UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
February 24, 2023 (
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13a-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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) if the Exchange Act.
Explanatory Note
On December 9, 2022, the Company filed a Current Report on Form 8-K (the “Initial Form 8-K”) to disclose, among other matters, that the Company had consummated the Merger. This Current Report on Form 8-K/A amends and supplements the Initial Form 8-K filed by the Company, and is being filed to provide the historical financial statements and the pro forma financial information pursuant to Items 9.01(a) and 9.01(b) of Form 8-K, respectively, and should be read in conjunction with the Initial Form 8-K.
Item 9.01. Financial Statements and Exhibits.
| (a) | Financial Statements of Businesses Acquired. |
The audited consolidated financial statements of CarLotz and its subsidiaries as of and for the years ended December 31, 2021 and 2020, are attached as Exhibit 99.1 and are incorporated herein by reference.
The unaudited condensed consolidated financial statements of CarLotz and its subsidiaries as of and for the nine months ended September 30, 2022 and 2021, are attached hereto as Exhibit 99.2 and are incorporated herein by reference.
| (b) | Pro Forma Financial Information. |
The unaudited pro forma condensed combined financial statements of the Company and CarLotz as of and for the year ended December 31, 2021 and for the nine months ended September 30, 2022 are attached hereto as Exhibit 99.3 and are incorporated herein by reference.
(d) Exhibits
| Exhibit No. |
Exhibit Description | |
| 23.1 | Consent of Deloitte & Touche LLP. | |
| 99.1 | Audited consolidated financial statements of CarLotz and its subsidiaries as of and for the year ended December 31, 2021 and 2020. | |
| 99.2 | Unaudited condensed consolidated financial statements of CarLotz and its subsidiaries as of and for the nine months ended September 30, 2022. | |
| 99.3 | Unaudited pro forma condensed combined financial statements of the Company and CarLotz as of and for the year ended December 31, 2021 and for the nine months ended September 30, 2022. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
1
SIGNATURE
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 hereunto duly authorized.
| SHIFT TECHNOLOGIES, INC. | ||
| Dated: February 24, 2023 | /s/ Jeff Clementz | |
| Name: | Jeff Clementz | |
| Title: | Chief Executive Officer | |
2
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-263613 and 333-261284 on Form S-3 and Registration Statement Nos. 333-268749, 333-265935 and 333-251437 on Form S-8 of our report dated March 15, 2022, relating to the financial statements of CarLotz, Inc. appearing in the Current Report on Form 8-K/A dated February 24, 2023.
/s/DELOITTE & TOUCHE LLP
Detroit, Michigan
February 24, 2023
Exhibit 99.1
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of CarLotz, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CarLotz, Inc., and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss), stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Detroit, Michigan
March 15, 2022
We have served as the Company’s auditor since 2020.
FINANCIAL INFORMATION
CarLotz, Inc. and Subsidiaries - Consolidated Balance Sheets
Years Ended December 31, 2021 and 2020
(In thousands, except share data)
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 75,029 | $ | 2,208 | ||||
| Restricted cash | 4,336 | 605 | ||||||
| Marketable securities - at fair value | 116,589 | 1,032 | ||||||
| Accounts receivable, net | 8,206 | 4,132 | ||||||
| Inventories | 40,985 | 11,202 | ||||||
| Other current assets | 4,705 | 6,679 | ||||||
| Total Current Assets | 249,850 | 25,858 | ||||||
| Marketable securities - at fair value | 1,941 | - | ||||||
| Property and equipment, net | 22,628 | 1,868 | ||||||
| Capitalized website and internal-use software costs, net | 13,716 | - | ||||||
| Lease vehicles, net | 1,596 | 173 | ||||||
| Other assets | 558 | 299 | ||||||
| Total Assets | $ | 290,289 | $ | 28,198 | ||||
| Liabilities, Redeemable Convertible Preferred Stock, Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities: | ||||||||
| Long-term debt, current | $ | 509 | $ | 6,370 | ||||
| Floorplan notes payable | 27,815 | 6,039 | ||||||
| Accounts payable | 6,352 | 6,283 | ||||||
| Accrued transaction expenses | - | 6,052 | ||||||
| Accrued expenses | 14,428 | 3,563 | ||||||
| Accrued expenses - related party | - | 5,082 | ||||||
| Other current liabilities | 754 | 256 | ||||||
| Total Current Liabilities | 49,858 | 33,645 | ||||||
| Long-term debt, less current portion | 12,206 | 2,999 | ||||||
| Redeemable convertible preferred stock tranche obligation | - | 2,832 | ||||||
| Earnout shares liability | 7,679 | - | ||||||
| Merger warrants liability | 6,291 | - | ||||||
| Other liabilities | 744 | 1,959 | ||||||
| Total Liabilities | 76,778 | 41,435 | ||||||
| Commitments and Contingencies (Note 15) | - | - | ||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Common stock, $0.0001 par value; 500,000,000 authorized shares, 113,996,401 and 58,621,042 shares issued and outstanding at December 31, 2021 and December 31, 2020 | 11 | 6 | ||||||
| Additional paid-in capital | 287,509 | 20,779 | ||||||
| Accumulated deficit | (73,916 | ) | (34,037 | ) | ||||
| Accumulated other comprehensive (loss) income | (93 | ) | 15 | |||||
| Total Stockholders’ Equity (Deficit) | 213,511 | (13,237 | ) | |||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 290,289 | $ | 28,198 | ||||
See accompanying notes to consolidated financial statements.
2
CarLotz, Inc. and Subsidiaries - Consolidated Statements of Operations
Years Ended December 31, 2021, 2020, and 2019
(In thousands, except share and per share data)
| 2021 | 2020 | 2019 | ||||||||||
| Revenues: | ||||||||||||
| Retail vehicle sales | $ | 217,439 | $ | 104,253 | $ | 90,382 | ||||||
| Wholesale vehicle sales | 31,759 | 9,984 | 8,454 | |||||||||
| Finance and insurance, net | 8,844 | 3,898 | 3,117 | |||||||||
| Lease income, net | 492 | 490 | 533 | |||||||||
| Total Revenues | 258,534 | 118,625 | 102,486 | |||||||||
| Cost of sales (exclusive of depreciation) | 247,946 | 107,369 | 93,780 | |||||||||
| Gross Profit | 10,588 | 11,256 | 8,706 | |||||||||
| Operating Expenses: | ||||||||||||
| Selling, general and administrative | 93,076 | 17,507 | 18,192 | |||||||||
| Stock-based compensation expense | 51,121 | 45 | 113 | |||||||||
| Depreciation and amortization expense | 3,363 | 341 | 504 | |||||||||
| Management fee expense - related party | 2 | 215 | 250 | |||||||||
| Impairment expense | 108 | - | - | |||||||||
| Total Operating Expenses | 147,670 | 18,108 | 19,059 | |||||||||
| Loss from Operations | (137,082 | ) | (6,852 | ) | (10,353 | ) | ||||||
| Interest expense | 1,590 | 518 | 651 | |||||||||
| Other Income, net | ||||||||||||
| Change in fair value of Merger warrants liability | 32,733 | - | - | |||||||||
| Change in fair value of redeemable convertible preferred stock tranche obligation | - | 923 | (1,396 | ) | ||||||||
| Change in fair value of earnout shares | 66,605 | - | - | |||||||||
| Other income (expense), net | (535 | ) | (95 | ) | (267 | ) | ||||||
| Total Other Income (Expense), net | 98,803 | 828 | (1,663 | ) | ||||||||
| Loss Before Income Tax Expense | (39,869 | ) | (6,542 | ) | (12,667 | ) | ||||||
| Income tax expense | 10 | 10 | 11 | |||||||||
| Net Loss | $ | (39,879 | ) | $ | (6,552 | ) | $ | (12,678 | ) | |||
| Net Loss per Share, basic and diluted | $ | (0.36 | ) | $ | (0.11 | ) | $ | (0.22 | ) | |||
| Weighted-average Shares used in Computing Net Loss per Share, basic and diluted | 110,574,519 | 58,621,042 | 56,475,860 | |||||||||
See accompanying notes to consolidated financial statements.
3
CarLotz, Inc. and Subsidiaries - Consolidated Statements of Comprehensive (Loss)
Years Ended December 31, 2021, 2020, and 2019
(In thousands)
| 2021 | 2020 | 2019 | ||||||||||
| Net loss | $ | (39,879 | ) | $ | (6,552 | ) | $ | (12,678 | ) | |||
| Other Comprehensive (Loss) Income, net of tax: | ||||||||||||
| Unrealized (losses) gains on marketable securities arising during the period | (101 | ) | 16 | - | ||||||||
| Tax effect | - | - | - | |||||||||
| Unrealized (losses) gains on marketable securities arising during the period, net of tax | (101 | ) | 16 | - | ||||||||
| Reclassification adjustment for realized gains | (7 | ) | (1 | ) | - | |||||||
| Tax effect | - | - | - | |||||||||
| Reclassification adjustment for realized gains, net of tax | (7 | ) | (1 | ) | - | |||||||
| Other Comprehensive (Loss) Income, net of tax | (108 | ) | 15 | - | ||||||||
| Total Comprehensive (Loss) | $ | (39,987 | ) | $ | (6,537 | ) | $ | (12,678 | ) | |||
See accompanying notes to consolidated financial statements.
4
CarLotz, Inc. and Subsidiaries - Consolidated Statements of Stockholders’ Equity (Deficit)
Years Ended December 31, 2021, 2020, and 2019
(In thousands, except share data)
| Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Loss) Income | (Deficit) | |||||||||||||||||||||||||
| Balance January 1, 2019 | 1,220,851 | $ | 8,670 | 37,881,435 | $ | 4 | $ | 6,526 | $ | (14,807 | ) | $ | - | $ | (8,277 | ) | ||||||||||||||||
| Retroactive application of recapitalization | (1,220,851 | ) | $ | (8,670 | ) | 12,443,768 | $ | 1 | $ | 8,669 | $ | - | $ | - | $ | 8,670 | ||||||||||||||||
| Adjusted balance, beginning of period | - | $ | - | 50,325,203 | $ | 5 | $ | 15,195 | $ | (14,807 | ) | $ | - | $ | 393 | |||||||||||||||||
| Net loss | - | $ | - | - | $ | - | $ | - | $ | (12,678 | ) | $ | - | $ | (12,678 | ) | ||||||||||||||||
| Redeemable convertible preferred stock issuance, shown as if recapitalized | - | $ | - | 8,295,840 | $ | 1 | $ | 8,889 | $ | - | $ | - | $ | 8,890 | ||||||||||||||||||
| Accrued dividends on redeemable convertible preferred stock | - | $ | - | - | $ | - | $ | (1,579 | ) | $ | - | $ | - | $ | (1,579 | ) | ||||||||||||||||
| Stock based compensation | - | $ | - | - | $ | - | $ | 113 | $ | - | $ | - | $ | 113 | ||||||||||||||||||
| Balance December 31, 2019 | - | $ | - | 58,621,042 | $ | 6 | $ | 22,618 | $ | (27,485 | ) | $ | - | $ | (4,861 | ) | ||||||||||||||||
| Net loss | - | $ | - | - | $ | - | $ | - | $ | (6,552 | ) | $ | - | $ | (6,552 | ) | ||||||||||||||||
| Other comprehensive income, net of tax | - | $ | - | - | $ | - | $ | - | $ | - | $ | 15 | $ | 15 | ||||||||||||||||||
| Accrued dividends on redeemable convertible preferred stock | - | $ | - | - | $ | - | $ | (1,884 | ) | $ | - | $ | - | $ | (1,884 | ) | ||||||||||||||||
| Stock-based compensation | - | $ | - | - | $ | - | $ | 45 | $ | - | $ | - | $ | 45 | ||||||||||||||||||
| Balance December 31, 2020 | - | $ | - | 58,621,042 | $ | 6 | $ | 20,779 | $ | (34,037 | ) | $ | 15 | $ | (13,237 | ) | ||||||||||||||||
| Net loss | - | - | - | - | - | (39,879 | ) | - | (39,879 | ) | ||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | - | - | - | - | (108 | ) | (108 | ) | ||||||||||||||||||||||
| Accrued dividends on redeemable convertible preferred stock | - | - | - | - | (20 | ) | - | - | (20 | ) | ||||||||||||||||||||||
| PIPE issuance | - | - | 12,500,000 | 1 | 124,999 | - | - | 125,000 | ||||||||||||||||||||||||
| Merger financing | - | - | 38,194,390 | 4 | 309,995 | - | - | 309,999 | ||||||||||||||||||||||||
| Consideration to existing shareholders of Former CarLotz, net of accrued dividends | - | - | - | - | (62,693 | ) | - | - | (62,693 | ) | ||||||||||||||||||||||
| Transaction costs and advisory fees | - | - | - | - | (47,579 | ) | - | - | (47,579 | ) | ||||||||||||||||||||||
| Settlement of redeemable convertible preferred stock tranche obligation | - | - | - | - | 2,832 | - | - | 2,832 | ||||||||||||||||||||||||
| Cashless exercise of options | - | - | 54,717 | - | - | - | - | - | ||||||||||||||||||||||||
| Cash consideration paid to Former CarLotz optionholders | - | - | - | - | (2,465 | ) | - | - | (2,465 | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 51,121 | - | - | 51,121 | ||||||||||||||||||||||||
| Earnout liability | - | - | - | - | (74,284 | ) | - | - | (74,284 | ) | ||||||||||||||||||||||
| Merger warrants liability | - | - | - | - | (39,024 | ) | - | - | (39,024 | ) | ||||||||||||||||||||||
| KAR/AFC note payable conversion | - | - | 3,546,984 | - | 3,625 | - | - | 3,625 | ||||||||||||||||||||||||
| KAR/AFC warrant exercise | - | - | 752,927 | - | 144 | - | - | 144 | ||||||||||||||||||||||||
| Net issuance of Class A common stock to settle vested restricted stock units | - | - | 71,523 | - | (84 | ) | - | - | (84 | ) | ||||||||||||||||||||||
| Exercise of stock options | - | - | 254,818 | - | 163 | - | - | 163 | ||||||||||||||||||||||||
| Balance December 31, 2021 | - | $ | - | 113,996,401 | $ | 11 | $ | 287,509 | $ | (73,916 | ) | $ | (93 | ) | $ | 213,511 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
5
CarLotz, Inc. and Subsidiaries - Consolidated Statements of Cash Flows
Years Ended December 31, 2021, 2020, and 2019
(In thousands)
| 2021 | 2020 | 2019 | ||||||||||
| Cash Flow from Operating Activities | ||||||||||||
| Net loss | $ | (39,879 | ) | $ | (6,552 | ) | $ | (12,678 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||
| Depreciation and amortization - property and equipment and capitalized software | 3,257 | 195 | 260 | |||||||||
| Impairment - property and equipment | 108 | - | - | |||||||||
| Amortization and accretion - marketable securities | 2,465 | - | - | |||||||||
| Depreciation - lease vehicles | 106 | 146 | 244 | |||||||||
| Loss on disposition of property and equipment | - | - | 321 | |||||||||
| Gain on marketable securities | - | (36 | ) | - | ||||||||
| Provision for doubtful accounts | 233 | 40 | (14 | ) | ||||||||
| Stock-based compensation expense | 51,121 | 45 | 113 | |||||||||
| Change in fair value of Merger warrants liability | (32,733 | ) | - | - | ||||||||
| Change in fair value of historic warrants liability | - | 14 | (24 | ) | ||||||||
| Change in fair value of earnout shares | (66,605 | ) | - | - | ||||||||
| Change in fair value of debt issuance costs and stock warrant | - | 25 | - | |||||||||
| Change in fair value of redeemable convertible preferred stock tranche obligation | - | (923 | ) | 1,396 | ||||||||
| Unpaid interest expense on capital lease obligations | 340 | - | - | |||||||||
| Change in Operating Assets and Liabilities: | ||||||||||||
| Accounts receivable | (4,307 | ) | (916 | ) | (830 | ) | ||||||
| Inventories | (29,519 | ) | (3,333 | ) | 2,883 | |||||||
| Other current assets | (3,918 | ) | (6,445 | ) | (6 | ) | ||||||
| Other assets | (259 | ) | 44 | (38 | ) | |||||||
| Accounts payable | 69 | 4,149 | 1,392 | |||||||||
| Accrued expenses | 9,041 | 8,039 | 525 | |||||||||
| Accrued expenses - related party | (229 | ) | 96 | 172 | ||||||||
| Other current liabilities | 498 | (178 | ) | 229 | ||||||||
| Other liabilities | (1,070 | ) | 998 | 582 | ||||||||
| Net Cash Used in Operating Activities | (111,281 | ) | (4,592 | ) | (5,473 | ) | ||||||
| Cash Flows from Investing Activities | ||||||||||||
| Purchase of property and equipment | (10,148 | ) | (154 | ) | (235 | ) | ||||||
| Capitalized website and internal-use software costs | (14,609 | ) | - | - | ||||||||
| Purchase of marketable securities | (359,896 | ) | (1,049 | ) | - | |||||||
| Proceeds from sales of marketable securities | 239,931 | 68 | - | |||||||||
| Purchase of lease vehicles | (1,793 | ) | (92 | ) | (252 | ) | ||||||
| Net Cash Used in Investing Activities | (146,515 | ) | (1,227 | ) | (487 | ) | ||||||
| Cash Flows from Financing Activities | ||||||||||||
| Issuance of redeemable convertible preferred stock | - | - | 7,988 | |||||||||
| Payments made on long-term debt | (153 | ) | (9 | ) | (8 | ) | ||||||
| Advance from holder of marketable securities | 4,722 | - | - | |||||||||
| Repayment of advance from marketable securities | (4,722 | ) | - | - | ||||||||
| PIPE issuance | 125,000 | - | - | |||||||||
| Merger financing | 309,999 | - | - | |||||||||
| Payment made on accrued dividends | (4,853 | ) | - | - | ||||||||
| Payments to existing shareholders of Former CarLotz | (62,693 | ) | - | - | ||||||||
| Transaction costs and advisory fees | (47,579 | ) | - | - | ||||||||
| Payments made on cash considerations associated with stock options | (2,465 | ) | - | - | ||||||||
| Repayment of Paycheck Protection Program loan | (1,749 | ) | - | - | ||||||||
| Payments made on note payable | (3,000 | ) | - | (418 | ) | |||||||
| Payments of debt issuance costs | - | (10 | ) | (112 | ) | |||||||
| Borrowings on long-term debt | - | 5,249 | 3,000 | |||||||||
| Payments on floor plan notes payable | (150,090 | ) | (24,948 | ) | (41,711 | ) | ||||||
| Borrowings on floor plan notes payable | 171,866 | 24,248 | 39,753 | |||||||||
| Employee stock option exercise | 404 | - | - | |||||||||
| Payments made for tax on equity award transactions | (339 | ) | - | - | ||||||||
| Net Cash Provided by Financing Activities | 334,348 | 4,530 | 8,492 | |||||||||
| Net Change in Cash and Cash Equivalents Including Restricted Cash | 76,552 | (1,289 | ) | 2,532 | ||||||||
| Cash and cash equivalents and restricted cash, beginning | 2,813 | 4,102 | 1,570 | |||||||||
| Cash and cash equivalents and restricted cash, ending | $ | 79,365 | $ | 2,813 | $ | 4,102 | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||||||
| Cash paid for interest | $ | 1,743 | $ | 346 | $ | 684 | ||||||
| Supplementary Schedule of Non-cash Investing and Financing Activities: | ||||||||||||
| Transfer from property and equipment to inventory | $ | - | $ | 27 | $ | 53 | ||||||
| Transfer from lease vehicles to inventory | $ | 264 | $ | 217 | $ | 295 | ||||||
| Redeemable convertible preferred stock distributions accrued | - | 1,884 | 1,579 | |||||||||
| Issuance of common stock warrants | - | 15 | 72 | |||||||||
| KAR/AFC exercise of stock warrants | (144 | ) | - | - | ||||||||
| KAR/AFC conversion of notes payable | (3,625 | ) | - | - | ||||||||
| Convertible redeemable preferred stock tranche obligation expiration | (2,832 | ) | - | - | ||||||||
| Capitalized website and internal use software costs accrued | (790 | ) | - | - | ||||||||
| Purchase of property and equipment costs accrued | (1,034 | ) | - | - | ||||||||
| Purchases of property under capital lease obligation | (11,261 | ) | 1,305 | - | ||||||||
| Settlement of redeemable convertible preferred stock tranche obligation | - | - | (902 | ) | ||||||||
See accompanying notes to consolidated financial statements.
6
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Note 1 Description of Business
Defined Terms
Unless otherwise indicated or unless the context otherwise requires, the following terms used herein shall have the following meanings:
| ● | references to “CarLotz,” “we,” “us,” “our” and the “Company” are to CarLotz, Inc. and its consolidated subsidiaries; |
| ● | references to “Acamar Partners” refer to the Company for periods prior to the consummation of the Merger referred to below; |
| ● | references to “Acamar Sponsor” are to Acamar Partners Sponsor I LLC; and |
| ● | references to the “Merger” are to the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020 (as amended by Amendment No. 1, dated December 16, 2020, the “Merger Agreement”), by and among CarLotz, Inc. (f/k/a Acamar Partners Acquisition Corp.) (the “Company”), Acamar Partners Sub, Inc., a wholly owned subsidiary of CarLotz, Inc. (“Merger Sub”), and CarLotz Group, Inc. (f/k/a CarLotz, Inc.) (“Former CarLotz”), pursuant to which Merger Sub merged with and into Former CarLotz, with Former CarLotz surviving as the surviving company and as a wholly owned subsidiary of the Company. |
The Company is a used vehicle consignment and Retail RemarketingTM company based in Richmond, Virginia. The Company operates an innovative and one-of-a-kind consumer and commercial used vehicle consignment and sales business model, with an online marketplace and twenty-two retail hub locations throughout the United States, including in Alabama, California, Colorado, Georgia, Florida, Illinois, North Carolina, Tennessee, Texas, Virginia and Washington State.
Subsidiaries are consolidated when the parent is deemed to have control over the subsidiaries’ operations.
Subsidiary Operations
CarLotz, Inc. owns 100% of CarLotz Group, Inc. (a Delaware corporation), which owns 100% of CarLotz, Inc. (an Illinois corporation), CarLotz Nevada, LLC (a Delaware LLC), CarLotz California, LLC (a California LLC), Orange Grove Fleet Solutions, LLC (a Virginia LLC), Orange Peel Protection Reinsurance Co. Ltd. (a Turks and Caicos Islands, British West Indies company) and Orange Peel LLC (a Virginia LLC), which owns 100% of Orange Peel Reinsurance, Ltd. (a Turks and Caicos Islands, British West Indies company).
Basis of Presentation
On January 21, 2021 (the “Closing Date”), the Company consummated the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020, by and among the Company, Merger Sub and Former CarLotz, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated December 16, 2020, by and among the Company, Merger Sub and Former CarLotz (See Note 3 “Merger” for further discussion).
Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz continuing as the surviving company. Notwithstanding the legal form of the Merger pursuant to the Merger Agreement, the Merger is accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, CarLotz is treated as the acquired company and Former CarLotz is treated as the acquiror for financial statement reporting and accounting purposes.
7
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
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 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 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 financial reporting.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of CarLotz, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.
Following the closing of the Merger, Former CarLotz equity holders at the effective time of the Merger will have the contingent right to receive, in the aggregate, up to 7,500,000 shares of common stock if, from the closing of the Merger until the fifth anniversary thereof, the reported closing trading price of the common stock exceeds certain thresholds. Estimating the change in fair value of the earnout liability for the earnout shares that could be earned by Former CarLotz equity holders at the effective time of the Merger requires determining both the fair value valuation model to use and inputs to the valuation model. The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model, which is a commonly used valuation model for this type of transaction. Inputs that have a significant effect on the earnout shares valuation include the expected volatility, starting stock price, expected term, risk-free interest rate and the earnout hurdles. See Note 6 - Fair Value of Financial Instruments.
Warrants that were issued by Acamar Partners (Merger warrants) and continue to exist following the closing of the Merger are accounted for as freestanding financial instruments. These warrants are classified as liabilities on the Company’s consolidated balance sheets and are recorded at their estimated fair value. The estimated fair value of the warrants is determined by using the market value in an active trading market. See Note 6 - Fair Value of Financial Instruments.
Beginning in the first quarter of 2020, the World Health Organization declared the outbreak and spread of the COVID-19 virus a pandemic. The COVID-19 pandemic 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.
8
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Cash and Cash Equivalents
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. The Company places its cash with financial institutions and has balances that generally exceed federally insured amounts.
Restricted Cash
As of December 31, 2021 and December 31, 2020, restricted cash included approximately $4,336 and $605, respectively. The restricted cash is legally and contractually restricted as collateral for lines of credit, including floorplan, and for the payment of claims on the reinsurance companies.
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 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 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.
Accounts Receivable, Net
Accounts receivable consist primarily of contracts in transit that represent amounts due from financial institutions on retail installment contracts from retail vehicle sales, and also includes receivables related to wholesale vehicle sales.
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 customer base.
Inventories
All inventories, which are comprised of vehicles and parts held for sale, are reported at the lower of cost or net realizable value. Cost of vehicle inventory is determined on a specific identification basis. Vehicles held on consignment are not recorded in the Company’s inventory balance, as title to those vehicles, and, therefore control of the vehicle, remain with the consignors until a customer purchases the vehicle and the vehicle is delivered.
9
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Major renewals and betterments are capitalized. Property held under capital leases are stated at the present value of minimum lease payments less accumulated amortization. Property held under capital leases are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Depreciation on owned property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:
| Leasehold Improvements | Lesser of 15 years or underlying lease terms |
| Equipment, Furniture and Fixtures | 1 - 5 years |
| Corporate Vehicles | 5 years |
Impairment of Long-Lived Assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets with impairment indicators for potential impairment, we first compare the carrying value of the asset to its estimated undiscounted future cash flows. If the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to its estimated fair value, which is typically based on estimated discounted future cash flows. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value.
We evaluate for triggering events on a quarterly basis. For hub locations, our primary indicator that asset carrying values may not be recoverable is historical negative hub operating income and negative operating income for the most recent 12-month period. We also monitor other factors when evaluating hub locations for impairment, including significant changes in the manner of use or expected life of the assets or significant changes in our business strategies. At December 31, 2021, we did not identify any triggering events associated with our hubs opened in 2021.
When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For example, long-lived assets deployed at hub locations are reviewed for impairment at the individual hub level, which involves comparing the net carrying value of all assets to the net cash flow projections for each hub. In addition, we conduct separate impairment reviews at other levels as appropriate, for example, to evaluate potential impairment of assets shared by several areas of operations, such as information technology systems.
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.
