicles, each of which may generate additional revenue from providing retail vehicle buyers with options for financing, insurance and extended warranties. We believe gross profit per unit is a key measure of our growth and long-term profitability.

Percentage of unit sales sourced via consignment

We define percentage of unit sales sourced via consignment as the percentage derived by dividing the number of vehicles sold during the period that were sourced via consignment divided by the total number of vehicles sold during the period. This is key because this metric underlies part of our competitive advantage in the market. The percentage of unit sales sourced via consignment dropped in the ~~second~~third quarter of 2021 due to the ~~pause by our largest vehicles sourcing partner, which led to our sourcing more~~low supply of ~~our vehicles competitively at auction. GPU for the quarter remained strong because of increased finance and insurance penetration and dealer inventory sourced in the first half~~commercial consignments available as a result of the ~~quarter being sold at attractive prices to the~~chip shortage. We experienced erosion in retail buyer in a macroeconomic environment where the average used vehicle sales price was appreciating. GPU was lower in the second half of the quarter as dealer inventory was sourced at higher prices while selling prices leveled off. We have experienced lower gross profit ~~on vehicle sales~~ in the third quarter, ~~to date. We anticipate this will continue in the third~~ and ~~fourth quarters as~~ we expect gross profit to be ~~at decreased levels~~under pressure until ~~the used vehicle market normalizes and~~ the mix of inventory changes.

Components of Results of Operations

Revenues

Retail Vehicle Sales

CarLotz sells used vehicles to retail customers through its hubs in various cities throughout the continental U.S. Revenue from retail vehicle sales is recognized when the title to the vehicle passes to the customer, at which point the customer controls

the vehicle. We recognize revenue based on the total purchase price stated in the contract, including any processing fees. Our exchange policy allows customers to initiate a return until the earlier of the first three days or 500 miles after delivery.

Wholesale Vehicle Sales

~~We sell wholesale vehicles primarily through auction as wholesale vehicles acquired often~~

Vehicles that do not meet ~~our~~the Company’s standards for retail vehicle ~~sales.~~sales, retail 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. Revenue from wholesale vehicle sales is recognized when the vehicle is sold, either at auction or directly to a wholesaler, and title to the vehicle passes to the buyer.

Finance and Insurance, net

We provide customers with options for financing, insurance and extended warranties. Certain warranties sold beginning January 1, 2019 are serviced by a company owned by a major stockholder. All other such services are provided by third-party vendors with whom we have agreements giving us the right to offer such services directly. When a customer selects a service from these third-party vendors, we earn a commission based on the actual price paid or financed. We recognize finance and insurance revenue at the point in time when the customer enters into the contract.

Lease Income, net

Lease income, net represents revenue earned on the spread between the interest rate on leases we enter into with our B2B lease customers and the related leases we enter into with third party lessors.

Cost of Sales

Cost of sales includes the cost to acquire used vehicles and the related reconditioning costs to prepare the vehicles for resale. Vehicle reconditioning costs include parts, labor, inbound transportation costs and other costs such as mechanical inspection, vehicle preparation supplies and repair costs. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily include compensation and benefits, marketing, facilities cost, technology expenses, logistics and other administrative expenses. Advertising costs are expensed as incurred.

Depreciation and Amortization

Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which is: the lesser of 15 years or the underlying lease terms for leasehold improvements, one to five years for equipment, furniture and fixtures, and five years for corporate vehicles. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Major remodels and improvements are capitalized. Depreciation on vehicles leased to B2B customers is calculated using the straight-line over the estimated useful life. Amortization of capitalized website and internal-use software costs is computed using the straight-line method over 3 years.

Non-Operating Expenses

Non-operating expenses represent the change in fair value of the Merger warrants and the earnout shares. Additional non-operating income and expense include interest income on marketable securities, floor plan interest incurred on borrowings to finance the acquisition of used vehicle inventory under the Company’s former $12 million revolving floor plan facility with Automotive Finance Corporation and floor plan interest incurred on borrowings to finance the acquisition of used vehicle inventory under the Company’s current $40 million revolving floor plan facility with Ally.

