RideNow Group, Inc 10-K for FY2019
RideNow Group, Inc. (RDNW)
10-K
2020-05-29
For: 2019-12-31
View Original
Added on
April 12, 2026
About this 10-K
RideNow Group, Inc filed this 10-K on May 29, 2020, covering the fiscal year ended December 31, 2019 (FY2019).
Headline figures
Fiscal year ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $840.63M
- up 437.5% from $156.4M a year earlier
- Net loss
- $45.18M
- compared with a net loss of $25.18M a year earlier
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________
to________________
Commission file number 001-38248
RumbleOn, Inc.
(Exact
name of registrant as specified in its charter)
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Nevada
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46-3951329
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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901 W Walnut Hill Lane
Irving TX
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75038
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(Address of
Principal Executive Offices)
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(Zip
Code)
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(469) 250-1185
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(Registrant's
telephone number, including area code)
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Securities
registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading
Symbol(s)
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Name of exchange on which registered
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Common Stock, $0.001 par value
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RMBL
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The Nasdaq Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act: None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No
☐
Indicate
by check mark whether the registrant a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated
filer
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☒
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Smaller reporting company
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☒
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Emerging
growth company
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☐
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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 ☒
As of
June 30, 2019, the aggregate market value of shares of common stock
held by non-affiliates of the registrant was approximately $69.4
million.
The
number of shares of Class B Common Stock, $0.001 par value,
outstanding on May 26, 2020 was 2,162,716 shares. In addition,
50,000 shares of Class A Common Stock, $0.001 par value, were
outstanding on May 26, 2020.
RUMBLEON, INC.
Table of Contents
to Annual Report on Form 10-K
PART
I
In this Annual Report on Form 10-K, "we," "our," "us," "RumbleOn,"
and "the Company" refer to RumbleOn Inc. and its consolidated
subsidiaries, unless the context requires otherwise.
Forward-Looking and Cautionary Statements
This
Annual Report on Form 10-K contains forward-looking statements and
involves risks and uncertainties that could materially affect
expected results of operations, liquidity, cash flows, and business
prospects. These statements include, among other things, statements
that:
●
We have a limited
operating history and we cannot assure you we will achieve or
maintain profitability;
●
Our annual and
quarterly operating results may fluctuate significantly or may fall
below the expectations of investors or securities analysts, each of
which may cause our stock price to fluctuate or
decline;
●
The initial
development and progress of our business to date may not be
indicative of our future growth prospects and, if we continue to
grow rapidly, we may not be able to manage our growth
effectively;
●
There
is substantial doubt about our ability to continue as a going
concern;
●
We may require
additional capital to pursue our business objectives and respond to
business opportunities, challenges or unforeseen circumstances. If
capital is not available on terms acceptable to us or at all, we
may not be able to develop and grow our business as anticipated and
our business, operating results and financial condition may be
harmed;
●
We may fail to
maintain our listing on The Nasdaq Stock Market;
●
The success of our
business relies heavily on our marketing and branding efforts,
especially with respect to the RumbleOn website and our branded
mobile applications, and these efforts may not be
successful;
●
The failure to
develop and maintain our brand could harm our ability to grow
unique visitor traffic and to expand our regional partner
network;
●
We rely on Internet
search engines to drive traffic to our website, and if we fail to
appear prominently in the search results, our traffic would
decline, and our business would be adversely affected;
●
A significant
disruption in service on our website or of our mobile applications
could damage our reputation and result in a loss of consumers,
which could harm our business, brand, operating results, and
financial condition;
●
We may be unable to
maintain or grow relationships with information data providers or
may experience interruptions in the data feeds they provide, which
may limit the information that we are able to provide to our users
and regional partners as well as adversely affect the timeliness of
such information and may impair our ability to attract or retain
consumers and our regional partners and to timely invoice all
parties;
●
If we are unable to
provide a compelling vehicle buying experience to our users, the
number of transactions between our users, RumbleOn and dealers will
decline, and our revenue and results of operations will suffer
harm;
●
If key industry
participants, including powersports and recreation vehicle dealers
and regional auctions, perceive us in a negative light or our
relationships with them suffer harm, our ability to operate and
grow our business and our financial performance may be
damaged;
●
The growth of our
business relies significantly on our ability to increase the number
of regional partners in our network such that we are able to
increase the number of transactions between our users and regional
partners. Failure to do so would limit our growth;
●
Our ability to grow
our complementary product offerings may be limited, which could
negatively impact our development, growth, revenue and financial
performance;
●
We rely on
third-party financing providers to finance a portion of our
customers' vehicle purchases;
1
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Our
sales of powersports/recreation vehicles may be adversely impacted
by increased supply of and/or declining prices for pre-owned
vehicles and excess supply of new vehicles;
●
We
rely on a number of third parties to perform certain operating and
administrative functions for the Company;
●
We
participate in a highly competitive market, and pressure from
existing and new companies may adversely affect our business and
operating results;
●
Seasonality
or weather trends may cause fluctuations in our unique visitors,
revenue and operating results;
●
We
collect, process, store, share, disclose and use personal
information and other data, and our actual or perceived failure to
protect such information and data could damage our reputation and
brand and harm our business and operating results;
●
Failure
to adequately protect our intellectual property could harm our
business and operating results;
●
We
may in the future be subject to intellectual property disputes,
which are costly to defend and could harm our business and
operating results;
●
We
operate in a highly regulated industry and are subject to a wide
range of federal, state and local laws and regulations. Failure to
comply with these laws and regulations could have a material
adverse effect on our business, results of operations and financial
condition;
●
We
provide transportation services and rely on external logistics to
transport vehicles. Thus, we are subject to business risks and
costs associated with the transportation industry. Many of these
risks and costs are out of our control, and any of them could have
a material adverse effect on our business, financial condition and
results of operations;
●
We
depend on key personnel to operate our business, and if we are
unable to retain, attract and integrate qualified personnel, our
ability to develop and successfully grow our business could be
harmed;
●
We
may acquire other companies or technologies, which could divert our
management's attention, result in additional dilution to our
stockholders and otherwise disrupt our operations and harm our
operating results;
●
The recent outbreak
of COVID-19 will likely have a significant negative
impact on our business, sales, results of operations, financial
condition, and liquidity;
●
We may be unable to
realize the anticipated synergies related to the Acquisitions,
which could have a material adverse effect on our business,
financial condition and results of operations;
●
We may be unable to
successfully integrate the Wholesale Entities' business and realize
the anticipated benefits of the Acquisitions;
●
Our business
relationships, those of the Wholesale Entities or the combined
company may be subject to disruption due to uncertainty associated
with the Acquisitions;
●
If we are unable to
maintain effective internal control over financial reporting for
the combined companies, we may fail to prevent or detect material
misstatements in our financial statements, in which case investors
may lose confidence in the accuracy and completeness of our
financial statements;
●
The Wholesale
Entities may have liabilities that are not known, probable or
estimable at this time;
●
As a result of the
Acquisitions, we and the Wholesale Entities may be unable to retain
key employees;
●
The trading price
for our Class B Common Stock may be volatile and could be subject
to wide fluctuations in per share price;
●
Our principal
stockholders and management own a significant percentage of our
stock and an even greater percentage of the Company's voting power
and will be able to exert significant control over matters subject
to stockholder approval;
2
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If securities or
industry analysts do not publish research or reports about our
business, or if they issue an adverse or misleading opinion
regarding our stock, our stock price and trading volume could
decline;
●
Because our Class B
Common Stock may be deemed a low-priced "penny" stock, an
investment in our Class B Common Stock should be considered high
risk and subject to marketability restrictions;
●
We do not currently
or for the foreseeable future intend to pay dividends on our common
stock;
●
We are subject to
reduced reporting requirements so long as we are considered a
"smaller reporting company" and we cannot be certain if the reduced
disclosure requirements applicable to smaller reporting companies
will make our common stock less attractive to
investors;
●
If we fail to
maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial
results or prevent fraud. As a result, stockholders could lose
confidence in our financial and other public reporting, which would
harm our business and the trading price of our common
stock;
●
Anti-takeover
provisions may limit the ability of another party to acquire us,
which could cause our stock price to decline;
●
Although the Notes
are referred to as convertible senior Notes, the Notes are
effectively subordinated to any of our future secured debt and
structurally subordinated to any liabilities of our
subsidiaries;
●
The Notes are our
obligations only and a substantial portion of our operations are
conducted through, and a substantial portion of our consolidated
assets are held by, our subsidiaries;
●
Operating our
business requires a significant amount of cash, and we may not have
sufficient cash flow from our business to pay the Notes and any
other debt;
●
Recent and future
regulatory actions and other events may adversely affect the
trading price and liquidity of the Notes;
●
The trading price
for our Class B Common Stock may be volatile and could be subject
to wide fluctuations in per share price which could adversely
impact the trading price of the Notes;
●
We may incur
substantially more debt in the future or take other actions which
would intensify the risks discussed in these risk
factors;
●
We may not have the
ability to raise the funds necessary to settle the Notes in cash on
a conversion, to repurchase the Notes on a fundamental change, or
to repay the Notes at maturity. In addition, the terms of our
future debt may contain limitations on our ability to pay cash on
conversion or repurchase of the Notes;
●
Redemption may
adversely affect the return on the Notes;
●
The conditional
conversion feature of the Notes, if triggered, may adversely affect
our financial condition and operating results;
●
Conversion of the
Notes may dilute the ownership interest of our stockholders or may
otherwise depress the market price of our Class B Common
Stock;
●
Future sales of our
Class B Common Stock or equity-linked securities in the public
market could lower the market price for our Class B Common Stock
and adversely impact the trading price of the Notes;
●
Holders of Notes
are not entitled to any rights with respect to our Class B Common
Stock, but they will be subject to all changes made with respect to
them to the extent our conversion obligation includes shares of our
Class B Common Stock;
●
The conditional
conversion feature of the Notes could result in holders receiving
less than the value of our Class B Common Stock into which the
Notes would otherwise be convertible;
●
On conversion of
the Notes, holders may receive less valuable consideration than
expected because the value of our Class B Common Stock may decline
after holders exercise their conversion rights but before we settle
our conversion obligation;
3
●
The increase in the
conversion rate for Notes converted in connection with a make-whole
fundamental change or a notice of redemption may not adequately
compensate holders for any lost value of their Notes as a result of
such transaction or redemption;
●
The
conversion rate of the Notes may not be adjusted for dilutive
events;
●
Some
significant restructuring transactions may not constitute a
fundamental change, in which case we would not be obligated to
offer to repurchase the Notes;
●
Certain
provisions in the indenture governing the Notes may delay or make
it more expensive for a third party to acquire us;
●
Holders
of Notes are not entitled to receive any shares of our Class B
Common Stock otherwise deliverable upon conversion of the Notes to
the extent that such receipt would cause such holders to become,
directly or indirectly, a beneficial owner of shares of our Class B
Common Stock in excess of 4.99% of the total number of the shares
of our Class B Common Stock then issued and
outstanding;
●
We
cannot assure you that an active trading market will develop for
the Notes;
●
Any
adverse rating of the Notes may cause their trading price to fall;
and
●
Other
statements regarding our future operations, financial condition and
prospects, and business strategies.
Forward-looking
statements may appear throughout this report, including without
limitation, the following sections: Item 1 "Business," Item 1A
"Risk Factors," and Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations. "Forward-looking
statements generally can be identified by words such as
"anticipates," "believes," "estimates," "expects," "intends,"
"plans," "predicts," "projects," "will be," "will continue," "will
likely result," and similar expressions. These forward-looking
statements are based on current expectations and assumptions that
are subject to risks and uncertainties, which could cause our
actual results to differ materially from those reflected in the
forward-looking statements. Factors that could cause or contribute
to such differences include, but are not limited to, those
discussed in this Annual Report on Form 10-K, and in particular,
the risks discussed under the caption "Risk Factors" in Item 1A and
those discussed in other documents we file with the Securities and
Exchange Commission (SEC). We undertake no obligation to revise or
publicly release the results of any revision to these
forward-looking statements, except as required by law. Given these
risks and uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
Market and Industry Data
Some of
the market and industry data contained in this Annual Report on
Form 10-K are based on independent industry publications or other
publicly available information. Although we believe that these
independent sources are reliable, we have not independently
verified and cannot assure you as to the accuracy or completeness
of this information. As a result, you should be aware that the
market and industry data contained herein, and our beliefs and
estimates based on such data, may not be reliable.