Lease Vehicles, net
The Company leases vehicles to customers with lease terms that are typically 1 - 4 years. The leases are accounted for as operating leases. Lease income is recorded on a straight line basis over the period the vehicle is rented. Depreciation on the lease vehicles is calculated using the straight-line method over the estimated useful life.
Floorplan Notes Payable
The Company classifies notes payable for inventory purchased as “Floorplan notes payable” on the accompanying consolidated balance sheets. The Company presents borrowings and repayments on Floor plan notes payable within Cash flows from financing activities on the consolidated statements of cash flows because the Company uses a third-party lender for its floorplan financing arrangement.
10
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Earnout shares liability
Before the contingency is met, the earnout shares will be classified as a liability under the FASB’s ASC Derivatives and Hedging (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.
Merger warrants liability
Warrants that were issued by Acamar Partners and continue to exist following the closing of the Merger are accounted for as freestanding financial instruments. These warrants are classified as liabilities on our consolidated balance sheet and are recorded at their fair value. At the end of each reporting period, changes in the fair value during the period are recorded in our consolidated statement of operations. We will continue to adjust these liabilities for changes in fair value until the earlier of their exercise, termination or other form of settlement. The fair value of the warrants is determined by using the market value in an active trading market.
Classification and Accretion of Redeemable Convertible Preferred Stock
The Company has classified its Series A Preferred Stock outside of stockholders’ equity (deficit) because the shares contained certain redemption features that were not solely within the control of the Company. Costs incurred in connection with the issuance of Series A Preferred Stock, as well as the recognition of the redeemable convertible preferred stock tranche obligation, are recorded as a reduction of gross proceeds from issuance. The Series A Preferred Stock was not redeemable as of the periods of these financial statements because while the holders of the Series A Preferred Stock had the power to direct the Company’s actions through its control of the Company’s board of directors, the deemed liquidation provision is considered a substantive condition that was contingent on the identification of a market participant willing to purchase the Company’s assets for consideration in an amount sufficient to distribute the redemption amount to the holders of the Series A Preferred Stock. Since the Series A Preferred Stock was not currently redeemable and it was not currently probable that it would become redeemable because a change of control feature is not considered probable until the change of control actually occurs, the net carrying value of Series A Preferred Stock was not accreted to its redemption value. See Note 16 - Redeemable Convertible Preferred Stock for additional details.
Reinsurance - Contract Reserves
The Company sells certain finance and insurance contracts that are underwritten by third parties. The Company, through its reinsurance subsidiaries, reinsures those contracts, thereby assuming the risk of loss on the underlying insurance contracts. The Company establishes insurance reserves in accordance with ASC 944, Financial Services - Insurance. These amounts are recorded as Other liabilities on the consolidated balance sheets.
Contract Reserves
Subsequent to the sale of a vehicle to a customer, the Company sells the related retail installment contracts to financial institutions on a non-recourse basis. The Company receives commissions from the financial institutions for these sales. The Company also receives commissions from other third-party providers for the arrangement of the sale of other products such as guaranteed vehicle protection insurance. The Company is subject to future chargebacks in the event of an early contract termination or payoff by customers. A reserve for future amounts estimated to be charged back is recorded as a reduction of Finance and insurance, net in the consolidated statements of operations, at the time of sale. The chargeback reserve is estimated based on the Company’s historical chargeback results and is recorded in Other liabilities on the consolidated balance sheets.
Legal Contingencies
The Company is involved in various claims and legal proceedings that arise in the normal course of business. The Company records an accrual for legal contingencies when it determines that it is probable that it has incurred a liability and it can reasonably estimate the amount of the loss. See Note 15 - Commitments and Contingencies for additional details.
11
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Fair Value Measurements
Fair value as defined under U.S. GAAP is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
| Level 1: | Observable inputs such as quoted prices in active markets. |
| Level 2: | Inputs other than quoted prices in active markets that are either directly or indirectly observable. |
| Level 3: | Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and affects how the measurement is classified within the fair value hierarchy levels.
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value to fair value, except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within operating income (loss) on our Consolidated Statements of Earnings.
See Note 6 - Fair Value of Financial Instruments for additional information.
Revenues
The Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Control passes to the retail and wholesale vehicle sales customer when the title is delivered to the customer, who then assumes control of the vehicle.
Retail Vehicle Sales
We sell used vehicles to our retail customers through our hubs in various cities. The transaction price for used vehicles is a fixed amount as set forth in the customer contract. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent noncash consideration which we measure at estimated fair value of the vehicle received on trade. We satisfy our performance obligation and recognize revenue for used vehicle sales at a point in time when the title to the vehicle passes to the customer, at which point the customer controls the vehicle. The revenue recognized by CarLotz includes the agreed upon transaction price, including any service fees. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers.
We receive payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing.
Our exchange policy allows customers to initiate an exchange during the first three days or 500 miles after delivery, whichever comes first. If the vehicle is returned, the sale and associated revenue recognition is reversed, and the vehicle is treated as a purchase of inventory.
Wholesale Vehicle Revenue
We sell vehicles through wholesalers, primarily at auction. These vehicles sold to wholesalers are primarily acquired from customers who trade-in their existing vehicles as part of a retail vehicle sale as described above or, from consignors, which do not meet our quality standards, or which remain unsold at the end of the consignment period. We satisfy our performance obligation and recognize revenue for wholesale vehicle sales at a point in time when the vehicle is sold at auction or directly to a wholesaler.
12
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Finance and Insurance
We provide retail vehicle buyers with options for financing, insurance and extended warranties. Extended warranties sold beginning January 1, 2019 are serviced by a company owned by a significant shareholder of the Company. All other services are provided by unrelated third-party vendors, and we have agreements with each of these vendors giving us the right to offer such services.
When a buyer selects a service from these providers, we earn a commission based on the actual price paid or financed. We concluded that we are an agent for these transactions because we do not control the products before they are transferred to the customer. Accordingly, we recognize commission revenue at the time of sale.
Lease Income, net
When a retail vehicle customer requests a vehicle lease, we either purchase a vehicle to lease or obtain an operating lease from a third party lessor and then enter into a corresponding lease with our customer. When we purchase the vehicles, we recognize revenue over the course of the lease. When we obtain an operating lease from a third party lessor and sublease the vehicle to our customer, the corresponding leases have terms that are identical except for the interest rate. We receive a rate of interest higher from our customer than the rate we pay to the third party lessor. We have determined that we are an agent in the transaction and recognize the difference in interest rate over the course of the lease.
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.
Sales Tax
The Company collects and remits sales tax on vehicle sales and sales of parts. Sales tax collected is not included in revenues and remittances are not included in cost of sales. Sales tax collected is recorded as a liability, with the liability relieved upon remittance of payments to tax authorities.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses primarily include compensation and benefits, advertising, facilities cost, technology expenses, logistics, and other administrative expenses. The Company expenses advertising costs as they are incurred and were approximately $21,804, $3,199, and $3,803 for the years ended December 31, 2021, 2020, and 2019, respectively.
Equity-Based Compensation
The Company classifies equity-based awards granted in exchange for services as either equity awards or liability awards. The classification of an award as either an equity award or a liability award is generally based upon cash settlement options. Both equity and liability awards are measured based on the fair value of the award at the grant date, however, liability awards are then re-measured to fair value each reporting period. The Company recognizes equity-based compensation on a straight-line basis over the award’s requisite service period, which is generally the vesting period of the award, less actual forfeitures. For equity and liability awards earned based on performance or upon occurrence of a contingent event, when and if the awards will be earned is estimated. If an award is not considered probable of being earned, no amount of equity-based compensation is recognized. If the award is deemed probable of being earned, related equity-based compensation is recorded over the estimated service period. To the extent the estimate of awards considered probable of being earned changes, the amount of equity-based compensation recognized will also change. See Note 17 - Stock-Based Compensation Plan for additional information on equity-based compensation.
13
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Redeemable Convertible Preferred Stock Tranche Obligation
The Company classified the Series A Preferred Stock tranche obligations for the future purchase, and option to purchase, three additional tranches of Series A Preferred Stock (See Note 6 - Fair Value of Financial Instruments and Note 16 - Redeemable Convertible Preferred Stock for additional detail) as a liability on its consolidated balance sheets as the Series A Preferred Stock tranche obligations were freestanding financial instruments that required the Company to transfer equity instruments upon future closings of the Series A Preferred Stock. The Series A Preferred Stock tranche obligations were initially recorded at fair value upon the date of issuance and were subsequently remeasured to fair value at each reporting date. Changes in the fair value of the Series A Preferred Stock tranche obligation were recognized as a component of Other Income (Expense), net in the consolidated statements of operations. Changes in the fair value of the second Series A Preferred Stock tranche obligations were recognized until the tranche obligations were fulfilled during the merger.
Income Tax
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes), contract expenses, and certain accrued expenses. Deferred tax assets and liabilities represent future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
Deferred income taxes are recorded using enacted tax rates based upon differences between financial statement and tax bases of assets and liabilities. A valuation allowance has been established for all deferred tax assets because the Company has incurred cumulative losses in recent years and the Company has not determined that the net deferred tax assets are more likely than not to be realized. In future periods, if the Company determines it is more likely than not that the deferred tax assets will be realized, the valuation allowance may be reduced, and an income tax benefit recorded.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss per share is computed by dividing net loss available for basic common shares by the weighted average number of shares of common stock outstanding. Diluted net loss per share attributable to common stockholders adjusts basic earnings per share for all potentially dilutive common stock equivalents outstanding during the period. Since the Company has reported net losses for all periods presented, the Company has excluded all potentially dilutive securities from the calculation of the diluted net loss per share attributable to common stockholders as their effect is antidilutive and accordingly, basic and diluted net loss per share attributable to common stockholders is the same for all periods presented. (See Note 19 - Net Loss Per Share Attributable to Common Stockholders for additional detail)
Segments
The Company’s chief operating decision maker (“CODM”) is its chief executive officer. The Company derives its revenue primarily from sales of automobiles via retail and wholesale channels. The CODM reviews financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance. Accordingly, the Company determined that it has one reportable segment.
Recently Issued Accounting Pronouncements
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.
14
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
We plan to adopt the new standard for our fiscal year beginning January 1, 2022, using the modified retrospective transition approach; specifically, using the optional transition method provided by the accounting pronouncement (FASB ASU 2018-11), which allows for transition through a cumulative-effect adjustment at the beginning of the period of adoption. Comparative periods presented in the financial statements issued after adoption will continue to be presented in accordance with the previous lease guidance (ASC 840). At transition, we plan to elect the package of practical expedients that provides companies the ability to not reassess lease identification, lease classification or initial direct costs for contracts existing as of the transition date. We do not plan to elect the hindsight practical expedient.
We expect to record an increase of approximately $53 million in operating lease liabilities and $51 million in right-of-use assets on our opening consolidated balance sheets as a result of recognizing new right-of-use assets and lease liabilities as of January 1, 2022. This estimate is based on our lease portfolio as of December 31, 2021. We believe most of our leases will maintain their current lease classification under the new standard. As a result, we do not expect the new standard to have a material effect on our expense recognition pattern or, in turn, our consolidated statements of operations. The new standard will not impact our compliance with current debt covenants. As an accounting policy, we do not plan to separate lease and nonlease components when accounting for all leases. Additionally, we plan to elect the short-term lease exemption for all leases. We are in the process of finalizing implementation of new business processes, accounting policies, systems and internal controls in preparation of adopting the new standard.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. The Company is currently evaluating the impact of this standard to its financial statements.
In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact of this standard on its financial statements.
Note 3 - Merger
On the Closing Date, the Company consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020, by and among the Company, Merger Sub and Former CarLotz, as amended by Amendment No. 1, dated December 16, 2020, by and among the Company, Merger Sub and Former CarLotz.
Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz surviving as the surviving company.
The Merger is accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Acamar Partners was treated as the “acquired” company for financial reporting purposes (See Note 1 - Description of the Business). Accordingly, for accounting purposes, the Merger was treated as the equivalent of Former CarLotz issuing stock for the net assets of Acamar Partners, accompanied by a recapitalization.
15
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
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 | (74,284 | ) | ||
| 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 year ended December 31, 2021:
| December 31, 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 | |||
16
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Earnout Shares
Former CarLotz equity holders at the closing of the Merger are entitled to receive up to an additional 6,945,732 earnout shares. The earnout shares will be issued to the beneficiaries if certain targets are met in the post-acquisition period. The earnouts for the earnout shares are subject to an earnout period, which is defined as the date 60 months following the consummation of the Merger. The Merger closed on January 21, 2021, and the earnout period expires January 21, 2026. The earnout shares will be issued if any of the following conditions are achieved following January 21, 2021:
| i. | If at any time during the 60 months following the Closing Date (the first business day following the end of such period, the “Forfeiture Date”), the closing trading price of the common stock is greater than $12.50 over any 20 trading days within any 30 trading day period (the “First Threshold”), the Company will issue 50% of the earnout shares. |
| ii. | If at any time prior to the Forfeiture Date, the closing trading price of the common stock is greater than $15.00 over any 20 trading days within any 30 trading day period (the “Second Threshold”), the Company will issue 50% of the earnout shares. |
| iii. | If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unissued earnout shares are forfeited. All unissued earnout shares will be issued if there is a change of control of the Company that will result in the holders of the common stock receiving a per share price equal to or in excess of $10.00 (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock) prior to the Forfeiture Date. |
Before the contingency is met, the earnout shares will be classified as a liability under the FASB’s Accounting Standards Codification (“ASC”) Topic 815, so changes in the fair value of the earnout shares in future periods will be recognized in the statement of operations. The estimated fair value of the liability is determined by using a Monte-Carlo simulation model.
Note 4 - Revenue Recognition
Disaggregation of Revenue
The significant majority of the Company’s revenue is derived from contracts with customers related to the sales of vehicles. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. The Company has determined that these categories depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
The tables below include disaggregated revenue under ASC 606 (Revenue from Contracts with Customers):
| 2021 | ||||||||||||
| Vehicle Sales | Fleet Management | Total | ||||||||||
| Retail vehicle sales | $ | 217,439 | $ | - | $ | 217,439 | ||||||
| Wholesale vehicle sales | 31,759 | - | 31,759 | |||||||||
| Finance and insurance, net | 8,844 | - | 8,844 | |||||||||
| Lease income, net | - | 492 | 492 | |||||||||
| Total Revenues | $ | 258,042 | $ | 492 | $ | 258,534 | ||||||
17
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
| 2020 | ||||||||||||
| Vehicle Sales | Fleet Management | Total | ||||||||||
| Retail vehicle sales | $ | 104,253 | $ | - | $ | 104,253 | ||||||
| Wholesale vehicle sales | 9,984 | - | 9,984 | |||||||||
| Finance and insurance, net | 3,898 | - | 3,898 | |||||||||
| Lease income, net | - | 490 | 490 | |||||||||
| Total Revenues | $ | 118,135 | $ | 490 | $ | 118,625 | ||||||
| 2019 | ||||||||||||
| Vehicle Sales | Fleet Management | Total | ||||||||||
| Retail vehicle sales | $ | 90,382 | $ | - | $ | 90,382 | ||||||
| Wholesale vehicle sales | 8,454 | - | 8,454 | |||||||||
| Finance and insurance, net | 3,117 | - | 3,117 | |||||||||
| Lease income, net | - | 533 | 533 | |||||||||
| Total Revenues | $ | 101,953 | $ | 533 | $ | 102,486 | ||||||
The following table summarizes revenues and cost of sales for retail and wholesale vehicle sales for the periods ended:
| 2021 | 2020 | 2019 | ||||||||||
| Retail vehicles: | ||||||||||||
| Retail vehicle sales | $ | 217,439 | $ | 104,253 | $ | 90,382 | ||||||
| Retail vehicle cost of sales | 214,512 | 96,983 | 84,534 | |||||||||
| Gross Profit - Retail Vehicles | $ | 2,927 | $ | 7,270 | $ | 5,848 | ||||||
| Wholesale vehicles: | ||||||||||||
| Wholesale vehicle sales | $ | 31,759 | $ | 9,984 | $ | 8,454 | ||||||
| Wholesale vehicle cost of sales | 33,434 | 10,386 | 9,246 | |||||||||
| Gross Profit - Wholesale Vehicles | $ | (1,675 | ) | $ | (402 | ) | $ | (792 | ) | |||
Retail Vehicle Sales
The Company sells used vehicles to retail customers through its 22 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.
18
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Wholesale Vehicle Sales
Vehicles that do not meet the Company’s standards for retail vehicle sales, vehicles that did not sell through the retail channel within a reasonable period of time and vehicles that the Company determines offer greater financial benefit through the wholesale channel are sold through various wholesale methods. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales when the vehicle is sold at auction or directly to a wholesaler and title to the vehicle passes to the next owner.
Finance and Insurance, net
The Company provides customers with options for financing, insurance and extended warranties. Certain warranties are serviced by a company owned by a major stockholder. All other services are provided by third-party vendors, and the Company has agreements with each of these vendors giving the Company the right to offer such services.
When a customer selects a service from these third-party vendors, the Company earns a commission based on the actual price paid or financed. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. Accordingly, the Company recognizes finance and insurance revenue at the point in time when the customer enters into the contract.
Note 5 - Marketable Securities
The Company began investing in debt securities with fixed maturities and equity securities during February 2020. 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 December 31, 2021 and December 31, 2020:
| December 31, 2021 | ||||||||||||||||
| Amortized Cost/ Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Treasuries | $ | - | $ | - | $ | - | $ | - | ||||||||
| Corporate bonds | 57,460 | - | (72 | ) | 57,388 | |||||||||||
| Municipal bonds | 28,325 | 5 | (10 | ) | 28,320 | |||||||||||
| Commercial paper | 19,989 | - | - | 19,989 | ||||||||||||
| Foreign governments | 12,291 | 2 | (18 | ) | 12,275 | |||||||||||
| Total Fixed Maturity Debt Securities | $ | 118,065 | $ | 7 | $ | (100 | ) | $ | 117,972 | |||||||
| December 31, 2020 | ||||||||||||||||
| Amortized Cost/ Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Treasuries | $ | 240 | $ | 6 | $ | - | $ | 246 | ||||||||
| Corporate bonds | 261 | 5 | (1 | ) | 265 | |||||||||||
| U.S. states, territories and political subdivisions | 141 | 5 | - | 146 | ||||||||||||
| Total Fixed Maturity Debt Securities | $ | 642 | $ | 16 | $ | (1 | ) | $ | 657 | |||||||
19
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
The amortized cost and fair value of the Company’s fixed maturity debt securities as of December 31, 2021 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | 116,114 | $ | 116,031 | ||||
| Due after one year through five years | 1,593 | 1,585 | ||||||
| Due after five years through ten years | 358 | 356 | ||||||
| Total | $ | 118,065 | $ | 117,972 | ||||
The following tables summarize the Company’s gross unrealized losses in fixed maturity debt securities as of December 31, 2021 and December 31, 2020:
| December 31, 2021 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
| Corporate bonds | $ | 56,902 | $ | (69 | ) | $ | 376 | $ | (3 | ) | $ | 57,278 | $ | (72 | ) | |||||||||
| Municipal bonds | 19,945 | (7 | ) | 340 | (3 | ) | 20,285 | (10 | ) | |||||||||||||||
| Foreign governments | 12,152 | (18 | ) | - | - | 12,152 | (18 | ) | ||||||||||||||||
| Total Fixed Maturity Debt Securities | $ | 88,999 | $ | (94 | ) | $ | 716 | $ | (6 | ) | $ | 89,715 | $ | (100 | ) | |||||||||
| December 31, 2020 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
| Corporate bonds | $ | 39 | $ | (1 | ) | $ | - | $ | - | $ | 39 | $ | (1 | ) | ||||||||||
| Total Fixed Maturity Debt Securities | $ | 39 | $ | (1 | ) | $ | - | $ | - | $ | 39 | $ | (1 | ) | ||||||||||
Unrealized losses shown in the tables above are believed to be temporary. Fair value of investments in fixed maturity debt securities change and are based primarily on market rates. As of December 31, 2021, the Company’s fixed maturity portfolio had 23 securities with gross unrealized losses totaling $(6) that had been in loss positions in excess of 12 months and 106 securities with gross unrealized losses totaling $(94) that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $12, or 0.4% of its amortized cost. As of December 31, 2020, the Company’s fixed maturity portfolio had no securities with gross unrealized losses that had been in loss positions in excess of 12 months and 2 securities with gross unrealized losses totaling $1 that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $325 (actual), or 1.6% of its amortized cost.
The following tables summarize cost and fair values of the Company’s investments in equity securities as of December 31, 2021 and December 31, 2020:
| December 31, 2021 | ||||||||
| Cost | Fair Value | |||||||
| Equity securities | $ | 432 | $ | 558 | ||||
20
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(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 years ended December 31, 2021 and 2020 consisted of the following:
| December 31, 2021 | ||||||||||||||||
| Proceeds | Gross Realized Gains | Gross Realized Losses | Net Realized Gain | |||||||||||||
| Fixed maturity debt securities | $ | 239,930 | $ | 7 | $ | - | $ | 7 | ||||||||
| Equity securities | 1 | - | - | - | ||||||||||||
| Total Marketable Securities | $ | 239,931 | $ | 7 | $ | - | $ | 7 | ||||||||
| December 31, 2020 | ||||||||||||||||
| Proceeds | Gross Realized Gains | Gross Realized Losses | Net Realized Gain | |||||||||||||
| Fixed maturity debt securities | $ | 18 | $ | - | $ | - | $ | - | ||||||||
| Equity securities | 50 | 1 | (2) (1) | |||||||||||||
| Total Marketable Securities | $ | 68 | $ | 1 | $ | (2 | ) | $ | (1 | ) | ||||||
Note 6 - Fair Value of Financial Instruments
Items Measured at Fair Value on a Recurring Basis
As of December 31, 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:
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Money market funds | $ | - | $ | - | $ | - | $ | - | ||||||||
| Equity securities | 558 | - | - | 558 | ||||||||||||
| Fixed maturity debt securities, including cash equivalents | - | 135,346 | - | 135,346 | ||||||||||||
| Total Assets | $ | 558 | $ | 135,346 | $ | - | $ | 135,904 | ||||||||
| Liabilities: | ||||||||||||||||
| Merger warrants liability | 3,941 | 2,350 | - | 6,291 | ||||||||||||
| Earnout shares liability | - | - | 7,679 | 7,679 | ||||||||||||
| Total Liabilities | $ | 3,941 | $ | 2,350 | $ | 7,679 | $ | 13,970 | ||||||||
21
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(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 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 years ended December 31, 2021 and 2020.
The following tables set forth a summary of changes in the estimated fair value of the Company’s Level 3 redeemable convertible preferred stock tranche obligation, historic warrants liability and earnout shares for the years ended December 31, 2021 and 2020:
| January 1, 2021 | Issuances | Settlements | Change in fair value | December 31, 2021 | ||||||||||||||||
| Redeemable convertible preferred stock tranche obligation | $ | 2,832 | $ | - | $ | (2,832 | ) | $ | - | $ | - | |||||||||
| Historic warrants liability | 144 | - | (144 | ) | - | - | ||||||||||||||
| Earnout shares liability | - | 74,284 | - | (66,605 | ) | 7,679 | ||||||||||||||
| Total | $ | 2,976 | $ | 74,284 | $ | (2,976 | ) | $ | (66,605 | ) | $ | 7,679 | ||||||||
| January 1, 2020 | Issuances | Settlements | Change in fair value | December 31, 2020 | ||||||||||||||||
| Redeemable convertible preferred stock tranche obligation | $ | 3,755 | $ | - | $ | - | $ | (923 | ) | $ | 2,832 | |||||||||
| Historic warrants liability | 115 | 15 | - | 14 | 144 | |||||||||||||||
| Total | $ | 3,870 | $ | 15 | $ | - | $ | (909 | ) | $ | 2,976 | |||||||||
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:
| December 31, 2021 | January 21, 2021 | |||||||
| Expected volatility | 80.00 | % | 80.00 | % | ||||
| Starting stock price | $ | 2.27 | $ | 11.31 | ||||
| Expected term (in years) | 4.1 years | 5 years | ||||||
| Risk-free interest rate | 1.04 | % | 0.45 | % | ||||
| Earnout hurdle | $ | 12.50-$15.00 | $ | 12.50-$15.00 | ||||
22
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Items Not Measured at Fair Value on a Recurring Basis
In the fourth quarter of 2021, we recorded asset impairments related to a long-lived asset group-a hub location. Assets that are impaired are recorded to their fair value. See Note 9, Property and Equipment, Net, for additional information regarding the charges incurred and the net carrying value of the asset group remaining.
The carrying amounts of restricted cash, accounts receivable and accounts payable approximate fair value because their respective maturities are less than three months. The carrying value of the Ally Financial floorplan notes payable outstanding as of December 31, 2021 approximates fair value due to its variable interest rate determined to approximate current market rates and the short-term nature of the notes payable.
Note 7 - Accounts Receivable, Net
The following table summarizes accounts receivable as of:
| December 31, 2021 | December 31, 2020 | |||||||
| Contracts in transit | $ | 7,836 | $ | 3,321 | ||||
| Trade | 386 | 240 | ||||||
| Finance commission | 284 | 132 | ||||||
| Other | - | 506 | ||||||
| Total | 8,506 | 4,199 | ||||||
| Allowance for doubtful accounts | (300 | ) | (67 | ) | ||||
| Total Accounts Receivable, net | $ | 8,206 | $ | 4,132 | ||||
Contracts in transit are typically collected within fifteen days. Other amounts due are from third parties as a result of vehicle sales and parts sold or services provided. Receivables also include commissions on aftermarket products. Receivables from the sale of vehicles are secured by the related vehicles. Receivables arising from the sale of parts and service are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date.
The carrying amount of receivables is reduced by an allowance for doubtful accounts that reflects management’s best estimate of the amounts that will not be collected. Management reviews each receivable balance monthly, and, based on historical bad debt experience and management’s evaluation of customer creditworthiness, estimates that portion, if any, of the balance that will not be collected. No interest is charged on delinquent receivables.
Note 8 - Inventory and Floor Plan Notes Payable
The following table summarizes inventory as of:
| December 31, 2021 | December 31, 2020 | |||||||
| Used vehicles | $ | 40,739 | $ | 11,202 | ||||
| Parts | 246 | - | ||||||
| Total | $ | 40,985 | $ | 11,202 | ||||
Beginning March 10, 2021, the Company entered into a $30,000 floorplan 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 floorplan 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 December 31, 2021 was 3.25%.
Floor plan notes payable are generally due upon the sale of the related used vehicle inventory.