3637

Results of Operations

The following table presents our condensed consolidated statements of operations for the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
		($ in thousands)									($ in thousands)
Revenues:	Revenues:									Revenues:
Retail vehicle sales	Retail vehicle sales	$	44,230	$	23,652	$	94,613	$	44,694	Retail vehicle sales	$	56,284	$	26,694	$	150,897	$	71,388
Wholesale vehicle sales	Wholesale vehicle sales	4,660		1,725		9,228		5,036		Wholesale vehicle sales	8,989		2,088		18,217		7,124
Finance and insurance, net	Finance and insurance, net	1,780		895		3,334		1,787		Finance and insurance, net	2,639		910		5,973		2,697
Lease income, net	Lease income, net	98		127		205		272		Lease income, net	129		101		334		373
Total Revenues	Total Revenues	50,768		26,399		107,380		51,789		Total Revenues	68,041		29,793		175,421		81,582
Cost of sales (exclusive of depreciation)	Cost of sales (exclusive of depreciation)	46,586		23,670		101,190		46,588		Cost of sales (exclusive of depreciation)	66,017		26,217		167,207		72,805
Gross Profit	Gross Profit	4,182		2,729		6,190		5,201		Gross Profit	2,024		3,576		8,214		8,777
Operating Expenses:	Operating Expenses:									Operating Expenses:
Selling, general and administrative	Selling, general and administrative	19,386		3,073		38,259		6,989		Selling, general and administrative	24,780		4,147		63,039		11,136
Stock based compensation expense	Stock based compensation expense	3,704		3		45,667		37		Stock based compensation expense	3,447		—		49,114		37
Depreciation expense		95		91		478		191
Depreciation and amortization expense										Depreciation and amortization expense	1,214		78		1,692		269
Management fee expense – related party	Management fee expense – related party	—		70		2		132		Management fee expense – related party	—		63		2		195
Total Operating Expenses	Total Operating Expenses	23,185		3,237		84,406		7,349		Total Operating Expenses	29,441		4,288		113,847		11,637
Loss from Operations	Loss from Operations	(19,003)		(508)		(78,216)		(2,148)		Loss from Operations	(27,417)		(712)		(105,633)		(2,860)
Interest expense	Interest expense	184		107		359		256		Interest expense	650		104		1,009		360
Other Income (Expense), net	Other Income (Expense), net									Other Income (Expense), net
Change in fair value of Merger warrants liability	Change in fair value of Merger warrants liability	325		—		12,683		—		Change in fair value of Merger warrants liability	12,111		—		24,794		—
Change in fair value of redeemable convertible preferred stock tranche obligation	Change in fair value of redeemable convertible preferred stock tranche obligation	—		345		—		629		Change in fair value of redeemable convertible preferred stock tranche obligation	—		333		—		962
Change in fair value of earnout provision	Change in fair value of earnout provision	12,210		—		44,056		—		Change in fair value of earnout provision	12,565		—		56,621		—
Other (expense) income	Other (expense) income	(553)		61		(391)		64		Other (expense) income	(85)		(6)		(476)		58
Total Other Income (Expense), net		11,982		406		56,348		693
Total Other Income, net										Total Other Income, net	24,591		327		80,939		1,020
Loss Before Income Tax Expense	Loss Before Income Tax Expense	(7,205)		(209)		(22,227)		(1,711)		Loss Before Income Tax Expense	(3,476)		(489)		(25,703)		(2,200)
Income tax expense	Income tax expense	—		4		—		9		Income tax expense	—		3		—		12
Net Loss	Net Loss	$	(7,205)	$	(213)	$	(22,227)	$	(1,720)	Net Loss	$	(3,476)	$	(492)	$	(25,703)	$	(2,212)

Presentation of Results of Operations

We present operating results down to gross profit for our three distinct revenue channels along with our net lease income:

Retail Vehicle Sales: Retail vehicle sales represent sales of vehicles to our retail customers through our hubs in various cities.

Wholesale Vehicle Sales: Wholesale vehicle sales represent sales of vehicles through wholesale channels, primarily through wholesale auctions.

Finance and Insurance: Finance and insurance represents commissions earned on financing, insurance and extended warranty products that we offer to our retail vehicle buyers.

Lease Income, net: Lease income, net represents revenue earned on the spread between the interest rate on leases we enter into with our B2B lease customers and the related leases we enter into with third party lessors.

3738

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020

The following table presents certain information from our condensed consolidated statements of operations by channel:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021		2020		Change		2021		2020		Change			2021		2020		Change		2021		2020		Change
		($ in thousands, except per unit metrics)						($ in thousands, except per unit metrics)							($ in thousands, except per unit metrics)						($ in thousands, except per unit metrics)
Revenue:	Revenue:													Revenue:
Retail vehicle sales	Retail vehicle sales	$	44,230	$	23,652	87.0	%	$	94,613	$	44,694	111.7	%	Retail vehicle sales	$	56,284	$	26,694	110.8	%	$	150,897	$	71,388	111.4	%
Wholesale vehicle sales	Wholesale vehicle sales	4,660		1,725		170.1	%	9,228		5,036		83.2	%	Wholesale vehicle sales	8,989		2,088		330.5	%	18,217		7,124		155.7	%
Finance and insurance, net	Finance and insurance, net	1,780		895		98.9	%	3,334		1,787		86.6	%	Finance and insurance, net	2,639		910		190.0	%	5,973		2,697		121.5	%
Lease income, net	Lease income, net	98		127		(22.8)	%	205		272		(24.6)	%	Lease income, net	129		101		27.7	%	334		373		(10.5)	%
Total revenues	Total revenues	50,768		26,399		92.3	%	107,380		51,789		107.3	%	Total revenues	68,041		29,793		128.4	%	175,421		81,582		115.0	%
Cost of sales:	Cost of sales:													Cost of sales:
Retail vehicle cost of sales	Retail vehicle cost of sales	$	41,641	$	21,991	89.4	%	$	90,558	$	41,546	118.0	%	Retail vehicle cost of sales	56,584		24,177		134.0	%	147,142		65,723		123.9	%
Wholesale vehicle cost of sales	Wholesale vehicle cost of sales	4,945		1,679		194.5	%	10,632		5,042		110.9	%	Wholesale vehicle cost of sales	9,433		2,040		362.4	%	20,065		7,082		183.3	%
Total cost of sales	Total cost of sales	$	46,586	$	23,670	96.8	%	$	101,190	$	46,588	117.2	%	Total cost of sales	$	66,017	$	26,217	151.8	%	$	167,207	$	72,805	129.7	%
Gross profit:	Gross profit:													Gross profit:
Retail vehicle gross profit		$	2,589	$	1,661	55.9	%	$	4,055	$	3,148	28.8	%
Wholesale vehicle gross profit		(285)		46		719.6	%	(1,404)		(6)		(23,300.0)	%
Retail vehicle gross profit (loss)														Retail vehicle gross profit (loss)	$	(300)	$	2,517	(111.9)	%	$	3,755	$	5,665	(33.7)	%
Wholesale vehicle gross profit (loss)														Wholesale vehicle gross profit (loss)	(444)		48		(1,025.0)	%	(1,848)		42		(4,500.0)	%
Finance and insurance gross profit	Finance and insurance gross profit	1,780		895		98.9	%	3,334		1,787		86.6	%	Finance and insurance gross profit	2,639		910		190.0	%	5,973		2,697		121.5	%
Lease income, net	Lease income, net	98		127		(22.8)	%	205		272		(24.6)	%	Lease income, net	129		101		27.7	%	334		373		(10.5)	%
Total gross profit	Total gross profit	$	4,182	$	2,729	53.2	%	$	6,190	$	5,201	19.0	%	Total gross profit	$	2,024	$	3,576	(43.4)	%	$	8,214	$	8,777	(6.4)	%
Retail gross profit per unit(1):	Retail gross profit per unit(1):													Retail gross profit per unit(1):
Retail vehicles gross profit		2,589		1,661		55.9	%	4,055		3,148		28.8	%
Retail vehicle gross profit (loss)														Retail vehicle gross profit (loss)	(300)		2,517		(111.9)	%	3,755		5,665		(33.7)	%
Finance and insurance gross profit	Finance and insurance gross profit	1,780		895		98.9	%	3,334		1,787		86.6	%	Finance and insurance gross profit	2,639		910		190.0	%	5,973		2,697		121.5	%
Total retail vehicles and finance and insurance gross profit		4,369		2,556		70.9	%	7,389		4,935		49.7	%
Retail vehicles unit sales		2,009		1,376		46.0	%	4,563		2,829		61.3	%
Total retail vehicle and finance and insurance gross profit														Total retail vehicle and finance and insurance gross profit	2,339		3,427		(31.7)	%	9,728		8,362		16.3	%
Retail vehicle unit sales														Retail vehicle unit sales	2,490		1,571		58.5	%	7,053		4,400		60.3	%