Item 1.
Business.
Overview
RumbleOn,
Inc., a Nevada corporation,
is a technology driven, motor vehicle dealer and e-commerce
platform provider disrupting the vehicle supply chain using
innovative technology that aggregates, processes and distributes
inventory in a faster and more cost-efficient manner.
We
operate an infrastructure-light platform that facilitates the
ability of all participants in the supply chain, including
RumbleOn, other dealers and consumers to
Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to
transform the way VIN-specific pre-owned vehicles are bought and
sold by providing users with the most comprehensive, efficient,
timely and transparent transaction experiences. While our initial
customer facing emphasis through most of 2018 was on motorcycles
and other powersports, in 2019 we enhanced our platform to
accommodate nearly any VIN-specific vehicle, and via our October
2018 acquisition of Wholesale, Inc., we made a concerted effort to
grow our cars and light truck categories.
In this
Annual Report on Form 10-K (this "Form 10-K"), we refer to RumbleOn, Inc., as
"RumbleOn," "RMBL,"
the "Company," "we,"
"us," and "our,"
and similar words. All share amounts included in this Form 10-K
have been adjusted for the one-for-twenty reverse stock split of
our Class A Common Stock and Class B Common Stock, effective May
20, 2020.
4
Our Model
RumbleOn's goal is
to disrupt the inefficient, friction-laden pre-owned vehicle supply
chain through the use of innovative technology. We have created a
modern, technology-based platform to acquire and distribute
inventory transparently and efficiently at value-oriented prices.
We intend to leverage this platform to maximize the overall profit
and return on vehicles that RumbleOn buys/sells for its own
account, as well to provide both dealers and consumers
technology-based tools, financing and logistics-based solutions to
simplify their business or aid them through the complex process of
buying/selling a vehicle.
Our
model is anchored on powerful technology that enables RumbleOn to
efficiently acquire, process (including reconditioning, photos and
inspection), market and distribute vehicles to dealers and
consumers. Collectively, this allows us to maximize inventory value
and reduce inventory risk as we effect the entire vehicle supply
chain in a faster and more cost-efficient manner. There are two
critical inputs that are key to understanding how we do this: 1)
our innovative technology and 2) our inventory
management.
Innovative Technology
Technology
underpins everything at RumbleOn. If you want to disrupt an
industry, you have to have answer two fundamental
questions:
1)
What can we do to
eliminate existing customer pain points?
2)
How do we remove
friction from a marketplace?
We
leverage technology to drive change in an industry that is as old
as the automobile or motorcycle itself. At a high-level, we believe
there are two main areas where leveraging these innovations
provides us a competitive advantage and eliminates existing
customer pain points and removes friction from a marketplace
– 1) our proprietary supply chain and distribution software
and 2) and our mobile-first web application strategy.
We
utilize internally developed software and real time API's to look
at the overall supply chain and reconfigure inventory for the
purpose of acquisition and distribution. Our technology aggregates
multiple data sources in real-time, tracking and cataloging
inventory across the country.
We
analyze real-time market data to inform our acquisition decisions,
continually capturing and archiving such data using advanced
algorithms, to calibrate pricing and estimate freight and
reconditioning expenses. The values are then used in our Cash Offer
tool to quickly determine a fair and reasonable, non-negotiable
offer.
Lastly,
we continue to enhance our website and mobile application to
provide not only a compelling user experience, from the front-end
user interface and powerful search tools to enabling secure data,
document and payment exchanges between parties, but also to help
optimize search engine marketing and lower overall cost of customer
acquisition. For example, the RumbleOn app has features such as
auto-populating details into the Cash Offer tool when a customer
scans their VIN, we introduced simplified uploading of vehicle
photos by app users, we integrate technologies to try and block
inappropriate content on our Classifieds site, and we are creating
fun social experiences like our Road Trip Planner and successful
blog campaigns.
Inventory Management
We
believe our ability to access and acquire inventory efficiently and
cost effectively, from both consumers and dealers, is a key
differentiator for RumbleOn. Using pre-owned retail and wholesale
vehicle market data obtained from a variety of internal and
external data sources, we evaluate a significant number of vehicles
daily across both online and traditional auction/dealer-based
channels to determine their fit with end-buyer demand, internal
profitability targets and our existing inventory needs by make,
model, condition and price point.
The
supply of pre-owned vehicles is influenced by a variety of factors,
including: the total number of vehicles in operation; the rate of
new vehicle sales, which in turn generate pre-owned vehicles; the
number of pre-owned vehicles sold or remarketed through our
consumer and dealer channels; model-year changes; fleet turnover;
seasonality; natural disasters; and economic
downturns.
As
such, we are very focused on nimbly managing our overall inventory,
and strive to maintain our current average days to sale under 30
days. We believe this not only minimizes potential impacts on
profits from the items described above but also provides us
significant competitive benefits; namely: i) we have flexibility to
adjust our inventory in response to unforeseen market dynamics
– such as adverse weather conditions, including tornadoes and
hurricanes, or other events or conditions that impact purchasing
decisions, including disruptions in the domestic and global economy
due to the COVID-19 pandemic (discussed below); and ii) we can make
swift decisions to capitalize on market anomalies or leverage
arbitrage opportunities that may benefit our volume and margins in
a more consistent fashion.
5
To
support our emphasis on inventory management and reduction of
capital investment needs, we leverage a robust partner network that
manages the reconditioning, inspections and distribution of our
inventory. Our current regional partners are located in the cities
below:
Cincinnati, OH; Dallas, TX; Las Vegas, NV;
Atlanta,
GA; Statesville, NC; Philadelphia, PA; Nashville, TN;
Orlando,
FL; San Diego, CA; San Francisco, CA;
West
Palm Beach, FL
Every
unit of inventory we acquire is posted immediately to both our
website and Dealer Direct virtual inventory tool, as well as sent
to one of our regional partners who then uploads photos, prepares
detailed inspection reports, reconditions the vehicle to a dealer's
expectation and sets the vehicle for live auction sale in the near
future. If the vehicle is sold to a consumer, it is reconditioned
to the appropriate level for the buyer, which reduces unnecessary
reconditioning costs and enables us to protect our margin when
selling directly to a dealer who might prefer to manage or perform
much of the reconditioning to their standards. More importantly, we
are able to quickly establish new regional partners as needed to
reduce our cost of sales and freight expense while creating more
capacity for over-all sales growth. Currently, there are hundreds
of potential expansion locations that welcome the opportunity for
their business. These are owned by the likes of Cox Automotive
(Manheim); Copart (National Powersports Auctions); KARS (Adesa
auctions) just to name a few.
Competitive Positioning
We
believe we are disrupting a massive opportunity in the market and
unlike others, we are using this data-powered technology to serve
consumers, dealers and service providers across the entire supply
chain. Our comprehensive offering includes the
following:
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Dealers
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Consumers
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Other
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Dealer
to Consumer Sales
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Consumer
to Consumer Sales
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Lender
Listing Site
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Dealer
to Dealer Sales
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Online
Cash Offers from RumbleOn
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Dealer
Listing Site
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Online
Cash Offers from RumbleOn
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Classifieds
(including transaction support)
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Data
Aggregation
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Inventory
Management
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Finance
a Purchase
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Auction
Locations
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Dealer
Branded Cash Offers
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Warranty
Products
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Transport
Providers
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Dealer
Listing Site
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Inspection
Services
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Inspection
Services
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Logistics
Support
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Logistics
Support
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Peer-to-Peer
Payment
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Presently we are
buying and selling our entire inventory and delivering the same
customer experience across our websites – rumbleon.com,
RumbleOn Dealer Direct and
other URL's also represented as
powered by RumbleOn - providing us with a strategic
advantage of having vertical brands. These solutions exist as
separate websites and each fills a gap in the legacy buying and
selling experience while taking advantage of vertical search of the
same inventory across multiple consumer and dealer
channels.
RumbleOn.com is our primary national
online consumer facing platform. Consumers can currently get a real
Cash Offer for their vehicle as well as purchase vehicles through
this website. Customers can pay for their vehicle using cash or
they may select from a range of finance options from unrelated
third parties such as banks or credit unions, as well as RumbleOn
Finance, our own financing platform. Additionally, customers have
the option to protect their vehicle with Extended Protection Plans
("EPPs") and vehicle appearance protection products as part of our
online checkout process. EPPs include extended service plans which
are designed to cover unexpected expenses associated with
mechanical breakdowns and guaranteed asset protection,
which is intended to cover the unpaid balance on a vehicle
loan in the event of a total loss of the vehicle or unrecovered
theft as well as other traditional protection
products.
RumbleOn Dealer Direct is currently
being used by multiple dealers which allows them to leverage the
RumbleOn inventory as a virtual inventory of their own at wholesale
prices without having to wait for auction day.
Wholesale Inc. and AutoSport, Powered by
RumbleOn (as well as any
other sub-brands we may utilize) – The significant local brand
awareness these parallel sites provide allows us to take advantage
of existing organic search benefits and customer goodwill by
creating a locally branded website with most of the same
functionality as RumbleOn.com.
RumbleOn Classifieds was launched in
December 2018 and is a one-stop free listing site for consumers who
wish to pursue peer-to-peer transactions, similar to Craigslist.
Consumers list the vehicle at the price they wish. RumbleOn then
offers both buyers and sellers a suite of option tools to
facilitate the transaction process, including assistance with
titles, documentation, third-party inspection, financing,
funds-transfer, and logistics. Classifieds allows us to not only
buy more inventory from unsuccessful listings, but more importantly
provide consumers who were unwilling to accept the RumbleOn Cash
Offer price an opportunity to stay in the RumbleOn
network.
6
RumbleOn Finance is our wholly owned
consumer finance entity that provides vehicle buyers competitive
borrowing alternatives fully underwritten internally. During the
second half of 2019, RumbleOn Finance began originating finance
transactions on powersports.
Our Market / Competition
We
participate in both the automotive and powersports
markets.
Automotive
The
U.S. used car marketplace is highly fragmented, and we face
competition from franchised dealers, who sell both new and used
vehicles; independent used car dealers; online and mobile sales
platforms; and private parties. There are approximately 18,000
franchised automotive dealerships, which sell both new and used
vehicles, as well as approximately 43,000 used car independents in
the U.S. according to NADA and Borrell Associates' 2017 Outlook,
respectively. Moreover, the top 100 car retailers control
approximately 8.6% of the used car market share in 2018 according
to AutomotiveNews.
Collectively, there
were approximately 273 million registered vehicles in operation in
2018. Additionally, in 2019 automakers sold approximately 17
million new cars and approximately 41 million used cars were sold,
many of which were accompanied by trade-ins. Lastly, the National
Auto Auction Association and Cox Automotive estimate there are more
than 16 million vehicles annual sold through wholesale channels,
with approximately 9.6 million sold through auctions , the vast
majority of which are run through the two largest auction
participants, Manheim and Adesa, 4.9 million dealer-to-dealer and
2.1 direct to consumer or offsite/online.
Based
on the large number of new and used vehicles being sold each year,
coupled with the relatively small market share of any single used
car seller, we believe that both sources of used vehicles, and our
ability to sell them, will continue to be sufficient to meet our
current and future needs.
Powersports
We
currently operate in the powersports and recreational vehicle
market with significant scale and breadth of products. The
Motorcycle Industry Council estimates that in 2018, 10.1 million
U.S. households owned the 12.2 million motorcycles. Of these, 87%
of these were on-highway models, our initial targeted segment.