23
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Note 9 - Property and Equipment, Net
The following table summarizes property and equipment as of:
| December 31, 2021 | December 31, 2020 | |||||||
| Capital lease assets | $ | 12,566 | $ | 1,305 | ||||
| Leasehold improvements | 4,628 | 702 | ||||||
| Furniture, fixtures and equipment | 7,993 | 760 | ||||||
| Corporate vehicles | 158 | 143 | ||||||
| Total property and equipment | 25,345 | 2,910 | ||||||
| Less: accumulated depreciation | (2,609 | ) | (1,042 | ) | ||||
| Less: impairment | (108 | ) | - | |||||
| Property and Equipment, net | $ | 22,628 | $ | 1,868 | ||||
Depreciation expense for property and equipment was approximately $1,567, $195, and $260 for the years ended December 31, 2021, 2020, and 2019, respectively.
In the fourth quarter of 2021, we identified a triggering event based on a current period operating loss and historic period operating loss which lead to the impairment charge of $(108). This impairment charge represents the full impairment of one hub.
Note 10 - Other Assets
The following table summarizes other assets as of:
| December 31, 2021 | December 31, 2020 | |||||||
| Other Current Assets: | ||||||||
| Lease receivable, net | $ | 29 | $ | 36 | ||||
| Deferred acquisition costs | 46 | 72 | ||||||
| Prepaid expenses | 3,664 | 679 | ||||||
| Interest receivable | 966 | - | ||||||
| Deferred transaction costs | - | 5,892 | ||||||
| Total Other Current Assets | $ | 4,705 | $ | 6,679 | ||||
| Other Assets: | ||||||||
| Lease receivable, net | $ | 16 | $ | 16 | ||||
| Deferred acquisition costs | 35 | 48 | ||||||
| Security deposits | 507 | 235 | ||||||
| Total Other Assets | $ | 558 | $ | 299 | ||||
24
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Note 11 - Long-term Debt
The following table summarizes long-term debt as of:
| December 31, 2021 | December 31, 2020 | |||||||
| Capital lease obligation | $ | 12,715 | $ | 1,305 | ||||
| Promissory note | - | 2,990 | ||||||
| Convertible notes payable, net | - | 3,325 | ||||||
| Paycheck Protection Program loan | - | 1,749 | ||||||
| 12,715 | 9,369 | |||||||
| Current portion of long-term debt | (509 | ) | (6,370 | ) | ||||
| Long-term Debt | $ | 12,206 | $ | 2,999 | ||||
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. Former CarLotz common stock was converted into 10.1927 shares of common stock. There are no historic warrants outstanding subsequent to the exercise.
Payroll Protection Program Loan
In April 2020, the Company received a Paycheck Protection Program (“PPP”) loan, a new loan program under the Small Business Administration’s 7(a) program providing loans to qualifying businesses, totaling approximately $1,749. As of December 31, 2020, the Company had an outstanding PPP loan balance of $1,749, which was extinguished concurrently with the closing of the Merger.
Note 12 - Accrued Expenses
The following table summarizes accrued expenses as of:
| December 31, 2021 | December 31, 2020 | |||||||
| License and title fees | $ | 903 | $ | 785 | ||||
| Payroll and bonuses | 2,047 | 837 | ||||||
| Deferred rent | 1,636 | 199 | ||||||
| Technology | 1,127 | - | ||||||
| Inventory | 2,542 | 1 | ||||||
| Other | 6,173 | 1,741 | ||||||
| Total Accrued Expenses | $ | 14,428 | $ | 3,563 | ||||
25
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Note 13 - Other Liabilities
The following table summarizes other liabilities as of:
| December 31, 2021 | December 31, 2020 | |||||||
| Other Current Liabilities | ||||||||
| Unearned insurance premiums | $ | 754 | $ | 256 | ||||
| Other Liabilities | ||||||||
| Unearned insurance premiums | 622 | 1,680 | ||||||
| Other long-term liabilities | 122 | 135 | ||||||
| Historic warrants liability | - | 144 | ||||||
| Other Liabilities, Long-term | $ | 744 | $ | 1,959 | ||||
Note 14 - Lease Commitments
The Company leases its operating facilities from various third parties under non-cancelable operating and capital leases. The leases require various monthly rental payments ranging from approximately $3 to $70, with various ending dates through September 2036. The leases are triple net, whereby the Company is liable for taxes, insurance and repairs. Rent expense for all operating facility leases was approximately $5,030, $1,720, and $2,000 for the years ended December 31, 2021, 2020, and 2019, respectively. Most of these leases have escalating rent payments, which are being expensed on a straight-line basis and are included in deferred rent, within Accrued expenses.
The following is a table of facility lease commitments due for the next five years, and thereafter, as of December 31, 2021:
| Total Per Year | Total Capital Leases | |||||||
| 2022 | 6,788 | 1,643 | ||||||
| 2023 | 6,931 | 1,669 | ||||||
| 2024 | 6,657 | 1,695 | ||||||
| 2025 | 6,832 | 1,721 | ||||||
| 2026 | 5,884 | 1,766 | ||||||
| Thereafter | 23,715 | 14,322 | ||||||
| Total | $ | 56,807 | $ | 22,816 | ||||
| Less: amount representing interest | (10,101 | ) | ||||||
| Present value of minimum lease payments | 12,715 | |||||||
| Less: current obligation | (509 | ) | ||||||
| Long-term obligations under capital lease | $ | 12,206 | ||||||
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 $184 to $1,668 (actual) with various ending dates through December 2026.
26
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
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 December 31, 2021:
| Payments Due to Third-Parties | Future Receipts | |||||||
| 2022 | $ | 1,435 | $ | 1,721 | ||||
| 2023 | 1,017 | 1,205 | ||||||
| 2024 | 605 | 716 | ||||||
| 2025 | 180 | 216 | ||||||
| 2026 | 55 | 69 | ||||||
| Total | 3,292 | 3,927 | ||||||
Note 15 - Commitments and Contingencies
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.
Legal Matters
Federal Securities Litigation
On July 8, 2021, purported CarLotz stockholder Daniel Erdman, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Daniel Erdman v. CarLotz, Inc., et al., 21-cv-5906 (S.D.N.Y.) The action is stated to be brought on behalf of purchasers of the securities of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
On July 20, 2021, purported CarLotz stockholder Michael Widuck, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Michael Widuck v. CarLotz, Inc., et al., 21-cv-6191 (S.D.N.Y.). The action is stated to be brought on behalf of purchasers of the securities 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., 21-cv-6627 (S.D.N.Y.) The action is stated to be brought on behalf of purchasers of the securities 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.
27
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
The above three cases were consolidated by the Court on August 31, 2021 under In re CarLotz, Inc. Sec. Litig., 21-cv-05906 (S.D.N.Y.). On October 15, 2021, the Court appointed David Berger lead plaintiff and Kahn Swick & Foti, LLC lead counsel for the putative class. On December 14, 2021, Lead Plaintiff Berger and Additional Plaintiff Craig Bailey filed an Amended Complaint against CarLotz, various directors and officers of CarLotz, Acamar, various directors of Acamar, Acamar Partners Sponsor I LLC, and Acamar Partners Sub, Inc., purporting to assert claims on behalf of purchasers of Acamar and CarLotz securities during the period from October 22, 2020 through May 25, 2021. The Amended Complaint alleges that the defendants made various false and misleading statements or omissions about CarLotz’ business, operations, financial performance and prospects in violation of Sections 10(b), 14(a) and 20(a) of the Exchange Act; and Sections 11, 12(a)(2) and 15 of the Securities Act. The Amended Complaint sought a declaration that it is a proper class action pursuant to Fed. R. Civ. P. 23, as well as unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses, and any further relief that the Court may deem proper.
On February 17, 2022, Plaintiffs filed a Letter Motion for Leave to File Second Amended Complaint, citing the need “to resolve certain factual and legal issues bearing on the viability of certain of plaintiffs’ claims and named defendants.” On February 18, 2022, the Court granted Plaintiffs’ letter motion for leave to file a Second Amended Complaint and ordered that the Second Amended Complaint be filed by March 4, 2022.
On March 4, 2022, Lead Plaintiff Berger and Additional Plaintiff Bailey filed a Second Amended Complaint against CarLotz, various directors and officers of CarLotz, Acamar, various directors of Acamar, and Acamar Partners Sponsor I LLC, purporting to assert claims on behalf of purchasers of Acamar and CarLotz securities during the period from October 22, 2020 through May 25, 2021. The Second Amended Complaint alleges that the defendants made various false and misleading statements or omissions about CarLotz’ business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act; and Sections 11, 12(a)(2) and 15 of the Securities Act. The Second Amended Complaint seeks a declaration that it is a proper class action pursuant to Fed. R. Civ. P. 23, as well as unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses, and any further relief that the Court may deem proper. Defendants’ deadline to move, answer, or otherwise respond to the Second Amended Complaint is May 2, 2022.
Delaware Stockholder Derivative Litigation
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., 21-cv-1332 (D. Del.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., 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 February 14, 2022, the parties filed a stipulation and proposed scheduling order, pursuant to which Plaintiff will file an amended complaint by April 1, 2022, Defendants will answer or otherwise respond to the amended complaint within 30 days of the filing of the amended complaint, and the parties shall meet and confer on conduct of further proceedings within 7 days of the filing of the amended complaint. On February 15, 2022, the Court so-ordered the parties’ proposed schedule.
New York Stockholder Derivative Litigation
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., 21-cv-8623 (S.D.N.Y.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., 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.
28
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
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., 21-cv-8786 (S.D.N.Y.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., asserts derivative claims for alleged 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.
On November 15, 2021, the Court issued an order¸ inter alia, consolidating Cha and Habib under In re CarLotz, Inc. Deriv. Litig., 21-cv-8623 and appointing co-lead counsel. On February 14, 2022, the parties filed a stipulation and proposed order staying the case, which requested that all proceedings in this action be stayed pending the resolution of defendants’ forthcoming motion to dismiss the Second Amended Complaint in In re CarLotz, Inc. Sec. Litig. The Court granted that proposal and stayed the case on February 15, 2022.
In addition to the matters above, the Company is involved in certain legal matters that it considers incidental to its business. In management’s opinion, none of these legal matters will have a material effect on the Company’s financial position or results of operations.
Note 16 - Redeemable Convertible Preferred Stock
As of December 31, 2020, the Amended and Restated Certificate of Incorporation of Former CarLotz provided for two classes of ownership: common stock and Series A Preferred Stock. The holder of the Series A Preferred Stock received distribution priority in order of 1.5 times the sum of any unpaid returns and unreturned capital contributions. Preferred returns were calculated at an 8.00% annual rate. Unpaid cumulative distributions were approximately $4,800 as of December 31, 2020, and the Series A Preferred Stock had a liquidation preference of $37,114 as of December 31, 2020. Upon liquidation of Former CarLotz, proceeds in excess of the Series A Preferred Stock would have been shared pro rata among all stockholders based on the number of shares. The unpaid cumulative distributions are included as Accrued expenses - related party on the accompanying 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. The convertible preferred stock is reflected retroactively in the earliest period and presented on an as converted basis.
The fair value of the obligation to purchase future tranches of Series A Redeemable Convertible Preferred Stock (“Series A Preferred Stock”) was estimated by utilizing the Black Scholes pricing model and included the impact of the lack of marketability of the instruments. The key inputs for the fair value measurement include the fair value per share of the Company’s Series A Preferred Stock, expected volatility, the remaining years to liquidity and the risk-free interest rate. The most significant input impacting the fair value of the Series A Preferred Stock tranche obligation is the fair value of the Series A Preferred Stock as of each remeasurement date. The determination of the fair value per share of the redeemable convertible preferred stock is estimated by taking into consideration the most recent sales of redeemable convertible preferred stock, results obtained from third-party valuations and additional factors that are deemed relevant. As a private company at the last time of valuation, there was a lack of Company-specific historical and implied volatility information of the Company’s Series A Preferred Stock. Therefore, estimates of expected stock volatility are based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the obligations. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining years to liquidity.
29
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Note 17 - Stock-Based Compensation Plan
Stock Option Plans
The Company has three stock incentive plans, the “2011 Stock Option Plan,” the “2017 Stock Option Plan” and the “2020 Incentive Award Plan,” to promote the long-term growth and profitability of the Company. The plans do this by providing senior management and other employees with incentives 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 years ended December 31, 2021, 2020, and 2019, of approximately $51,121, $45, and $113, 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 years ended December 31, 2021 and 2020, there were no grants related to the 2011 Stock Option Plan.
A summary of activity for the years ended December 31, 2021, 2020, and 2019 for the 2011 Stock Option Plan is as follows:
| Number of Stock Options | Weighted Average | |||||||
| Balance (Balance January 1, 2019) | 1,647,650 | $ | 0.60 | |||||
| Granted | - | - | ||||||
| Forfeited | (76,445 | ) | 0.67 | |||||
| Balance (December 31, 2019) | 1,571,205 | 0.59 | ||||||
| Granted | - | - | ||||||
| Forfeited | - | - | ||||||
| Balance (December 31, 2020) | 1,571,205 | 0.59 | ||||||
| Granted | - | - | ||||||
| Exercised | (310,877 | ) | 0.57 | |||||
| Forfeited | - | - | ||||||
| Balance (December 31, 2021) | 1,260,328 | 0.56 | ||||||
| Vested (as of December 31, 2021) | 1,260,328 | $ | 0.56 | |||||
The following summarizes certain information about stock options vested and expected to vest as of December 31, 2021 related to the 2011 Stock Option Plan:
| Number of Stock Options | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | ||||||||
| Outstanding | 1,260,328 | 0.67 years | $ | 0.56 | ||||||
| Exercisable | 1,260,328 | 0.67 years | $ | 0.56 | ||||||
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 December 31, 2021 was $1.71.
30
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
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 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 years ended December 31, 2021, 2020, and 2019 for the 2017 Stock Option Plan is as follows:
| Number of Stock Options | Weighted Averaged Exercise Price | |||||||
| Balance (Balance January 1, 2019) | 2,599,669 | $ | 0.92 | |||||
| Granted | 1,569,676 | 0.92 | ||||||
| Forfeited | (1,323,787 | ) | 0.92 | |||||
| Balance (December 31, 2019) | 2,845,557 | 0.92 | ||||||
| Granted | 1,116,101 | 0.92 | ||||||
| Forfeited | - | - | ||||||
| Balance (December 31, 2020) | 3,961,658 | 0.92 | ||||||
| Granted | - | - | ||||||
| Forfeited | (25,482 | ) | 0.92 | |||||
| Balance (December 31, 2021) | 3,936,176 | 0.92 | ||||||
| Vested (as of December 31, 2021) | 3,538,672 | $ | 0.92 | |||||
The options granted under the 2017 Stock Option Plan were eligible to 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 $4,193 of share based compensation that will be recognized over the service period of four years. For the year ended December 31, 2021, $987 of share-based compensation was recognized.
The following summarizes certain information about stock options vested and expected to vest as of December 31, 2021 related to the 2017 Stock Option Plan:
| Number of Stock Options | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | ||||||||
| Outstanding | 3,936,176 | 7.55 years | $ | 0.92 | ||||||
| Exercisable | 3,538,672 | 7.43 years | $ | 0.92 | ||||||
The aggregate intrinsic value for options outstanding and options exercisable as of December 31, 2021 was $1.35.
31
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
The inputs used for the 2017 Stock Option Plan were as follows:
| Balance (Expected volatility) | 80.00 | % | ||
| Expected dividend yield | - | % | ||
| Expected term (in years) | 3.5 - 4.7 years | |||
| Risk-free interest rate | 0.32% - 0.45 | % |
The options granted under the 2020 Incentive Award Plan vest over a service period of four years. A summary of activity for the year ended December 31, 2021 for the options associated with the 2020 Incentive Award Plan is as follows:
| Balance (Number of Units | Weighted Averaged Exercise Price | |||||||
| Balance (December 31, 2020) | - | $ | - | |||||
| Granted | 1,490,519 | 11.02 | ||||||
| Forfeited | (21,222 | ) | 4.31 | |||||
| Balance (December 31, 2021) | 1,469,297 | $ | 11.12 | |||||
| Exercisable | - | $ | - | |||||
The grant date fair value of the options was between $2.60 to $7.77. For the year ended December 31, 2021, $2,948 of share based compensation was recognized. As of December 31, 2021, there was approximately $8,233 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 December 31, 2021 related to the 2020 Stock Option Plan:
| Number of Stock Options | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | ||||||||||
| Outstanding | 1,469,297 | 8.96 years | $ | 11.12 | ||||||||
| Exercisable | - | - | $ | - | ||||||||
32
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
The inputs used for the 2020 Incentive Award Plan options were as follows for the year ended December 31, 2021:
| Balance (Expected volatility) | 80% - 85 | % | ||
| Expected dividend yield | - | % | ||
| Expected term (in years) | 6.25 years | |||
| Risk-free interest rate | 0.62% - 1.34 | % |
The service-based restricted stock units associated with the 2020 Incentive Award Plan vest over a service period. A summary of activity for the year ended December 31, 2021 for the service-based restricted stock units associated with the 2020 Incentive Award Plan is as follows:
| Number of Units | Weighted Average Grant Date Fair Value | |||||||
| Balance (December 31, 2020) | - | $ | - | |||||
| Granted | 710,993 | 5.58 | ||||||
| Forfeited | (18,884 | ) | 4.32 | |||||
| Vested (as of December 31, 2021) | (94,370 | ) | 5.87 | |||||
| Balance (December 31, 2021) | 597,739 | $ | 5.57 | |||||
The grant date fair value of the service-based restricted stock units was between $3.73 and $6.15. For the year ended December 31, 2021, $1,460 of share based compensation cost was recognized. As of December 31, 2021, there was approximately $2,035 of unrecognized compensation cost that vests over a service period of four years and $411 of unrecognized compensation cost that vests over a service period of one year related to unvested restricted stock units granted under 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 60 month period following the consummation of the Merger. The Merger closed on January 21, 2021, and the earnout period expires January 21, 2026. Earnout RSUs will vest if any of the following conditions are achieved following January 21, 2021, in each case, subject to the applicable award recipient’s continued service through the date such conditions are met:
| 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 Company common stock is greater than $12.50 over any 20 trading days within any 30 trading day period (the “First Threshold”), 50% of the Earnout RSUs will vest. |
| ii. | If at any time prior to the Forfeiture Date, the closing trading price of Company common stock is greater than $15.00 over any 20 trading days within any 30 trading day period (the “Second Threshold”), 50% of the Earnout RSUs will vest. |
| iii. | If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unvested Earnout RSUs are forfeited. All unvested Earnout RSUs will vest if there is a change of control of the Company that will result in the holders of Company 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.
33
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
A summary of activity for the year ended December 31, 2021 for the Earnout RSUs is as follows:
| Number of Units | Weighted Average Grant Date Fair Value | |||||||
| Balance (December 31, 2020) | - | $ | - | |||||
| Granted | 640,421 | 10.70 | ||||||
| Forfeited | (19,221 | ) | 10.70 | |||||
| Balance (December 31, 2021) | 621,200 | $ | 10.70 | |||||
During the year ended December 31, 2021, the Company recognized $6,748 of stock-based compensation cost. As of December 31, 2021, there was no additional unrecognized compensation cost related to the Earnout RSUs.
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
The Company’s income tax expense consisted of the following for the years ended December 31, 2021, 2020 and 2019:
| 2021 | 2020 | 2019 | ||||||||||
| Current Income Tax Expense: | ||||||||||||
| Federal | $ | - | $ | - | $ | - | ||||||
| State and local | 10 | 10 | 11 | |||||||||
| Total Current Income Tax Expense | 10 | 10 | 11 | |||||||||
| Deferred Income Tax Expense: | ||||||||||||
| Federal | - | - | - | |||||||||
| State and local | - | - | - | |||||||||
| Total Income Tax Expense | $ | 10 | $ | 10 | $ | 11 | ||||||
34
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Deferred income taxes are recorded using enacted tax rates based upon differences between financial statement and tax bases of assets and liabilities. The significant components of the Company’s estimated deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows:
| 2021 | 2020 | |||||||
| Deferred Tax Assets: | ||||||||
| Net operating losses | $ | 27,794 | $ | 7,042 | ||||
| Accrued expenses | - | 109 | ||||||
| Unearned premiums | 339 | 466 | ||||||
| Contract expense | 2,188 | 332 | ||||||
| Intangible assets | 188 | 204 | ||||||
| Equity awards | 2,199 | 189 | ||||||
| Other | 1,532 | 217 | ||||||
| Total deferred tax assets | 34,240 | 8,559 | ||||||
| Less: valuation allowance | (34,138 | ) | (8,559 | ) | ||||
| Net Deferred Tax Assets | 102 | - | ||||||
| Deferred Tax Liabilities | ||||||||
| Fixed assets | (102 | ) | - | |||||
| Total deferred tax liabilities | (102 | ) | - | |||||
| Net Deferred Tax Liabilities | (102 | ) | - | |||||
| Net Deferred Tax Assets/Liabilities | $ | - | $ | - | ||||
A valuation allowance has been established for all deferred tax assets because the Company has incurred cumulative losses in recent years and the Company has not determined that the net deferred tax assets are more likely than not to be realized. In future periods, if the Company determines it is more likely than not that the deferred tax assets will be realized, the valuation allowance may be reduced and an income tax benefit recorded. The following table presents the change in deferred tax asset valuation allowance for the years ended December 31, 2021, 2020 and 2019:
| 2021 | 2020 | 2019 | ||||||||||
| January 1, | $ | 8,559 | $ | 6,910 | $ | 3,986 | ||||||
| Additions - Charged | 25,579 | 1,649 | 2,924 | |||||||||
| Deductions - Charged | - | - | - | |||||||||
| Other | - | - | - | |||||||||
| December 31, | $ | 34,138 | $ | 8,559 | $ | 6,910 | ||||||
The change in valuation allowance resulted due to the current year significant pretax book losses which are not more likely than not to be realized. As of December 31, 2021, the Company has Federal net operating loss carryforwards of approximately $113,411, of which $6,207 will expire at various dates from 2032 - 2039 and $107,204 will carryforward indefinitely but can only be used up to 80.00% of taxable income. The Company has state net operating loss carryforwards of approximately $97,002 of which $114 will expire at various dates from 2022-2030, $32,879 will expire at various dates from 2031 - 2041, and $64,009 will carry forward indefinitely but can only be used to offset varying percentages annually based upon taxable income. Certain tax attributes of the net operating loss carryforwards may be subject to an annual limitation as a result of a change of ownership in prior years as defined under Internal Revenue Code Section 382.
35
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
The differences between income tax benefit expected at the U.S. federal statutory tax rates of 21.00% (for 2021, 2020 and 2019) and the reported income tax expense are summarized as follows:
| 2021 | 2020 | 2019 | ||||||||||
| Loss Before Income Tax Expense | $ | (39,869 | ) | $ | (6,542 | ) | $ | (12,667 | ) | |||
| Income tax benefit at federal statutory rates | (8,372 | ) | (1,372 | ) | (2,660 | ) | ||||||
| State and local income taxes | (3,634 | ) | (79 | ) | (471 | ) | ||||||
| Valuation allowances | 24,391 | 1,649 | 2,924 | |||||||||
| Change in fair value of redeemable convertible preferred stock tranche obligation | - | (194 | ) | 293 | ||||||||
| Executive compensation | 8,690 | - | - | |||||||||
| Change in fair value of Merger warrants liability | (6,874 | ) | - | - | ||||||||
| Change in fair value of earnout shares | (13,987 | ) | - | - | ||||||||
| Other | (204 | ) | 6 | (75 | ) | |||||||
| Total Income Tax Expense | $ | 10 | $ | 10 | $ | 11 | ||||||
| Effective Tax Rate | (0.03 | )% | (0.15 | )% | (0.09 | )% | ||||||
Income tax returns are filed in the U.S., including multiple state jurisdictions, and are subject to examination by tax authorities in the jurisdictions where the Company operates. The Company has open tax years from 2018 to 2021, although tax years dating back to 2011 remain open up to the tax attribute amounts carried forward for future use. The Company has determined that it does not have any unrecognized tax benefits or obligations as of December 31, 2021 and 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 years ended December 31, 2021, 2020, and 2019:
| 2021 | 2020 | 2019 | ||||||||||
| Numerator: | ||||||||||||
| Net Loss | $ | (39,879 | ) | $ | (6,552 | ) | $ | (12,678 | ) | |||
| Denominator: | ||||||||||||
| Weighted average common shares outstanding, basic and diluted | 110,574,519 | 58,621,042 | 56,475,860 | |||||||||
| Net Loss per Share Attributable to Common Stockholders, basic and diluted | $ | (0.36 | ) | $ | (0.11 | ) | $ | (0.22 | ) | |||
36
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(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 years ended December 31, 2021, 2020, and 2019:
| 2021 | 2020 | 2019 | ||||||||||
| Public warrants | 10,185,774 | - | - | |||||||||
| Private warrants | 6,074,310 | - | - | |||||||||
| Earnout RSUs | 630,810 | - | - | |||||||||
| Earnout shares | 6,945,732 | - | - | |||||||||
| Convertible notes payable | - | 3,556,335 | 2,876,492 | |||||||||
| Historic warrants | - | 777,265 | 699,025 | |||||||||
| Stock options outstanding to purchase shares of common stock | 6,665,801 | 5,532,863 | 4,416,762 | |||||||||
| Unvested RSUs | 597,139 | - | - | |||||||||
| Total | 31,099,566 | 9,866,463 | 7,992,279 | |||||||||
Note 20 - Concentrations
The suppliers that accounted for 10% or more of the Company’s vehicle purchases are presented as follows:
| Total vehicle purchases from vendor to total vehicle purchases for the year ended December 31, | ||||||||||||
| Vendor | 2021 | 2020 | 2019 | |||||||||
| Vendor A | 24 | % | 33 | % | -% | |||||||
| Vendor B | 11 | % | -% | -% | ||||||||
| Vendor C | 10 | % | -% | -% | ||||||||
| Vendor D | -% | 13 | % | 12 | % | |||||||
Vendor A is a corporate vehicle sourcing partner. Typically, we purchase the vehicles from our corporate vehicle sourcing partners at the time of sale to a retail customer.
For the periods ended December 31, 2021 and 2020, no retail or wholesale customers accounted for more than 10% of the Company’s revenue.
Note 21 - Related Party Transactions
Certain warranties sold beginning January 1, 2019 are serviced by a company owned by Endurance Dealer Services LLC, which is owned by TRP, a major stockholder. When a customer selects a warranty from Endurance, we earn a commission based on the actual price paid or financed when the customer enters into the contract at which point we recognize finance and insurance revenue.
The amount of revenue recognized from transactions with Endurance, net of contracts entered into by customers and subsequently cancelled, was $4,335, $2,574, and $1,743 for the years ended December 31, 2021, 2020, and 2019, respectively. The amount due to Endurance was $268 and $0 as of December 31, 2021 and 2020, respectively.
Additionally, prior to the closing of the Merger, Former CarLotz incurred monthly management fees payable to TRP. The management fee expenses are reflected as Management Fee Expense - Related Party on the Consolidated Statements of Operations.