Retail vehicles gross profit per unit		$	2,175	$	1,858	17.1	%	$	1,619	$	1,744	(7.2)	%
Retail vehicle gross profit per unit														Retail vehicle gross profit per unit	$	939	$	2,181	(56.9)	%	$	1,379	$	1,900	(27.4)	%

______________

(1)Gross profit per unit is calculated as gross profit for retail vehicles and finance and insurance, each of which is divided by the total number of retail vehicles sold in the period.

Retail Vehicle Sales

Retail vehicle sales revenue increased by ~~$20.6~~$29.6 million, or ~~87.0%~~110.8%, to ~~$44.2~~$56.3 million during the three months ended ~~June~~September 30, 2021, from ~~$23.7~~$26.7 million in the comparable period in 2020. The increase was primarily driven by an increase in retail vehicle unit sales to ~~2,009~~2,490 retail vehicles in the three months ended ~~June~~September 30, 2021, compared to ~~1,376~~1,571 retail vehicles in the comparable period in 2020 and an increase in average sale price per unit of ~~$4,757,~~$5,652, to ~~$21,393~~$22,160 during the three months ended ~~June~~September 30, 2021. The average sale price has increased consistent with macroeconomic trends in the used car industry and as a result of selling a higher percentage of higher priced vehicles. ~~Same-hub unit sales represented 41% of our total unit sales growth of 633 units, with the balance of the increase in unit sales coming from hubs we have opened in 2021.~~

Retail vehicle sales revenue increased by ~~$49.9~~$79.5 million, or ~~111.7%~~111.4%, to ~~$94.6~~$150.9 million during the ~~six~~nine months ended ~~June~~September 30, 2021, from ~~$44.7~~$71.4 million in the comparable period in 2020. The increase was primarily driven by an increase in retail vehicle unit sales to ~~4,563~~7,053 retail vehicles in the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~2,829~~4,400 retail vehicles in the comparable period in 2020 and an increase in average sale price per unit of ~~$4,903,~~$5,285, to ~~$20,177~~$21,000 during the ~~six~~nine months ended ~~June~~September 30, 2021. The average sale price has increased consistent with macroeconomic trends in the used car industry and as a result of selling a higher percentage of higher priced vehicles. The six months ended June 30, 2021 had better in-stock levels when compared to the in-stock levels based on the Covid-19 outlook for the comparable period in 2020. Same-hub unit sales represented 67% of our total unit sales growth of 1,734 units, with the balance of the increase in unit sales coming from hubs we have opened in 2021.

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Wholesale Vehicle Revenue

Wholesale vehicle revenue increased by ~~$2.9~~$6.9 million, or ~~170.1%~~330.5%, to ~~$4.7~~$9.0 million during the three months ended ~~June~~September 30, 2021, from ~~$1.7~~$2.1 million in the comparable period in 2020. The increase was primarily due to an increased average selling price of the wholesale vehicles sold, combined with an increase in wholesale vehicle unit sales.

Wholesale vehicle revenue increased by ~~$4.2~~$11.1 million, or ~~83.2%~~155.7%, to ~~$9.2~~$18.2 million during the ~~six~~nine months ended ~~June~~September 30, 2021, from ~~$5.0~~$7.1 million in the comparable period in 2020. The increase was primarily due to an increased average selling price of the wholesale vehicles sold, combined with an increase in wholesale vehicle unit sales.