According to the Powersports Business 2016 Market Data Book, or the
2020 Market Data book, pre-owned motorcycle registrations were 1.1
million units in 2015 with new unit sales of approximately 281,000.
The owner demographic is favorable to the market outlook as
millennials and baby boomers are maturing into the median ranges.
The owner group is characterized by brand loyal riding enthusiasts.
Additionally, the dealer market is fragmented with an estimated
10,000 outlets authorized to sell powersports and recreation
vehicles that include new and pre-owned motorcycles, scooter, and
all-terrain vehicles.
Our
initial focus was on pre-owned Harley-Davidson motorcycles as it
provided a targeted, identifiable segment to establish the
functionality of the platform and the RumbleOn brand.
Harley-Davidson is a highly regarded and dominant brand in the
motorcycle market, (representing approximately 50% market share of
new 601cc+ on-road motorcycles according to both Harley-Davidson
public filings and the Motorcycle Industry Council) and there were
approximately 3.1 million Harley Davidson riders in 2019, up
approximately 55,00 from the prior year per the IHS Markit
Motorcycles in Operations data. As our business has evolved we have
expanded into other powersports and recreational vehicle with a
strong emphasis on the "metric" brands of motorcycles (Honda, Yamaha,
Kawasaki, Suzuki, etc.), which essentially doubled the available
market and is a natural extension as these vehicles are often sold
or traded for Harley-Davidson vehicles. The metric market and
dealer profile closely mirror that of the Harley-Davidson market
although it is more highly fragmented and the average pre-owned
vehicle selling price is less than a pre-owned Harley Davidson. In
addition, many of the metric dealers also retail other powersport
vehicles including ATVs, UTVs, snowmobiles and personal watercraft
providing RumbleOn an opportunity for product extensions by
leveraging existing regional partner relationships.
The
ATV, UTV/side-by-side, snowmobile and personal watercraft vehicle,
or PWC, markets, are a logical next extension for our platform, as
there is significant overlap in the motorcycle dealer base with
dealers of these products. According to estimates from Polaris,
approximately 770,000 ATV/UTV/side-by-sides and 100,000 snowmobiles
sold in North America in 2018, and there are estimated to be
approximately 1.2 million snowmobiles registered in the United
States with another 600,000 in Canada. Lastly, according the
National Marine Manufacturers Association and the Personal
Watercraft Industry Association, in 2016 there were more than
59,000 new PWCs sold in the United States and there are currently
more than 1.1 million PWCs registered in the United
States.
7
The
United States pre-owned powersports and recreational vehicle
marketplace is highly fragmented, and we face competition from
franchised dealers, who sell both new and pre-owned vehicles;
independent dealers; online and mobile sales platforms; and private
parties. We believe that the principal competitive factors in our
industry are delivering an outstanding consumer experience,
competitive sourcing of vehicles, breadth and depth of product
selection, and value pricing. Our competitors vary in size and
breadth of their product offerings. We believe that our principal
competitive advantages in pre-owned vehicle retailing includes our
ability to provide a high degree of customer satisfaction with the
buying experience by virtue of our low, no-haggle prices and our
100% online marketplace platform including our website and mobile
application and our ability to make a cash offer to purchase a
vehicle with our customer-friendly sales process and our breadth of
selection of the most popular makes and models available on our
website. In addition, we believe our willingness to make a cash
offer to purchase a customer's
vehicle, whether or not the customer is buying a vehicle from us,
provides a competitive sourcing advantage for retail vehicles
allowing us to offer value-oriented pricing. We believe the
principal competitive factors for our ancillary products and
services include an ability to offer a full suite of products at
competitive prices delivered in an efficient manner to the
customer. We compete with a variety of entities in offering these
products including banks, finance companies, insurance and warranty
providers and extended vehicle service contract providers. We
believe our competitive strengths in this category will include our
ability to deliver products in an efficient manner to customers
utilizing our technology and our ability to partner with key
participants in each category to offer a full suite of products at
competitive prices. Lastly, additional competitors may enter the
businesses in which we will operate.
The
supply of pre-owned vehicles, including automobiles, light trucks
and powersports, is influenced by a variety of factors, including:
the total number of vehicles in operation; the rate of new vehicle
sales, which in turn generate pre-owned vehicles; and the number of
pre-owned vehicles sold or remarketed through our consumer and
dealer channels. Based on the large number of new and used vehicles
being sold each year, coupled with the relatively small market
share of any single used car seller, we believe that both sources
of used vehicles, and our ability to sell them, will continue to be
sufficient to meet our current and future needs.
Seasonality
Historically, both
the automotive and powersport industries have been seasonal with
traffic and sales strongest in the spring and summer quarters.
Sales and traffic are typically slowest in the winter quarter but
increase typically in February and March, coinciding with tax
refunds and improved weather conditions. Given this seasonality,
coupled with the fact that we are a growing company, leads
us to expect our quarterly results of operations, including our
revenue, gross profit, profit/loss, and cash flow to vary
significantly in the future, based in part on vehicle buying
patterns. Over time, we expect to normalize to seasonal trends in
both markets, with the corresponding impact that may result from
the overall economic conditions.
Nashville Tornado
In the
early morning hours of March 3, 2020, a severe tornado struck the
greater Nashville area causing significant damage to our facilities
in Nashville. We maintain insurance coverage for damage to our
facilities and inventory, as well as business interruption
insurance. We continue in the process of reviewing damages and
coverages with our insurance carriers. The loss comprises three
components: (1) inventory loss, currently assessed by the insurance
carrier at approximately $13,000,000; (2) building and personal
property loss, primarily impacting our leased facilities, currently
assessed by the insurance carrier at $3,369,087; and (3) loss of
business income, for which we have coverage in the amount of
$6,000,000.
All
three components of our loss claim have been submitted to its
insurers. Our inventory claim is subject to a dispute with the
carrier as to the policy limits applicable to the loss. The
building insurer has agreed to pay $3,369,087 on the building and
personal property loss, reflecting a complete recovery, net of
$5,000 reflecting our deductible. The insurer has made an interim
payment on the building and personal property loss of $2,269,507
and has an outstanding balance of $1,094,580 which is expected to
be paid during the second quarter of 2020. The loss of business
income claim is ongoing and remains in the process of negotiation,
however, the insurer has advanced $250,000 against the final
settlement. We believe there will be a full recovery of all three
loss components, however no assurance can be given regarding the
amounts, if any, that will be ultimately recovered.
COVID-19 Pandemic
On
March 11, 2020, the World Health Organization declared the outbreak
of COVID-19 a global pandemic and recommended containment and
mitigation measures worldwide. The global outbreak of COVID-19 has
led to severe disruptions in general economic activities,
particularly retail operations, as businesses and federal, state,
and local governments take increasingly broad actions to mitigate
this public health crisis. We have experienced significant
disruption to our business, both in terms of disruption of our
operations and the adverse effect on overall economic conditions.
These conditions will significantly negatively impact all aspects
of our business. Our business is also dependent on the continued
health and productivity of our associates throughout this
crisis.
8
The
COVID-19 situation has created an unprecedented and challenging
time. Our current focus is on positioning the Company for a strong
recovery when this crisis is over. We have taken steps to reduce
our inventory and align our operating expenses to the state of the
business. We plan to continue to operate as permitted to support
our customers’ needs for reliable vehicles and to provide as
many jobs as possible for our associates. Effective April 9, 2020,
169 associates were temporarily laid-off effective, however our
receipt of PPP funds, as discussed below will allow us to gradually
recall these associates over time. All ongoing employment
determinations are subject to change due to the COVID-19 situation
future government mandates, as well as future business conditions.
We will continue to monitor the COVID-19 situation and look for
ways to preserve cash and reduce our operating expenses as we are
able, however, we expect the consequences of the COVID-19 outbreak
will likely have a significant negative impact on our business,
sales, results of operations, financial condition, and
liquidity.
Intellectual Property and Proprietary Rights
Our
brand image and intellectual property are an important element of
our business strategy. As of December 31, 2019, we
have a trademark registration for "RumbleOn", a patent covering near field
communications to store and retrieve vehicle information, and
various applications pending with the U.S. Patent and Trademark
Office.
Government Regulation
Various
aspects of our business are or may be subject, directly or
indirectly, to U.S. federal and state laws and regulations. Failure
to comply with such laws or regulations may result in the
suspension or termination of our ability to do business in affected
jurisdictions or the imposition of significant civil and criminal
penalties, including fines or the award of significant damages
against us and our dealers in class action or other civil
litigation.
State Motor Vehicle Sales, Advertising and Brokering
Laws
The
advertising and sale of new or pre-owned motor vehicles is highly
regulated by the states in which we do business. Although we do not
anticipate selling new vehicles, state regulatory authorities or
third parties could take the position that some of the regulations
applicable to new vehicle dealers or to the manner in which
automobiles, powersports and recreational vehicles are advertised
and sold generally are directly applicable to our business. If our
products and services are determined to not comply with relevant
regulatory requirements, we could be subject to significant civil
and criminal penalties, including fines, or the award of
significant damages in class action or other civil litigation as
well as orders interfering with our ability to continue providing
our products and services in certain states. In addition, even
absent such a determination, to the extent dealers are uncertain
about the applicability of such laws and regulations to our
business, we may lose, or have difficulty increasing the number of
dealers in our network, which would affect our future
growth.
Several
states have laws and regulations that strictly regulate or prohibit
the brokering of motor vehicles or the making of so-called
"bird-dog" payments by dealers to third parties in
connection with the sale of motor vehicles through persons other
than licensed salespersons. If our products or services are
determined to fall within the scope of such laws or regulations, we
may be forced to implement new measures, which could be costly, to
reduce our exposure to those obligations, including the
discontinuation of certain products or services in affected
jurisdictions. Additionally, such a determination could subject us
to significant civil or criminal penalties, including fines, or the
award of significant damages in class action or other civil
litigation.
In
addition to generally applicable consumer protection laws, many
states in which we may do business either have or may implement
laws and regulations that specifically regulate the advertising for
sale of new or pre-owned automobiles, powersports and recreational
vehicles. These state advertising laws and regulations may not be
uniform from state to state, sometimes imposing inconsistent
requirements on the advertiser. If the content displayed on the
websites we operate is determined or alleged to be inaccurate or
misleading, we could be subject to significant civil and criminal
penalties, including fines, or the award of significant damages in
class action or other civil litigation. Moreover, such allegations,
even if unfounded or decided in our favor, could be extremely
costly to defend, could require us to pay significant sums in
settlements, and could interfere with our ability to continue
providing our products and services in certain states.
9
Federal Advertising Regulations
The
Federal Trade Commission ("FTC")
has authority to take actions to remedy or prevent advertising
practices that it considers to be unfair or deceptive and that
affect commerce in the United States. If the FTC takes the position
in the future that any aspect of our business constitutes an unfair
or deceptive advertising practice, responding to such allegations
could require us to pay significant damages, settlements, and civil
penalties, or could require us to make adjustments to our products
and services, any or all of which could result in substantial
adverse publicity, loss of participating dealers, lost revenue,
increased expenses, and decreased profitability.
Federal Antitrust Laws
The
antitrust laws prohibit, among other things, any joint conduct
among competitors that would lessen competition in the marketplace.
Some of the information that we may obtain from dealers may be
sensitive and, if disclosed inappropriately, could potentially be
pre-owned by dealers to impede competition or otherwise diminish
independent pricing activity. A governmental or private civil
action alleging the improper exchange of information, or unlawful
participation in price maintenance or other unlawful or
anticompetitive activity, even if unfounded, could be costly to
defend and adversely impact our ability to maintain and grow our
dealer network.
In
addition, governmental or private civil actions related to the
antitrust laws could result in orders suspending or terminating our
ability to do business or otherwise altering or limiting certain of
our business practices, including the manner in which we handle or
disclose pricing information, or the imposition of significant
civil or criminal penalties, including fines or the award of
significant damages against us in class action or other civil
litigation.