37
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
Note 22 - Subsequent Events
CEO Transition
The Board has appointed Lev Peker as the Company’s Chief Executive Officer and a member of the Board of Directors, effective as of April 18, 2022. Pursuant to the Separation Agreement (as defined below), Michael Bor will cease to be the Company’s Chief Executive Officer and a member of the Board of Directors effective as of March 16, 2022 (the “Separation Date”). Luis Ignacio Solorzano Aizpuru, who has served as a member of the Board since 2018 and is a member of the Compensation and Nominating and Corporate Governance committees, has replaced Mr. Bor as Chairman of the Board. Until April 18, 2022 when Mr. Bor’s replacement, Mr. Lev Peker, is in place, the Board has established an executive committee comprised of the Company’s Chief Financial Officer, General Counsel and Chief Operating Officer, which will report to Mr. Solorzano as Chairman of the Board.
In connection with Mr. Bor’s separation, he entered into a separation and release agreement with the Company (the “Separation Agreement”). Under the Separation Agreement, and consistent with the terms of his existing employment agreement and equity award agreements, Mr. Bor will receive the following payment and benefits as of the Separation Date: (i) an amount equal to his annual base salary, payable in installments over 12 months; (ii) continued coverage of health and welfare benefits for 12 months; (iii) accelerated vesting of 32,054 of his stock options (which amount was scheduled to otherwise vest within 12 months of the Separation Date, and which shall remain exercisable for three months following termination), and (iv) accelerated vesting of 22,026 RSUs (which amount was scheduled to otherwise vest within 12 months of the Separation Date). The foregoing payments and benefits are subject to Mr. Bor’s continued employment through the Separation Date, continued compliance with certain restrictive covenants, and entry into a release of claims in favor of the Company. The Separation Agreement also provides for Mr. Bor to continue to provide services to the Company as a consultant for 12 months, earning an annual fee of $300,000.
Lev Peker will become the Company’s Chief Executive Officer and a member of the Board, effective as of April 18, 2022. Mr. Peker will serve as a Class III director for a term expiring at the 2023 annual meeting of stockholders. Mr. Peker, age 40, brings many years of management experience to the Company. Prior to joining the Company, Mr. Peker served as Chief Executive Officer and director of CarParts.com, Inc., an online provider of automotive parts, from January 2019 to March 2022. Mr. Peker previously served as the Chief Marketing Officer of Adorama Camera, Inc., an online retailer of consumer electronics, from August 2015 to December 2018. Prior to that time, he was the Senior Director and General Manager of eCommerce Strategy and Operations of Sears Holding Corporation, an integrated retailer providing merchandise and related services, from August 2014 to July 2015. From April 2008 to July 2014, Mr. Peker served in various roles at CarParts.com, Inc. (formerly known as U.S. Auto Parts Network, Inc.), including as Vice President and General Manager of Online Marketplaces from June 2013 to July 2014, as Director and General Manager of Online Marketplaces from March 2009 to June 2013, and as Manager of Financial Planning and Analysis from April 2008 to March 2009. Mr. Peker holds a BS degree in Accounting from the University of Southern California and an MBA in Marketing and Strategy from the University of California, Los Angeles.
38
CarLotz, Inc. and Subsidiaries - Notes to Consolidated Financial Statements
(In thousands, except share data)
The Company and Mr. Peker have entered into an employment agreement, dated March 12, 2022 in connection with his appointment as Chief Executive Officer of the Company (the “Employment Agreement”), effective as of April 18, 2022 (the “Start Date”). The Employment Agreement provides for a three-year term, with automatic 12-month renewals unless either party provides 90 days’ notice not to renew. Under the Employment Agreement, Mr. Peker will receive: (i) an annual base salary of $600,000, (ii) a sign-on bonus of $900,000, subject to Mr. Peker’s continued employment through the first anniversary of the Start Date, (iii) a first year annual bonus with a target value of $900,000 payable based on performance for the period from the Start Date to the first anniversary of the Start Date, (iv) an annual performance-based bonus with a target value of 150% of Mr. Peker’s annual base salary and a maximum value of 300% of Mr. Peker’s annual base salary for each calendar year of the employment term beginning in 2023, (v) a 2022 annual equity award of 680,000 RSUs, vesting, subject to Mr. Peker’s continued employment through the applicable vesting date, in equal annual installments over four years, (vi) a sign-on time-based equity award of 2,820,000 RSUs to compensate Mr. Peker for time-based equity awards forfeited from his former employer, vesting, subject to Mr. Peker’s continued employment through the applicable vesting date, in various installments through 2025 that are intended to approximate the vesting schedule of his forfeited equity and (vii) a sign-on performance equity award of 3,500,000 performance RSUs to compensate Mr. Peker for time-based equity awards forfeited from his former employer. The sign-on performance equity award will vest, subject to Mr. Peker’s continued employment through the applicable vesting date, as follows: (x) one-third of the shares will vest on the first day the Company’s stock achieves a 20 trading-day volume weighted average price of $4.00 (threshold); (y) one-third of the shares will vest on the first day the Company’s stock achieves a 20 trading-day volume weighted average price of $8.00 (target); and (z) one-third of the shares will vest on the first day the Company’s stock achieves a 20 trading-day volume weighted average price of $12.00 (maximum).
Mr. Peker will also be eligible to participate in the Company’s health and other benefit plans and to receive future customary equity award grants.
The Employment Agreement provides that in the event of a termination without “Cause”, or a resignation for “Good Reason” (both as defined in the Employment Agreement) not in connection with a change in control, and conditional on Mr. Peker signing a general release of claims and complying with certain restrictive covenants, Mr. Peker will be entitled to receive: (i) 12 months of then base salary, payable in installments, (ii) his sign-on bonus, if not already paid, (iii) a prorated portion of his first-year annual bonus, if not already paid, as well as a prorated portion of his annual bonus, (iv) accelerated vesting of any equity awards scheduled to vest within 12 months following the termination date (other than any awards based on performance-vesting conditions) and (v) up to 12 months of continuing health benefits. In the event that Mr. Peker is terminated without “Cause”, or resigns for “Good Reason” in connection with a change in control, he will receive the payments and benefits referenced in (i) through (v) above, as well as accelerated vesting of all outstanding unvested equity awards, including those based on performance-vesting conditions, which will vest based on actual performance on the date of termination, and an additional amount equal to his target annual bonus, payable in installments over the 12 months following the termination date.
39
PART IV
Exhibit Index
(b) Financial Statements Schedules: Schedule II - Valuation and Qualifying Accounts
| Balance at beginning of the period | Bad debt expense | Write-offs | Balance at the end of period | |||||||||||||
| (in thousands) | ||||||||||||||||
| Allowance for doubtful accounts: | ||||||||||||||||
| Year ended December 31, 2021 | 67 | 731 | (498 | ) | 300 | |||||||||||
| Year ended December 31, 2020 | 27 | 44 | (4 | ) | 67 | |||||||||||
| Year ended December 31, 2019 | 41 | 44 | (58 | ) | 27 | |||||||||||
All other financial statement schedules are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements.
40
Exhibit 99.2
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)
| September 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 84,809 | $ | 75,029 | ||||
| Restricted cash | 4,049 | 4,336 | ||||||
| Marketable securities - at fair value | 28,125 | 116,589 | ||||||
| Accounts receivable, net | 4,786 | 8,206 | ||||||
| Inventories | 13,062 | 40,985 | ||||||
| Other current assets | 4,349 | 4,705 | ||||||
| Operating and finance lease assets, property, and equipment held for sale | 20,860 | - | ||||||
| Total Current Assets | 160,040 | 249,850 | ||||||
| Marketable securities - at fair value | 760 | 1,941 | ||||||
| Property and equipment, net | 7,118 | 22,628 | ||||||
| Capitalized website and internal-use software costs, net | 12,725 | 13,716 | ||||||
| Operating lease assets | 22,092 | - | ||||||
| Finance lease assets, net | 4,459 | - | ||||||
| Lease vehicles, net | 2,869 | 1,596 | ||||||
| Other assets | 474 | 558 | ||||||
| Total Assets | $ | 210,537 | $ | 290,289 | ||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities: | ||||||||
| Current portion of finance lease liabilities | $ | 116 | $ | 509 | ||||
| Floor plan notes payable | 5,433 | 27,815 | ||||||
| Accounts payable | 2,236 | 6,352 | ||||||
| Accrued expenses | 11,215 | 14,428 | ||||||
| Current portion of operating lease liabilities | 4,600 | - | ||||||
| Other current liabilities | 593 | 754 | ||||||
| Operating and finance lease liabilities associated with assets held for sale | 22,294 | - | ||||||
| Total Current Liabilities | 46,487 | 49,858 | ||||||
| Finance lease liabilities, less current portion | 6,083 | 12,206 | ||||||
| Operating lease liabilities, less current portion | 22,384 | - | ||||||
| Earnout shares liability | 722 | 7,679 | ||||||
| Merger warrants liability | 675 | 6,291 | ||||||
| Other liabilities | 417 | 744 | ||||||
| Total Liabilities | 76,768 | 76,778 | ||||||
| Commitments and Contingencies (Note 15) | - | - | ||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Common stock, $0.0001 par value; 500,000,000 authorized shares, 114,879,689 and 113,996,401 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 11 | 11 | ||||||
| Additional paid-in capital | 291,827 | 287,509 | ||||||
| Accumulated deficit | (157,956 | ) | (73,916 | ) | ||||
| Accumulated other comprehensive loss | (113 | ) | (93 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 133,769 | 213,511 | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 210,537 | $ | 290,289 | ||||
See notes to condensed consolidated financial statements.
1
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues: | ||||||||||||||||
| Retail vehicle sales | $ | 32,545 | $ | 56,284 | $ | 142,344 | $ | 150,897 | ||||||||
| Wholesale vehicle sales | 16,357 | 8,989 | 38,880 | 18,217 | ||||||||||||
| Finance and insurance, net | 1,691 | 2,639 | 8,591 | 5,973 | ||||||||||||
| Lease income, net | 245 | 129 | 528 | 334 | ||||||||||||
| Total Revenues | 50,838 | 68,041 | 190,343 | 175,421 | ||||||||||||
| Cost of sales (exclusive of depreciation) | 51,429 | 66,017 | 187,375 | 167,207 | ||||||||||||
| Gross Profit | (591 | ) | 2,024 | 2,968 | 8,214 | |||||||||||
| Operating Expenses: | ||||||||||||||||
| Selling, general and administrative | 19,334 | 24,780 | 74,017 | 63,039 | ||||||||||||
| Stock-based compensation expense | 1,409 | 3,447 | 4,234 | 49,114 | ||||||||||||
| Depreciation and amortization expense | 2,025 | 1,214 | 6,173 | 1,692 | ||||||||||||
| Management fee expense - related party | - | - | - | 2 | ||||||||||||
| Impairment expense | 420 | - | 1,143 | - | ||||||||||||
| Restructuring expenses | 1,885 | - | 12,616 | - | ||||||||||||
| Total Operating Expenses | 25,073 | 29,441 | 98,183 | 113,847 | ||||||||||||
| Loss from Operations | (25,664 | ) | (27,417 | ) | (95,215 | ) | (105,633 | ) | ||||||||
| Interest expense | 302 | 650 | 1,512 | 1,009 | ||||||||||||
| Other Income, net | ||||||||||||||||
| Change in fair value of Merger warrants liability | 803 | 12,111 | 5,616 | 24,794 | ||||||||||||
| Change in fair value of earnout shares | 341 | 12,565 | 6,957 | 56,621 | ||||||||||||
| Other income (expense) | 523 | (85 | ) | 113 | (476 | ) | ||||||||||
| Total Other Income, net | 1,667 | 24,591 | 12,686 | 80,939 | ||||||||||||
| Loss Before Income Tax Expense | (24,299 | ) | (3,476 | ) | (84,041 | ) | (25,703 | ) | ||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net Loss | $ | (24,299 | ) | $ | (3,476 | ) | $ | (84,041 | ) | $ | (25,703 | ) | ||||
| Net Loss per Share, basic and diluted | $ | (0.21 | ) | $ | (0.03 | ) | $ | (0.74 | ) | $ | (0.23 | ) | ||||
| Weighted-average Shares used in Computing Net Loss per Share, basic and diluted | 114,705,449 | 113,707,013 | 114,334,960 | 109,447,939 | ||||||||||||
See notes to condensed consolidated financial statements.
2
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss)
(Unaudited)
(In thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss | $ | (24,299 | ) | $ | (3,476 | ) | $ | (84,041 | ) | $ | (25,703 | ) | ||||
| Other Comprehensive (Loss), net of tax: | ||||||||||||||||
| Unrealized gains (losses) on marketable securities arising during the period | 38 | (40 | ) | (6 | ) | (110 | ) | |||||||||
| Tax effect | - | - | - | - | ||||||||||||
| Unrealized gains (losses) on marketable securities arising during the period, net of tax | 38 | (40 | ) | (6 | ) | (110 | ) | |||||||||
| Reclassification adjustment for realized gains | (8 | ) | - | (14 | ) | (5 | ) | |||||||||
| Tax effect | - | - | - | - | ||||||||||||
| Reclassification adjustment for realized gains, net of tax | (8 | ) | - | (14 | ) | (5 | ) | |||||||||
| Other Comprehensive Income (Loss), net of tax | 30 | (40 | ) | (20 | ) | (115 | ) | |||||||||
| Total Comprehensive (Loss) | $ | (24,269 | ) | $ | (3,516 | ) | $ | (84,061 | ) | $ | (25,818 | ) | ||||
See notes to condensed consolidated financial statements.
3
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
Nine Months Ended September 30, 2022 and 2021
(Unaudited)
(In thousands, except share data)
| Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Loss) Income | (Deficit) | |||||||||||||||||||||||||
| Balance December 31, 2021 | - | $ | - | 113,996,401 | $ | 11 | $ | 287,509 | $ | (73,916 | ) | $ | (93 | ) | $ | 213,511 | ||||||||||||||||
| Net loss | - | - | - | - | - | (24,836 | ) | - | (24,836 | ) | ||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | - | - | - | - | (73 | ) | (73 | ) | ||||||||||||||||||||||
| Cashless exercise of options | - | - | 44,424 | - | - | - | - | - | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 1,684 | - | - | 1,684 | ||||||||||||||||||||||||
| Issuance of common stock to settle vested restricted stock units | - | - | 70,971 | - | (2 | ) | - | - | (2 | ) | ||||||||||||||||||||||
| Balance March 31, 2022 | - | $ | - | 114,111,796 | $ | 11 | $ | 289,191 | $ | (98,752 | ) | $ | (166 | ) | $ | 190,284 | ||||||||||||||||
| Net loss | - | $ | - | - | $ | - | $ | - | $ | (34,905 | ) | $ | - | $ | (34,905 | ) | ||||||||||||||||
| Other comprehensive income, net of tax | - | $ | - | - | $ | - | $ | - | $ | - | $ | 23 | $ | 23 | ||||||||||||||||||
| Exercise of options | - | $ | - | 104,818 | $ | - | $ | 66 | $ | - | $ | - | $ | 66 | ||||||||||||||||||
| Stock-based compensation | - | $ | - | - | $ | - | $ | 1,141 | $ | - | $ | - | $ | 1,141 | ||||||||||||||||||
| Issuance of common stock to settle vested restricted stock units | - | $ | - | 263,048 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
| Balance June 30, 2022 | - | $ | - | 114,479,662 | $ | 11 | $ | 290,398 | $ | (133,657 | ) | $ | (143 | ) | $ | 156,609 | ||||||||||||||||
| Net loss | - | $ | - | - | $ | - | $ | - | $ | (24,299 | ) | $ | - | $ | (24,299 | ) | ||||||||||||||||
| Other comprehensive income, net of tax | - | $ | - | - | $ | - | $ | - | $ | - | $ | 30 | $ | 30 | ||||||||||||||||||
| Exercise of options | - | $ | - | 81,541 | $ | - | $ | 20 | $ | - | $ | - | $ | 20 | ||||||||||||||||||
| Cashless exercise of options | - | $ | - | 26,435 | $ | - | - | $ | - | $ | - | - | ||||||||||||||||||||
| Stock-based compensation | - | $ | - | - | $ | - | $ | 1,409 | $ | - | $ | - | $ | 1,409 | ||||||||||||||||||
| Issuance of common stock to settle vested restricted stock units | - | $ | - | 292,051 | $ | - | $ | - | $ | - | $ | - | - | |||||||||||||||||||
| Balance September 30, 2022 | - | $ | - | 114,879,689 | $ | 11 | $ | 291,827 | $ | (157,956 | ) | $ | (113 | ) | $ | 133,769 | ||||||||||||||||
See notes to condensed consolidated financial statements.
4
| Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Loss) Income | (Deficit) | |||||||||||||||||||||||||
| Balance December 31, 2020 | 2,034,751 | $ | 17,560 | 37,881,435 | $ | 4 | $ | 3,221 | $ | (34,037 | ) | $ | 15 | $ | (30,797 | ) | ||||||||||||||||
| Retroactive application of recapitalization | (2,034,751 | ) | (17,560 | ) | 20,739,607 | 2 | 17,558 | - | - | 17,560 | ||||||||||||||||||||||
| Adjusted balance, beginning of period | - | - | 58,621,042 | 6 | 20,779 | (34,037 | ) | 15 | (13,237 | ) | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | (15,022 | ) | - | (15,022 | ) | ||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | - | - | - | - | (131 | ) | (131 | ) | ||||||||||||||||||||||
| Accrued dividends on redeemable convertible preferred stock | - | - | - | - | (19 | ) | - | - | (19 | ) | ||||||||||||||||||||||
| PIPE issuance | - | - | 12,500,000 | 1 | 124,999 | - | - | 125,000 | ||||||||||||||||||||||||
| Merger financing | - | - | 38,194,390 | 4 | 309,995 | - | - | 309,999 | ||||||||||||||||||||||||
| Consideration to existing shareholders of Former CarLotz, net of accrued dividends | - | - | - | - | (62,693 | ) | - | - | (62,693 | ) | ||||||||||||||||||||||
| Transaction costs and advisory fees | - | - | - | - | (47,579 | ) | - | - | (47,579 | ) | ||||||||||||||||||||||
| Settlement of redeemable convertible preferred stock tranche obligation | - | - | - | - | 2,832 | - | - | 2,832 | ||||||||||||||||||||||||
| Cashless exercise of options | - | - | 54,717 | - | - | - | - | - | ||||||||||||||||||||||||
| Cash consideration paid to Former Carlotz optionholders | - | - | - | - | (2,465 | ) | - | - | (2,465 | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 41,963 | - | - | 41,963 | ||||||||||||||||||||||||
| Earnout liability | - | - | - | - | (74,284 | ) | - | - | (74,284 | ) | ||||||||||||||||||||||
| Merger warrants liability | - | - | - | - | (39,025 | ) | - | - | (39,025 | ) | ||||||||||||||||||||||
| KAR/AFC note payable conversion | - | - | 3,546,984 | - | 3,625 | - | - | 3,625 | ||||||||||||||||||||||||
| KAR/AFC warrant exercise | - | - | 752,927 | - | 144 | - | - | 144 | ||||||||||||||||||||||||
| Balance March 31, 2021 | - | $ | - | 113,670,060 | $ | 11 | $ | 278,272 | $ | (49,059 | ) | $ | (116 | ) | $ | 229,108 | ||||||||||||||||
| Net loss | - | - | - | - | - | (7,205 | ) | - | (7,205 | ) | ||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | - | - | - | - | 56 | 56 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 3,704 | - | - | 3,704 | ||||||||||||||||||||||||
| Balance June 30, 2021 | - | $ | - | 113,670,060 | $ | 11 | $ | 281,976 | $ | (56,264 | ) | $ | (60 | ) | $ | 225,663 | ||||||||||||||||
| Net loss | - | - | - | - | - | (3,476 | ) | - | (3,476 | ) | ||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | - | - | - | - | (40 | ) | (40 | ) | ||||||||||||||||||||||
| Issuance of Class A common stock to settle vested restricted stock units | - | - | 36,953 | - | - | - | - | - | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 3,447 | - | - | 3,447 | ||||||||||||||||||||||||
| Balance September 30, 2021 | - | $ | - | 113,707,013 | $ | 11 | $ | 285,423 | $ | (59,740 | ) | $ | (100 | ) | $ | 225,594 | ||||||||||||||||
See notes to condensed consolidated financial statements.
5
CarLotz, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flow from Operating Activities | ||||||||
| Net loss | $ | (84,041 | ) | $ | (25,703 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization - property, equipment, ROU assets and capitalized software | 8,532 | 1,623 | ||||||
| Impairment expense | 1,143 | - | ||||||
| Non-cash restructuring expenses | 10,387 | - | ||||||
| Gain on lease assignment | (236 | ) | - | |||||
| Amortization and accretion - marketable securities | 752 | 1,712 | ||||||
| Depreciation - lease vehicles | 360 | 69 | ||||||
| Provision for doubtful accounts | 656 | 85 | ||||||
| Stock-based compensation expense | 4,234 | 49,114 | ||||||
| Change in fair value of Merger warrants liability | (5,616 | ) | (24,794 | ) | ||||
| Change in fair value of earnout shares | (6,957 | ) | (56,621 | ) | ||||
| Unpaid interest expense on capital lease obligations | - | 199 | ||||||
| Change in Operating Assets and Liabilities: | ||||||||
| Accounts receivable | 2,764 | (4,786 | ) | |||||
| Inventories | 27,923 | (46,774 | ) | |||||
| Other current assets | 356 | (8,414 | ) | |||||
| Other assets | 84 | (4,267 | ) | |||||
| Accounts payable | (4,116 | ) | 3,541 | |||||
| Accrued expenses | (2,237 | ) | 5,441 | |||||
| Accrued expenses - related party | - | (229 | ) | |||||
| Other current liabilities | (161 | ) | 382 | |||||
| Other liabilities | (327 | ) | (753 | ) | ||||
| Net Cash Used in Operating Activities | (46,500 | ) | (110,175 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | (5,642 | ) | (6,766 | ) | ||||
| Capitalized website and internal-use software costs | (2,958 | ) | (11,511 | ) | ||||
| Purchase of marketable securities | (63,858 | ) | (359,381 | ) | ||||
| Proceeds from sales of marketable securities | 152,758 | 212,823 | ||||||
| Purchase of lease vehicles | (1,633 | ) | (939 | ) | ||||
| Net Cash Provided by (Used in) Investing Activities | 78,667 | (165,774 | ) | |||||
| Cash Flows from Financing Activities | ||||||||
| Payments made on finance leases | (376 | ) | (51 | ) | ||||
| Advance from holder of marketable securities | - | 4,722 | ||||||
| Repayment of advance from marketable securities | - | (4,722 | ) | |||||
| PIPE issuance | - | 125,000 | ||||||
| Merger financing | - | 309,999 | ||||||
| Payment made on accrued dividends | - | (4,853 | ) | |||||
| Payments to existing shareholders of Former CarLotz | - | (62,693 | ) | |||||
| Transaction costs and advisory fees | - | (47,579 | ) | |||||
| Payments made on cash considerations associated with stock options | - | (2,465 | ) | |||||
| Repayment of Paycheck Protection Program loan | - | (1,749 | ) | |||||
| Payments made on note payable | - | (3,000 | ) | |||||
| Payments on floor plan notes payable | (102,592 | ) | (109,034 | ) | ||||
| Borrowings on floor plan notes payable | 80,211 | 127,279 | ||||||
| Employee stock option exercise | 91 | - | ||||||
| Payments made for tax on equity award transactions | (8 | ) | - | |||||
| Net Cash (Used in) Provided by Financing Activities | (22,674 | ) | 330,854 | |||||
| Net Change in Cash and Cash Equivalents Including Restricted Cash | 9,493 | 54,905 | ||||||
| Cash and cash equivalents and restricted cash, beginning | 79,365 | 2,813 | ||||||
| Cash and cash equivalents and restricted cash, ending | $ | 88,858 | $ | 57,718 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | 1,589 | $ | 1,000 | ||||
| Supplementary Schedule of Non-cash Investing and Financing Activities: | ||||||||
| Transfer from lease vehicles to inventory | $ | - | $ | 166 | ||||
| KAR/AFC exercise of stock warrants | - | (144 | ) | |||||
| KAR/AFC conversion of notes payable | - | (3,625 | ) | |||||
| Convertible redeemable preferred stock tranche obligation expiration | - | (2,832 | ) | |||||
| Capitalized website and internal use software costs accrued | - | (1,898 | ) | |||||
| Purchases of property under capital lease obligation | (247 | ) | (7,651 | ) | ||||
See notes to condensed consolidated financial statements.
6
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 1 Description of Business
Defined Terms
Unless otherwise indicated or unless the context otherwise requires, the following terms used herein shall have the following meanings:
● references to “CarLotz,” “we,” “us,” “our” and the “Company” are to CarLotz, Inc. and its consolidated subsidiaries;
● references to “Acamar Partners” refer to the Company for periods prior to the consummation of the Merger referred to below;
● references to “Acamar Sponsor” are to Acamar Partners Sponsor I LLC; and
● references to the “Merger” are to the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020 (as amended by Amendment No. 1, dated December 16, 2020, the “Merger Agreement”), by and among CarLotz, Inc. (f/k/a Acamar Partners Acquisition Corp.) (the “Company”), Acamar Partners Sub, Inc., a wholly owned subsidiary of CarLotz, Inc. (“Merger Sub”), and CarLotz Group, Inc. (f/k/a CarLotz, Inc.) (“Former CarLotz”), pursuant to which Merger Sub merged with and into Former CarLotz, with Former CarLotz surviving as the surviving company and as a wholly owned subsidiary of the Company.
The Company is a used vehicle consignment and Retail RemarketingTM company based in Richmond, Virginia. The Company operates an innovative and one-of-a-kind consumer and commercial used vehicle consignment and sales business model, with an online marketplace and 11 retail hub locations throughout the United States, including in Alabama, California, Colorado, Florida, Illinois, North Carolina, and Virginia.
Subsidiaries are consolidated when the parent is deemed to have control over the subsidiaries’ operations.
Subsidiary Operations
CarLotz, Inc. owns 100% of CarLotz Group, Inc. (a Delaware corporation), which owns 100% of CarLotz, Inc. (an Illinois corporation), CarLotz Nevada, LLC (a Delaware LLC), CarLotz California, LLC (a California LLC), CarLotz Logistics, LLC (a Delaware LLC), Orange Grove Fleet Solutions, LLC (a Virginia LLC), Orange Peel Protection Reinsurance Co. Ltd. (a Turks and Caicos Islands, British West Indies company) and Orange Peel LLC (a Virginia LLC), which owns 100% of Orange Peel Reinsurance, Ltd. (a Turks and Caicos Islands, British West Indies company).