Finance and Insurance (F&I)

F&I revenue increased by ~~$0.9~~$1.7 million, or ~~98.9%~~190.0%, to ~~$1.8~~$2.6 million during the three months ended ~~June~~September 30, 2021, from $0.9 million in the comparable period in 2020. This increase in F&I revenue was driven by our increase in retail unit sales and higher penetration of contract sales per unit sold.

F&I revenue increased by ~~$1.5~~$3.3 million, or ~~86.6%~~121.5%, to ~~$3.3~~$6.0 million during the ~~six~~nine months ended ~~June~~September 30, 2021, from ~~$1.8~~$2.7 million in the comparable period in 2020. This increase in F&I revenue was driven by our increase in retail unit sales and higher penetration of contract sales per unit sold.

Lease Income, net

Lease income, net was $0.1 million during the three months ended ~~June~~September 30, 2021 and 2020.

Lease income, net decreased by $0.1 million, or 24.6%, to ~~$0.2~~$0.3 million during the ~~six~~nine months ended ~~June~~September 30, 2021, from ~~$0.3~~$0.4 million in the comparable period in 2020.

Cost of Sales

Cost of sales increased by ~~$22.9~~$39.8 million, or ~~96.8%~~151.8%, to ~~$46.6~~$66.0 million during the three months ended ~~June~~September 30, 2021, from ~~$23.7~~$26.2 million in the comparable period in 2020. The increase was primarily due to an increased average acquisition price of the vehicles we sold in that period combined with an increase in the number of vehicles sold.

Cost of sales increased by ~~$54.6~~$94.4 million, or ~~117.2%~~129.7%, to ~~$101.2~~$167.2 million during the ~~six~~nine months ended ~~June~~September 30, 2021, from ~~$46.6~~$72.8 million in the comparable period in 2020. The increase was primarily due to an increased average acquisition price of the vehicles we sold in that period combined with an increase in the number of vehicles sold.

Retail Vehicle Gross Profit

Retail vehicle gross profit ~~increased~~(loss) decreased by ~~$0.9~~$(2.8) million, or ~~55.9%~~(111.9)%, to ~~$2.6~~$(0.3) million during the three months ended ~~June~~September 30, 2021, from ~~$1.7~~$2.5 million in the comparable period in 2020. The ~~increase~~decrease in retail gross profit for the three months ended ~~June~~September 30, 2021 resulted from a decrease in profit per unit compared to the same period in 2020 and was offset by an increase in units sold, aided by more hubs in ~~operation, and an increase in retail gross profit per unit compared to the same period in 2020.~~operation. The ~~increase~~decrease in retail gross profit per unit was driven by ~~increased~~decreased profit margins due to ~~higher~~a combination of elevated acquisition prices of inventory primarily sourced through auction in the second quarter and the lowering of retail prices relative to the acquisition ~~costs.~~costs as the inventory matured. Additionally, as a result of adjusting the carrying value of inventory to the lower of cost or net realizable value, gross profit decreased by $(0.9) million, reducing retail gross profit per unit by $376, for the three months ended September 30, 2021.

Retail vehicle gross profit ~~increased~~decreased by ~~$1.0~~$(1.9) million, or ~~28.8%~~(33.7)%, to ~~$4.1~~$3.8 million during the ~~six~~nine months ended ~~June~~September 30, 2021, from ~~$3.1~~$5.7 million in the comparable period in 2020. The ~~increase~~decrease in retail gross profit for the ~~six~~nine months ended ~~June~~September 30, 2021, resulted from ~~an increase in units sold, aided by more hubs in operation, and was slightly offset by~~ a decrease in retail gross profit per unit compared to the same period in ~~2020.~~2020 and was offset by an increase in units sold, aided by more hubs in operation. The decrease in retail gross profit per unit was driven by a higher portion of our sales in the first quarter of 2021 falling under an alternative fee arrangement with a corporate sourcing partner that does not reimburse repair and shipping ~~expenses.~~expenses and decreased profit margins in the third quarter due to a combination of elevated acquisition prices of inventory primarily sourced through auction in the second quarter and the lowering of retail prices relative to the acquisition costs as the inventory matured. Additionally, as a result of adjusting the carrying value of inventory to the lower of cost or net realizable value, gross profit decreased by $(1.0) million, reducing retail gross profit per unit by $137, for the nine months ended September 30, 2021.

Wholesale Vehicle Gross Profit

Wholesale vehicle gross profit (loss) decreased by ~~$(0.3)~~$(0.4) million, to ~~$(0.3)~~$(0.4) million during the three months ended ~~June~~September 30, 2021, from $0.0 million in the comparable period in 2020. The decrease was primarily driven by selling aged dealer owned inventory that we were unable to sell through the retail channel at wholesale.

Wholesale vehicle gross profit (loss) decreased by $(1.8) million, to $(1.8) million during the nine months ended September 30, 2021, from $0.0 million in the comparable period in 2020. The decrease was primarily driven by the number of delisted consignment units, primarily from our largest corporate account that paused sourcing, that were sent to wholesale, and the cost incurred to prepare those vehicles for sale at the time of ~~consignment.~~

~~Wholesale vehicle gross profit (loss) decreased by $(1.4) million,~~consignment as well as selling aged dealer owned inventory that we were unable to ~~$(1.4) million during~~sell through the six months ended June 30, 2021, from $0.0 million in the comparable period in 2020. The decrease was primarily driven by the number of delisted consignment units, primarily from our largest corporate account that paused sourcing, that were sent to wholesale, and the cost incurred to prepare those vehicles for saleretail channel at ~~the time of consignment.~~wholesale.