The
foregoing description of laws and regulations to which we are or
may be subject is not exhaustive, and the regulatory framework
governing our operations is subject to continuous change. The
enactment of new laws and regulations or the interpretation of
existing laws and regulations in an unfavorable way may affect the
operation of our business, directly or indirectly, which could
result in substantial regulatory compliance costs, civil or
criminal penalties, including fines, adverse publicity, loss of
participating dealers, lost revenue, increased expenses, and
decreased profitability. Further, investigations by government
agencies, including the FTC, into allegedly anticompetitive,
unfair, deceptive or other business practices by us, could cause us
to incur additional expenses and, if adversely concluded, could
result in substantial civil or criminal penalties and significant
legal liability.
Employees
As of
December 31, 2019, we had approximately 300
full time and 4 part time employees.
Corporate History
RumbleOn, Inc. was
originally incorporated in the State of Nevada in October 2013 as a
development stage company under the name Smart Server, Inc. In
July 2016, Berrard
Holdings Limited Partnership ("Berrard Holdings") acquired 273,750 shares of common stock
of the Company from the prior owner of such shares pursuant to an
Amended and Restated Stock Purchase Agreement, dated July 13, 2016.
The shares acquired by Berrard Holdings represented 99.5% of the
Company's then issued and
outstanding shares of common stock. Steven Berrard, a director and
our Chief Financial Officer, has voting and dispositive control
over Berrard Holdings.
In
October 2016, Berrard
Holdings sold an aggregate of 165,625 shares of the
Company's common stock to
Marshall Chesrown, our Chairman of the Board and Chief
Executive Officer, and certain other purchasers. The 120,625 shares
acquired by Mr. Chesrown
represented 43.9% of the Company's then issued and outstanding shares of
common stock. The remaining shares owned by Berrard Holdings after
giving effect to the transaction represented 39.3% of the
Company's then issued and
outstanding shares of common stock.
On
January 8, 2017, the Company entered into an Asset Purchase
Agreement (the "NextGen
Agreement") with NextGen Dealer
Solutions, LLC ("NextGen"), Halcyon Consulting, LLC ("Halcyon"), and members of Halcyon signatory
thereto ("Halcyon
Members," and together with
Halcyon, the "Halcyon
Parties") pursuant to which
NextGen agreed to sell to the Company substantially all of the
assets of NextGen in exchange for a payment of approximately
$750,000 in cash, the issuance to NextGen of 76,191 unregistered
shares of Company common stock (the "Purchaser Shares"), the issuance of a subordinated secured
promissory note issued by the Company in favor of NextGen in the
amount of $1,333,333 (the "Acquisition Note") and the assumption by the Company of
certain specified post-closing liabilities of NextGen under the
contracts being assigned to the Company as part of the transaction
(the "NextGen
Acquisition").
On
January 9, 2017, the Company's
Board of Directors (the "Board") and stockholders holding 318,750 of the
Company's issued and
outstanding shares of common stock approved an amendment to the
Company's Articles of
Incorporation (the "Certificate
of Amendment") to change the
name Smart Server, Inc. to RumbleOn, Inc. and to create an
additional class of Company common stock. The Certificate of
Amendment became effective on February 13, 2017, after the notice and
accompanying Information Statement describing the amendment was
furnished to non-consenting stockholders of the Company in
accordance with Nevada and Federal securities law.
10
Immediately before
approving the Certificate of Amendment, the Company had authorized
5,000,000 shares of common stock, $0.001 par value (the
"Authorized Common
Stock"), including 320,000
issued and outstanding shares of common stock (the "Outstanding Common Stock," and together with the Authorized Common
Stock, the "Common
Stock"). Pursuant to the
Certificate of Amendment, the Company designated 50,000 shares of
Authorized Common Stock as Class A Common Stock (the "Class A Common Stock"), which Class A Common Stock ranks
pari passu with all of the
rights and privileges of the Common Stock, except that holders of
Class A Common Stock are entitled to 10 votes per share of Class A
Common Stock issued and outstanding and (ii) all other shares of
Common Stock, including all shares of Outstanding Common Stock were
deemed Class B Common Stock (the "Class B Common Stock"), which Class B Common Stock are
identical to the Class A Common Stock in all respects, except that
holders of Class B Common Stock will be entitled to one vote per
share of Class B Common Stock issued and outstanding.
On
January 9, 2017, the Company's
Board and stockholders holding 318,750 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Mr. Chesrown of 43,750 shares of
Class A Common Stock in exchange for an equal number of shares of
Class B Common Stock held by Mr. Chesrown and (ii) Mr. Berrard of
6,250 shares of Class A Common Stock in exchange for an equal
number of shares of Class B Common Stock held by Mr.
Berrard.
On
February 8, 2017 (the "Closing
Date"), RumbleOn and its wholly
owned subsidiary NextGen Pro, LLC ("NextGen Pro") completed the
NextGen Acquisition in exchange for approximately $750,000 in cash,
the Purchaser Shares, the Acquisition Note, and the other
consideration described above. The Acquisition Note was originally
set to mature on the third anniversary of the Closing Date (the
"Maturity Date"). Interest accrues and is paid
semi-annually originally (i) at a rate of 6.5% annually from the
Closing Date through the second anniversary of such date and
(ii) at a rate of 8.5%
annually from the second anniversary of the Closing Date through
the Maturity Date. In January 2020, the Acquisition Note was
amended to extend the Maturity Date to January 31, 2021, modify the
interest rate to 10% annually and also provide the holder the
option to convert the Acquisition Note at any time at a price of
$3.00 per share of Class B Common Stock. The Company's obligations under the Acquisition Note
are secured by substantially all the assets of the NextGen Pro
pursuant to an Unconditional Guaranty Agreement (the "Guaranty Agreement"), by and among Halcyon and NextGen Pro,
and a related Security Agreement between the parties, each dated as
of the Closing Date, as amended in January 2020. Under the terms of
the Guaranty Agreement, NextGen Pro has agreed to guarantee the
performance of all of the Company's obligations under the Acquisition
Note.
On
October 26, 2018, we entered into an Agreement and Plan of Merger
(as amended, the "Merger Agreement") by and among the Company, the
Company's newly-formed acquisition subsidiary RMBL Tennessee, LLC,
a Delaware limited liability company ("Merger Sub"), Wholesale
Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale,
LLC, a Tennessee limited liability company ("Wholesale"), Steven
Brewster and Janelle Brewster (each a "Stockholder," and together
the "Stockholders"), Steven Brewster, a Tennessee resident, as the
representative of each Stockholder (the "Representative"), and
Marshall Chesrown and Steven Berrard, providing for the merger (the
"Wholesale Merger") of Holdings with and into Merger Sub, with
Merger Sub surviving the Wholesale Merger as a wholly-owned
subsidiary of the Company. On October 29, 2018, we entered into an
Amendment to the Merger Agreement making a technical correction to
the definition of "Parent Consideration Shares" contained in the
Merger Agreement.
Also,
on October 26, 2018, we entered into a Membership Interest Purchase
Agreement (the "Purchase Agreement"), by and among the Company,
Steven Brewster and Justin Becker (together the "Express Sellers"),
and Steven Brewster as representative of the Express Sellers,
pursuant to which we acquired all of the membership interests (the
"Express Acquisition") in Wholesale Express, LLC, a Tennessee
limited liability company ("Wholesale Express").
Wholesale Inc. is one of the largest independent
distributors of pre-owned vehicles in the United States and Wholesale
Express, LLC is a related logistics company. The Wholesale Merger
and the Express Acquisition were both completed on October 30, 2018
(the "Wholesale Closing Date"). As consideration for the Wholesale
Merger, we (i) paid cash consideration of $12,353,941, subject to
certain customary post-closing adjustments and (ii) issued to the
Stockholders 1,317,329 shares (the "Stock Consideration") of our
previously designated Series B Non-Voting Convertible Preferred
Stock, par value $0.001 (the "Series B Preferred"). As
consideration for the Express Acquisition, we paid cash
consideration of $4,000,000, subject to certain customary
post-closing adjustments. Net proceeds from a private placement
completed in October 2018 and $5,000,000 funded under our credit
facility were used to partially fund the cash consideration of the
Wholesale Merger and the Express Acquisition. Each share of Series
B Preferred automatically converted on a one-for-one basis into
shares of the Company's Class B Common Stock on March 4,
2019.
11
On February 3, 2019, the Company completed the
acquisition of all of the equity interests of Autosport USA, Inc.
("Autosport"), an independent
pre-owned vehicle distributor, pursuant to a Stock Purchase Agreement, dated
February 1, 2019 (the "Stock Purchase Agreement"), by and among
RMBL Express, LLC, a wholly owned subsidiary of Company, Scott
Bennie (the "Seller") and Autosport. Aggregate consideration for
the Acquisition consisted of (i) a closing cash payment of
$600,000, plus (ii) a fifteen-month $500,000 promissory note in
favor of the Seller, plus (iii)
a three-year $1,536,000 convertible promissory note in favor of the
Seller, plus (iv) contingent earn-out payments payable in the form
of cash and/or the Company's Class B Common Stock for up to an
additional $787,500 if Autosport achieves certain performance
thresholds. In connection with the Acquisition, the Company also
paid outstanding debt of Autosport of $235,000 and assumed
additional debt of $257,933 pursuant to a promissory note payable
to Seller. The fair value of the contingent earn-out payment was
considered immaterial at the date of acquisition and was excluded
from the purchase price allocation. As of December 31, 2019, there
have been no payments earned under the performance
thresholds.
Available Information
Our
Internet website is www.rumbleon.com.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to reports filed or
furnished pursuant to Sections 13(a) and 15(d) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act") are
available, free of charge, under the Investor Relations tab of our
website as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. Additionally,
the SEC maintains a website located at www.sec.gov
that contains the information we file or furnish electronically
with the SEC.
Item 1A.
Risk Factors
Investing in our
common stock involves a high degree of risk. Investors should
carefully consider the risks described below and all of the other
information set forth in this Annual Report on Form 10-K, including
our financial statements and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," before deciding to invest in our common
stock. If any of the events or developments described below occur,
our business, financial condition, or results of operations could
be materially or adversely affected. As a result, the market price
of our common stock could decline, and investors could lose all or
part of their investment.
Risks Related to Our Business
We have a limited operating history and we cannot assure you we
will achieve or maintain profitability.
Our
business model is unproven, and we have a limited operating
history. We are only in the initial development stage of our
business. We expect to make significant investments in the further
development and expansion of our business and these investments may
not result in the successful development, operation, or growth of
our business on a timely basis or at all. We may not generate
sufficient revenue and we may incur significant losses in the
future for a number of reasons, including a lack of demand for our
products and services, increasing competition, weakness in the
automotive, powersports and recreational vehicle industries
generally, as well as other risks described in these Risk Factors,
and we may encounter unforeseen expenses, difficulties,
complications and delays, and other unknown factors relating to the
development and operation of our business. Accordingly, we may not
be able to successfully develop and operate our business, generate
revenue, or achieve or maintain profitability.
Our annual and quarterly operating results may fluctuate
significantly or may fall below the expectations of investors or
securities analysts, each of which may cause our stock price to
fluctuate or decline.
We
expect our operating results to be subject to annual and quarterly
fluctuations, and they will be affected by numerous factors,
including:
●
a change in
consumer discretionary spending;
●
a shift in the mix
and type of vehicles we sell which could result in lower sales
price and lower gross profit;
●
weather, which may
impact the ability or desire for potential end customers to
consider whether they wish to own a powersports and recreational
vehicle;
●
the timing and cost
of, and level of investment in, development activities relating to
our software development and services, which may change from time
to time;
●
our ability to
attract, hire and retain qualified personnel;
●
expenditures that
we will or may incur to acquire or develop additional product and
service offerings;
●
future accounting
pronouncements or changes in our accounting policies;
and
12
●
the changing and
volatile U.S., European and global economic
environments.