Basis of Presentation
On January 21, 2021 (the “Closing Date”), the Company consummated the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020, by and among the Company, Merger Sub and Former CarLotz, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated December 16, 2020, by and among the Company, Merger Sub and Former CarLotz (See Note 3 “Merger” for further discussion).
Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz continuing as the surviving company. Notwithstanding the legal form of the Merger pursuant to the Merger Agreement, the Merger is accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Under this method of accounting, CarLotz is treated as the acquired company and Former CarLotz is treated as the acquiror for financial statement reporting and accounting purposes.
7
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
As a result of Former CarLotz being the accounting acquirer, the financial reports filed with the U.S. Securities and Exchange Commission (“SEC”) by the Company subsequent to the Merger are prepared “as if” Former CarLotz is the predecessor and legal successor to the Company. The historical operations of Former CarLotz are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Former CarLotz prior to the Merger, (ii) the combined results of the Company and Former CarLotz following the Merger on January 21, 2021, (iii) the assets and liabilities of Former CarLotz at their historical cost and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of Former CarLotz in connection with the Merger is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Merger transaction consistent with the treatment of the transaction as a reverse recapitalization of Former CarLotz.
In connection with the Merger, Acamar Partners Acquisition Corp. changed its name to CarLotz, Inc. The Company’s common stock is now listed on The Nasdaq Global Market under the symbol “LOTZ” and warrants to purchase the common stock at an exercise price of $11.50 per share are listed on The Nasdaq Global Market under the symbol “LOTZW”. Prior to the Merger, the Company neither engaged in any operations nor generated any revenue. Until the Merger, based on the Company’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, except for those related to recent accounting pronouncements adopted in the current fiscal year.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in management’s opinion, include all adjustments, which consist of only normal recurring adjustments, necessary for the fair statement of the Company’s condensed consolidated balance sheet as of September 30, 2022 and its results of operations for the three and nine months ended September 30, 2022 and 2021. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.
Restructuring
On June 21, 2022, we announced the closure of retail operations at 11 hub locations and determined not to commence retail operations at 3 unopened hub locations with executed lease agreements. The costs associated with the hub closures are classified as restructuring expenses. See Note 21 - Restructuring Charges, Asset Impairment, and Assets Held For Sale for further detail.
Shift Merger
On August 9, 2022, the Company entered into the Agreement and Plan of Merger (the “Shift Merger Agreement”) with Shift Technologies, Inc., a Delaware corporation (“Shift”), and Shift Remarketing Operations, Inc., a Delaware corporation and direct wholly owned subsidiary of Shift (“Shift Merger Sub”), pursuant to which, among other things and subject to the terms and conditions contained therein, Shift Merger Sub will be merged with and into CarLotz, with CarLotz continuing as the surviving corporation and as a wholly owned subsidiary of Shift (the “Shift Merger”). The Shift Merger is expected to close in the fourth quarter of 2022, subject to Shift and Company stockholder approval and other customary and regulatory approvals.
Certain transaction expenses (“Shift Merger expenses”) such as financial advisory, legal, accounting costs and associated fees and expenses that will be paid at the close of the Shift Merger are expensed as incurred and included in Accrued Expenses (see Note 12 - Accrued Expenses for further detail).
Note 2 - Summary of Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2 to the audited consolidated financial statements.
8
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
During the nine months ended September 30, 2022, there were no significant revisions to the Company’s significant accounting policies, other than those indicated herein related to the adoption of Leases Topic 842.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.
Following the closing of the Merger, Former CarLotz equity holders at the effective time of the Merger will have the contingent right to receive, in the aggregate, up to 7,500,000 shares of common stock if, from the closing of the Merger until the fifth anniversary thereof, the reported closing trading price of the common stock exceeds certain thresholds. Estimating the change in fair value of the earnout liability for the earnout shares that could be earned by Former CarLotz equity holders at the effective time of the Merger requires determining both the fair value valuation model to use and inputs to the valuation model. The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model, which is a commonly used valuation model for this type of transaction. Inputs that have a significant effect on the earnout shares valuation include the expected volatility, starting stock price, expected term, risk-free interest rate and the earnout hurdles. See Note 6 - Fair Value of Financial Instruments.
Warrants that were issued by Acamar Partners (Merger warrants) and continue to exist following the closing of the Merger are accounted for as freestanding financial instruments. These warrants are classified as liabilities on the Company’s condensed consolidated balance sheets and are recorded at their estimated fair value. The estimated fair value of the warrants is determined by using the market value in an active trading market. See Note 6 - Fair Value of Financial Instruments.
Beginning in the first quarter of 2020, the World Health Organization declared the outbreak and spread of the COVID-19 virus a pandemic. The COVID-19 pandemic and global macroeconomic and geopolitical conditions continue to disrupt supply chains and impact production and sales across a wide range of industries. The full economic impact of the pandemic and global conditions has not been determined, including the impact on the Company’s suppliers, customers and credit markets. Due to the evolving and uncertain nature of COVID-19 and global macroeconomic and geopolitical conditions, it is reasonably possible that it could materially impact the Company’s estimates, particularly those noted above that require consideration of forecasted financial information, in the near to medium term. The ultimate impact will depend on numerous evolving factors that the Company may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and other economic and operational conditions the Company may face.
Restricted Cash
As of September 30, 2022 and December 31, 2021, restricted cash included approximately $4,049 and $4,336, respectively. The restricted cash is legally and contractually restricted as collateral for lines of credit, including floorplan, and for the payment of claims on the reinsurance companies.
Advertising Costs
The Company expenses advertising costs as they are incurred. Advertising costs are included in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations. Advertising expenses were approximately $6,237 and $13,674 for the nine months ended September 30, 2022 and 2021, respectively.
Concentration of Credit Risk
Concentrations of credit risk with respect to accounts receivables are limited due to the large diversity and number of customers comprising the Company’s retail customer base.
Assets and Liabilities Held For Sale
As a result of the announced hub closures on June 21, 2022, the ROU and finance lease assets and liabilities associated with hub locations where the Company has or intends to assign the lease to a third-party or terminate the lease agreement (as opposed to subleasing to a third-party) are classified as held for sale. The fixed assets associated with all closed hub locations, to the extent they are not impaired, are also classified as held for sale.
9
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Revenues
The Company recognizes revenue upon transfer of control of goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Control passes to the retail and wholesale vehicle sales customer when the title is delivered to the customer, who then assumes control of the vehicle.
Retail Vehicle Sales
We sell used vehicles to our retail customers through our hubs in various cities. The transaction price for used vehicles is a fixed amount as set forth in the customer contract. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent noncash consideration which we measure at estimated fair value of the vehicle received on trade. We satisfy our performance obligation and recognize revenue for used vehicle sales at a point in time when the title to the vehicle passes to the customer, at which point the customer controls the vehicle. We provide a 12-month/12,000-mile limited warranty on most retail vehicle sales. The limited warranty is not treated as a separate performance obligation given the nature of the limited warranty is to provide assurance as to the quality of the vehicle being sold. The revenue recognized by CarLotz includes the agreed upon transaction price, including any service fees. Revenue excludes any sales taxes, title and registration fees, and other government fees that are collected from customers.
We receive payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing.
Our exchange policy allows customers to initiate an exchange during the first seven days or 400 miles after delivery, whichever comes first. If the vehicle is returned, the sale and associated revenue recognition is reversed, and the vehicle is treated as a purchase of inventory.
See the remainder of the Company’s revenue accounting policy related to wholesale, finance and insurance, and other revenue in the Form 10-K for the year ended December 31, 2021 filed on March 15, 2022.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard affected all entities that lease assets and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. ASU 2016-02, as subsequently amended for various technical issues, was effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, and early adoption was permitted.
We adopted ASC 842 for the year beginning January 1, 2022 using the modified retrospective transition approach applied at the beginning of the period of adoption, which did not result in a cumulative-effect adjustment to retained earnings. Comparative periods presented in the financial statements continue to be presented in accordance with ASC 840. As permitted under the standard, we have elected the package of practical expedients for the transition to ASC 842, under which we did not reassess our prior conclusions regarding lease identification, lease classification, or initial direct costs for contracts existing as of the transition date. We have also elected to apply the following practical expedients for contracts existing as of the transition date and all new contracts after our adoption of ASC 842: 1) recognizing lease expense on a straight-line basis over the lease term for leases with a term of 12 months or less and not recognizing them on the balance sheet and 2) accounting for lease and non-lease components for all asset classes as a combined single unit of account. We have not elected the practical expedient related to all land easements nor the hindsight practical expedient.
The adoption of ASC 842 resulted in the recognition of $50.5 million of operating lease assets, which included an adjustment for deferred rent, and $52.6 million of operating lease liabilities on our opening consolidated balance sheet. We have implemented new business processes, accounting policies, systems and internal controls as part of adopting the new standard. See Note 14 for additional information on leases.
10
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. The Company is currently evaluating the impact of this standard to its financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact of this standard on its financial statements.
Note 3 - Merger
On the Closing Date, the Company consummated the merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020, by and among the Company, Merger Sub and Former CarLotz, as amended by Amendment No. 1, dated December 16, 2020, by and among the Company, Merger Sub and Former CarLotz.
Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz surviving as the surviving company.
The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Acamar Partners was treated as the “acquired” company for financial reporting purposes (See Note 1 - Description of the Business). Accordingly, for accounting purposes, the Merger was treated as the equivalent of Former CarLotz issuing stock for the net assets of Acamar Partners, accompanied by a recapitalization.
Prior to the Merger, Former CarLotz and Acamar Partners filed separate standalone federal, state and local income tax returns. As a result of the Merger, structured as a reverse acquisition for tax purposes, Acamar Partners was renamed CarLotz, Inc. and became the parent of the consolidated filing group, with Former CarLotz as a subsidiary.
| Recapitalization | ||||
| Cash - Acamar Partners’ trust and cash | $ | 309,999 | ||
| Cash - PIPE | 125,000 | |||
| Less: consideration delivered to existing stockholders of Former CarLotz | (62,693 | ) | ||
| Less: consideration to pay accrued dividends | (4,853 | ) | ||
| Less: transaction costs and advisory fees paid | (47,579 | ) | ||
| Less: payments on cash considerations associated with stock options | (2,465 | ) | ||
| Net contributions from Merger and PIPE financing | 317,409 | |||
| Liabilities relieved: preferred stock obligation | 2,832 | |||
| Liabilities relieved: KAR/AFC note payable | 3,625 | |||
| Liabilities relieved: historic warrant liability | 144 | |||
| Less: earnout shares liability | (74,285 | ) | ||
| Less: Merger warrants liability | (39,024 | ) | ||
11
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Merger warrants
The following is an analysis of the warrants to purchase shares of the Company’s stock deemed acquired as part of the Merger and outstanding during the nine months ended September 30, 2022. There has been no change in outstanding stock warrants since the Merger.
| September 30, 2022 | ||||
| Stock warrants outstanding - Public | 10,185,774 | |||
| Stock warrants outstanding - Private | 6,074,310 | |||
| Stock warrants cancelled | - | |||
| Stock warrants exercised | - | |||
| Stock warrants outstanding | 16,260,084 | |||
Earnout Shares
Former CarLotz equity holders at the closing of the Merger are entitled to receive up to an additional 6,945,732 earnout shares. The earnout shares will be issued to the beneficiaries if certain targets are met in the post-acquisition period. The earnouts for the earnout shares are subject to an earnout period, which is defined as the date 60 months following the consummation of the Merger. The Merger closed on January 21, 2021, and the earnout period expires January 21, 2026. The earnout shares will be issued if any of the following conditions are achieved following January 21, 2021:
| i. | If at any time during the 60 months following the Closing Date (the first business day following the end of such period, the “Forfeiture Date”), the closing trading price of the common stock is greater than $12.50 over any 20 trading days within any 30 trading day period (the “First Threshold”), the Company will issue 50% of the earnout shares. |
| ii. | If at any time prior to the Forfeiture Date, the closing trading price of the common stock is greater than $15.00 over any 20 trading days within any 30 trading day period (the “Second Threshold”), the Company will issue 50% of the earnout shares. |
| iii. | If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unissued earnout shares are forfeited. All unissued earnout shares will be issued if there is a change of control of the Company that will result in the holders of the common stock receiving a per share price equal to or in excess of $10.00 (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock) prior to the Forfeiture Date. |
Before the contingency is met, the earnout shares will be classified as a liability under the FASB’s Accounting Standards Codification (“ASC”) Topic 815, so changes in the fair value of the earnout shares in future periods will be recognized in the condensed consolidated statement of operations. The estimated fair value of the liability is determined by using a Monte-Carlo simulation model.
Note 4 - Revenue Recognition
Disaggregation of Revenue
The significant majority of the Company’s revenue is derived from contracts with customers related to the sales of vehicles. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. The Company has determined that these categories depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
12
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The tables below include disaggregated revenue under ASC 606 (Revenue from Contracts with Customers):
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| Vehicle Sales | Fleet Management | Total | Vehicle Sales | Fleet Management | Total | |||||||||||||||||||
| Retail vehicle sales | $ | 32,545 | $ | - | $ | 32,545 | $ | 142,344 | $ | - | $ | 142,344 | ||||||||||||
| Wholesale vehicle sales | 16,357 | - | 16,357 | 38,880 | - | 38,880 | ||||||||||||||||||
| Finance and insurance, net | $ | 1,691 | $ | - | $ | 1,691 | 8,591 | - | 8,591 | |||||||||||||||
| Lease income, net | - | 245 | 245 | - | 528 | 528 | ||||||||||||||||||
| Total Revenues | $ | 50,593 | $ | 245 | $ | 50,838 | $ | 189,815 | $ | 528 | $ | 190,343 | ||||||||||||
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||||
| Vehicle Sales | Fleet Management | Total | Vehicle Sales | Fleet Management | Total | |||||||||||||||||||
| Retail vehicle sales | $ | 56,284 | $ | - | $ | 56,284 | $ | 150,897 | $ | - | $ | 150,897 | ||||||||||||
| Wholesale vehicle sales | 8,989 | - | 8,989 | 18,217 | - | 18,217 | ||||||||||||||||||
| Finance and insurance, net | $ | 2,639 | $ | - | $ | 2,639 | 5,973 | - | 5,973 | |||||||||||||||
| Lease income, net | - | 129 | 129 | - | 334 | 334 | ||||||||||||||||||
| Total Revenues | $ | 67,912 | $ | 129 | $ | 68,041 | $ | 175,087 | $ | 334 | $ | 175,421 | ||||||||||||
The following table summarizes revenues and cost of sales for retail and wholesale vehicle sales for the periods ended:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Retail vehicles: | ||||||||||||||||
| Retail vehicle sales | $ | 32,545 | $ | 56,284 | $ | 142,344 | $ | 150,897 | ||||||||
| Retail vehicle cost of sales | 32,141 | 56,584 | 144,058 | 147,142 | ||||||||||||
| Gross Profit - Retail Vehicles | $ | 404 | $ | (300 | ) | $ | (1,714 | ) | $ | 3,755 | ||||||
| Wholesale vehicles: | ||||||||||||||||
| Wholesale vehicle sales | $ | 16,357 | $ | 8,989 | $ | 38,880 | $ | 18,217 | ||||||||
| Wholesale vehicle cost of sales | 19,288 | 9,433 | 43,317 | 20,065 | ||||||||||||
| Gross Profit - Wholesale Vehicles | $ | (2,931 | ) | $ | (444 | ) | $ | (4,437 | ) | $ | (1,848 | ) | ||||
Retail Vehicle Sales
The Company sells used vehicles to retail customers through its retail hub locations. The transaction price for used vehicles is a fixed amount as set forth in the customer contract, and the revenue recognized by the Company is inclusive of the agreed upon transaction price and any service fees. Customers frequently trade-in their existing vehicle to apply toward the transaction price of a used vehicle. Trade-in vehicles represent noncash consideration, which the Company measures at estimated fair value of the vehicle received on the trade. The Company satisfies its performance obligation and recognizes revenue for used vehicle sales at a point in time when the title to the vehicle passes to the customer, at which point the customer controls the vehicle. The 12-month/12,000-mile limited warranty included in most retail vehicle sales is not treated as a separate performance obligation given the nature of the limited warranty is to provide assurance as to the quality of the vehicle being sold.
The Company receives payment for used vehicle sales directly from the customer at the time of sale or from third-party financial institutions within a short period of time following the sale if the customer obtains financing.
The Company’s exchange/return policy allows customers to initiate an exchange/return of a vehicle during the first seven days or 400 miles after delivery, whichever comes first. An exchange/return reserve is immaterial based on the Company’s historical activity.
13
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Wholesale Vehicle Sales
Vehicles that do not meet the Company’s standards for retail vehicle sales, vehicles that did not sell through the retail channel within a reasonable period of time and vehicles that the Company determines offer greater financial benefit through the wholesale channel are sold through various wholesale methods. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales when the vehicle is sold at auction or directly to a wholesaler and title to the vehicle passes to the next owner. Additionally, the Company sold or will sell vehicles that were at the closed hub locations through the wholesale channel that may not have been sold through the wholesale channel if the hubs had remained open.
Finance and Insurance, net
The Company provides customers with options for financing, insurance and extended warranties. Certain warranties are serviced by a company owned by a major stockholder. All other services are provided by third-party vendors, and the Company has agreements with each of these vendors giving the Company the right to offer such services.
When a customer selects a service from these third-party vendors, the Company earns a commission based on the actual price paid or financed. The Company concluded that it is an agent for these transactions because it does not control the products before they are transferred to the customer. Accordingly, the Company recognizes finance and insurance revenue at the point in time when the customer enters into the contract.
Note 5 - Marketable Securities
The following table summarizes amortized cost, gross unrealized gains and losses and fair values of the Company’s investments in fixed maturity debt securities as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | ||||||||||||||||
| Amortized Cost/ Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Treasuries | $ | - | $ | - | $ | - | $ | - | ||||||||
| Corporate bonds | 16,228 | 1 | (64 | ) | 16,165 | |||||||||||
| Municipal bonds | 3,517 | 5 | (15 | ) | 3,507 | |||||||||||
| Commercial paper | 8,375 | - | - | 8,375 | ||||||||||||
| Foreign governments | 417 | 69 | (109 | ) | 377 | |||||||||||
| Total Fixed Maturity Debt Securities | $ | 28,537 | $ | 75 | $ | (188 | ) | $ | 28,424 | |||||||
| December 31, 2021 | ||||||||||||||||
| Amortized Cost/ Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Treasuries | $ | - | $ | - | $ | - | $ | - | ||||||||
| Corporate bonds | 57,460 | - | (72 | ) | 57,388 | |||||||||||
| Municipal bonds | 28,325 | 5 | (10 | ) | 28,320 | |||||||||||
| Commercial paper | 19,989 | - | - | 19,989 | ||||||||||||
| Foreign governments | 12,291 | 2 | (18 | ) | 12,275 | |||||||||||
| Total Fixed Maturity Debt Securities | $ | 118,065 | $ | 7 | $ | (100 | ) | $ | 117,972 | |||||||
14
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The amortized cost and fair value of the Company’s fixed maturity debt securities as of September 30, 2022 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | 27,706 | $ | 27,664 | ||||
| Due after one year through five years | 666 | 624 | ||||||
| Due after five years through ten years | 165 | 136 | ||||||
| Total | $ | 28,537 | $ | 28,424 | ||||
The following tables summarize the Company’s gross unrealized losses in fixed maturity securities as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
| Corporate bonds | $ | 16,030 | $ | (47 | ) | $ | 133 | $ | (16 | ) | $ | 16,163 | $ | (63 | ) | |||||||||
| Municipal bonds | 3,379 | (3 | ) | 128 | (12 | ) | 3,507 | (15 | ) | |||||||||||||||
| Commercial paper | 8,376 | 0 | - | - | 8,376 | 0 | ||||||||||||||||||
| Foreign governments | 183 | (78 | ) | 88 | (32 | ) | 271 | (110 | ) | |||||||||||||||
| Total Fixed Maturity Debt Securities | $ | 27,968 | $ | (128 | ) | $ | 349 | $ | (60 | ) | $ | 28,317 | $ | (188 | ) | |||||||||
| December 31, 2021 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
| Corporate bonds | $ | 56,902 | $ | (69 | ) | $ | 376 | $ | (3 | ) | $ | 57,278 | $ | (72 | ) | |||||||||
| Municipal bonds | $ | 19,945 | $ | (7 | ) | $ | 340 | $ | (3 | ) | $ | 20,285 | $ | (10 | ) | |||||||||
| Foreign governments | $ | 12,152 | $ | (18 | ) | $ | - | $ | - | $ | 12,152 | $ | (18 | ) | ||||||||||
| Total Fixed Maturity Debt Securities | $ | 88,999 | $ | (94 | ) | $ | 716 | $ | (6 | ) | $ | 89,715 | $ | (100 | ) | |||||||||
Unrealized losses shown in the tables above are believed to be temporary. Fair value of investments in fixed maturity debt securities change and are based primarily on market rates. As of September 30, 2022, the Company’s fixed maturity portfolio had 13 securities with gross unrealized losses totaling $(60) that had been in loss positions in excess of 12 months and 21 securities with gross unrealized losses totaling $(128) that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $(43), or 69.3% of its amortized cost. As of December 31, 2021, the Company’s fixed maturity portfolio had 23 securities with gross unrealized losses totaling $(6) that had been in loss positions in excess of 12 months and 106 securities with gross unrealized losses totaling $(94) that had been in loss positions less than 12 months. No single issuer had a gross unrealized loss position greater than $12 (actual), or 0.4% of its amortized cost.
The following tables summarize cost and fair values of the Company’s investments in equity securities as of September 30, 2022 and December 31, 2021:
| September 30, 2022 | ||||||||
| Cost | Fair Value | |||||||
| Equity securities | $ | 425 | $ | 461 | ||||
15
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
| December 31, 2021 | ||||||||
| Cost | Fair Value | |||||||
| Equity securities | $ | 432 | $ | 558 | ||||
Proceeds from sales and maturities, gross realized gains, gross realized losses and net realized gains (losses) from sales and maturities of fixed maturity securities for the nine months ended September 30, 2022 and 2021 consisted of the following:
| September 30, 2022 | ||||||||||||||||
| Proceeds | Gross Realized Gains |
Gross Realized Losses |
Net Realized Gain |
|||||||||||||
| Fixed maturity debt securities | $ | 152,753 | $ | 14 | $ | - | $ | 14 | ||||||||
| Equity securities | 5 | - | - | - | ||||||||||||
| Total Marketable Securities | $ | 152,758 | $ | 14 | $ | - | $ | 14 | ||||||||
| September 30, 2021 | ||||||||||||||||
| Proceeds | Gross Realized Gains | Gross Realized Losses | Net Realized Gain | |||||||||||||
| Fixed maturity debt securities | $ | 212,822 | $ | 7 | $ | (2 | ) | $ | 5 | |||||||
| Equity securities | 1 | - | - | - | ||||||||||||
| Total Marketable Securities | $ | 212,823 | $ | 7 | $ | (2 | ) | $ | 5 | |||||||
16
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 September 30, 2022 and December 31, 2021, the Company held certain assets and liabilities that were required to be measured at fair value on a recurring basis.
The following tables are summaries of fair value measurements and hierarchy level as of:
| September 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Money market funds | $ | - | $ | - | $ | - | $ | - | ||||||||
| Equity securities | 461 | - | - | 461 | ||||||||||||
| Fixed maturity debt securities, including cash equivalents | - | 60,034 | - | 60,034 | ||||||||||||
| Total Assets | $ | 461 | $ | 60,034 | $ | - | $ | 60,495 | ||||||||
| Liabilities: | ||||||||||||||||
| Merger warrants liability | 423 | 252 | - | 675 | ||||||||||||
| Earnout shares liability | - | - | 722 | 722 | ||||||||||||
| Total Liabilities | $ | 423 | $ | 252 | $ | 722 | $ | 1,397 | ||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Money market funds | $ | - | $ | - | $ | - | $ | - | ||||||||
| Equity securities | 558 | - | - | 558 | ||||||||||||
| Fixed maturity debt securities | - | 135,346 | - | 135,346 | ||||||||||||
| Total Assets | $ | 558 | $ | 135,346 | $ | - | $ | 135,904 | ||||||||
| Liabilities: | ||||||||||||||||
| Merger warrants liability | $ | 3,941 | $ | 2,350 | $ | - | $ | 6,291 | ||||||||
| Earnout shares liability | - | - | 7,679 | 7,679 | ||||||||||||
| Total Liabilities | $ | 3,941 | $ | 2,350 | $ | 7,679 | $ | 13,970 | ||||||||
Money market funds consist of highly liquid investments with original maturities of three months or less and classified in restricted cash in the accompanying condensed consolidated balance sheets.
The Company recognizes transfers between the levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between the levels during the nine months ended September 30, 2022 and 2021.
17
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 nine months ended September 30, 2022 and 2021:
| January 1, 2022 | Issuances | Settlements | Change in fair value | September 30, 2022 | ||||||||||||||||
| Earnout shares | 7,679 | - | - | (6,957 | ) | 722 | ||||||||||||||
| Total | $ | 7,679 | $ | - | $ | - | $ | (6,957 | ) | $ | 722 | |||||||||
| January 1, 2021 | Issuances | Settlements | Change in fair value | September 30, 2021 | ||||||||||||||||
| Redeemable convertible preferred stock tranche obligation | $ | 2,832 | $ | - | $ | (2,832 | ) | $ | - | $ | - | |||||||||
| Historic warrants liability | 144 | - | (144 | ) | - | - | ||||||||||||||
| Earnout shares | - | 74,284 | - | (56,621 | ) | 17,663 | ||||||||||||||
| Total | $ | 2,976 | $ | 74,284 | $ | (2,976 | ) | $ | (56,621 | ) | $ | 17,663 | ||||||||
The fair value of the earnout shares was estimated by using a model based on previous Monte-Carlo simulation models. The inputs into the Monte-Carlo pricing model included significant unobservable inputs. The table below summarizes the significant observable inputs used when valuing the earnout shares as of:
| September 30, 2022 | September 30, 2021 | |||||||
| Expected volatility | 120.00 | % | 80.00 | % | ||||
| Starting stock price | $ | 0.30 | $ | 3.81 | ||||
| Expected term (in years) | 3.3 years | 4.30 years | ||||||
| Risk-free interest rate | 4.25 | % | 0.79 | % | ||||
| Earnout hurdle | $ | 12.50-$15.00 | $ | 12.50-$15.00 | ||||
Fair Value of Financial Instruments Not Measured at Fair Value on a Recurring Basis
The carrying amounts of restricted cash, accounts receivable and accounts payable approximate fair value because their respective maturities are less than three months.
The Company has entered a $25,000 floor plan credit facility with Ally Financial. The carrying value of the Ally Financial floor plan notes payable outstanding as of September 30, 2022 approximates fair value due to its variable interest rate determined to approximate current market rates.