F&I Gross Profit

F&I revenue consists of 100% gross margin products for which there are no costs associated with the products. Therefore, changes in F&I gross profit and the associated drivers are identical to changes in F&I revenue and the associated drivers.

Components of SG&A


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
		($ in thousands)				($ in thousands)					($ in thousands)				($ in thousands)
Compensation and benefits(1)	Compensation and benefits(1)	$	5,907	$	1,409	$	12,763	$	3,527	Compensation and benefits(1)	$	6,700	$	1,772	$	19,463	$	5,300
Marketing	Marketing	3,906		399		6,432		940		Marketing	7,240		466		13,674		1,406
Technology	Technology	2,453		118		5,378		276		Technology	2,089		126		7,467		402
Other costs(2)	Other costs(2)	7,120		1,147		13,686		2,246		Other costs(2)	8,751		1,783		22,435		4,028
Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	19,386	$	3,073	$	38,259	$	6,989	Total selling, general and administrative expenses	$	24,780	$	4,147	$	63,039	$	11,136

(1)Compensation and benefits includes all payroll and related costs, including benefits, and payroll taxes, except those related to preparing vehicles for sale, which are included in cost of sales, and those related to the development of software products for internal use, which are capitalized to software and depreciated over the estimated useful lives of the related assets.

(2)Other costs include all other selling, general and administrative expenses such as facilities costs, logistics and other administrative expenses.

Selling, general and administrative expenses increased by ~~$16.3~~$20.7 million, to ~~$19.4~~$24.8 million during the three months ended ~~June~~September 30, 2021, from ~~$3.1~~$4.1 million in the comparable period in 2020. Costs related to being a public company increased ~~$6.0~~$7.0 million, primarily due to legal, accounting and insurance costs, compensation and benefits increased ~~$4.5~~$4.9 million due to increased corporate headcount and new hub openings, marketing expense increased ~~$3.5~~$6.8 million in connection with marketing higher levels of inventory online and our national expansion, and technology expense increased ~~$2.3~~$2.0 million due to website enhancements the Company has begun.

Selling, general and administrative expenses increased by ~~$31.3~~$51.9 million, to ~~$38.3~~$63.0 million during the ~~six~~nine months ended ~~June~~September 30, 2021, from ~~$7.0~~$11.1 million in the comparable period in 2020. Costs related to being a public company increased ~~$11.4~~$18.4 million, primarily due to legal, accounting and insurance costs, compensation and benefits increased ~~$9.2~~$14.2 million due to increased corporate headcount and new hub openings, marketing expense increased ~~$5.5~~$12.3 million in connection with marketing higher levels of inventory online and our national expansion, and technology expense increased ~~$5.1~~$7.1 million due to website enhancements the Company has begun.

Liquidity and Capital Resources

Sources of liquidity

Our main source of liquidity is cash generated from financing activities, which primarily includes proceeds from the Merger (see Note 3 — Merger in our condensed consolidated financial statements).

Since inception, we have generally operated at a loss for most periods. As of ~~June~~September 30, 2021, we had cash and cash equivalents, restricted cash and short-term marketable securities of ~~$259.2~~$201.2 million. We believe our available cash, restricted cash, short-term marketable securities and liquidity available under the Ally Facility are sufficient to fund our operations and expansion plans for at least the next 12 months. We expect that as we add hubs as part of our planned expansion and bring them to maturity, we will continue to operate at a loss until we achieve scale and are able to leverage our operating costs. Our hubs

opened in 2021 have not been ramping to expected results and consequently have not provided the expected contribution to unit sales, revenue and gross profit. If this continues to be the case, our cash on hand together with cash generated from operating activities may therefore be insufficient to fully fund the planned expansion of our business over the next couple years. In such a case, we would need to revise our expansion strategy or engage in equity or debt financings to secure additional funds in order to fund our continued expansion or we would need to slow or postpone the expansion to preserve cash. We may also require additional funds to the extent our plans change, if we elect to acquire complementary businesses or due to unforeseen circumstances. However, additional funds may not be available when we need them on terms that are acceptable to us, or at all.

Debt obligations

On March 10, 2021, we entered into an Inventory Financing and Security Agreement (the “Ally Facility”) with Ally Bank, a Utah chartered state bank (“Ally Bank”), and Ally Financial, Inc., a Delaware corporation (“Ally” and, together with Ally Bank, the “Lender”), pursuant to which the Lender may provide up to $30 million in financing, or such lesser sum which may be advanced to or on behalf of us from time to time, as part of our floorplan vehicle financing program. In June, the Company expanded the floor plan credit facility by $10 million to a total of $40 million. As of ~~June~~September 30, 2021, we had ~~$29.4~~$24.3 million principal outstanding under the Ally Facility, primarily from increased sourcing through vehicle purchases.

Under the Ally Facility, the Company is subject to financial covenants that require the Company to maintain at least 10% of the credit line in cash and cash equivalents, to maintain at least 10% of the credit line on deposit with Ally Bank and to maintain a minimum tangible net worth of $90 million calculated in accordance with U.S. GAAP.