If our
annual or quarterly operating results fall below the expectations
of investors or securities analysts, the price of our Class B
Common Stock could decline substantially. Furthermore, any annual
or quarterly fluctuations in our operating results may, in turn,
cause the price of our stock to fluctuate substantially. We believe
that annual and quarterly comparisons of our financial results are
not necessarily meaningful and should not be relied upon as an
indication of our future performance.
The initial development and progress of our business to date may
not be indicative of our future growth prospects and, if we
continue to grow rapidly, we may not be able to manage our growth
effectively.
We
expect that, in the future, as our revenue increases, our rate of
growth will decline. In addition, we will not be able to grow as
fast or at all if we do not accomplish the following:
●
maintain and grow
our regional partner network;
●
increase the number
of users of our products and services, and in particular the number
of unique visitors to our website and our branded mobile
applications;
●
increase the number
of transactions between our users and both RumbleOn and our
regional partners;
●
introduce third
party ancillary products and services;
●
acquire sufficient
number of pre-owned vehicles at attractive cost; and
●
sell sufficient
number of pre-owned vehicles at acceptable prices.
We may
not successfully accomplish any of these objectives. We plan to
continue our investment in future growth. We expect to continue to
expend substantial financial and other resources on:
●
marketing and
advertising;
●
product and service
development; including investments in our website, business
processes, infrastructure, inventory, product and service
development team and the development of new products and services
and new features for existing products; and
●
general
administration, including legal, accounting and other compliance
expenses related to being a public company.
In
addition, our anticipated growth may place and may continue to
place significant demands on our management and our operational and
financial resources. As we grow, we expect to hire additional
personnel. Also, our organizational structure will become more
complex as we add additional staff, and we will need to ensure we
adequately develop and maintain operational, financial and
management controls as well as our reporting systems and
procedures.
There is substantial doubt about our ability to continue as a going
concern.
Our
audited financial statements for the year ended December 31, 2019
were prepared under the assumption that we would continue our
operations as a going concern, which assumes the continuity of
operations, the realization of assets and the satisfaction of
liabilities as they come due in the normal course of
business. Our independent registered public accounting firm
for the year ended December 31, 2019 included a “going
concern” paragraph in its report on our financial statements
as of, and for the year ended December 31, 2019, indicating
that the Company has incurred recurring losses from operations and
negative cash flows from operations, and these conditions, along
with the uncertainty arising from the impact of COVID-19 and other
matters set forth in Note 1 to our audited financial statements,
raise substantial doubt about the Company’s ability to
continue as a going concern. If the Company is unable to
generate sufficient liquidity from the actions taken in respect of
the COVID-19 pandemic, current working capital, results of
operations, and expected continued inventory financing, there is no
assurance that sufficient financing will be available to us when
needed to allow us to continue as a going
concern.
We may require additional capital to pursue our business objectives
and respond to business opportunities, challenges or unforeseen
circumstances. If capital is not available on terms acceptable to
us or at all, we may not be able to develop and grow our business
as anticipated and our business, operating results and financial
condition may be harmed.
We
intend to continue to make investments to support the development
and growth of our business and, we may require additional capital
to pursue our business objectives and respond to business
opportunities, challenges or unforeseen circumstances. Accordingly,
we may need to engage in equity or debt financings to secure
additional funds. However, additional funds may not be available
when we need them, on terms that are acceptable to us, or at all.
Volatility in the credit markets may also have an adverse effect on
our ability to obtain debt financing. Also, the incurrence of
leverage, the debt service requirements resulting therefrom, and
the possibility of a need for financing or any additional financing
could have important and negative consequences, including the
following: (a) the Company's
ability to obtain additional financing for working capital, capital
expenditures, or general corporate or other purposes may be
impaired in the future; (b) certain future borrowings may be at
variable rates of interest, which will expose the Company to the
risk of increased interest rates; (c) the Company may need to use a
portion of the money it earns to pay principal and interest on
their credit facilities, which will reduce the amount of money
available to finance operations and other business activities,
repay other indebtedness, and pay distributions; and (d)
substantial leverage may limit the Company's flexibility to adjust to changing
economic or market conditions, reduce their ability to withstand
competitive pressures and make them more vulnerable to a downturn
in general economic conditions.
13
If we
raise additional funds through further issuances of equity or
convertible debt securities, our existing stockholders could suffer
significant dilution, and any new equity securities we issue could
have rights, preferences and privileges superior to those of
holders of our common stock. If we are unable to obtain adequate
financing or financing on terms satisfactory to us, when we require
it, our ability to continue to pursue our business objectives and
to respond to business opportunities, challenges or unforeseen
circumstances could be significantly limited, and our business,
operating results, financial condition and prospects could be
adversely affected.
We may fail to maintain our listing on The Nasdaq Stock
Market.
Our
Class B Common Stock is listed for trading on NASDAQ under the
trading symbol "RMBL" For our Class B Common Stock to continue to
be listed on NASDAQ, we must meet NASDAQ's continued listing
standards. A failure to meet these standards, including our failure
to meet the minimum bid price requirement, could result in our
Class B Common Stock being delisted, which could adversely affect
the market liquidity of our Class B Common Stock, impair the value
of your investment, and harm our business. We can provide no
assurance that we will continue to satisfy NASDAQ's continued
listing standards and maintain our listing on NASDAQ.
The success of our business relies heavily on our marketing and
branding efforts, especially with respect to the RumbleOn website
and our branded mobile applications, and these efforts may not be
successful.
We
believe that an important component of our development and growth
will be the business derived from the RumbleOn website and our
branded mobile applications. Because RumbleOn is a consumer brand,
we rely heavily on marketing and advertising to increase the
visibility of this brand with potential users of our products and
services.
Our
business model relies on our ability to scale rapidly and to
decrease incremental user acquisition costs as we grow. Some of our
methods of marketing and advertising may not be profitable because
they may not result in the acquisition of sufficient users visiting
our website and mobile applications such that we may recover these
costs by attaining corresponding revenue growth. If we are unable
to recover our marketing and advertising costs through increases in
user traffic and in the number of transactions by users of our
platform, it could have a material adverse effect on our growth,
results of operations and financial condition.
The failure to develop and maintain our brand could harm our
ability to grow unique visitor traffic and to expand our regional
partner network.
Developing and
maintaining the RumbleOn brand will depend largely on the success
of our efforts to maintain the trust of our users and dealers and
to deliver value to each of our users and dealers. If our potential
users perceive that we are not focused primarily on providing them
with a better pre-owned vehicle buying experience, our reputation
and the strength of our brand will be adversely
affected.
Complaints or
negative publicity about our business practices, our marketing and
advertising campaigns, our compliance with applicable laws and
regulations, the integrity of the data that we provide to users,
data privacy and security issues, and other aspects of our
business, irrespective of their validity, could diminish
users' and dealers' confidence in and the use of our products
and services and adversely affect our brand. There can be no
assurance that we will be able to develop, maintain or enhance our
brand, and failure to do so would harm our business growth
prospects and operating results.
We rely on Internet search engines to drive traffic to our website,
and if we fail to appear prominently in the search results, our
traffic would decline, and our business would be adversely
affected.
We
depend in part on Internet search engines and social media such as
Google™, Bing™, and Facebook™ to drive traffic to our website.
For example, when a user searches the internet for a particular
type of powersports or recreational vehicle, we will rely on a high
organic search ranking of our webpages in these search results to
refer the user to our website. However, our ability to maintain
high, non-paid search result rankings is not within our control.
Our competitors' Internet
search engine and social media efforts may result in their websites
receiving a higher search result page ranking than ours, or
Internet search engines could revise their methodologies in a way
that would adversely affect our search result rankings. If Internet
search engines or social media companies modify their search
algorithms or display technologies in ways that are detrimental to
us, or if our competitors'
efforts are more successful than ours, overall growth in our user
base could slow or our user base could decline. Internet search
engine providers could provide recreation vehicle dealer and
pricing information directly in search results, align with our
competitors or choose to develop competing services. Any reduction
in the number of users directed to our website through Internet
search engines could harm our business and operating
results.
14
A significant disruption in service on our website or of our mobile
applications could damage our reputation and result in a loss of
consumers, which could harm our business, brand, operating results,
and financial condition.
Our
brand, reputation and ability to attract consumers, affinity groups
and advertisers depend on the reliable performance of our
technology infrastructure and content delivery. We may experience
significant interruptions with our systems in the future.
Interruptions in these systems, whether due to system failures,
computer viruses, or physical or electronic break-ins, could affect
the security or availability of our products on our website and
mobile application, and prevent or inhibit the ability of consumers
to access our products. Problems with the reliability or security
of our systems could harm our reputation, result in a loss of
consumers, dealers and affinity group marketing partners, and
result in additional costs.
We
intend to locate our communications, network, and computer hardware
used to operate our website and mobile applications at facilities
in various parts of the country to minimize the risk and create an
environment where we can remain online if one of the facilities in
which our equipment is housed goes offline. Nevertheless, we will
not own or control the operation of these facilities, and our
systems and operations will be vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, terrorist
attacks, acts of war, electronic and physical break-ins, computer
viruses, earthquakes, and similar events. The occurrence of any of
these events could result in damage to our systems and hardware or
could cause them to fail.
Problems faced by
any third-party web hosting providers we may utilize could
adversely affect the experience of our consumers. Any third-party
web hosting providers could close their facilities without adequate
notice. Any financial difficulties, up to and including bankruptcy,
faced by any third-party web hosting providers or any of the
service providers with whom they contract may have negative effects
on our business, the nature and extent of which are difficult to
predict. If our third-party web hosting providers are unable to
keep up with our growing capacity needs, our business could be
harmed.
Any
errors, defects, disruptions, or other performance or reliability
problems with our network operations could cause interruptions in
access to our products as well as delays and additional expense in
arranging new facilities and services and could harm our
reputation, business, operating results, and financial
condition.
We may be unable to maintain or grow relationships with information
data providers or may experience interruptions in the data feeds
they provide, which may limit the information that we are able to
provide to our users and regional partners as well as adversely
affect the timeliness of such information and may impair our
ability to attract or retain consumers and our regional partners
and to timely invoice all parties.
We
expect to receive data from third-party data providers, including
our partner network, dealer management system data feed providers,
data aggregators and integrators, survey companies, purveyors of
registration data and possibly others. There may be some instances
in which we use this information to collect a transaction fee from
those dealers and recognize revenue from the related
transactions.
From
time to time, we may experience interruptions in one or more data
feeds that we receive from third-party data providers, in a manner
that affects our ability to operate our business. These
interruptions may occur for a number of reasons, including changes
to the software used by these data feed providers and difficulties
in renewing our agreements with third-party data feed providers.
Additionally, when an interruption ceases, we may not always be
able to collect the appropriate fees and any such shortfall in
revenue could be material to our operating results.
If we are unable to provide a compelling vehicle buying experience
to our users, the number of transactions between our users,
RumbleOn and dealers will decline, and our revenue and results of
operations will suffer harm.
We
cannot assure you that we are able to provide a compelling vehicle
buying experience to our users, and our failure to do so will mean
that the number of transactions between our users, RumbleOn and
dealers will decline, and we will be unable to effectively monetize
our user traffic. We believe that our ability to provide a
compelling powersport and recreation vehicle buying experience is
subject to a number of factors, including:
●
our ability to
launch new products that are effective and have a high degree of
consumer engagement; and
●
compliance of our
network partners with applicable laws, regulations and the rules of
our platform.
15
If key industry participants, including powersports and recreation
vehicle dealers and regional auctions, perceive us in a negative
light or our relationships with them suffer harm, our ability to
operate and grow our business and our financial performance may be
damaged.
We
anticipate that we will derive a significant portion of our revenue
from by existing vehicle dealers for dealer services we may provide
them. In addition, we utilize a select set of regional partners to
perform services for our benefit, including, among other things,
vehicle reconditioning, vehicle storage and vehicle photography. If
our relationships with our network of regional partners suffer harm
in a manner that leads to the departure of these regional partners
from our network, then our ability to operate our business, grow
revenue, and lower our costs will be adversely
affected.
