Filed Pursuant to Rule 424(b)(3)

 Registration No. 333-252993

PROSPECTUS SUPPLEMENT NO. 2

(to Prospectus dated March 23, 2021)

 

 

88,159,784 Shares of Class A Common Stock

 

6,074,310 Warrants

 

This Prospectus Supplement No. 2 supplements the Prospectus dated March 23, 2021 (the “Prospectus”) of CarLotz, Inc., a Delaware corporation (“we” or the “Company”), that forms a part of the Company’s Registration Statement on Form S-1 (File No. 333-252993). This Prospectus Supplement No. 2 is being filed to update and supplement certain information contained in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2021. This Prospectus Supplement No. 2 should be read in conjunction with the Prospectus. If there is any inconsistency between the information in the Prospectus and this Prospectus Supplement, you should rely on the information in this Prospectus Supplement.

 

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

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our securities in “Risk Factors” beginning on page 10 of the prospectus.

 

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

 

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

 

 

The date of this prospectus supplement is May 10, 2021.

 

 

 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

OR

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

Commission file number 001-38818

CarLotz, Inc.

(Exact name of registrant as specified in its charter)

Delaware

    

83-2456129

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

611 Bainbridge Street, Suite 100, Richmond, Virginia 23224

(Address of principal executive offices, including zip code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

LOTZ

The Nasdaq Global Market

Redeemable warrants, exercisable for Class A common stock at an exercise price of $11.50 per share

LOTZW

The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No 

The registrant had outstanding 113,670,060 shares of Class A common stock as of May 10, 2021.


Table of Contents

CarLotz, Inc.

TABLE OF CONTENTS

i


Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.  Financial Statements

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)

    

March 31, 

    

December 31, 

2021

2020

Assets

 

  

 

  

Current Assets:

 

  

 

  

Cash and cash equivalents

$

74,362

$

2,208

Restricted cash

227

605

Marketable securities – at fair value

173,644

1,032

Accounts receivable, net

9,324

4,132

Inventories

9,311

11,202

Other current assets

6,655

6,679

Total Current Assets

273,523

25,858

Marketable securities – at fair value

44,780

Property and equipment, net

2,349

1,868

Capitalized website and internal-use software costs, net

2,554

Lease vehicles, net

58

173

Other assets

3,337

299

Total Assets

$

326,601

$

28,198

Liabilities, Redeemable Convertible Preferred Stock, Stockholders’ Equity (Deficit)

 

  

 

  

Current Liabilities:

Long-term debt, current

$

55

$

6,370

Floor plan notes payable

4,125

6,039

Accounts payable

9,423

6,283

Accrued transaction expenses

6,052

Accrued expenses

11,150

3,563

Accrued expenses – related party

5,082

Other current liabilities

815

256

Total Current Liabilities

25,568

33,645

Long-term debt, less current portion

1,250

2,999

Redeemable convertible preferred stock tranche obligation

2,832

Earnout shares liability

42,438

Merger warrants liability

26,667

Other liabilities

1,570

1,959

Total Liabilities

 

97,493

 

41,435

Commitments and Contingencies (Note 15)

 

 

Redeemable Convertible Preferred Stock:

Series A Preferred Stock $0.001 stated value; authorized 3,052,127 shares; after recapitalization there are no preferred shares issued or outstanding at March 31, 2021 and December 31, 2020

Stockholders’ Equity (Deficit):

Common stock, $0.0001 par value; 500,000,000 authorized shares, 113,670,060 and 58,621,042 shares issued and outstanding at March 31, 2021 and December 31, 2020

 

11

 

6

Additional paid-in capital

 

278,272

 

20,779

Accumulated deficit

(49,059)

(34,037)

Accumulated other comprehensive income (loss)

(116)

15

Treasury stock, $0.001 par value; after recapitalization there are no treasury shares issued or outstanding at March 31, 2021 and December 31, 2020