Advances under the Ally Facility bear interest at a per annum rate designated from time to time by the Lender determined using a 365/360 simple interest method of calculation, unless expressly prohibited by law. The interest rate is currently the prime rate plus 2.50% per annum, or 5.75%. Advances under the Ally Facility, if not demanded earlier, are due and payable for each vehicle financed under the Ally Facility as and when such vehicle is sold, leased, consigned, gifted, exchanged, transferred, or otherwise disposed of. Interest under the Ally Facility is due and payable upon demand, but, in general, in no event later than 60 days from the date of request for payment. Upon any event of default (including, without limitation, our obligation to pay upon demand any outstanding liabilities of the Ally Facility), the Lender may, at its option and without notice to us, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to the Lender and its affiliates by us and our affiliates.

The Ally Facility is secured by a grant of a security interest in certain vehicle inventory and other assets of the Company.

Prior to our entry into the Ally Facility, we had a $12.0 million revolving floor plan facility available with AFC (the “AFC Facility”) to finance the acquisition of used vehicle inventory available on a revolving basis. The AFC Facility was secured by all of our assets. In connection with the entry into the Ally Facility, we repaid in full and terminated the AFC Facility.

On December 2, 2020, CarLotz issued a promissory note (the “Note”) to AFC. Under the terms of the Note, AFC agreed to make one advance to CarLotz upon request of $3.0 million. Amounts due under the Note accrued interest at 6.0% per year on a 365-day basis. The Note was due and payable on the earlier of the closing of the Merger and December 2, 2022. Amounts drawn on the Note were used for working capital purposes in the ordinary course of business. The Note was repaid upon the consummation of the Merger.

In April 2020, we received a loan totaling approximately $1.7 million from the Small Business Administration under the PPP to help us keep our workforce employed and avoid further headcount reduction during the COVID-19 crisis. The full amount of the PPP loan was repaid in connection with the closing of the Merger.

In December 2019, we entered into a note purchase agreement with AFC under which AFC agreed to purchase up to $5.0 million in notes, with the initial tranche equal to $3.0 million issued at closing and two additional tranches of at least $1.0 million on or prior to September 20, 2021, of which $0.5 million was issued prior to the completion of the Merger. The notes were converted into Former CarLotz common stock immediately prior to the consummation of the Merger and received the Merger consideration.

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Cash Flows — ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020

The following table summarizes our cash flows for the periods indicated:

Six Months Ended June 30,
2021 2020
($ in thousands)
Cash Flow Data:
Net cash provided by (used in) operating activities $ (70,664) $ 4,702
Net cash provided by (used in) investing activities (189,099) (791)
Net cash provided by (used in) financing activities 340,752 (2,552)


	Nine Months Ended September 30,
	2021		2020
	($ in thousands)
Cash Flow Data:
Net cash (used in) operating activities	$	(110,175)	$	(1,039)
Net cash (used in) investing activities	(165,774)		(1,059)
Net cash provided by financing activities	330,854		2,199

Operating Activities

For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used in operating activities was ~~$(70.7)~~$(110.2) million, primarily driven by net loss of ~~$(22.2)~~$(25.7) million adjusted for non-cash charges of ~~$(9.8)~~$(28.6) million and net changes in our operating assets and liabilities of ~~$(38.6)~~$(55.9) million. The non-cash adjustments primarily relate to a decrease in fair value of the warrants and earnout shares of ~~$(56.7)~~$(81.4) million, partially offset by stock compensation of ~~$45.7~~$49.1 million. The changes in operating assets and liabilities are primarily driven by an increase in inventories ~~$(36.3),~~$(46.8) million, an increase other current assets of ~~$(5.5)~~$(8.4) million and an increase in other long-term assets of ~~$(4.1)~~$(4.3) million, partially offset by an increase in accrued expenses of ~~$6.2~~$5.4 million and an increase in accounts payable of ~~$2.5~~$3.5 million.

For the ~~six~~nine months ended ~~June~~September 30, 2020, net cash ~~provided by~~used in operating activities was ~~$4.7~~$(1.0) million, primarily driven by a net loss of $(2.2) million and non-cash charges with a $(0.6) million impact on operating cash flows, partially offset by net changes in our operating assets and liabilities of ~~$6.8 million, partially offset by a net loss of $(1.7) million and non-cash charges with a $(0.4) million impact on operating cash flows.~~$1.8 million. The changes in operating assets and liabilities were primarily ~~driven by a decrease in inventories of $5.1 million,~~ an increase of accounts payable ~~$0.7~~of $0.9 million, ~~and~~ an increase in accrued expenses of ~~$1.0~~$0.8 million and an increase in other liabilities of $0.7 million, partially offset by an increase in ~~accounts receivable~~inventory of ~~$(0.3)~~$(0.6) million. The non-cash adjustments primarily relate to an increase in fair value of the preferred stock tranche obligation of ~~$(0.6)~~$(0.9) million offset by depreciation and amortization expense of property and equipment and lease vehicles of $0.1 million and $0.1 million, respectively.

Investing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used in investing activities was ~~$(188.9)~~$(165.8) million, primarily driven by purchases of marketable securities of ~~$(307.6)~~$(359.4) million, the purchase of property and equipment of ~~$(3.7)~~$(6.8) million and capitalized software costs of ~~$(6.6)~~$(11.5) million, partially offset by proceeds from sales and maturities of marketable securities of ~~$129.0~~$212.8 million.