We
cannot assure you that we will maintain strong relationships with
the regional partners in our network or that we will not suffer
partner attrition in the future. We may also have disputes with
regional partners from time to time, including relating to the
collection of fees from them and other matters. We may need to
modify our products, change pricing or take other actions to
address regional partner concerns in the future. If we are unable
to create and maintain a compelling value proposition for regional
partners to become and remain in our network, our network will not
grow and may begin to decline. If a significant number of these
regional partners decided to leave our network or change their
financial or business relationship with us, then our business,
growth, operating results, financial condition and prospects could
suffer. Additionally, if we are unable to attract regional partners
to our network, our growth could be impaired.
The growth of our business relies significantly on our ability to
increase the number of regional partners in our network such that
we are able to increase the number of transactions between our
users and regional partners. Failure to do so would limit our
growth.
Our
ability to grow the number of regional partners in our network is
an important factor in growing our business. We may be viewed in a
negative light by vehicle dealers, and there can be no assurance
that we will be able to maintain or grow the number of regional
partners in our network.
Our ability to grow our complementary product offerings may be
limited, which could negatively impact our development, growth,
revenue and financial performance.
As we
introduce or expand additional offerings for our platform, such as
recreation vehicle trade-ins, lead management, transaction
processing, financing, maintenance and insurance, we may incur
losses or otherwise fail to enter these markets successfully. Our
expansion into these markets may place us in competitive and
regulatory environments with which we are unfamiliar and involves
various risks, including the need to invest significant resources
and the possibility that returns on such investments will not be
achieved for several years, if at all. In attempting to establish
such new product offerings, we may incur significant expenses and
face various other challenges, such as expanding our sales force
and management personnel to cover these markets and complying with
complicated regulations that apply to these markets. In addition,
we may not successfully demonstrate the value of these ancillary
products to consumers or dealers, and failure to do so would
compromise our ability to successfully expand into these additional
revenue streams.
We rely on third-party financing providers to finance a portion of
our customers' vehicle purchases.
We rely
on third-party financing providers to finance a portion of our
customers' vehicle purchases.
Accordingly, our revenue and results of operations are partially
dependent on the actions of these third parties. We provide
financing to qualified customers through a number of third-party
financing providers. If one or more of these third-party providers
cease to provide financing to our customers, provide financing to
fewer customers or no longer provide financing on competitive
terms, it could have a material adverse effect on our business,
sales and results of operations. Additionally, if we were unable to
replace the current third-party providers upon the occurrence of
one or more of the foregoing events, it could also have a material
adverse effect on our business, sales and results of operations. We
rely on third-party providers to supply EPP products to our
customers. Accordingly, our revenue and results of operations will
be partially dependent on the actions of these third-parties. If
one or more of these third-party providers cease to provide EPP
products, make changes to their products or no longer provide their
products on competitive terms, it could have a material adverse
effect on our business, revenue and results of operations.
Additionally, if we were unable to replace the current third-party
providers upon the occurrence of one or more of the foregoing
events, it could also have a material adverse effect on our
business, revenue and results of operations.
16
Our sales of powersports/recreation vehicles may be adversely
impacted by increased supply of and/or declining prices for
pre-owned vehicles and excess supply of new vehicles.
We
believe when prices for pre-owned vehicles have declined, it can
have the effect of reducing demand among retail purchasers for new
vehicles (at or near manufacturer's suggested retail prices). Further,
vehicle manufacturers can and do take actions that influence the
markets for new and pre-owned vehicles. For example, introduction
of new models with significantly different functionality,
technology or other customer satisfiers can result in increased
supply of pre-owned vehicles, and a corresponding decrease in price
of pre-owned vehicles. Also, while historically manufacturers have
taken steps designed to balance production volumes for new vehicles
with demand, those steps have not always proven effective. In other
instances, manufacturers have chosen to supply new vehicles to the
market in excess of demand at reduced prices which has the effect
of reducing demand for pre-owned vehicles.
We rely on a number of third parties to perform certain operating
and administrative functions for the Company.
We rely
on a number of third parties to perform certain operating and
administrative functions for us. We may experience problems with
outsourced services, such as unfavorable pricing, untimely delivery
of services, or poor quality. Also, these third parties may
experience adverse economic conditions due to difficulties in the
global economy that could lead to difficulties supporting our
operations. In light of the amount and types of functions that we
will outsource, these service provider risks could have a material
adverse effect on our business and results of
operations.
We participate in a highly competitive market, and pressure from
existing and new companies may adversely affect our business and
operating results.
We face
significant competition from companies that provide listings,
information, lead generation, and vehicle buying services designed
to reach consumers and enable dealers to reach these consumers. We
will compete for a share of overall vehicle purchases as well as
vehicle dealer's marketing and
technology spend. To the extent that vehicle dealers view
alternative strategies to be superior to RumbleOn, we may not be
able to maintain or grow the number of dealers in our network, we
may sell fewer vehicles to users of our platform, and our business,
operating results and financial condition will be
harmed.
We also
expect that new competitors will continue to enter the online
vehicle retail industry with competing products and services, which
could have an adverse effect on our revenue, business and financial
results.
Our
competitors could significantly impede our ability to expand our
network of dealers and regional auctions and to reach consumers.
Our competitors may also develop and market new technologies that
render our existing or future products and services less
competitive, unmarketable or obsolete. In addition, if our
competitors develop products or services with similar or superior
functionality to our solutions, we may need to decrease the prices
for our solutions in order to remain competitive. If we are unable
to maintain our current pricing structure due to competitive
pressures, our revenue will be reduced, and our operating results
will be negatively affected.
Our
current and potential competitors may have significantly more
financial, technical, marketing and other resources than we have,
and the ability to devote greater resources to the development,
promotion, and support of their products and services.
Additionally, they may have more extensive recreation vehicle
industry relationships than we have, longer operating histories and
greater name recognition. As a result, these competitors may be
better able to respond more quickly to undertake more extensive
marketing or promotional campaigns. If we are unable to compete
with these companies, the demand for our products and services
could substantially decline.
In
addition, if one or more of our competitors were to merge or
partner with another of our competitors, the change in the
competitive landscape could adversely affect our ability to compete
effectively. Our competitors may also establish or strengthen
cooperative relationships with our current or future third-party
data providers, technology partners, or other parties with whom we
may have relationships, thereby limiting our ability to develop,
improve, and promote our solutions. We may not be able to compete
successfully against current or future competitors, and competitive
pressures may harm our revenue, business and financial
results.
Seasonality or weather trends may cause fluctuations in our unique
visitors, revenue and operating results.
Our
revenue trends are likely to be a reflection of
consumers' vehicle buying
patterns. While different types of recreation vehicles are designed
for different seasons (motorcycles are typically for non-snow
seasons, while snowmobiles are typically designed for winter), our
revenue may be cyclical if, for example, powersport and recreation
vehicles represent a large percentage of our revenue. Historically,
the used vehicle industry has been seasonal with traffic and sales
strongest in the spring and summer quarters. Sales and traffic are
typically slowest in the fall quarter but increase in February and
March, coinciding with tax refund season. Our business will also be
impacted by cyclical trends affecting the overall economy, as well
as by actual or threatened severe weather events.
17
We collect, process, store, share, disclose and use personal
information and other data, and our actual or perceived failure to
protect such information and data could damage our reputation and
brand and harm our business and operating results.
We
collect, process, store, share, disclose and use personal
information and other data provided by consumers, dealers and
auctions. We rely on encryption and authentication technology
licensed from third parties to effect secure transmission of such
information. We may need to expend significant resources to protect
against security breaches or to address problems caused by
breaches. Any failure or perceived failure to maintain the security
of personal and other data that is provided to us by consumers and
dealers could harm our reputation and brand and expose us to a risk
of loss or litigation and possible liability, any of which could
harm our business and operating results. In addition, from time to
time, it is possible that concerns will be expressed about whether
our products, services, or processes compromise the privacy of our
users. Concerns about our practices with regard to the collection,
use or disclosure of personal information or other privacy related
matters, even if unfounded, could harm our business and operating
results.
There
are numerous federal, state and local laws around the world
regarding privacy and the collection, processing, storing, sharing,
disclosing, using and protecting of personal information and other
data, the scope of which are changing, subject to differing
interpretations, and which may be costly to comply with and may be
inconsistent between countries and jurisdictions or conflict with
other rules. We generally comply with industry standards and are
subject to the terms of our privacy policies and privacy-related
obligations to third parties. We strive to comply with all
applicable laws, policies, legal obligations and industry codes of
conduct relating to privacy and data protection, to the extent
possible. However, it is possible that these obligations may be
interpreted and applied in new ways or in a manner that is
inconsistent from one jurisdiction to another and may conflict with
other rules or our practices or that new regulations could be
enacted. Any failure or perceived failure by us to comply with our
privacy policies, our privacy-related obligations to consumers or
other third parties, or our privacy-related legal obligations, or
any compromise of security that results in the unauthorized release
or transfer of sensitive information, which may include personally
identifiable information or other user data, may result in
governmental enforcement actions, litigation or public statements
against us by consumer advocacy groups or others and could cause
consumers and vehicle dealers to lose trust in us, which could have
an adverse effect on our business. Additionally, if vendors,
developers or other third parties that we work with violate
applicable laws or our policies, such violations may also put
consumer or dealer information at risk and could in turn harm our
reputation, business and operating results.
Failure to adequately protect our intellectual property could harm
our business and operating results.
A
portion of our success may be dependent on our intellectual
property, the protection of which is crucial to the success of our
business. We expect to rely on a combination of patent, trademark,
trade secret and copyright law and contractual restrictions to
protect our intellectual property. In addition, we will attempt to
protect our intellectual property, technology, and confidential
information by requiring our employees and consultants to enter
into confidentiality and assignment of inventions agreements and
third parties to enter into nondisclosure agreements. These
agreements may not effectively prevent unauthorized use or
disclosure of our confidential information, intellectual property,
or technology and may not provide an adequate remedy in the event
of unauthorized use or disclosure of our confidential information,
intellectual property, or technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our website features, software, and functionality
or obtain and use information that we consider
proprietary.
Competitors may
adopt service names similar to ours, thereby harming our ability to
build brand identity and possibly leading to user confusion. In
addition, there could be potential trade name or trademark
infringement claims brought by owners of other registered
trademarks or trademarks that incorporate variations of the term
"RumbleOn" or "RMBL."
We
currently hold the "RumbleOn.com" Internet domain name and various other
related domain names. The regulation of domain names in the United
States is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name
registrars, or modify the requirements for holding domain names. As
a result, we may not be able to acquire or maintain all domain
names that use the name RumbleOn or RMBL.
We may in the future be subject to intellectual property disputes,
which are costly to defend and could harm our business and
operating results.
We may
from time to time face allegations that we have infringed the
trademarks, copyrights, patents and other intellectual property
rights of third parties, including from our competitors or
non-practicing entities.
Patent
and other intellectual property litigation may be protracted and
expensive, and the results are difficult to predict and may require
us to stop offering some features, purchase licenses or modify our
products and features while we develop non-infringing substitutes
or may result in significant settlement costs.
18
In
addition, we use open source software in our products and will use
open source software in the future. From time to time, we may face
claims against companies that incorporate open source software into
their products, claiming ownership of, or demanding release of, the
source code, the open source software or derivative works that were
developed using such software, or otherwise seeking to enforce the
terms of the applicable open source license. These claims could
also result in litigation, require us to purchase a costly license
or require us to devote additional research and development
resources to change our platform or services, any of which would
have a negative effect on our business and operating
results.
Even if
these matters do not result in litigation or are resolved in our
favor or without significant cash settlements, these matters, and
the time and resources necessary to litigate or resolve them, could
harm our business, our operating results and our
reputation.
We operate in a highly regulated industry and are subject to a wide
range of federal, state and local laws and regulations. Failure to
comply with these laws and regulations could have a material
adverse effect on our business, results of operations and financial
condition.