Note 7 - Accounts Receivable, Net
The following table summarizes accounts receivable as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Contracts in transit | $ | 3,974 | $ | 7,540 | ||||
| Trade | 962 | 386 | ||||||
| Finance commission | 193 | 284 | ||||||
| Other | 614 | 296 | ||||||
| Total | 5,743 | 8,506 | ||||||
| Allowance for doubtful accounts | (957 | ) | (300 | ) | ||||
| Total Accounts Receivable, net | $ | 4,786 | $ | 8,206 | ||||
18
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 8 - Inventory and Floor Plan Notes Payable
The following table summarizes inventory as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Used vehicles | $ | 13,062 | $ | 40,739 | ||||
| Parts | - | 246 | ||||||
| Total | $ | 13,062 | $ | 40,985 | ||||
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 of 2021, with Ally Financial to finance the acquisition of used vehicle inventory. Concurrently, proceeds from the agreement were used to settle outstanding debt obligations on the Company’s preexisting floor plan facility with AFC. Borrowings under the Ally Financial facility accrue interest at a variable rate based on the most recent prime rate plus 2.50% per annum. The prime rate as of September 30, 2022 was 6.25%. Effective as of October 1, 2022, the maximum available credit line under the floor plan credit facility was reduced from $40,000 to $25,000.
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:
| September 30, 2022 | December 31, 2021 | |||||||
| Capital lease assets | - | 12,566 | ||||||
| Leasehold improvements | 4,880 | 4,628 | ||||||
| Furniture, fixtures and equipment | 4,964 | 7,993 | ||||||
| Corporate vehicles | 74 | 158 | ||||||
| Total property and equipment | 9,918 | 25,345 | ||||||
| Less: accumulated depreciation | (2,800 | ) | (2,609 | ) | ||||
| Less: impairment | - | (108 | ) | |||||
| Property and Equipment, net | $ | 7,118 | $ | 22,628 | ||||
Depreciation expense for property and equipment was approximately $1,776 and $761 for the nine months ended September 30, 2022 and 2021, respectively.
As a result of the hub closures on June 21, 2022, we classified $7,497 and $1,228 of gross property and equipment and accumulated depreciation, respectively, associated with property and equipment at the closed hub locations as held-for-sale. See Note 21 - Restructuring Charges, Asset Impairment, and Assets Held For Sale for further information regarding the property and equipment at the closed hub locations.
19
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 10 - Other Assets
The following table summarizes other assets as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Other Current Assets: | ||||||||
| Lease receivable, net | $ | 20 | $ | 29 | ||||
| Deferred acquisition costs | 26 | 46 | ||||||
| Prepaid expenses | 4,131 | 3,664 | ||||||
| Interest receivable | 172 | 966 | ||||||
| Total Other Current Assets | $ | 4,349 | $ | 4,705 | ||||
| Other Assets: | ||||||||
| Lease receivable, net | $ | 16 | $ | 16 | ||||
| Deferred acquisition costs | 26 | 35 | ||||||
| Security deposits | 432 | 507 | ||||||
| Total Other Assets | $ | 474 | $ | 558 | ||||
Note 11 - Long-term Debt
The following table summarizes long-term debt as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Capital lease obligation | $ | - | $ | 12,715 | ||||
| Finance lease liabilities | $ | 6,199 | $ | - | ||||
| 6,199 | 12,715 | |||||||
| Current portion of long-term debt | - | (509 | ) | |||||
| Current portion of finance lease liabilities | (116 | ) | - | |||||
| Long-term Debt | $ | 6,083 | $ | 12,206 | ||||
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
As of December 31, 2020, the Company had a convertible note balance of $3,500. The note accrued interest at 6.00% on a 365-day basis and the outstanding interest payable as of December 31, 2020 was approximately $212. Concurrently with the closing of the Merger on January 21, 2021, the historic warrants and the note were converted to a fixed number of shares pursuant to a conversion agreement with AFC. The convertible notes were extinguished by issuing AFC 347,992 shares of Former CarLotz common stock and the warrants were exercised into 73,869 shares of Former CarLotz common stock. There are no historic warrants outstanding subsequent to the exercise.
Payroll Protection Program Loan
In April 2020, the Company received a Paycheck Protection Program (“PPP”) loan, a new loan program under the Small Business Administration’s 7(a) program providing loans to qualifying businesses, totaling approximately $1,749. As of December 31, 2020, the Company had an outstanding PPP loan balance of $1,749, which was extinguished concurrently with the closing of the Merger.
20
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 12 - Accrued Expenses
The following table summarizes accrued expenses as of:
| September 30, 2022 | December 31, 2021 | |||||||
| License and title fees | $ | 535 | $ | 903 | ||||
| Payroll and bonuses | 2,303 | 2,047 | ||||||
| Deferred rent | - | 1,636 | ||||||
| Technology | 1,504 | 1,127 | ||||||
| Inventory | 839 | 2,542 | ||||||
| Shift Merger | 3,044 | - | ||||||
| Other | 2,990 | 6,173 | ||||||
| Total Accrued Expenses | $ | 11,215 | $ | 14,428 | ||||
Note 13 - Other Liabilities
The following table summarizes other liabilities as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Other Current Liabilities | ||||||||
| Unearned insurance premiums | $ | 593 | $ | 754 | ||||
| Other Liabilities | ||||||||
| Unearned insurance premiums | 298 | 622 | ||||||
| Other long-term liabilities | 119 | 122 | ||||||
| Other Liabilities | $ | 417 | $ | 744 | ||||
Note 14 - Leases
The Company leases its operating facilities from various third parties under non-cancelable operating and finance leases. The leases require various monthly rental payments ranging from approximately $3 to $70, with various ending dates through September 2036. The initial term for real property leases is typically 5 to 15 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. We include options to renew (or terminate) in our lease term, and as part of our right-of-use ("ROU") assets and lease liabilities, when it is reasonably certain that we will exercise that option. ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. The leases are triple net, whereby the Company is liable for taxes, insurance and repairs. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability. Most of these leases have escalating rent payments, which are being expensed on a straight-line basis and are included in operating lease amounts on the balance sheet.
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 $229 to $2,356 (actual) with various ending dates through March 2027. The initial term for vehicle leases is typically 36 to 72 months. Most leases do not include an option to renew. The lease payments are generally fixed throughout the term and any variable lease payments (non-recurring maintenance, taxes, registration) are not included in the measurement of the ROU asset and lease liability.
As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We have elected the practical expedient on not separating lease components from non-lease components. All leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
21
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The components of lease expense were as follows:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||
| Operating lease cost (1) | $ | 2,343 | $ | 7,080 | ||||
| Finance lease cost: | ||||||||
| Depreciation of lease assets | 95 | 621 | ||||||
| Interest on lease liabilities | 283 | 856 | ||||||
| Total finance lease cost | 378 | 1,477 | ||||||
| Total lease cost | 2,721 | 8,557 | ||||||
(1) Includes short-term leases and variable lease costs, which are immaterial.
Supplemental balance sheet information related to leases was as follows:
| Classification | As of September 30, 2022 | |||||
| Assets: | ||||||
| Operating lease assets | Operating lease assets | 22,092 | ||||
| Operating and finance lease assets, property, and equipment held for sale | 15,906 | |||||
| Finance lease assets | Finance lease assets | 4,459 | ||||
| Operating and finance lease assets, property, and equipment held for sale | 4,668 | |||||
| Total lease assets | 47,125 | |||||
| Liabilities: | ||||||
| Current: | ||||||
| Operating leases | Current portion of operating lease liabilities | 4,600 | ||||
| Operating and finance lease liabilities associated with assets held for sale | 17,123 | |||||
| Finance leases | Current portion of finance lease liabilities | 116 | ||||
| Operating and finance lease liabilities associated with assets held for sale | 5,171 | |||||
| Long-term: | ||||||
| Operating leases, less current portion | 22,384 | |||||
| Finance leases, less current portion | 6,083 | |||||
| Total lease liabilities | 55,477 | |||||
(1) Finance lease assets are recorded net of accumulated depreciation of $846 as of September 30, 2022.
(2) Operating lease assets are recorded net of impairment of $420 and $1,020 in the three and nine months ended September 30, 2022, respectively, due to a change in the physical condition of a right-of-use asset.
22
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Lease term and discount rate information related to leases was as follows:
| Lease Term and Discount Rate | As of September 30, 2022 | |||
| Weighted Average Remaining Lease Term (in years) | ||||
| Operating leases | 7.69 years | |||
| Finance leases | 11.34 years | |||
| Weighted Average Discount Rate | ||||
| Operating leases | 5.90 | % | ||
| Finance leases | 9.99 | % | ||
Supplemental cash flow information related to leases was as follows:
| Nine Months Ended September 30, 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | 6,991 | |||
| Operating cash flows from finance leases | 621 | |||
| Financing cash flows from finance leases | 376 | |||
| Lease assets obtained in exchange for lease obligation | ||||
| Operating leases | 49,183 | |||
| Finance leases | 247 | |||
23
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Maturities of lease liabilities were as follows:
| As of September 30, 2022 | ||||||||
| Operating Leases (1) | Finance Leases (1) | |||||||
| Fiscal 2022, remaining | 2,174 | 382 | ||||||
| Fiscal 2023 | 8,572 | 1,539 | ||||||
| Fiscal 2024 | 7,797 | 1,561 | ||||||
| Fiscal 2025 | 7,050 | 1,583 | ||||||
| Fiscal 2026 | 5,969 | 1,625 | ||||||
| Thereafter | 23,835 | 13,447 | ||||||
| Total lease payments | 55,397 | 20,137 | ||||||
| Less: interest | (11,290 | ) | (8,767 | ) | ||||
| Present value of lease liabilities | 44,107 | 11,370 | ||||||
| (1) | There are no legally binding minimum lease payments for leases signed but not yet commenced excluded from the table. |
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 and under the previous lease accounting standard, the following is a table of facility lease commitments due for the next five years, and thereafter, as of December 31, 2021:
| Total Per Year | Total Capital Leases | |||||||
| 2022 | $ | 6,788 | $ | 1,643 | ||||
| 2023 | 6,931 | 1,669 | ||||||
| 2024 | 6,657 | 1,695 | ||||||
| 2025 | 6,832 | 1,721 | ||||||
| 2026 | 5,884 | 1,766 | ||||||
| Thereafter | 23,715 | 14,322 | ||||||
| Total | $ | 56,807 | $ | 22,816 | ||||
| Less: amount representing interest | (10,101 | ) | ||||||
| Present value of minimum lease payments | 12,715 | |||||||
| Less: current obligation | (509 | ) | ||||||
| Long-term obligations under capital lease | $ | 12,206 | ||||||
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 December 31, 2021:
| Payments Due to Third-Parties | Future Receipts | |||||||
| 2022 | $ | 1,435 | $ | 1,721 | ||||
| 2023 | 1,017 | 1,205 | ||||||
| 2024 | 605 | 716 | ||||||
| 2025 | 180 | 216 | ||||||
| 2026 | 55 | 69 | ||||||
| Total | 3,292 | 3,927 | ||||||
24
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
In the three months ended September 30, 2022, the Company guaranteed the lease obligation of one of its closed hub locations assigned to a third-party that operates a used vehicle dealership. The Company continues as guarantor of such lease obligation with maximum total payments of $1,695 and will continue as the guarantor through March 2031. The Company would be required to perform under the guarantee if the third-party is in default. Given the assignment took place in September 2022, there is not a substantial risk that the third-party will default and the Company will have to perform under the guarantee. We have not recognized a liability associated with this guarantee.
Note 15 - Commitments and Contingencies
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.
Legal Matters
Federal Securities Litigation
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 current and former executive officers made various false and misleading statements or omissions about the Company’s business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, promulgated thereunder. See Daniel Erdman v. CarLotz, Inc., et al., 21-cv-5906 (S.D.N.Y.) The action is stated to be brought on behalf of purchasers of the securities of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
On July 20, 2021, purported CarLotz stockholder Michael Widuck, individually and on behalf of others similarly situated, filed a putative class action complaint in the United States District Court for the Southern District of New York, alleging that CarLotz and certain of its current and former 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., 21-cv-6191 (S.D.N.Y.). The action is stated to be brought on behalf of purchasers of the securities 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 current and former 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., 21-cv-6627 (S.D.N.Y.) The action is stated to be brought on behalf of purchasers of the securities of Acamar Partners Acquisition Corp. and CarLotz during the period from December 30, 2020 to May 25, 2021. The action seeks to recover unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses.
The above three cases were consolidated by the Court on August 31, 2021 under In re CarLotz, Inc. Sec. Litig., 21-cv-05906 (S.D.N.Y.). On October 15, 2021, the Court appointed David Berger lead plaintiff and Kahn Swick & Foti, LLC lead counsel for the putative class. On December 14, 2021, Lead Plaintiff Berger and Additional Plaintiff Craig Bailey filed an Amended Complaint against CarLotz, various current and former directors and officers of CarLotz, Acamar, various directors of Acamar, Acamar Partners Sponsor I LLC, and Acamar Partners Sub, Inc., purporting to assert claims on behalf of purchasers of Acamar and CarLotz securities during the period from October 22, 2020 through May 25, 2021. The Amended Complaint alleges that the defendants made various false and misleading statements or omissions about CarLotz’ business, operations, financial performance and prospects in violation of Sections 10(b), 14(a) and 20(a) of the Exchange Act; and Sections 11, 12(a)(2) and 15 of the Securities Act. The Amended Complaint sought a declaration that it is a proper class action pursuant to Fed. R. Civ. P. 23, as well as unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses, and any further relief that the Court may deem proper.
25
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
On February 17, 2022, Plaintiffs filed a Letter Motion for Leave to File Second Amended Complaint, citing the need “to resolve certain factual and legal issues bearing on the viability of certain of plaintiffs’ claims and named defendants.” On February 18, 2022, the Court granted Plaintiffs’ letter motion for leave to file a Second Amended Complaint and ordered that the Second Amended Complaint be filed by March 4, 2022.
On March 4, 2022, Lead Plaintiff Berger and Additional Plaintiff Bailey filed a Second Amended Complaint against CarLotz, various current and former directors and officers of CarLotz, Acamar, various directors of Acamar, and Acamar Partners Sponsor I LLC, purporting to assert claims on behalf of purchasers of Acamar and CarLotz securities during the period from October 22, 2020 through May 25, 2021. The Second Amended Complaint alleges that the defendants made various false and misleading statements or omissions about CarLotz’ business, operations, financial performance and prospects in violation of Sections 10(b) and 20(a) of the Exchange Act; and Sections 11, 12(a)(2) and 15 of the Securities Act. The Second Amended Complaint seeks a declaration that it is a proper class action pursuant to Fed. R. Civ. P. 23, as well as unspecified compensatory damages allegedly caused by the defendants’ purported violations of the federal securities laws, plus interest and costs and expenses, and any further relief that the Court may deem proper. On June 21, 2022, Defendants moved to dismiss the Second Amended Complaint. On August 22, 2022, Lead Plaintiff Berger and Additional Plaintiff Bailey filed a memorandum of law in opposition to Defendants’ motion to dismiss. On October 20, 2022, Defendants filed a reply memorandum of law in further support of their motion to dismiss.
Delaware Stockholder Derivative Litigation
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 current and former officers and directors of CarLotz. See Cardoza v. Mitchell, et al., 21-cv-1332 (D. Del.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., 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 April 1, 2022, Plaintiff filed an amended complaint asserting derivative claims for alleged violations of Sections 10(b), 14(a), and 21D of the Exchange Act, breach of fiduciary duty, waste, and unjust enrichment.
On March 31, 2022, purported CarLotz stockholder Mohammad Osman filed a derivative suit purportedly on behalf of CarLotz in the United States District Court for the District of Delaware against certain current and former officers and directors of CarLotz. See Osman v. Bor, et al., 22-cv-0431 (D. Del.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., asserts derivative claims for alleged violations of Sections 10(b), 20(a), and 21D of the Exchange Act, breach of fiduciary duty and unjust enrichment. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses, and other relief.
On June 16, 2022, the Court issued an order consolidating the Cardoza and Osman actions under the caption In re CarLotz, Inc. S’holder Deriv. Litig., 21-cv-1332, and appointing co-lead counsel. On July 13, 2022, the Court so-ordered the parties’ stipulation, staying the consolidated action pending the resolution of Defendants’ motion to dismiss the Second Amended Complaint in In re CarLotz, Inc. Sec. Litig.
New York Stockholder Derivative Litigation
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 current and former officers and directors of CarLotz. See Julian Cha v. David R. Mitchell, et al., 21-cv-8623 (S.D.N.Y.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., 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 current and former officers and directors of CarLotz. See Mark Habib v. David R. Mitchell, et al., 21-cv-8786 (S.D.N.Y.). The complaint, which principally concerns the same alleged misstatements or omissions at issue in In re CarLotz, Inc. Sec. Litig., asserts derivative claims for alleged 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.
26
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
On November 15, 2021, the Court issued an order¸ inter alia, consolidating Cha and Habib under In re CarLotz, Inc. Deriv. Litig., 21-cv-8623 and appointing co-lead counsel. On February 15, 2022, the Court so-ordered the parties’ stipulation, staying the consolidated action pending the resolution of Defendants’ motion to dismiss the Second Amended Complaint in In re CarLotz, Inc. Sec. Litig.
Shift Merger Disclosure Litigation
On November 4, 2022, two actions were filed in the Court of Chancery of the State of Delaware and the United States District Court for the Southern District of New York in connection with the transaction contemplated by the Shift Merger Agreement: Sholom D. Keller v. Carlotz, Inc., et al., C.A. 2022-1006 (Del. Ch.); and Derek Dorrien v. Carlotz, Inc., et al., 22-cv-9463 (S.D.N.Y.) (together, the “Shift Merger Disclosure Actions”). The Shift Merger Disclosure Actions, which name CarLotz and the members of its board of directors as defendants, allege that the Shift Merger Registration Statement is materially misleading, assert claims for breach of fiduciary duties and violations of Section 14(a) and 20(a) of the Securities Exchange Act of 1934, and seek, among other relief, a preliminary and permanent injunction, rescission, and/or damages, as well as an award of attorneys’ fees and costs.
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
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 four stock incentive plans, the “2011 Stock Option Plan,” the “2017 Stock Option Plan,” the “2020 Incentive Award Plan,” and the “Inducement 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 stockholder value and contribute to the growth and financial success of the Company by granting equity instruments to these stakeholders.
Share-based compensation expense was recorded for the nine months ended September 30, 2022 and 2021 of approximately $4,234 and $49,114, 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.
27
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
2011 Stock Option Plan
A summary of activity for the nine months ended September 30, 2022 and 2021 for the 2011 Stock Option Plan is as follows:
| Number of Stock Options | Weighted Exercise Price | |||||||
| Balance (December 31, 2021) | 1,260,328 | $ | 0.56 | |||||
| Granted | - | - | ||||||
| Exercised | (339,251 | ) | 0.37 | |||||
| Forfeited | (281,574 | ) | 0.64 | |||||
| Expired | (639,503 | ) | 0.64 | |||||
| Balance (September 30, 2022) | - | - | ||||||
| Vested (as of September 30, 2022) | - | $ | - | |||||
| Number of Stock Options | Weighted Exercise Price | |||||||
| Balance (December 31, 2020) | 1,571,205 | $ | 0.59 | |||||
| Granted | - | - | ||||||
| Exercised | (56,059 | ) | 0.24 | |||||
| Forfeited | - | - | ||||||
| Balance (September 30, 2021) | 1,515,146 | 0.58 | ||||||
| Vested (as of September 30, 2021) | 1,515,146 | $ | 0.58 | |||||
There are no options outstanding as of September 30, 2022 related to the 2011 Stock Option Plan.
2017 Stock Option Plan
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 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 August 2030.
28
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
A summary of activity for the nine months ended September 30, 2022 and 2021 for the 2017 Stock Option Plan is as follows:
| Number of Units | Weighted Averaged Exercise Price | |||||||
| Balance (December 31, 2021) | 3,936,176 | $ | 0.92 | |||||
| Granted | - | - | ||||||
| Exercised | (6,371 | ) | $ | 0.92 | ||||
| Forfeited | (329,002 | ) | 0.92 | |||||
| Balance (September 30, 2022) | 3,600,803 | $ | 0.92 | |||||
| Vested (as of September 30, 2022) | 3,340,901 | $ | 0.92 | |||||
| Number of Units | Weighted Averaged Exercise Price | |||||||
| Balance (December 31, 2020) | 3,961,658 | $ | 0.92 | |||||
| Granted | - | - | ||||||
| Forfeited | - | - | ||||||
| Balance (September 30, 2021) | 3,961,658 | $ | 0.92 | |||||
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 eight 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. At the time of modification, these options resulted in $186 of cash consideration and $4,500 of share based compensation that will be recognized over the service period of four years. For the nine months ended September 30, 2022, $627 of share-based compensation was recognized.
The following summarizes certain information about stock options vested and expected to vest as of September 30, 2022 related to the 2017 Stock Option Plan:
Number of Stock Options | Weighted Remaining Contractual Life | Weighted Exercise Price | ||||||||
| Outstanding | 3,600,803 | 6.77 years | $ | 0.92 | ||||||
| Exercisable | 3,340,901 | 6.69 years | $ | 0.92 | ||||||
The aggregate intrinsic value for options outstanding and options exercisable as of September 30, 2022 was $0.00.
29
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The inputs used for the 2017 Stock Option Plan were as follows:
| Balance (Expected volatility) | 80.00 | % | ||
| Expected dividend yield | - | % | ||
| Expected term (in years) | 3.6 - 4.8 years | |||
| Risk-free interest rate | 0.32% - 0.45 | % |
2020 Incentive Award Plan
The options associated with the 2020 Incentive Award Plan vest over a service period of three to four years. A summary of activity for the nine months ended September 30, 2022 and 2021 for the options associated with the 2020 Incentive Award Plan is as follows:
| Number of Units | Weighted Averaged Exercise Price | |||||||
| Balance (December 31, 2021) | 1,469,297 | $ | 11.12 | |||||
| Granted | 1,573,361 | $ | 1.68 | |||||
| Forfeited | (1,556,569 | ) | $ | 6.25 | ||||
| Expired | (230,847 | ) | $ | 11.35 | ||||
| Balance (September 30, 2022) | 1,255,242 | $ | 6.50 | |||||
| Exercisable | 161,103 | $ | 11.14 | |||||
| Number of Units | Weighted Averaged Exercise Price | |||||||
| Balance (December 31, 2020) | - | $ | - | |||||
| Granted | 1,463,242 | 11.16 | ||||||
| Forfeited | (1,723 | ) | 10.14 | |||||
| Balance (September 30, 2021) | 1,461,519 | $ | 11.16 | |||||
The grant date fair value of the options granted in the nine months ended September 30, 2022 was $1.17. For the nine months ended September 30, 2022, $1,178 of share based compensation was recognized. As of September 30, 2022, there was approximately $3,258 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, 2022 related to the 2020 Stock Option Plan:
| Number of Stock Options | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | ||||||||
| Outstanding | 1,255,242 | 8.89 years | $ | 6.50 | ||||||
| Exercisable | 161,103 | 8.33 years | $ | 11.14 | ||||||
The aggregate intrinsic value for options outstanding and options exercisable as of September 30, 2022 was $0.00.
30
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The inputs used for the 2020 Incentive Award Plan options were as follows for the nine months ended September 30, 2022:
| Balance (Expected volatility) | 80 | % | ||
| Expected dividend yield | - | % | ||
| Expected term (in years) | 6 years | |||
| Risk-free interest rate | 2.20 | % |
The restricted shares associated with the 2020 Incentive Award Plan vest over a service period. A summary of activity for the nine months ended September 30, 2022 for the restricted shares associated with the 2020 Incentive Award Plan is as follows:
| Balance (Number of Units | Weighted Average Grant Date Fair Value | |||||||
| Balance (December 31, 2021) | 597,739 | $ | 5.57 | |||||
| Granted | 3,010,005 | $ | 1.04 | |||||
| Forfeited | (1,203,785 | ) | $ | 3.63 | ||||
| Vested (as of September 30, 2022) | (250,105 | ) | $ | 5.67 | ||||
| Balance (September 30, 2022) | 2,153,854 | $ | 1.05 | |||||
The grant date fair value of the restricted shares granted in the nine months ended September 30, 2022 was $1.68. For the nine months ended September 30, 2022, $1,093 of share based compensation cost was recognized. As of September 30, 2022, there was approximately $367 of unrecognized compensation cost that vests over a service period of four years, approximately $686 of unrecognized compensation cost that vests over a service period of three years, and $632 of unrecognized compensation cost that vests over a service period of one year related to unvested restricted shares related to the 2020 Stock Incentive Award Plan.
Earnout Restricted Stock Units
Former CarLotz option holders as of the effective time of the Merger received 640,421 earnout restricted stock units (Earnout RSUs). The Earnout RSUs vest if certain targets are met in the post-Merger period. The earnouts for the Earnout RSUs are subject to an earnout period, which is defined as the date 60 months following the consummation of the Merger. The Merger closed on January 21, 2021, and the earnout period expires January 21, 2026. Earnout RSUs will vest if any of the following conditions are achieved following January 21, 2021:
| i. | If at any time during the 60 months following the Closing Date (the first business day following the end of such period, the “Forfeiture Date”), the closing trading price of the common stock is greater than $12.50 over any 20 trading days within any 30 trading day period (the “First Threshold”), 50% of the Earnout RSUs will vest. |
| ii. | If at any time prior to the Forfeiture Date, the closing trading price of the common stock is greater than $15.00 over any 20 trading days within any 30 trading day period (the “Second Threshold”), 50% of the Earnout RSUs will vest. |
| iii. | If either the First Threshold or the Second Threshold is not met on or before the Forfeiture Date, any unvested Earnout RSUs are forfeited. All unvested Earnout RSUs will vest if there is a change of control of the Company that will result in the holders of the common stock receiving a per share price equal to or in excess of $10.00 (as equitably adjusted for stock splits, stock dividends, special cash dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock) prior to the Forfeiture Date. |
The estimated fair value of the liability is determined by using a Monte-Carlo simulation model, which incorporates various assumptions, including expected stock price volatility, contractual term, dividend yield and stock price at grant date.
31
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
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.
A summary of activity for the nine months ended September 30, 2022 and 2021 for the RSUs is as follows:
| Number of Units | Weighted Average grant date fair value | |||||||
| Balance (December 31, 2021) | 621,200 | $ | 10.70 | |||||
| Granted | - | - | ||||||
| Forfeited | (468,861 | ) | 10.70 | |||||
| Balance (September 30, 2022) | 152,339 | $ | 10.70 | |||||
| Number of Units | Weighted Average grant date fair value | |||||||
| Balance (December 31, 2020) | - | $ | - | |||||
| Granted | 640,421 | 10.70 | ||||||
| Forfeited | - | - | ||||||
| Balance (September 30, 2021) | 640,421 | $ | 10.70 | |||||
During the three months ended September 30, 2022, the Company recognized no stock-based compensation cost related to the RSUs. As of September 30, 2022, there was no additional unrecognized compensation cost related to the Earnout RSUs.