Total Stockholders’ Equity (Deficit)

 

229,108

 

(13,237)

Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

$

326,601

$

28,198

2


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CarLotz, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended March 31, 

    

2021

    

2020

Revenues:

Retail vehicle sales

$

50,383

$

21,042

Wholesale vehicle sales

4,568

3,311

Finance and insurance, net

1,554

892

Lease income, net

107

145

Total Revenues

56,612

25,390

Cost of sales (exclusive of depreciation)

54,604

22,918

Gross Profit

2,008

2,472

Operating Expenses:

Selling, general and administrative

18,873

3,916

Stock-based compensation expense

41,963

34

Depreciation and amortization expense

383

100

Management fee expense – related party

2

62

Total Operating Expenses

61,221

4,112

Loss from Operations

(59,213)

(1,640)

Interest Expense

175

149

Other Income, net

Change in fair value of Merger warrants liability

12,358

Change in fair value of redeemable convertible preferred stock tranche obligation

284

Change in fair value of earnout provision

31,846

Other income

162

3

Total Other Income , net

44,366

287

Loss Before Income Tax Expense

(15,022)

(1,502)

Income tax expense

5

Net Loss

$

(15,022)

$

(1,507)

Net Loss per Share, basic and diluted

$

(0.15)

$

(0.03)

Weighted-average Shares used in Computing Net Loss per Share, basic and diluted

100,817,385

58,621,041

3


Table of Contents

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

Three Months Ended March 31,

    

2021

    

2020

Net loss

$

(15,022)

$

(1,507)

Other Comprehensive Income (Loss), net of tax:

 

  

 

  

Unrealized gains (losses) on marketable securities arising during the period

 

(131)

 

7

Tax effect

 

 

Unrealized gains (losses) on marketable securities arising during the period, net of tax

 

(131)

 

7

Reclassification adjustment for realized losses

 

 

(3)

Tax effect

 

 

Reclassification adjustment for realized losses, net of tax

 

 

(3)

Other Comprehensive Income (Loss), net of tax

 

(131)

 

4

Total Comprehensive Income (Loss)

$

(15,153)

$

(1,503)

4


Table of Contents

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands, except share data)

Accumulated

Redeemable Convertible

Additional

Other

Preferred Stock

 Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity (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

5


Table of Contents

    

    

    

    

    

    

    

    

    

Accumulated

    

Redeemable Convertible

Additional

Other

Preferred Stock

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Income

Equity (Deficit)

Balance January 1, 2020

 

2,034,751

$

17,560

 

37,881,435

$

4

$

5,061

$

(27,485)

$

$

(22,420)

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

22,619

(27,485)

(4,860)

Net loss

(1,507)

(1,507)

Redeemable convertible preferred stock issuance

4

4

Accrued dividends on redeemable convertible preferred stock

(457)

(457)

Stock-based compensation

34

34

Balance March 31, 2020

$

58,621,042

$

6

$

22,196

$

(28,992)

$

4

$

(6,786)

6


Table of Contents

CarLotz, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

    

Three Months Ended March 31, 

2021

    

2020

Cash Flow from Operating Activities

Net loss

$

(15,022)

(1,507)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

Depreciation – property and equipment

105

51

Amortization and accretion - marketable securities

238

Depreciation – lease vehicles

15

49

Loss on marketable securities

13

Provision for doubtful accounts

6

Stock-based compensation expense

41,963

34

Change in fair value of Merger warrants liability

(12,358)

(13)

Change in fair value of earnout shares

(31,846)

Change in fair value of debt issuance costs and stock warrant

5

Change in fair value of redeemable convertible preferred stock tranche obligation

(284)

Change in Operating Assets and Liabilities:

Accounts receivable

(5,192)

1,177

Inventories

1,991

1,790

Other current assets

(5,868)

8

Other assets

(3,038)

9

Accounts payable

3,140

(325)

Accrued expenses

6,187

(54)