We are
subject to a wide range of federal, state and local laws and
regulations. Our sale and purchase of pre-owned vehicles and
related activities, including the sale of complementary products
and services, are subject to state and local licensing
requirements, federal and state laws regulating advertising of
vehicles and related products and services, state laws related to
title and registration and state laws regulating the sale of
vehicles and related products and services. The applicability of
these regulatory and legal compliance obligations is dependent on
the evolving interpretations of these laws and regulations and how
our operations are, or are not, subject to them. The financing we
resell customers is subject to federal and state laws regulating
the provision of consumer finance. Our facilities and business
operations are subject to laws and regulations relating to
environmental protection and health and safety. In addition to
these laws and regulations that apply specifically to our business,
we are also subject to laws and regulations affecting public
companies, including securities laws and Nasdaq listing rules. The
violation of any of these laws or regulations could result in
administrative, civil or criminal penalties or in a
cease-and-desist order against our business operations, any of
which could damage our reputation and have a material adverse
effect on our business, sales and results of operations. We have
incurred and will continue to incur capital and operating expenses
and other costs to comply with these laws and
regulations.
We
currently provide transportation services and rely upon third-party
logistics and transportation providers to move vehicles between and
among customers, our distribution network partners and auction
partners; we and these transportation providers are subject to the
regulatory jurisdiction of the United States Department of
Transportation (the "DOT") and individual states through which our
vehicles travel, which have broad administrative powers with
respect to our logistics operations. Vehicle dimensions, driver
alcohol and drug testing and driver hours of service are also
subject to both federal and state regulation. More restrictive
limitations on vehicle weight and size, trailer length and
configuration, methods of measurement, driver qualifications or
driver hours of service would increase our costs, and if we are
unable to pass these cost increases on to our customers, our
operating expenses may increase and adversely affect our financial
condition, operating results and cash flows. If we or our providers
fail to comply with the DOT regulations or regulations become more
stringent, we could be subject to increased inspections, audits or
compliance burdens. Regulatory authorities could take remedial
action including imposing fines or shutting down our operations. If
any of these events occur, our financial condition, operating
results and cash flows would be adversely affected.
Our
sale of pre-owned vehicles, related products and services and
third-party finance products is subject to the state and local
licensing requirements of the jurisdictions in which we operate.
Regulators of jurisdictions where our customers reside but in which
we do not have a dealer or financing license could require that we
obtain a license or otherwise comply with various state
regulations. Despite our belief that we are not subject to the
licensing requirements of those jurisdictions, regulators may seek
to impose punitive fines for operating without a license or demand
we seek a license in those jurisdictions, any of which may inhibit
our ability to do business in those jurisdictions, increase our
operating expenses and adversely affect our financial condition and
results of operations.
The
foregoing description of laws and regulations to which we are or
may be subject is not exhaustive, and the regulatory framework
governing our operations is subject to evolving interpretations and
continuous change.
We provide transportation services and rely on external logistics
to transport vehicles. Thus, we are subject to business risks and
costs associated with the transportation industry. Many of these
risks and costs are out of our control, and any of them could have
a material adverse effect on our business, financial condition and
results of operations.
We
provide transportation services and rely on external logistics to
transport vehicles between and among customers or distribution
network providers, and auction partners. As a result, we are
exposed to risks associated with the transportation industry such
as weather, traffic patterns, gasoline prices, recalls affecting
our vehicle fleet, local and federal regulations, vehicular
crashes, insufficient internal capacity, rising prices of external
transportation vendors, fuel prices, taxes, license and
registration fees, insurance premiums, self-insurance levels,
difficulty in recruiting and retaining qualified drivers,
disruption of our technology systems, and increasing equipment and
operational costs. Our failure to successfully manage our logistics
and fulfillment process could cause a disruption in our inventory
supply chain and distribution, which may adversely affect our
operating results and financial condition.
19
We depend on key personnel to operate our business, and if we are
unable to retain, attract and integrate qualified personnel, our
ability to develop and successfully grow our business could be
harmed.
We
believe our success will depend on the efforts and talents of our
executives and employees, including Marshall Chesrown, our Chairman
and Chief Executive Officer, and Steven R. Berrard, our Chief
Financial Officer. Our future success depends on our continuing
ability to attract, develop, motivate and retain highly qualified
and skilled employees. Qualified individuals are in high demand,
and we may incur significant costs to attract and retain them. In
addition, the loss of any of our senior management or key employees
could materially adversely affect our ability to execute our
business plan and strategy, and we may not be able to find adequate
replacements on a timely basis, or at all. Our executive officers
are at-will employees, which means they may terminate their
employment relationship with us at any time, and their knowledge of
our business and industry would be extremely difficult to replace.
We cannot ensure that we will be able to retain the services of any
members of our senior management or other key employees. If we do
not succeed in attracting well-qualified employees or retaining and
motivating existing employees, our business could be materially and
adversely affected.
We may acquire other companies or technologies, which could divert
our management's attention, result in additional dilution to our
stockholders and otherwise disrupt our operations and harm our
operating results.
Our
success will depend, in part, on our ability to grow our business
in response to the demands of consumers, dealers and other
constituents within the vehicle industry as well as competitive
pressures. In some circumstances, we may determine to do so through
the acquisition of complementary businesses and technologies rather
than through internal development. The identification of suitable
acquisition candidates can be difficult, time-consuming, and
costly, and we may not be able to successfully complete identified
acquisitions. The risks we face in connection with acquisitions
include:
●
diversion of
management time and focus from operating our business to addressing
acquisition integration challenges;
●
coordination of
technology, research and development and sales and marketing
functions;
●
transition of the
acquired company's users to our
website and mobile applications;
●
retention of
employees from the acquired company;
●
cultural challenges
associated with integrating employees from the acquired company
into our organization;
●
integration of the
acquired company's accounting,
management information, human resources, and other administrative
systems;
●
the need to
implement or improve controls, procedures, and policies at a
business that prior to the acquisition may have lacked effective
controls, procedures, and policies;
●
potential
write-offs of intangibles or other assets acquired in such
transactions that may have an adverse effect on our operating
results in a given period;
●
liability for
activities of the acquired company before the acquisition,
including patent and trademark infringement claims, violations of
laws, commercial disputes, tax liabilities, and other known and
unknown liabilities; and
●
litigation or other
claims in connection with the acquired company, including claims
from terminated employees, consumers, former stockholders, or other
third parties.
Our
failure to address these risks or other problems encountered in
connection with our future acquisitions and investments could cause
us to fail to realize the anticipated benefits of these
acquisitions or investments, cause us to incur unanticipated
liabilities, and harm our business generally. Future acquisitions
could also result in dilutive issuances of our equity securities,
the incurrence of debt, contingent liabilities, amortization
expenses, or the impairment of goodwill, any of which could harm
our financial condition. Also, the anticipated benefits of any
acquisitions may not materialize to the extent we anticipate or at
all.
20
The recent outbreak of COVID-19 will likely have a
significant negative impact on our business, sales, results of
operations, financial condition, and liquidity.
The
global outbreak of COVID-19 has led to severe disruptions in
general economic activities, particularly retail operations, as
businesses and federal, state, and local governments take
increasingly broad actions to mitigate this public health crisis.
We have experienced significant disruption to our business, both in
terms of disruption of our operations and the adverse effect on
overall economic conditions. These conditions will significantly
negatively impact all aspects of our business. Our business is also
dependent on the continued health and productivity of our
associates throughout this crisis. Individually and collectively,
we expect the consequences of the COVID-19 outbreak will likely
have a significant negative impact on our business, sales, results
of operations, financial condition, and liquidity.
Additionally, our
liquidity could be negatively impacted if these conditions continue
for a significant period of time and we may be required to pursue
additional sources of financing to obtain working capital, maintain
appropriate inventory levels, and meet our financial obligations.
Currently capital and credit markets have been disrupted by the
crisis and our ability to obtain any required financing is not
guaranteed and largely dependent upon evolving market conditions
and other factors.
The
extent to which the COVID-19 outbreak ultimately impacts our
business, sales, results of operations, financial condition, and
liquidity will depend on future developments, which are highly
uncertain and cannot be predicted, including the duration and
spread of the outbreak, its severity, the actions to contain the
virus or treat its impact, and how quickly and to what extent
normal economic and operating conditions can resume. Even after the
COVID-19 outbreak has subsided, we may continue to experience
significant impacts to our business as a result of its global
economic impact, including any economic downturn or recession that
has occurred or may occur in the future.
Risks Related to the Acquisitions (the "Acquisitions") of Wholesale
and Wholesale Express (collectively, the "Wholesale
Entities").
We may be unable to realize the anticipated synergies related to
the Acquisitions, which could have a material adverse effect on our
business, financial condition and results of
operations.
We
expect to realize significant synergies related to the
Acquisitions. We also expect to incur costs to achieve these
synergies. While we believe these synergies are achievable, our
ability to achieve such estimated synergies in the amounts and
timeframe expected is subject to various assumptions by our
management based on expectations that are subject to a number of
risks, which may or may not be realized, as well as the incurrence
of other costs in our operations that may offset all or a portion
of such synergies and other factors outside our control. As a
consequence, we may not be able to realize all of these synergies
within the time frame expected or at all, or the amounts of such
synergies could be significantly reduced. In addition, we may incur
additional and unexpected costs to realize these synergies. Failure
to achieve the expected synergies could significantly reduce the
expected benefits associated with the Acquisitions and adversely
affect our business.
We may be unable to successfully integrate the Wholesale Entities'
business and realize the anticipated benefits of the
Acquisitions.
As a
result of the Acquisitions, we are required to devote significant
management attention and resources to integrating the business and
operations of Wholesale. Potential difficulties we may encounter in
the integration process include the following:
●
the inability to
successfully combine our business and the businesses of Wholesale
in a manner that results in the anticipated benefits and synergies
of the Acquisitions not being realized in the time frame currently
anticipated or at all;
●
the loss of sales,
customers or business partners of ours or of the Wholesale
Entities' as a result of such parties deciding not to continue
business at the same or similar levels with us or the Wholesale
Entities after the Acquisitions;
●
challenges
associated with operating the combined business in markets and
geographies in which we do not currently operate;
●
difficulty
integrating our direct sales and distribution channels with the
Wholesale Entities' to effectively sell the vehicles of the
combined company;
21
●
the complexities
associated with managing our company and integrating personnel from
the Wholesale Entities, resulting in a significantly larger
combined company, while at the same time providing high quality
services to customers;
●
unanticipated
issues in coordinating accounting, information technology,
communications, administration and other systems;
●
difficulty
addressing possible differences in corporate culture and management
philosophies;
●
the failure to
retain key employees of ours or of the Wholesale
Entities;
●
potential unknown
liabilities and unforeseen increased expenses, delays or regulatory
conditions associated with the Acquisitions;
●
performance
shortfalls as a result of the diversion of management's attention
caused by consummating the Acquisitions and integrating the
Wholesale Entities' operations; and
●
managing the
increased debt levels incurred in connection with the
Acquisitions.
An
inability to realize the anticipated benefits and cost synergies of
the Acquisitions, as well as any delays encountered in the
integration process, could have a material adverse effect on the
operating results of the combined company, which may materially
adversely affect the value of our Class B Common
Stock.
In
addition, the actual integration may result in additional and
unforeseen expenses, and the anticipated benefit of our plan for
integration may not be realized. Actual synergies, if achieved at
all, may be lower than what we expect and may take longer to
achieve than anticipated. For example, the elimination of
duplicative costs may not be possible or may take longer than
anticipated, or the benefits from the Acquisitions may be offset by
costs incurred or delays in integrating the companies. If we are
not able to adequately address these challenges, we may be unable
to successfully integrate the Wholesale Entities' operations into
our own or, even if we are able to combine the business operations
successfully, to realize the anticipated benefits of the
integration of the companies.
Our business relationships, those of the Wholesale Entities or the
combined company may be subject to disruption due to uncertainty
associated with the Acquisitions.