Inducement Plan
The options associated with the Inducement Plan vest over a service period of four years. A summary of activity for the nine months ended September 30, 2022 for the options associated with the Inducement Plan is as follows:
| Number of Units | Weighted Averaged Exercise Price | |||||||
| Balance (December 31, 2021) | - | $ | - | |||||
| Granted | 569,677 | $ | 0.61 | |||||
| Forfeited | - | $ | - | |||||
| Balance (September 30, 2022) | 569,677 | $ | 0.61 | |||||
| Exercisable | - | $ | - | |||||
The grant date fair value of the options granted in the three months ended September 30, 2022 was $0.45. For the nine months ended September 30, 2022, $24 of share based compensation was recognized. As of September 30, 2022, there was approximately $231 of total unrecognized compensation cost related to unvested options related to the Inducement Plan.
The following summarizes certain information about stock options vested and expected to vest as of September 30, 2022 related to the Inducement Plan:
Number of Stock Options | Weighted Remaining Contractual | Weighted Exercise Price | ||||||||||
| Outstanding | 569,677 | 9.63 years | $ | 0.61 | ||||||||
| Exercisable | - | - | $ | - | ||||||||
The aggregate intrinsic value for options outstanding and options exercisable as of September 30, 2022 was $0.00.
32
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The inputs used for the Inducement Incentive Award Plan options were as follows for the three months ended September 30, 2022:
| Balance (Expected volatility) | 85 | % | ||
| Expected dividend yield | - | % | ||
| Expected term (in years) | 6.25 years | |||
| Risk-free interest rate | 2.86 | % |
The restricted shares associated with the Inducement Plan vest over various service periods. A summary of activity for the nine months ended September 30, 2022 for the restricted shares associated with the Inducement Plan is as follows:
| Balance (Number of Units | Weighted Average Grant Date Fair Value | |||||||
| Balance (December 31, 2021) | - | $ | - | |||||
| Granted | 5,619,822 | $ | 0.61 | |||||
| Forfeited | - | $ | - | |||||
| Vested (as of September 30, 2022) | (376,416 | ) | $ | 0.61 | ||||
| Balance (September 30, 2022) | 5,243,406 | $ | 0.61 | |||||
The grant date fair value of the restricted shares granted in the nine months ended September 30, 2022 was $0.61. For the nine months ended September 30, 2022, $978 of share based compensation cost was recognized. As of September 30, 2022, there was approximately $1,644 of unrecognized compensation cost that vests over a service period of four years, approximately $371 of unrecognized compensation cost that vests over a service period of three years, approximately $391 of unrecognized compensation cost that vests over a service period of two years, and $30 of unrecognized compensation cost that vests over a service period of one year related to unvested restricted shares related to the Inducement Plan.
Newly hired Executives received 5,100,000 performance stock units (Inducement PSUs) in the three months ended June 30, 2022. The Inducement PSUs vest if certain targets are met in their service period. The grant date was May 16, 2022 and the vest start date for the awards aligned with the Executives’ start dates. The performance period expires in April 2032. Inducement PSUs will vest, subject to the Executives’ continued employment through the applicable vesting date as follows:
| i. | One-third of the shares will vest on the first day the Company’s stock achieves a twenty (20) trading-day volume weighted average price of $4.00 (the threshold price); |
| ii. | One-third of the shares will vest on the first day the Company’s stock achieves a twenty (20) trading-day volume weighted average price of $8.00 (the target price); |
| iii. | and one-third of the shares will vest on the first day the Company’s stock achieves a twenty (20) trading-day volume weighted average price of $12.00 (the target price); |
The estimated fair value of the awards 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.
33
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
A summary of activity for the nine months ended September 30, 2022 for the PSUs is as follows:
| Number of Units | Weighted Average grant date fair value | |||||||
| Balance (December 31, 2021) | - | $ | - | |||||
| Granted | 5,100,000 | 0.55 | ||||||
| Forfeited | - | - | ||||||
| Balance (September 30, 2022) | 5,100,000 | $ | 0.55 | |||||
During the nine months ended September 30, 2022, the Company recognized $334 stock-based compensation cost related to the PSUs. As of September 30, 2022, there was $2,480 additional unrecognized compensation cost related to the Inducement PSUs.
The inputs used to value the Inducement PSUs were as follows at May 16, 2022:
| Expected volatility | 105.00 | % | ||
| Starting stock price | $ | 0.61 | ||
| Expected term (in years) | 10 years | |||
| Risk-free interest rate | 2.88 | % | ||
| Earnout hurdle | $ | 4.00-$8.00-$12.00 |
Note 18 - Income Taxes
During the nine months ended September 30, 2022, the Company recorded no income tax benefits for the net operating losses incurred in the period due to its uncertainty of realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the United States.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception through September 30, 2022 and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Management reevaluates the positive and negative evidence at each reporting period. As of September 30, 2022 and December 31, 2021, no facts or circumstances arose that affected the Company’s determination as to the full valuation allowance established against the net deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of September 30, 2022 and December 31, 2021.
Note 19 - Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net Loss | $ | (24,299 | ) | $ | (3,476 | ) | $ | (84,041 | ) | $ | (25,703 | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding, basic and diluted | 114,705,449 | 113,707,013 | 114,334,960 | 109,447,939 | ||||||||||||
| Net Loss per Share Attributable to Common Stockholders, basic and diluted | $ | (0.21 | ) | $ | (0.03 | ) | $ | (0.74 | ) | $ | (0.23 | ) | ||||
34
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
The following table summarizes the outstanding potentially dilutive securities that were excluded from the computation of diluted net loss per share attributable to common stockholders because the impact of including them would have been antidilutive for the three and nine months ended September 30, 2022 and 2021:
| 2022 | 2021 | |||||||
| Public warrants | 10,185,774 | 10,185,774 | ||||||
| Private warrants | 6,074,310 | 6,074,310 | ||||||
| Earnout RSUs | 152,339 | 640,421 | ||||||
| Earnout shares | 6,945,732 | 6,945,732 | ||||||
| Stock options outstanding to purchase shares of common stock | 5,425,722 | 6,903,318 | ||||||
| Unvested RSUs | 7,397,260 | 639,324 | ||||||
| Unvested PSUs | 5,100,000 | - | ||||||
| Total | 41,281,137 | 31,388,879 | ||||||
Note 20 - Concentrations
The suppliers that accounted for 10% or more of the Company’s vehicle purchases are presented as follows:
| Total purchases from vendor to total vehicle purchases for the three months ended September 30, | Total purchases from vendor to total vehicle purchases for the nine months ended September 30, | |||||||||||||||
| Vendor | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Vendor A | 15 | % | - | % | 17 | % | 27 | % | ||||||||
| Vendor B | - | % | - | % | - | % | 13 | % | ||||||||
Vendor A is a corporate vehicle sourcing partner. Typically, we purchase the vehicles from our corporate vehicle sourcing partners at the time of sale to a retail customer.
For the periods ended September 30, 2022 and 2021, no retail or wholesale customers accounted for more than 10% of the Company’s revenue.
35
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 21 - Restructuring Charges, Asset Impairment, and Assets Held For Sale
On June 21, 2022, the Company announced the closure of 11 hub locations and made the decision to not commence retail sales operations at 3 other locations with executed leases. The closures were part of a review of the business, with cash preservation and future profitable growth as key determining factors. Retail sales operations were ceased at these locations, with all hub closing activities completed by July 8, 2022. The Company has or intends to assign or sub-lease the lease contracts associated with the 11 closed and three unopened hub locations and has classified the assets and liabilities associated with the hub locations that we believe are assignable as of September 30, 2022 as held for sale. The assets and liabilities associated with certain hub locations that we believe we are likely to sublease as of September 30, 2022 are not classified as held for sale. In addition, the Company evaluated the recoverability of amounts associated with lease assets and long lived assets at the held for sale locations. The fair values of the lease assets and property and equipment were determined based on estimated future discounted cash flows for such assets using market participant assumptions, including data on the ability to sub-lease the properties. The charge for inventory reserves represents inventory that will be disposed of through the wholesale channel following the hub closures and is the difference between the estimated wholesale value and inventory cost. In conjunction with the hub closures, the Company recorded the following charges in the three and nine months ended September 30, 2022:
| Three months ended September 30, 2022 | Nine months ended September 30, 2022 | |||||||
| Inventory losses associated with restructuring | $ | - | $ | 1,010 | ||||
| Operating lease asset impairment | 323 | 2,871 | ||||||
| Finance lease asset impairment | 70 | 1,441 | ||||||
| Property and equipment impairment | 138 | 5,970 | ||||||
| Loss on sale of assets related to closed hubs | 25 | 25 | ||||||
| Labor and other costs incurred closing hubs | 292 | 757 | ||||||
| Gain on lease assignment | (236 | ) | (236 | ) | ||||
| Occupancy | 1,127 | 1,127 | ||||||
| Severance | 66 | 581 | ||||||
| Contract termination costs | 80 | 80 | ||||||
| Total | 1,885 | 13,626 | ||||||
The $1,010 charge for inventory reserves was recorded in cost of sales in the Company’s consolidated statement of operations. The other $12,616 charges were recorded in Restructuring expenses in the Company’s consolidated statement of operations. The total costs recorded in the three and nine months ended September 30, 2022 represent the total amount that can be reasonably estimated to be incurred in connection with the restructuring. We cannot conclude how long it will take to sublease or assign each lease, so we cannot reasonably estimate other future costs associated with the restructuring.
The carrying amount and major classes of assets and liabilities classified as held for sale are:
| As of September 30, 2022 | ||||
| Operating lease assets | $ | 15,906 | ||
| Finance lease assets | $ | 4,668 | ||
| Property and equipment | $ | 286 | ||
| Total | $ | 20,860 | ||
| Operating lease liabilities | $ | 17,123 | ||
| Finance lease liabilities | $ | 5,171 | ||
| Total | $ | 22,294 | ||
Note 22 - Related Party Transactions
In August 2022, the Company announced the Shift Merger. Since the execution of the Shift Merger Agreement, the Company has sourced vehicles from Shift, a related party.
The amount of vehicles purchased by the Company from Shift was $1,753 for the three months ended September 30, 2022. The amount due to Shift was $0 as of September 30, 2022.
36
CarLotz, Inc. and Subsidiaries - Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share data)
Note 23 - Subsequent Events
In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 8, 2022, the date the financial statements were available to be issued.
Lease assignment
In October 2022, the Company assigned the lease of an unopened hub location to a third-party, assigned the lease of a closed hub location to a third-party, and subleased the lease of a closed hub location to a third-party. The Company remains secondarily liable for the lease obligation pursuant to a guarantee for one of the assigned leases and remains primarily liable for the lease obligation for the subleased lease.
On November 1, 2022, the Company terminated the lease of a closed hub location.
Ally Facility
Effective as of October 1, 2022, the maximum available credit line under the floor plan credit facility with Ally Financial was reduced from $40 million to $25 million.
On October 5, 2022, the Company entered into a Credit Balance Agreement (the “RBCA”) with Ally Financial, with respect to the floor plan credit facility. The RBCA replaces the prior financial covenant under the floor plan credit facility that required the Company to maintain at least 10% of the maximum available credit line in cash and cash equivalents and at least 10% of the maximum available credit line on deposit with Ally Bank with a minimum requirement of $4 million, so long as the amount borrowed under the floor plan credit facility remains under $20 million, with such minimum amount to be increased to $5 million if the amount borrowed under the floor plan credit facility at any time exceeds $20 million.
RSU conversion
In October 2022, 4,823,584 unvested RSUs previously issued to three executives from the Inducement Plan were converted to restricted stock awards and became common shares outstanding. No other terms were modified upon conversion.
37
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Merger Agreement
On December 9, 2022 (the “Closing Date”), Shift Technologies, Inc. (“Shift”) completed the previously announced acquisition of CarLotz, Inc. (“CarLotz”), pursuant to the Agreement and Plan of Merger dated as of August 9, 2022 (the “Merger Agreement”), by and among Shift, Shift Remarketing Operations, Inc., a Delaware corporation and direct wholly owned subsidiary of Shift (“Merger Sub”), and CarLotz. Pursuant to the Merger Agreement, Merger Sub merged with and into CarLotz, with CarLotz continuing as the surviving corporation and a wholly owned subsidiary of Shift (the “Merger”).
Consideration to CarLotz Stockholders
Pursuant to the Merger Agreement, each outstanding share of Class A common stock, par value $0.0001 per share, of CarLotz (“CarLotz Common Stock”) (other than CarLotz Common Stock owned or held in treasury by CarLotz, which was cancelled for no consideration) was converted into the right to receive 0.705241 (the “Exchange Ratio”) of a share of Class A common stock, par value $0.0001 per share, of Shift (“Shift Common Stock”), rounded up to the nearest whole share for any fractional shares of Shift Common Stock that would have been issued to any stockholder resulting from the calculation (the “Merger Consideration”).
In connection with the Merger, Shift assumed certain CarLotz equity awards and replaced them with similar awards (“Replacement Equity Awards”), as further explained in this paragraph. Specifically, each vested time-based and performance-based CarLotz restricted stock unit (“RSU”) award was converted into the right to receive the Merger Consideration in respect of each underlying share of CarLotz Common Stock, and each other CarLotz RSU award was assumed by Shift and converted into an award relating to Shift Common Stock, with appropriate adjustments to the numbers of shares and share price thresholds to reflect the Exchange Ratio. In addition, each option to purchase CarLotz Common Stock was assumed by Shift and converted into an option to purchase Shift Common Stock, with appropriate adjustments to the numbers of shares and exercise prices to reflect the Exchange Ratio. A portion of the estimated fair value of the Replacement Equity Awards has been recognized as Merger Consideration for the purposes of the unaudited pro forma condensed combined financial information, as further explained in Note 3 - Estimate of Merger Consideration Transferred.
The unaudited pro forma condensed combined balance sheet as of September 30, 2022 combines the historical consolidated balance sheets of Shift and CarLotz as of such date and includes adjustments that depict the accounting for the Merger required by the U.S. generally accepted accounting principles (“pro forma balance sheet transaction accounting adjustments”). The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2021 and for the nine months ended September 30, 2022 combine the historical consolidated statements of operations of Shift and CarLotz for those periods and include adjustments that depict the effects of the pro forma balance sheet transaction accounting adjustments assuming those adjustments were made as of January 1, 2021 (“pro forma statement of operations transaction accounting adjustments”). We refer to the pro forma balance sheet transaction accounting adjustments and the pro forma statements of operations transaction accounting adjustments, collectively, as “Transaction Accounting Adjustments”. The unaudited pro forma condensed combined financial information does not give effect to the contemplated reverse stock split of Shift Common Stock at a ratio within a range of 1-for-5 and 1-for-10 that was approved by Shift stockholders on December 7, 2022.
The unaudited pro forma condensed combined financial information should be read in conjunction with (i) the accompanying notes to the unaudited pro forma condensed combined financial information; (ii) Shift’s Annual Report on Form 10-K for the year ended December 31, 2021; (iii) CarLotz’s Annual Report on Form 10-K for the year ended December 31, 2021 included as Exhibit 99.1 to this Current Report on Form 8-K; (iv) Shift’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022; and (v) CarLotz’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 included as Exhibit 99.2 to this Current Report on Form 8-K.
The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting with Shift as the accounting acquirer in accordance with Accounting Standards Codification Topic 805, Business Combinations, using the fair value concepts defined in the Accounting Standards Codification Topic 820, Fair Value Measurement. The estimated fair values of the acquired assets and assumed liabilities as of the date of acquisition, which are based on estimates and assumptions of Shift, the Merger Consideration and the entries to record the direct transaction costs incurred are reflected therein. As explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the estimated Merger Consideration expected to be transferred of approximately $23.0 million to acquire CarLotz has been allocated to the assets acquired and assumed liabilities of CarLotz based upon preliminary estimated fair values, as if the Merger had occurred on September 30, 2022. Management prepared the purchase price allocation with the assistance of a third party valuation expert to calculate the fair value of certain acquired assets. The fair value allocation consists of preliminary estimates and analyses and is subject to change based on a final determination of fair value upon completion of appraisals and other valuation analyses, which are expected to be completed within one year from the Closing Date.
The unaudited pro forma condensed combined financial information has been presented for informational purposes only. The unaudited pro forma condensed combined financial information is not necessarily indicative of what the Combined Company’s financial position or results of operations actually would have been had the Merger been completed as of the dates indicated. Since the unaudited pro forma condensed combined financial information has been prepared based on preliminary estimates, the final amounts may differ materially from the information presented. These estimates are subject to change pending further review of the assets acquired and liabilities assumed. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the Combined Company.
Shift Technologies, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2022
(in thousands)
| Historical | Transaction Accounting | Pro Forma | ||||||||||||||||
| Shift | CarLotz | Adjustments | Note 5 | Combined | ||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 44,093 | $ | 84,809 | $ | (7,871 | ) | A | $ | 121,031 | ||||||||
| Restricted cash | — | 4,049 | 4,049 | |||||||||||||||
| Marketable securities - at fair value | — | 28,125 | 28,125 | |||||||||||||||
| Accounts receivable, net | 15,360 | 3,842 | 19,202 | |||||||||||||||
| Inventory | 48,665 | 13,062 | 61,727 | |||||||||||||||
| Prepaid expenses and other current assets | 5,139 | 5,293 | 10,432 | |||||||||||||||
| Operating and finance lease assets, property, and equipment held for sale | — | 20,860 | 3,261 | J | 24,121 | |||||||||||||
| Total current assets | 113,257 | 160,040 | (4,610 | ) | 268,687 | |||||||||||||
| Property and equipment, net | 7,361 | 9,987 | 17,348 | |||||||||||||||
| Operating lease right-of-use assets | 33,363 | 22,092 | (9,376 | ) | B, J | 46,079 | ||||||||||||
| Capitalized website and internal use software costs, net | 17,953 | 12,725 | (9,535 | ) | C | 21,143 | ||||||||||||
| Goodwill | 2,524 | — | 2,524 | |||||||||||||||
| Other intangible assets, net | — | — | 970 | C | 970 | |||||||||||||
| Restricted cash, non-current | 11,750 | — | 11,750 | |||||||||||||||
| Deferred borrowing costs | 341 | — | 341 | |||||||||||||||
| Other non-current assets | 2,816 | 5,693 | 8,509 | |||||||||||||||
| Total assets | $ | 189,365 | $ | 210,537 | $ | (22,551 | ) | $ | 377,351 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Accounts payable | $ | 10,255 | $ | 2,236 | $ | 12,491 | ||||||||||||
| Accrued expenses and other current liabilities | 30,188 | 11,924 | 8,528 | D, E, J | 50,640 | |||||||||||||
| Current maturities of operating lease liabilities | 6,435 | 4,600 | (92 | ) | J | 10,943 | ||||||||||||
| Flooring line of credit | 41,760 | 5,433 | 47,193 | |||||||||||||||
| Operating and finance lease liabilities associated with assets held for sale | — | 22,294 | 4,323 | J | 26,617 | |||||||||||||
| Total current liabilities | 88,638 | 46,487 | 12,759 | 147,884 | ||||||||||||||
| Long-term debt | 162,849 | 6,083 | 2,502 | J | 171,434 | |||||||||||||
| Non-current operating lease liabilities | 31,866 | 22,384 | (6,881 | ) | J | 47,369 | ||||||||||||
| Other non-current liabilities | 1,624 | 1,814 | 3,438 | |||||||||||||||
| Total liabilities | 284,977 | 76,768 | 8,380 | 370,125 | ||||||||||||||
| Stockholders’ (deficit) equity: | ||||||||||||||||||
| Common stock | 9 | 11 | (2 | ) | F | 18 | ||||||||||||
| Additional paid-in capital | 530,146 | 291,827 | (268,270 | ) | G | 553,703 | ||||||||||||
| Accumulated deficit | (625,767 | ) | (157,956 | ) | 237,228 | H | (546,495 | ) | ||||||||||
| Accumulated other comprehensive loss | — | (113 | ) | 113 | I | — | ||||||||||||
| Total stockholders’ (deficit) equity | (95,612 | ) | 133,769 | (30,931 | ) | 7,226 | ||||||||||||
| Total liabilities and stockholders’ (deficit) equity | $ | 189,365 | $ | 210,537 | $ | (22,551 | ) | $ | 377,351 | |||||||||
See the accompanying notes to the unaudited pro forma condensed combined financial information, which are an integral part of these statements. Certain reclassifications have been made to the historical CarLotz financial information, as explained in Note 2 - Historical CarLotz. The transaction accounting adjustments are explained in Note 5 - Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet.
2
Shift Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2022
(in thousands, except share and per share data)
| Historical | Transaction Accounting | Pro Forma | ||||||||||||||||
| Shift | CarLotz | Adjustments | Note 6 | Combined | ||||||||||||||
| Net revenue | $ | 605,182 | $ | 190,343 | $ | 795,525 | ||||||||||||
| Cost of sales | 582,107 | 187,375 | 769,482 | |||||||||||||||
| Gross profit | 23,075 | 2,968 | — | 26,043 | ||||||||||||||
| Operating expenses: | ||||||||||||||||||
| Selling, general and administrative expenses | 172,086 | 78,251 | (4,766 | ) | B, E | 245,571 | ||||||||||||
| Depreciation and amortization | 7,097 | 6,173 | (3,776 | ) | F | 9,494 | ||||||||||||
| Impairment expense | — | 1,143 | 1,143 | |||||||||||||||
| Restructuring expenses | 20,649 | 12,616 | 33,265 | |||||||||||||||
| Total operating expenses | 199,832 | 98,183 | (8,542 | ) | 289,473 | |||||||||||||
| Loss from operations | (176,757 | ) | (95,215 | ) | 8,542 | (263,430 | ) | |||||||||||
| Change in fair value of financial instruments | — | 12,573 | 12,573 | |||||||||||||||
| Interest and other expense, net | (8,214 | ) | (1,512 | ) | (9,726 | ) | ||||||||||||
| Other income (expense) | — | 113 | 113 | |||||||||||||||
| Net loss before income taxes | (184,971 | ) | (84,041 | ) | 8,542 | (260,470 | ) | |||||||||||
| Provision for income taxes | 86 | — | H | 86 | ||||||||||||||
| Net loss and comprehensive loss attributable to common stockholders | $ | (185,057 | ) | $ | (84,041 | ) | $ | 8,542 | $ | (260,556 | ) | |||||||
| Net loss and comprehensive loss per share attributable to common stockholders, basic and diluted | $ | (2.29 | ) | $ | (1.52 | ) | ||||||||||||
| Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 80,752,333 | 90,724,552 | I | 171,476,885 | ||||||||||||||
See the accompanying notes to the unaudited pro forma condensed combined financial information, which are an integral part of these statements. Certain reclassifications have been made to the historical CarLotz financial information, as explained in Note 2 - Historical CarLotz. The transaction accounting adjustments are explained in Note 6 - Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations.
3
Shift Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2021
(in thousands, except share and per share data)
| Historical | Transaction Accounting | Note | Pro Forma | |||||||||||||||
| Shift | CarLotz | Adjustments | 6 | Combined | ||||||||||||||
| Net revenue | $ | 636,869 | $ | 258,534 | $ | 895,403 | ||||||||||||
| Cost of sales | 588,081 | 247,946 | 836,027 | |||||||||||||||
| Gross profit | 48,788 | 10,588 | — | 59,376 | ||||||||||||||
| Operating expenses: | ||||||||||||||||||
| Selling, general and administrative expenses | 220,055 | 144,199 | (34,984 | ) | A, B, C, D, E | 329,270 | ||||||||||||
| Depreciation and amortization | 5,586 | 3,363 | 2,477 | F | 11,426 | |||||||||||||
| Impairment expense | — | 108 | 108 | |||||||||||||||
| Total operating expenses | 225,641 | 147,670 | (32,507 | ) | 340,804 | |||||||||||||
| Loss from operations | (176,853 | ) | (137,082 | ) | 32,507 | (281,428 | ) | |||||||||||
| Change in fair value of financial instruments | 18,893 | 99,338 | 118,231 | |||||||||||||||
| Bargain purchase gain | — | — | 93,161 | G | 93,161 | |||||||||||||
| Interest and other expense, net | (8,082 | ) | (1,590 | ) | (9,672 | ) | ||||||||||||
| Other income (expense) | — | (535 | ) | (535 | ) | |||||||||||||
| Net loss before income taxes | (166,042 | ) | (39,869 | ) | 125,668 | (80,243 | ) | |||||||||||
| Provision for income taxes | 226 | 10 | H | 236 | ||||||||||||||
| Net loss and comprehensive loss attributable to common stockholders | $ | (166,268 | ) | $ | (39,879 | ) | 125,668 | $ | (80,479 | ) | ||||||||
| Net loss and comprehensive loss per share attributable to common stockholders, basic and diluted | $ | (2.13 | ) | $ | (0.48 | ) | ||||||||||||
| Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 78,114,142 | 90,678,534 | I | 168,792,676 | ||||||||||||||
See the accompanying notes to the unaudited pro forma condensed combined financial information, which are an integral part of these statements. Certain reclassifications have been made to the historical CarLotz financial information, as explained in Note 2 - Historical CarLotz. The transaction accounting adjustments are explained in Note 6 - Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations.
4
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial information was prepared in accordance with SEC Regulation S-X Article 11 and is based on the historical financial statements of Shift and CarLotz, adjusted using the acquisition method of accounting. Shift is not currently aware of any significant accounting policy differences between Shift and CarLotz, but as further information becomes available, such policy differences may be identified and could result in significant differences from the unaudited pro forma condensed combined financial information.
The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Financial statements of the Combined Company issued after completion of the Merger will reflect such fair values, measured as of the Closing Date, which may be materially different than the estimated fair values included in the unaudited pro forma condensed combined financial information.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers unrelated to Shift in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result, Shift may be required to record assets which are not intended to be used or sold and/or to value assets at fair value measures that do not reflect Shift’s intended use of those assets. Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
Acquisition-related transaction costs (such as advisory, legal, valuation, other professional fees) are not included as a component of the Merger Consideration transferred. Such costs are expensed as a transaction accounting adjustment to the unaudited pro forma condensed combined statements of operations. Shift and CarLotz expect to incur total acquisition-related transaction costs of approximately $16.1 million, of which $8.3 million were incurred through September 30, 2022.