Accrued expenses – related party

(229)

(50)

Other current liabilities

559

67

Other liabilities

(245)

150

Net Cash (Used in)/Provided by Operating Activities

 

(19,600)

 

1,126

Cash Flows from Investing Activities

 

 

Purchase of property and equipment

(586)

(10)

Capitalized website and internal-use software costs

(1,154)

Purchase of marketable securities

(217,689)

(421)

Proceeds from sales of marketable securities

59

18

Purchase of lease vehicles

(246)

Net Cash Used in Investing Activities

 

(219,486)

 

(659)

Cash Flows from Financing Activities

Payments made on long-term debt

(2)

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

(11,150)

(8,847)

Borrowings on floor plan notes payable

9,236

7,139

Net Cash Provided by/(Used in) Financing Activities

310,746

(1,710)

Net Change in Cash and Cash Equivalents Including Restricted Cash

71,776

(1,243)

Cash and cash equivalents and restricted cash, beginning

2,813

4,102

Cash and cash equivalents and restricted cash, ending

$

74,589

$

2,859

Supplemental Disclosure of Cash Flow Information

Cash paid for interest

$

402

$

165

Supplementary Schedule of Non-cash Investing and Financing Activities:

Transfer from lease vehicles to inventory

$

100

$

199

Redeemable convertible preferred stock distributions accrued

457

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 accrues

(1,400)

7


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

(Unaudited)

(In thousands, except share and per share data)

Note 1  Description of Business

Defined Terms

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

references to “CarLotz,” “we,” “us,” “our” and the “Company” are to CarLotz, Inc. and its consolidated subsidiaries;
references to “Acamar Partners” refer to the Company for periods prior to the consummation of the Merger referred to below;
references to “Acamar Sponsor” are to Acamar Partners Sponsor I LLC; and
references to the “Merger” are to the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated as of October 21, 2020 (as amended by Amendment No. 1, dated December 16, 2020, the “Merger Agreement”), by and among CarLotz, Inc. (f/k/a Acamar Partners Acquisition Corp.) (the “Company”), Acamar Partners Sub, Inc., a wholly owned subsidiary of CarLotz, Inc. (“Merger Sub”), and CarLotz Group, Inc. (f/k/a CarLotz, Inc.) (“Former CarLotz”), pursuant to which Merger Sub merged with and into Former CarLotz, with Former CarLotz surviving as the surviving company and as a wholly owned subsidiary of the Company.

The Company is a used vehicle consignment and retail remarketing company based in Richmond, Virginia. The Company offers an innovative and one-of-a-kind consumer and commercial used vehicle consignment and sales business model, with an online marketplace and eleven retail hub locations throughout the United States, including in Florida, Illinois, North Carolina, Texas, Virginia, Tennessee 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 Orange Grove Fleet Solutions, LLC (a Virginia LLC), 100% of Orange Peel Protection Reinsurance Co. Ltd. (a Turks and Caicos Islands, British West Indies company) and 100% of Orange Peel LLC (a Virginia LLC), which owns 100% of Orange Peel Reinsurance, Ltd. (a Turks and Caicos Islands, British West Indies company).

Basis of Presentation

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

Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz surviving 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.

8


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

(Unaudited)

(In thousands, except share and per 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 interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes of Former CarLotz as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 (audited consolidated financial statements) filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on March 15, 2021. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited consolidated financial statements of Former CarLotz as of that date filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on March 15, 2021.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion, include all adjustments, which consist of only normal recurring adjustments necessary for the fair statement of the Company’s condensed consolidated balance sheet as of March 31, 2021 and its results of operations for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.

Note 2 — Summary of Significant Accounting Policies

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

During the three months ended March 31, 2021, there were no significant revisions to the Company’s significant accounting policies, other than those indicated herein.

Use of Estimates

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

9


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

(Unaudited)

(In thousands, except share and per share data)

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 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.