For the ~~six~~nine months ended ~~June~~September 30, 2020, net cash used in investing activities of ~~$(0.8)~~$(1.1) million was primarily driven by purchases of marketable securities of ~~$(0.7) million and the purchase of lease vehicles of $(0.1)~~$(1.0) million.

Financing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash provided by financing activities was ~~$340.8~~$330.9 million, primarily driven by the issuance of common stock to the PIPE investors and Former CarLotz shareholders of $435.0 million ~~an advance from the holder of marketable securities of $4.7 million,~~ and borrowings on the floor plan facility of ~~$52.4~~$127.3 million, partially offset by the payments made to existing shareholders of Former CarLotz as part of the Merger of $(62.7) million, transaction costs and advisory fees of $(47.6) million, payments on floor plan notes payable of ~~$(29.1)~~$(109.0) million, payments made on accrued dividends of $(4.9) million, repayment of debt of $(4.7) million and the payment of cash consideration on options of $(2.5) million.

For the ~~six~~nine months ended ~~June~~September 30, 2020, net cash ~~used in~~provided by financing activities was ~~$(2.6)~~$2.2 million, primarily driven by borrowings on the floor plan facility of $16.8 million and long-term debt borrowings of $2.2 million, partially offset by repayment of the floor plan note payable of ~~$(13.4) million, partially offset by borrowings on the floor plan facility of $8.6 million and long-term debt borrowings of $2.2~~$(16.9) million.

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Contractual Obligations

The following table includes aggregated information about contractual obligations that affect our liquidity and capital needs. As of ~~June~~September 30, 2021, our contractual obligations were as follows:


		Payments Due by Period											Payments Due by Period
		Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More than 5 years			Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More than 5 years
		($ in thousands)											($ in thousands)
Floor plan facility(1)	Floor plan facility(1)	$	29,427	$	29,427	$	—	$	—	$	—	Floor plan facility(1)	$	24,284	$	24,284	$	—	$	—	$	—
Operating lease obligations	Operating lease obligations	25,506		1,719		8,459		6,160		9,168		Operating lease obligations	49,698		1,344		13,537		11,686		23,131
Total	Total	$	54,933	$	31,146	$	8,459	$	6,160	$	9,168	Total	$	73,982	$	25,628	$	13,537	$	11,686	$	23,131

______________

(1)Represents the principal amount outstanding as of ~~June~~September 30, 2021. Due to the uncertainty of forecasting the timing of expected variable interest rate payments, interest payment amounts are not included in the table. Borrowings under the floor plan facility are payable when the underlying vehicle is sold, which is expected to be less than one year.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our consolidated financial statements.

Critical Accounting Policies and Estimates

For information on critical accounting policies, see “Critical Accounting Policy and Estimates” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~attached as Exhibit 99.2~~contained in Post-Effective Amendment No. 1 to our ~~Current Report~~Registration Statement on Form ~~8-K/A~~S-1 filed with the SEC on ~~March 15,~~May 25, 2021 and Part I, Item 2 of the Quarterly Report on Form 10-Q for the period ended March 31, 2021.

Recently Issued and Adopted Accounting Pronouncements

See the section titled “Recently Issued Accounting Pronouncements” in Note 2 in the “Notes to Condensed Consolidated Financial Statements” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Cash and cash equivalents include highly liquid investments that are due on demand or have a remaining maturity of three months or less at the date of purchase. As of ~~June~~September 30, 2021, cash and cash equivalents consisted of bank deposits, money market placements and debt securities that have a remaining maturity of three months or less at the date of purchase.

The cash and cash equivalents are held primarily for working capital purposes. These interest-earning instruments are subject to interest rate risk. To date, fluctuations in interest income have not been significant. Our surplus cash has been invested in money market fund accounts, interest-bearing savings accounts and U.S. government debt securities as well as corporate debt securities from time to time. We have not entered into investments for trading or speculative purposes. Due to the conservative nature of our investment portfolio, which is predicated on capital preservation of investments with short-term maturities, we do not believe an immediate one percentage point change in interest rates would have a material effect on the fair market value of our portfolio, and therefore, we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates.

We also have exposure to changing interest rates in connection with the floor plan facility. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. Advances under the floor plan facility accrue interest at the most recent prime rate published in The

4344

Wall Street Journal plus 2.50% per annum and, as of ~~June~~September 30, 2021, the prime rate as published in The Wall Street Journal was 3.25%. We believe a change to our interest rate of 1% applicable to our outstanding indebtedness would have an immaterial financial impact. As of ~~June~~September 30, 2021, we had total outstanding debt of ~~$29.4~~$24.3 million under the floor plan facility.

Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Substantially all of our cash and cash equivalents were deposited in accounts at one financial institution, and account balances may at times exceed federally insured limits. Management believes that we are not exposed to significant credit risk due to the financial strength of the depository institution in which the cash is held.

Concentrations of credit risk with respect to trade receivables are limited due to the large diversity and number of customers comprising our retail customer base.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June~~September 30, 2021. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of ~~June~~September 30, 2021 due to the existence of a material weakness in internal control over financial reporting that was identified in connection with the audits of our consolidated financial statements as of December 31, 2019 and 2018 and for the years in the three year period ended December 31, 2019, and which is still being remediated.