2. HISTORICAL CARLOTZ
Financial information of CarLotz in the “Historical CarLotz” column in the unaudited pro forma condensed combined balance sheet represents the historical consolidated balance sheet of CarLotz as of September 30, 2022. Financial information presented in the “Historical CarLotz” column in the unaudited pro forma condensed combined statements of operations represents the historical consolidated statements of operations of CarLotz for the year ended December 31, 2021 and for the nine months ended September 30, 2022. Such financial information has been reclassified or classified to conform to the historical presentation in Shift’s consolidated financial statements as set forth below (in thousands). Unless otherwise indicated, defined line items included in the footnotes have the meanings given to them in the historical financial statements of CarLotz.
The accounting policies used in the preparation of the unaudited pro forma condensed combined financial information are those set out in Shift’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2021 and unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2022. With the information currently available, Shift has determined that no significant adjustments are necessary to conform CarLotz’s consolidated financial statements to the accounting policies used by Shift in the preparation of the unaudited pro forma condensed combined financial information, except for the addition of an accounting policy for lease vehicles, net, as further discussed below.
5
CarLotz leases vehicles to customers with lease terms that are typically 1 – 4 years. The leases are accounted for as operating leases. Lease income is recorded on a straight line basis over the period the vehicle is rented. Depreciation on the lease vehicles is calculated using the straight-line method over the estimated useful life. Shift does not have an existing accounting policy for lease vehicles, net. Following the Merger, Shift adopted CarLotz’s historical accounting policy, and lease vehicles, net, will be included within property and equipment on the consolidated balance sheet of the Combined Company.
The reclassification adjustments are based on currently available information and assumptions management believes are, under the circumstances and given the information available at this time, reasonable, and reflective of adjustments necessary to report the’s financial condition and results of operations of the combined entity.
The Combined Company will finalize the review of accounting policies within the one-year measurement period afforded by ASC 805, which could result in material differences from the amounts set forth in the unaudited pro forma condensed combined financial information presented herein.
Reclassification and classification of the unaudited pro forma condensed combined balance sheet as of September 30, 2022 (in thousands):
| Prior Classification | Reclassification | Notes | After Reclassification | |||||||||||
| Accounts receivable, net | 4,786 | (944 | ) | (1) | 3,842 | |||||||||
| Other current assets | 4,349 | 944 | (1) | 5,293 | ||||||||||
| Marketable securities – at fair value | 760 | (760 | ) | (2) | — | |||||||||
| Property and equipment, net | 7,118 | 2,869 | (3) | 9,987 | ||||||||||
| Finance lease assets, net | 4,459 | (4,459 | ) | (4) | — | |||||||||
| Lease vehicles, net | 2,869 | (2,869 | ) | (4) | — | |||||||||
| Other assets | 474 | 5,219 | (2)(4) | 5,693 | ||||||||||
| Current portion of finance lease liabilities | 116 | (116 | ) | (5) | — | |||||||||
| Accrued expenses and other current liabilities | 11,215 | 709 | (5)(6) | 11,924 | ||||||||||
| Other current liabilities | 593 | (593 | ) | (6) | — | |||||||||
| Earnout shares liability | 722 | (722 | ) | (7) | — | |||||||||
| Merger warrants liability | 675 | (675 | ) | (7) | — | |||||||||
| Other liabilities | 417 | 1,397 | (7) | 1,814 | ||||||||||
|
(1) |
Represents the reclassification of $0.9 million from “Accounts receivable, net” to the “Other current assets” line item in the table set forth above. |
| (2) | Represents the reclassification of $0.8 million from “Marketable securities – at fair value” to the “Other assets” line item in the table set forth above. |
| (3) | Represents the reclassification of $2.9 million from “Lease vehicles, net” to the “Property and equipment, net” line item in the table set forth above. |
| (4) | Represents the reclassification of $4.5 million from “Finance lease assets, net” to the “Other assets” line item in the table set forth above. |
| (5) | Represents the reclassification of $0.1 million from “Current portion of finance lease liabilities” to the “Accrued expenses and other current liabilities” line item in the table set forth above. |
| (6) | Represents the reclassification of $0.6 million from “Other current liabilities” to the “Accrued expenses and other current liabilities” line item in the table set forth above. |
| (7) | Represents the reclassification of $0.7 million from “Earnout shares liability” and $0.7 million from “Merger warrants liability” to the “Other liabilities” line item in the table set forth above. |
6
Reclassification and classification of the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2022 (in thousands):
| Prior Classification | Reclassification | Notes | After Reclassification | |||||||||||
| Selling, general, and administrative expense | 74,017 | 4,234 | (1) | 78,251 | ||||||||||
| Stock-based compensation expense | 4,234 | (4,234 | ) | (1) | — | |||||||||
| Interest and other expense, net | — | 1,512 | (2) | 1,512 | ||||||||||
| Interest expense | 1,512 | (1,512 | ) | (2) | — | |||||||||
| Change in fair value of financial instruments liability | — | 12,573 | (3) | 12,573 | ||||||||||
| Change in fair value of Merger warrants liability | 5,616 | (5,616 | ) | (3) | — | |||||||||
| Change in fair value of earnout shares | 6,957 | (6,957 | ) | (3) | — | |||||||||
|
(1) |
Represents the reclassification of $4.2 million from “Stock-based compensation expense” to the “Selling, general, and administrative expense” line item in the table set forth above. |
| (2) | Represents the reclassification of $1.5 million from “Interest expense” to the “Interest and other expense, net” line item in the table set forth above. |
| (3) | Represents the reclassification of $5.6 million from “Change in fair value of Merger warrants liability” and $7.0 million from “Change in fair value of earnout shares” to the “Change in fair value of financial instruments liability” line item in the table set forth above. |
Reclassification and classification of the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 (in thousands):
| Prior Classification | Reclassification | Notes | After Reclassification | |||||||||||
| Selling, general, and administrative expense | 93,076 | 51,123 | (1)(2) | 144,199 | ||||||||||
| Stock-based compensation expense | 51,121 | (51,121 | ) | (1) | — | |||||||||
| Management fee expense - related party | 2 | (2 | ) | (2) | — | |||||||||
| Interest and other expense, net | — | 1,590 | (3) | 1,590 | ||||||||||
| Interest expense | 1,590 | (1,590 | ) | (3) | — | |||||||||
| Change in fair value of financial instruments liability | — | 99,338 | (4) | 99,338 | ||||||||||
| Change in fair value of Merger warrants liability | 32,733 | (32,733 | ) | (4) | — | |||||||||
| Change in fair value of earnout shares | 66,605 | (66,605 | ) | (4) | — | |||||||||
| (1) | Represents the reclassification of $51.1 million from “Stock-based compensation expense” to the “Selling, general, and administrative expense” line item in the table set forth above. |
| (2) | Represents the reclassification of $2 thousand from “Management fee expense - related party” to the “Selling, general, and administrative expense” line item in the table set forth above. |
| (3) | Represents the reclassification of $1.6 million from “Interest expense” to the “Interest and other expense, net” line item in the table set forth above. |
| (4) | Represents the reclassification of $32.7 million from “Change in fair value of Merger warrants liability” and $66.6 million from “Change in fair value of earnout shares” to the “Change in fair value of financial instruments liability” line item in the table set forth above. |
7
3. ESTIMATE OF MERGER CONSIDERATION TRANSFERRED
The following table presents an estimate of Merger Consideration transferred to effect the Merger at Closing.
Estimated Merger Consideration Transferred(1)
| (In thousands) | ||||
| Fair value of shares of Shift Common Stock issued to CarLotz stockholders(1) | $ | 22,411 | ||
| Fair value of Replacement Equity Awards(2) | 560 | |||
| Estimated Merger Consideration | $ | 22,971 | ||
| (1) | The fair value of shares of Shift Common Stock issued as Merger Consideration was based on approximately 85.5 million shares of Shift Common Stock, based on 121.3 million CarLotz shares outstanding on the Closing Date, including 1.1 million shares issued pursuant to accelerated vesting of certain CarLotz RSU Awards in connection with the Merger, and the Exchange Ratio of 0.705241, and the closing price of Shift Common Stock of $0.26 per share on December 9, 2022. |
| (2) | The portion of the estimated fair value of the Replacement Equity Awards attributable to the pre-combination vesting is considered as part of the Merger Consideration, while the remaining portion will be recognized as post-combination compensation expense over the remaining vesting periods. |
4. ESTIMATE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
The following is a preliminary estimate of the fair value of the assets acquired and liabilities assumed by Shift in the Merger, reconciled to the estimated Merger Consideration transferred:
| (In thousands) | ||||
| Book value of net assets acquired as of September 30, 2022 | $ | 133,769 | ||
| Adjustments: | ||||
| Identifiable intangible assets | 4,160 | |||
| Elimination of CarLotz’s historical capitalized software costs | (12,725 | ) | ||
| Retention bonuses | (2,957 | ) | ||
| Favorable and unfavorable leasehold interests | (6,115 | ) | ||
| Bargain purchase gain | (93,161 | ) | ||
| Net assets acquired | $ | 22,971 | ||
The preliminary estimate of the assets acquired and liabilities assumed performed for the purposes of the unaudited pro forma condensed combined financial information was primarily limited to the preliminary identification and valuation of intangible assets. Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon completion of the final determination of fair values, including appraisals and other valuation analyses, which are expected to be completed within one year from the Closing Date. The unaudited pro forma condensed combined financial information reflects a gain on bargain purchase because the estimated fair value of the identifiable net assets acquired exceeded the estimated Merger Consideration. The final fair value determinations may differ materially from the preliminary estimates reducing, increasing or eliminating the gain on bargain purchase.
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The following is a discussion of the adjustments made to CarLotz’s assets and liabilities in connection with the preparation of the unaudited pro forma condensed combined financial information:
Identifiable Intangible Assets
Identifiable intangible assets acquired are finite-lived intangible assets. The fair value of intangible assets is based on Shift management’s preliminary estimates of the fair value of such assets. Estimated useful lives (where relevant for the purposes of the unaudited pro forma condensed combined financial information) are based on the time periods during which the intangibles are expected to result in substantial incremental cash flows. Such estimates are preliminary and subject to change.
For the purposes of the unaudited pro forma condensed combined financial information, using currently available information and assumptions, which management considers reasonable, the fair value of the identifiable intangible assets and the related expected useful lives for the finite-lived intangible assets were estimated by Shift management to be as follows:
Preliminary (in thousands) | Estimated (in months) | |||||||
| Developed technology | $ | 3,190 | 3.0 | |||||
| Trademarks | 970 | 3.0 | ||||||
| Total | $ | 4,160 | ||||||
These preliminary estimates of fair value and estimated useful life will likely be different from the final acquisition accounting, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial information. Once Shift has full access to the specifics of CarLotz’s intangible assets, additional insight will be gained that could impact: (1) the intangible assets identified; (2) the estimated total value assigned to intangible assets; and (3) the estimated weighted-average useful life of each category of intangible assets. The estimated intangible asset values and their useful lives could be impacted by a variety of factors that may become known to Shift only upon access to additional information and as additional analyses are performed.
On the Closing Date, identifiable intangible assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. Based on internal assessments as well as discussions with CarLotz, Shift identified the following significant intangible assets: developed technology and trademarks.
For purposes of the unaudited pro forma combined financial information, the fair value of the trademarks and developed technology intangible assets has been determined using the relief-from-royalty method, which involves the estimation of an amount of hypothetical royalty savings enjoyed by the entity that owns the intangible asset because that entity is relieved from having to license that intangible asset from another owner. In using this method, third-party arm’s-length royalty or license agreements are analyzed. The licensing transactions selected should reflect similar risks and characteristics that make them comparable to the subject asset. The net revenue expected to be generated by the intangible asset during its expected remaining life is then multiplied by the selected royalty rate. The estimated after tax royalty stream is then discounted to present value at an appropriate rate of return, to estimate the fair value of the subject intangible asset.
The estimated fair values and useful lives of identifiable intangible assets are preliminary and have been performed based on management estimation and publicly available benchmarking data. As discussed above, the amount that will ultimately be allocated to identifiable intangible assets and the related amount of amortization may differ materially from this preliminary allocation. Any change in the valuation of intangible assets would cause a corresponding increase or decrease in the bargain purchase gain.
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Inventory and Property and Equipment
CarLotz’s inventory consists of used vehicles and its property and equipment consists of leasehold improvements, computer software and equipment, furniture and fixtures, lease vehicles, and internal use vehicles. For the purposes of the unaudited pro forma condensed combined financial information, no adjustment has been made to inventory or property and equipment as the carrying values of these assets are deemed to approximate their fair values. Shift will perform a final valuation of inventory on hand and property and equipment within the one-year measurement period afforded by ASC 805, and such valuation could result in a material difference from the preliminary estimates. Any change in the valuation of inventory and property and equipment would cause a corresponding increase or decrease in the bargain purchase gain.
Favorable and Unfavorable Leasehold Interests
As part of the allocation of the purchase price in a business combination, lease terms are compared to market terms to determine if the leases are favorable or unfavorable. Any favorable or unfavorable leasehold interests identified increase (favorable) or reduce (unfavorable) the right-of-use lease asset and are recognized over the life of the related right-of-use asset. The unaudited pro forma condensed combined financial information reflects the preliminary fair value adjustments of the favorable and unfavorable leasehold interests acquired in the Merger. Any changes in the estimates would cause a corresponding increase or decrease in the bargain purchase gain.
The acquired leasehold interests include certain lease contracts that the Combined Company intends to assign to a third party or terminate within one year of the completion of the Merger and that met the criteria to be classified as held for sale as of the acquisition date. For such leasehold interests, the adjustments reflect the preliminary estimates of the fair value of the acquired right-of-use lease assets less estimated costs to sell.
Other Assets/Liabilities
Adjustments to CarLotz’s remaining assets and liabilities may also be necessary, however at this time Shift has limited knowledge as to the specific details and nature of those assets and liabilities necessary in order to make adjustments to those values. Shift will finalize its assessment of the fair values within the one-year measurement period afforded by ASC 805 as more information becomes available. However, since the majority of the remaining assets and liabilities are current assets and liabilities, Shift believes that the September 30, 2022 CarLotz book values for these assets represent reasonable estimates of fair value or net realizable value, as applicable.
Bargain Purchase Gain
Bargain purchase gain was calculated as the excess of the fair value of the assets acquired and liabilities assumed over the estimated fair value of the Merger Consideration. Gain from bargain purchase was recognized in earnings on the Closing Date.
5. ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) Transaction Costs — To reflect the payment of estimated transaction costs of approximately $7.9 million expected to be incurred by Shift and CarLotz ($6.1 million and $1.8 million, respectively) subsequent to September 30, 2022.
(B) Leasehold Interests — To reflect the preliminary estimated fair value of the favorable and unfavorable leasehold interests acquired, representing a net reduction of $3.0 million, determined using the income approach, which is based on a forecast of expected future cash flows discounted at an appropriate rate of return. The fair value of the acquired leases that were classified as held for sale on the acquisition date reflect the preliminary estimates of the fair value of the acquired right-of-use lease assets less estimated costs to sell.
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(C) Intangible Assets — To reflect the preliminary fair values of identifiable intangible assets acquired of $4.2 million and the elimination of CarLotz’s historical capitalized website and internal use software costs of $12.7 million. The acquired intangible assets consisted of developed technology of $3.2 million, which is included in capitalized website and internal use software costs, net on the unaudited pro forma condensed combined consolidated balance sheet, and of trademarks of $1.0 million, which is included in other intangible assets, net on the unaudited pro forma condensed combined consolidated balance sheet. The estimated fair values of identifiable intangible assets and the related useful lives are considered preliminary and are subject to change. As discussed in Note 4 - Estimate of Assets Acquired and Liabilities Assumed, the amounts that will ultimately be allocated to the identifiable intangible assets and the related amounts of amortization may differ materially from this preliminary allocation.
(D) Retention Bonuses —To accrue the estimated retention bonuses payable to employees of CarLotz of $3.0 million for which post-acquisition employment services are not required for the employees to receive such bonuses.
(E) Severance Benefits —To accrue the amount of “double-trigger” severance payments of $5.4 million in connection with the termination of certain executive officers of CarLotz upon the Merger in accordance with the terms of their employment agreements with CarLotz that included double-trigger provisions that required CarLotz to provide severance benefits upon both a change in control and termination of the employee.
(F) Common Stock — To eliminate CarLotz Common Stock and reflect the issuance of shares of Shift Common Stock to effect the Merger.
(G) Additional Paid-in Capital — To reflect the following transaction adjustments in connection with the Merger:
| (In thousands) | ||||
| Elimination of CarLotz historical additional paid-in capital | $ | (291,827 | ) | |
| Estimated fair value of shares of Shift Common Stock issued as consideration for the Merger(1) | 22,402 | |||
| Estimated fair value of Replacement Equity Awards attributable to pre-combination vesting(2) | 560 | |||
| Accelerated vesting of equity awards in connection with the termination of certain employees of CarLotz (3) | 595 | |||
| Total | $ | (268,270 | ) | |
| (1) | The fair value of shares of Shift Common Stock issued as Merger Consideration was based on approximately 85.5 million shares of Shift Common Stock, based on 121.3 million CarLotz shares outstanding on the Closing Date, including 1.1 million shares issued pursuant to accelerated vesting of certain CarLotz RSU Awards in connection with the Merger, and the Exchange Ratio of 0.705241, and the closing price of Shift Common Stock of $0.26 per share on December 9, 2022. |
| (2) | The portion of the estimated fair value of the Replacement Equity Awards attributable to the pre-combination vesting is considered as part of the Merger Consideration, while the remaining portion will be recognized as post-combination compensation expense over the remaining vesting periods. |
| (3) | Reflects one-time post-combination compensation expense related to accelerated vesting of certain CarLotz equity awards in connection with the termination of certain employees of CarLotz upon the Merger pursuant to double-trigger provisions in their employment agreements with CarLotz that provided for accelerated vesting of their equity awards upon both a change in control and termination of the employee. |
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(H) Accumulated Deficit — To reflect the following transaction adjustments in connection with the Merger:
| (In thousands) | ||||
| Elimination of CarLotz’s historical accumulated deficit | $ | 157,956 | ||
| Preliminary estimate of the bargain purchase gain(1) | 93,161 | |||
| Estimated acquisition-related transaction costs(2) | (7,871 | ) | ||
| Severance benefits in connection with the termination of certain executive officers of CarLotz(3) | (5,423 | ) | ||
| Accelerated vesting of equity awards in connection with the termination of certain employees of CarLotz(4) | (595 | ) | ||
| Total | $ | 237,228 | ||
| (1) | Refer to Note 4 - Estimate of Assets Acquired and Liabilities Assumed for the calculation of the preliminary fair value of assets acquired and liabilities assumed in excess of consideration transferred based on the preliminary allocation of the estimated Merger Consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of CarLotz. |
| (2) | Reflects estimated transaction costs of approximately $7.9 million expected to be incurred by Shift and CarLotz in connection with the Merger subsequent to September 30, 2022. |
| (3) | Reflects the amount of “double-trigger” severance payments in connection with the termination of certain executive officers of CarLotz upon the Merger in accordance with the terms of their employment agreements with CarLotz that included double-trigger provisions that required CarLotz to provide severance benefits upon both a change in control and termination of the employee. |
| (4) | Reflects one-time post-combination compensation expense related to accelerated vesting of certain CarLotz equity awards in connection with the termination of certain employees of CarLotz upon the Merger pursuant to double-trigger provisions in their employment agreements with CarLotz that provide for accelerated vesting of their equity awards upon both a change in control and termination of the employee. |
(I) Accumulated Other Comprehensive Loss — To eliminate CarLotz’s historical accumulated other comprehensive loss.
(J) Lease Assets and Liabilities Classified as Held for Sale — To reflect reclassification of certain acquired operating and finance right-of-use assets and lease liabilities to/from held for sale as of the acquisition date.
6. ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(A) Transaction Costs — To reflect estimated transaction costs of $7.9 million expected to be incurred by Shift and CarLotz ($6.1 million and $1.8 million, respectively) in the year ended December 31, 2021. These costs are not expected to affect the statements of operations beyond 12 months after the Closing Date.
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(B) Stock-Based Compensation — To reflect the following adjustments to stock-based compensation expense in connection with the Merger:
| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| (in thousands) | ||||||||
| Elimination of CarLotz’s historical stock-based compensation expense | $ | (4,234 | ) | $ | (51,121 | ) | ||
| Stock-based compensation expense related to Replacement Equity Awards(1) | 8 | 11 | ||||||
| Accelerated vesting of equity awards in connection with the termination of certain employees of CarLotz (2) | — | 595 | ||||||
| Total | $ | (4,226 | ) | $ | (50,515 | ) | ||
| (1) | To reflect post-combination compensation expense associated with the Replacement Equity Awards. The portion of the estimated fair value of the Replacement Equity Awards attributable to the pre-combination vesting has been included as part of the estimated Merger Consideration; see Note 3 - Estimate of Merger Consideration Transferred for further details. The remaining portion of the estimated fair value of the Replacement Equity Awards will be recognized as compensation expense over the remaining post-combination service periods. |
| (2) | To reflect one-time post-combination expense related to accelerated vesting of certain CarLotz equity awards in connection with the termination of certain employees of CarLotz upon the Merger pursuant to double-trigger provisions in their employment agreements with CarLotz that provide for accelerated vesting of their equity awards upon both a change in control and termination of the employee. |
(C) Retention Bonuses — To reflect the estimated retention bonuses payable to certain employees of CarLotz as set forth in the CarLotz disclosure schedule delivered to Shift concurrently with the execution of the Merger Agreement of $3.0 million for which post-acquisition employment services are not required for the employees to receive such bonuses.
(D) Severance Benefits — To reflect post-combination expense of $5.4 million related to “double-trigger” severance payments in connection with the termination of certain executive officers of CarLotz in accordance with the terms of their employment agreements with CarLotz that included double-trigger provisions that required CarLotz to provide severance benefits upon both a change in control and termination of the employee. These costs are not expected to affect the statements of operations beyond 12 months after the Closing Date.
(E) Leasehold Interests Amortization — To reflect amortization of favorable and unfavorable leasehold interests acquired. The fair value of the favorable and unfavorable leasehold interests was determined using the income approach, which is based on a forecast of expected future cash flows discounted at an appropriate rate of return. The transaction accounting adjustment related to the leasehold interests amortization was $(0.5) million and $(0.7) million for the nine months ended September 30, 2022 and for the year ended December 31, 2021, respectively.
(F) Intangibles Amortization — To reflect the amortization of the acquired finite-lived intangible assets based on their preliminary estimated fair values and estimated average useful life and the elimination of CarLotz’s historical amortization of capitalized software costs, as presented in the table below. For the purposes of this pro forma presentation, the developed technology and trademarks intangible assets are being amortized using the straight-line method over their estimated useful lives as described in Note 4 - Estimate of Assets Acquired and Liabilities Assumed.
| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| (in thousands) | ||||||||
| Amortization of the acquired identifiable intangible assets | $ | — | $ | 4,160 | ||||
| Elimination of CarLotz’s historical amortization of capitalized software costs | (3,776 | ) | (1,683 | ) | ||||
| Total | $ | (3,776 | ) | $ | 2,477 | |||
(G) Bargain Purchase Gain — To reflect the bargain purchase gain, calculated as the excess of the total net assets acquired over consideration transferred (see Note 4 - Estimate of Assets Acquired and Liabilities Assumed).
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(H) Income Tax — The unaudited pro forma condensed combined financial information does not reflect any adjustments for the income tax effect of the transaction accounting adjustments described above, as both companies continue to experience losses and are in a historical cumulative loss position and both companies have established valuation allowances offsetting net deferred tax assets. The income tax effects of the pro forma adjustments would be fully offset by corresponding adjustments to the valuation allowances, resulting in no net effect on the pro forma condensed combined financial information.
(I) Number of Shares Used in Per Share Calculations — To reflect the following adjustments to the number of shares used in per share calculations:
| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| Consideration shares issued(1) | 85,537,165 | 85,537,165 | ||||||
| Post-combination vesting of replacement RSUs(2) | 5,187,387 | 5,141,369 | ||||||
| Total | 90,724,552 | 90,678,534 | ||||||
| (1) | To reflect the fair value of shares of Shift Common Stock issued as Merger Consideration based on approximately 85.5 million shares of Shift Common Stock, based on 121.3 million CarLotz shares outstanding on the Closing Date, including 1.1 million shares issued pursuant to accelerated vesting of certain CarLotz RSU Awards in connection with the Merger, and the Exchange Ratio of 0.705241, and the closing price of Shift Common Stock of $0.26 per share on December 9, 2022. This does not give effect to the contemplated reverse stock split of Shift Common Stock at a ratio within a range of 1-for-5 and 1-for-10 that was approved by Shift stockholders on December 7, 2022. The impact of potential shares associated with the Replacement Equity Awards issued as part of the Merger is anti-dilutive for all periods presented. |
| (2) | To reflect post-combination vesting of certain RSU awards. The adjustment gives effect to the vesting of replacement RSU awards issued to former CarLotz stockholders in connection with the Merger that are expected to vest within 21 months of the acquisition date, and to the accelerated vesting of certain CarLotz RSU awards in connection with the termination of certain employees of CarLotz upon the Merger pursuant to double-trigger provisions in their employment agreements with CarLotz that provide for accelerated vesting of their equity awards upon both a change in control and termination of the employee. |
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Cover |
Dec. 09, 2022 |
|---|---|
| Cover [Abstract] | |
| Document Type | 8-K/A |
| Amendment Flag | true |
| Amendment Description | As previously disclosed on August 9, 2022, Shift Technologies, Inc., a Delaware corporation (the “Company,” “Shift,” “we” or “us”) , and Shift Remarketing Operations, Inc., a Delaware corporation and direct wholly owned subsidiary of Shift (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CarLotz, Inc., a Delaware corporation (“CarLotz”), pursuant to which, among other things and subject to the terms and conditions contained therein, Merger Sub would be merged with and into CarLotz, with CarLotz continuing as the surviving corporation and as a direct wholly owned subsidiary of Shift (the “Merger”). |
| Document Period End Date | Dec. 09, 2022 |
| Entity File Number | 001-38839 |
| Entity Registrant Name | SHIFT TECHNOLOGIES, INC. |
| Entity Central Index Key | 0001762322 |
| Entity Tax Identification Number | 82-5325852 |
| Entity Incorporation, State or Country Code | DE |
| Entity Address, Address Line One | 290 Division Street |
| Entity Address, Address Line Two | Suite 400 |
| Entity Address, City or Town | San Francisco |
| Entity Address, State or Province | CA |
| Entity Address, Postal Zip Code | 94103 |
| City Area Code | 855 |
| Local Phone Number | 575-6739 |
| Written Communications | false |
| Soliciting Material | false |
| Pre-commencement Tender Offer | false |
| Pre-commencement Issuer Tender Offer | false |
| Title of 12(b) Security | Class A common stock, par value $0.0001 per share |
| Trading Symbol | SFT |
| Security Exchange Name | NASDAQ |
| Entity Emerging Growth Company | true |
| Elected Not To Use the Extended Transition Period | false |