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

Restricted Cash

As of March 31, 2021 and December 31, 2020, restricted cash included approximately $227 and $605, respectively. The restricted cash is legally and contractually restricted as collateral for two letters of credit issued on behalf of CarLotz Group, Inc. and of the reinsurance companies for the payment of claims.

10


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

(Unaudited)

(In thousands, except share and per share data)

Marketable Securities

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

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

Capitalized website and internal-use software costs

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

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 $2,526 and $541 for the three months ended March 31, 2021 and 2020, respectively.

11


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

(Unaudited)

(In thousands, except share and per share data)

Concentration of Credit Risk

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

Recently Issued Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Subsequently, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall. ASU 2016-01 requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. ASU 2016-01 is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company adopted ASU 2016-01 on January 1, 2019 for annual periods and on January 1, 2020 for interim periods within annual periods. The adoption of ASU 2016-01 did not have a material impact on the Company’s condensed consolidated financial statements because the Company did not make its first investment in securities impacted by the standard until the first quarter of the year ending December 31, 2021.

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

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

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption of this standard did not have a material impact on the condensed consolidated financial statements or related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted ASU 2018-15 on January 1, 2020 for annual periods, and the adoption of this standard did not have a material impact on the condensed consolidated financial statements or related disclosures.

12


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

(Unaudited)

(In thousands, except share and per share data)

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities, which addresses the cost and complexity of financial reporting associated with consolidation of variable interest entities (“VIE”). The new guidance must be applied on a retrospective basis as a cumulative-effect adjustment as of the date of adoption. The Company adopted ASU 2018-17 on January 1, 2020, and the adoption of this standard did not have a material impact on the consolidated financial statements or related disclosures because the Company does not currently have any indirect interests through related parties under common control for which it receives decision making fees.

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

Note 3 — Merger

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

Pursuant to the terms of the Merger Agreement, a business combination between the Company and Former CarLotz was effected through the merger of Merger Sub with and into Former CarLotz with Former CarLotz surviving as the surviving company.

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

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

    

Recapitalization

Cash – Acamar Partners’ trust and cash

$

309,999

Cash - PIPE

 

125,000

Less: consideration delivered to existing shareholders of Former CarLotz

 

(62,693)

Less: consideration to pay accrued dividends

(4,853)

Less: transaction costs and advisory fees paid

 

(47,579)

Less: payments on cash considerations associated with stock options

(2,465)

Net contributions from Merger and PIPE financing

 

317,409

Liabilities relived: 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: warrants liability

 

(39,025)

13


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

(Unaudited)

(In thousands, except share and per 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 three months ended March 31, 2021:

    

March 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

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.

14


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

(Unaudited)

(In thousands, except share and per share data)

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

Three Months Ended March 31, 2021

    

    

Fleet

    

Vehicle Sales

Management

Total

Retail vehicle sales

$

50,383

$

$

50,383

Wholesale vehicle sales

 

4,568

 

 

4,568

Finance and insurance, net

 

1,554

 

 

1,554

Lease income, net

 

 

107

 

107

Total Revenues

$

56,505

$

107

$

56,612

Three Months Ended March 31, 2020

    

    

Fleet

    

Vehicle Sales

Management

Total

Retail vehicle sales

$

21,042

$

$

21,042

Wholesale vehicle sales

 

3,311

 

 

3,311

Finance and insurance, net

 

892

 

 

892

Lease income, net

 

 

145

 

145

Total Revenues

$

25,245

$

145

$

25,390

The following table summarizes revenues and cost of sales for retail and wholesale vehicle sales for the three months ended March 31, 2021 and 2020:

    

2021

    

2020

Retail vehicles:

 

  

 

  

Retail vehicle sales

$

50,383

$

21,042

Retail vehicle cost of sales

 

48,917

 

19,555

Gross Profit – Retail Vehicles

$

1,466

$

1,487

Wholesale vehicles:

 

  

 

  

Wholesale vehicle sales

$

4,568

$

3,311

Wholesale vehicle cost of sales

 

5,687

 

3,363

Gross Profit – Wholesale Vehicles

$

(1,119)

$

(52)

Retail Vehicle Sales

The Company sells used vehicles to retail customers through its 11 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.