Material Weakness in Internal Control Over Financial Reporting

Prior to the Merger, we were a private company with limited internal accounting and financial reporting personnel and other resources to address our internal control over financial reporting. In connection with the audits of our consolidated financial statements as of December 31, 2019 and 2018 and for the years in the three year period ended December 31, 2019, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. As defined in the standards established by the Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified relates to (i) our lack of sufficient accounting and financial reporting resources to address internal control over financial reporting and personnel with requisite knowledge and experience in application of U.S. GAAP and SEC rules and (ii) general information technology controls in the areas of user access and program change-management over certain information technology systems that support the Company’s financial reporting processes.

Remediation Efforts to Address Material Weakness

We are taking steps to remediate this material weakness through the implementation of appropriate segregation of duties, formalization of accounting policies and controls, hiring of additional qualified accounting and finance personnel, and engagement of financial consultants to enable the implementation of internal controls over financial reporting. We are also applying a more rigorous review of the monthly financial reporting processes to ensure that the performance of the control is evidenced through appropriate documentation that is consistently maintained and evaluating necessary changes to our formalized process to ensure key controls are identified, the control design is appropriate and the necessary evidentiary documentation is maintained throughout the process. We also plan to implement certain accounting systems to automate manual processes.

The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations.

Changes in Internal Control Over Financial Reporting

Except as disclosed above, there were no changes in our internal control over financial reporting that occurred during the ~~six~~nine months ended ~~June~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4546

Part II - OTHER INFORMATION

Item 1. Legal Proceedings

The information with respect to this Part II, Item ~~1can~~1 can be found in Note 15 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In addition to the other information set forth in this report, readers should carefully consider ~~the additional risk factors included below as well as~~ the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, which could materially affect our business, financial condition or future results. The risks described in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. The impact of COVID-19 may implicate and exacerbate other risks discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, including but not limited to risks relating to general economic conditions. This situation continues to evolve and additional impacts may arise that we are not currently aware of. Due to the unprecedented nature of the COVID-19 pandemic and responses thereto, we cannot identify all of the risks we face from the pandemic and its aftermath.

~~Sourcing vehicles via competitive purchases may expose us to additional risks or increase risks we are subject to.~~

When acquiring vehicles via competitive purchase, we take on all the risks of ownership of a vehicle. While purchasing a vehicle can provide an opportunity for us to retain higher profits than when selling on behalf of a vehicle consignor, it also exposes us to all of the risks of vehicle ownership. For purchased vehicles, we are not able to enter into any risk sharing arrangement with a vehicle consignor or to share any of the cost of preparing the vehicle for sale, whether directly or through fees deducted from the sale proceeds that we deliver to a vehicle consignor. Purchasing vehicles increases the amount of our assets represented by inventory at a given time, which may constrain the amount of inventory we can hold at a given time. In general, competitively sourced vehicles are obtained at a higher purchase price than non-competitively sourced vehicles, increasing the chance of selling at a loss and lower retail unit sales, especially during periods when we may be forced to be less selective in our purchases to maintain a sufficient level and variety of inventory. Sourcing vehicles via competitive purchase in general is likely to result in lower gross profit and GPU as compared to sourcing vehicles non-competitively as we are likely to pay a higher price for the same vehicle, which also results in increased interest expense due to higher borrowings under our floorplan facility.

4647

Exhibit Index

Item 6. Exhibits and Financial Statement Schedules


Exhibit No.						Description
3.1						Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-252993), filed with the SEC on February 11, 2021)

3.2						Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K (File No. 001-38818), filed with the SEC on January 27, 2021)

~~10.1~~						Addendum to Inventory Financing and Security Agreement, dated April 7, 2021, by and among Ally Bank, Ally Financial Inc. and CarLotz Group, Inc. (incorporated by reference to Exhibit 10.22.1 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-252993), filed with the SEC on May 26, 2021.















31.1*						Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2*						Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002

32.1*						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

32.2*						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002










































































































101.INS*						XBRL Instance Document

101.SCH*						XBRL Taxonomy Extension Schema Document

101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*						XBRL Taxonomy Extension Label Linkbase Document

101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document

_____________________

* Filed herewith

4748

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on ~~August 13,~~November 8, 2021.


			CarLotz, Inc.

By:			/s/ THOMAS W. STOLTZ
			Thomas W. Stoltz
			Chief Financial Officer
			(Duly Authorized Officer and Principal Financial Officer)

4849


		Page
Part I - Financial Information
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4344
Item 4.	Controls and Procedures	4445
Part II - Other Information
Item 1.	Legal Proceedings	4647
Item 1A.	Risk Factors	4647




Item 6.	Exhibits	4748
Signatures		4849


	Six Months Ended June 30, 2021
	Vehicle Sales		Fleet Management		Total
Retail vehicle sales	$	94,613	$	—	$	94,613
Wholesale vehicle sales	9,228		—		9,228
Finance and insurance, net	3,334		—		3,334
Lease income, net	—		205		205
Total Revenues	$	107,175	$	205	$	107,380


	Six Months Ended June 30, 2020
	Vehicle Sales		Fleet Management		Total
Retail vehicle sales	$	44,694	$	—	$	44,694
Wholesale vehicle sales	5,036		—		5,036
Finance and insurance, net	1,787		—		1,787
Lease income, net	—		272		272
Total Revenues	$	51,517	$	272	$	51,789

Balance (Expected volatility)

%80% - 85%

Expected dividend yield

Expected term (in years)

Risk-free interest rate

0.62% - ~~0.79%~~0.96%