15


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

(Unaudited)

(In thousands, except share and per share data)

Wholesale Vehicle Sales

The Company sells wholesale vehicles primarily through auction as wholesale vehicles often do not meet the Company’s standards for retail vehicle sales. The Company satisfies its performance obligation and recognizes revenue for wholesale vehicle sales when the vehicle is sold at auction or directly to a wholesaler and title to the vehicle passes to the customer.

Finance and Insurance, net

The Company provides customers with options for financing, insurance and extended warranties. Extended warranties are serviced by a company owned by a major shareholder. 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 March 31, 2021 and December 31, 2020:

March 31, 2021

    

Amortized

    

Gross

    

Gross

    

Cost/

Unrealized

Unrealized

Cost Basis

Gains

Losses

Fair Value

U.S. Treasuries

$

181

$

2

$

$

183

Corporate bonds

 

63,197

 

2

 

(111)

 

63,088

Municipal bonds

 

24,003

 

5

 

(14)

 

23,994

Commercial paper

 

130,659

 

 

 

130,659

Total Fixed Maturity Debt Securities

$

218,040

$

9

$

(125)

$

217,924

December 31, 2020

    

Amortized

    

Gross

    

Gross

    

Cost/

Unrealized

Unrealized

Cost Basis

Gains

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

The amortized cost and fair value of the Company’s fixed maturity debt securities as of March 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

$

173,174

$

173,145

Due after one year through five years

 

44,540

 

44,457

Due after five years through ten years

 

326

 

322

Total

$

218,040

$

217,924

16


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

(Unaudited)

(In thousands, except share and per share data)

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

March 31, 2021

Less Than 12 Months

12 Months or More

Total

    

Estimated

    

Unrealized

    

Estimated

    

Unrealized

    

Estimated

    

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Corporate bonds

$

23,226

$

(31)

$

39,736

$

(80)

$

62,962

$

(111)

Municipal bonds

18,286

(11)

1,135

(3)

19,421

(14)

Total Fixed Maturity Debt Securities

$

41,512

$

(42)

$

40,871

$

(83)

$

82,533

$

(125)

December 31, 2020

Less Than 12 Months

12 Months or More

Total

    

Estimated

    

Unrealized

    

Estimated

    

Unrealized

    

Estimated

    

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

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 March 31, 2021, the Company’s fixed maturity portfolio had 25 securities with gross unrealized losses totaling $83 with maturities that were in excess of 12 months and 98 securities with gross unrealized losses totaling $42 with maturities that were less than 12 months. No single issuer had a gross unrealized loss position greater than $26, or 3.5% of its amortized cost. At December 31, 2020, the Company’s fixed maturity portfolio had no securities with gross unrealized losses with maturities that were in excess of 12 months and 2 securities with gross unrealized losses totaling $1 with maturities that were 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 March 31, 2021 and December 31, 2020:

March 31, 2021

    

    

Estimated

Cost

Fair Value

Equity securities

$

433

$

500

December 31, 2020

    

    

Estimated

Cost

Fair Value

Equity securities

$

335

$

375

17


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

(Unaudited)

(In thousands, except share and per share data)

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 three months ended March 31, 2021 and December 31, 2020 consisted of the following:

March 31, 2021

    

    

Gross

    

Gross

    

Net

Realized

Realized

Realized

Proceeds

Gains

Losses

Losses

Fixed maturity debt securities

$

59

$

$

$

Equity securities

 

 

 

 

Total Marketable Securities

$

59

$

$

$

March 31, 2020

    

    

Gross

    

Gross

    

Net

Realized

Realized

Realized<