Parties
with which we or the Wholesale Entities do business may experience
uncertainty associated with the Acquisitions, including with
respect to current or future business relationships with us, the
Wholesale Entities or the combined company. Our and the Wholesale
Entities' business relationships may be subject to disruption, as
customers, distributors, suppliers, vendors, and others may seek to
receive confirmation that their existing business relations with us
or the Wholesale Entities, as the case may be, will not be
adversely impacted as a result of the Acquisitions or attempt to
negotiate changes in existing business relationships or consider
entering into business relationships with parties other than us,
the Wholesale Entities, or the combined company as a result of the
Acquisitions. Any of these other disruptions could have a material
adverse effect on our or the Wholesale Entities' businesses,
financial condition, or results of operations or on the business,
financial condition or results of operations of the combined
company, and could also have an adverse effect on our ability to
realize the anticipated benefits of the Acquisitions.
If we are unable to maintain effective internal control over
financial reporting for the combined companies, we may fail to
prevent or detect material misstatements in our financial
statements, in which case investors may lose confidence in the
accuracy and completeness of our financial statements.
We may
encounter difficulties and unanticipated issues in combining our
respective accounting systems due to the complexity of the
financial reporting processes. We may also identify errors or
misstatements that could require adjustments. If we are unable to
implement and maintain effective internal control over financial
reporting, we may fail to prevent or detect material misstatements
in our financial statements, in which case investors may lose
confidence in the accuracy and completeness of our financial
reports and the market price of our securities may
decline.
22
The Wholesale Entities may have liabilities that are not known,
probable or estimable at this time.
As a
result of the Acquisitions, the Wholesale Entities are subsidiaries
of the Company and remain subject to their past, current and future
liabilities. There could be unasserted claims or assessments
against or affecting the Wholesale Entities, including the failure
to comply with applicable laws, regulations, orders and consent
decrees or infringement or misappropriation of third-party
intellectual property or other proprietary rights that we failed or
were unable to discover or identify in the course of performing our
due diligence investigation of the Wholesale Entities. In addition,
there are liabilities of the Wholesale Entities that are neither
probable nor estimable at this time that may become probable or
estimable in the future, including indemnification requests
received from customers of the Wholesale Entities relating to
claims of infringement or misappropriation of third party
intellectual property or other proprietary rights, tax liabilities
arising in connection with ongoing or future tax audits and
liabilities in connection with other past, current and future legal
claims and litigation. Any such liabilities, individually or in the
aggregate, could have a material adverse effect on our financial
results. We may learn additional information about the Wholesale
Entities that adversely affects us, such as unknown, unasserted, or
contingent liabilities and issues relating to compliance with
applicable laws or infringement or misappropriation of third-party
intellectual property or other proprietary rights.
As a result of the Acquisitions, we and the Wholesale Entities may
be unable to retain key employees.
Our
success after the Acquisitions depends in part upon our ability to
retain key employees of ours and the Wholesale Entities. Key
employees may depart because of a variety of reasons relating to
the Acquisitions. If we and the Wholesale Entities are unable to
retain key personnel who are critical to the successful integration
and future operations of the combined company, we could face
disruptions in our operations, loss of existing customers, loss of
key information, expertise or know-how, and unanticipated
additional recruitment and training costs. In addition, the loss of
key personnel could diminish the anticipated benefits of the
Acquisitions.
Risks Related to Ownership of our Common Stock
The trading price for our Class B Common Stock may be volatile and
could be subject to wide fluctuations in per share
price.
Our
Class B Common Stock is listed for trading on The NASDAQ Capital
Market under the trading symbol "RMBL,"
however historically there has been a limited public market for our
Class B Common Stock. The liquidity of any market for the shares of
our Class B Common Stock will depend on a number of factors,
including:
●
the number of
stockholders;
●
our operating
performance and financial condition;
●
the market for
similar securities;
●
the extent of
coverage of us by securities or industry analysts; and
●
the interest of
securities dealers in making a market in the shares of our common
stock.
The
market price for our Class B Common Stock may be highly volatile
and could be subject to wide fluctuations. In addition, the price
of shares of our Class B Common Stock could decline significantly
if our future operating results fail to meet or exceed the
expectations of market analysts and investors and actual or
anticipated variations in our quarterly operating results could
negatively affect our share price.
Other
factors may also contribute to volatility of the price of our Class
B Common Stock and could subject our Class B Common Stock to wide
fluctuations. These include:
●
developments in the
financial markets and worldwide or regional economies;
●
announcements of
innovations or new products or services by us or our
competitors;
●
announcements by
the government relating to regulations that govern our
industry;
●
significant sales
of our Class B Common Stock or other securities in the open
market;
●
variations in
interest rates;
●
changes in the
market valuations of other comparable companies; and
●
changes in
accounting principles.
23
Our principal stockholders and management own a significant
percentage of our stock and an even greater percentage of the
Company's voting power and will be able to exert significant
control over matters subject to stockholder approval.
Our
executive officers and directors as a group beneficially own shares
of our Class A Common Stock and Class B Common Stock representing
approximately 32.46% in aggregate of our voting power, including
approximately 26.37% in aggregate
voting power held by Messrs. Chesrown and Berrard as the only
holders of our 50,000 outstanding shares of our Class A Common
Stock, which has 10 votes for each one share outstanding. As a
result, these stockholders have the ability to exert significant
control over matters requiring stockholder approval. For example,
these stockholders are able to exert significant control over
elections of directors, amendments of our organizational documents'
approval of any merger, sale of assets, or other major corporate
transaction. This may prevent or discourage unsolicited acquisition
proposals or offers for our common stock that you may believe are
in your best interest as a stockholder or to take other action that
you may believe are not in your best interest as a stockholder.
This may also adversely affect the market price of our Class B
Common Stock.
If securities or industry analysts do not publish research or
reports about our business, or if they issue an adverse or
misleading opinion regarding our stock, our stock price and trading
volume could decline.
The
trading market for our Class B Common Stock may be influenced by
the research and reports that industry or securities analysts
publish about us or our business. If any of the analysts who cover
us issue an adverse or misleading opinion regarding us, our
business model, our intellectual property or our stock performance,
or if our operating results fail to meet the expectations of
analysts, our stock price would likely decline. If one or more of
these analysts cease coverage of us or fail to publish reports on
us regularly, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to
decline.
Because our Class B Common Stock may be deemed a low-priced "penny"
stock, an investment in our Class B Common Stock should be
considered high risk and subject to marketability
restrictions.
When
the trading price of our Class B Common Stock is $5.00 per share or
lower, it is deemed a penny stock, as defined in Rule 3a51-1 under
the Exchange Act, and subject to the penny stock rules of the
Exchange Act specified in rules 15g-1 through 15g-10. Those rules
require broker-dealers, before effecting transactions in any penny
stock, to:
●
deliver to the
customer, and obtain a written receipt for, a disclosure
document;
●
disclose certain
price information about the stock;
●
disclose the amount
of compensation received by the broker-dealer or any associated
person of the broker-dealer;
●
send monthly
statements to customers with market and price information about the
penny stock; and
●
in some
circumstances, approve the purchaser's account under certain standards and
deliver written statements to the customer with information
specified in the rules.
Consequently, if
our Class B Common Stock is $5.00 per share price or lower, the
penny stock rules may restrict the ability or willingness of
broker-dealers to sell the Class B Common Stock and may affect the
ability of holders to sell their Class B Common Stock in the
secondary market and the price at which such holders can sell any
such securities. These additional procedures could also limit our
ability to raise additional capital in the future.
We do not currently or for the foreseeable future intend to pay
dividends on our common stock.
We have
never declared or paid any cash dividends on our common stock. We
currently do not intend to pay cash dividends in the foreseeable
future on the shares of common stock. We intend to reinvest any
earning in the development and expansion of our business. As a
result, any return on your investment in our common stock will be
limited to the appreciation in the price of our common stock, if
any.
We are subject to reduced reporting requirements so long as we are
considered a "smaller reporting company" and we cannot be certain
if the reduced disclosure requirements applicable to smaller
reporting companies will make our common stock less attractive to
investors.
We are
subject to reduced reporting requirements so long as we are
considered a "smaller reporting company." We cannot predict if
investors will find our common stock less attractive because we may
rely on these exemptions. If some investors find our common stock
less attractive as a result, there may be a less active trading
market for our common stock and our stock price may be more
volatile.
24
If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results or prevent fraud. As a result, stockholders could
lose confidence in our financial and other public reporting, which
would harm our business and the trading price of our common
stock.
Effective internal
controls over financial reporting are necessary for us to provide
reliable financial reports and, together with adequate disclosure
controls and procedures, are designed to prevent fraud. Any failure
to implement required new or improved controls, or difficulties
encountered in their implementation could cause us to fail to meet
our reporting obligations. In addition, any testing by us conducted
in connection with Section 404 of the Sarbanes-Oxley Act, or any
subsequent testing by our independent registered public accounting
firm, may reveal deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses or
that may require prospective or retroactive changes to our
financial statements or identify other areas for further attention
or improvement. Inferior internal controls could also cause
investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our
common stock.
Anti-takeover provisions may limit the ability of another party to
acquire us, which could cause our stock price to
decline.
Nevada
law and our charter, bylaws, and other governing documents contain
provisions that could discourage, delay or prevent a third party
from acquiring us, even if doing so may be beneficial to our
stockholders, which could cause our stock price to decline. In
addition, these provisions could limit the price investors would be
willing to pay in the future for shares of our common
stock.
Risks Related to the Company's 6.75% Convertible Senior Notes due
2025 (the "Notes")
Although the Notes are referred to as convertible senior Notes, the
Notes are effectively subordinated to any of our future secured
debt and structurally subordinated to any liabilities of our
subsidiaries.
The
Notes rank senior in right of payment to any of our indebtedness
that is expressly subordinated in right of payment to the Notes,
equal in right of payment with all of our liabilities that is not
so subordinated, effectively junior in right of payment to any of
our secured indebtedness to the extent of the value of the assets
securing such indebtedness, and structurally junior to all
indebtedness and other liabilities (including trade payables) of
our current or future subsidiaries. In the event of our bankruptcy,
liquidation, reorganization, or other winding up, our assets that
secure debt ranking senior or equal in right of payment to the
Notes will be available to pay obligations on the Notes only after
the secured debt has been repaid in full from these assets, and the
assets of our subsidiaries will be available to pay obligations on
the Notes only after all claims senior to the Notes have been
repaid in full. There may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. The
indenture governing the Notes (the "Indenture") does not prohibit
us from incurring additional senior debt or any future secured
debt, nor does it prohibit any of our current or future
subsidiaries from incurring additional liabilities.
As of
December 31, 2019, excluding operating lease liabilities and the
derivative liability, our total consolidated net indebtedness was
approximately $82,585,522, of which an aggregate of $60,494,304 was
secured indebtedness, and approximately $59,160,970 of such secured
indebtedness is directly attributable to the Company's vehicles in
inventory or held for sale, and the security of those lenders
includes all of the vehicles financed by such lenders as well as
all of the assets of our subsidiaries Wholesale Inc. and AutoSport
USA, Inc. As of December 31, 2019, approximately $80,092,280 of our
total consolidated indebtedness was senior
indebtedness.
The Notes are our obligations only and a substantial portion of our
operations are conducted through, and a substantial portion of our
consolidated assets are held by, our subsidiaries.
The
Notes are our obligations exclusively. A substantial portion of our
operations is conducted through, and a substantial portion of our
consolidated assets is held by, our subsidiaries. Accordingly, our
ability to service our debt, including the Notes, depends, in part,
on the results of operations of our subsidiaries and on the ability
of such subsidiaries to provide us with cash, whether in the form
of dividends, loans, or otherwise, to pay amounts due on our
obligations, including the Notes. However, our subsidiaries are
separate and distinct legal entities, are not guaranteeing the
Notes, and have no obligation, contingent or otherwise, to make
payments on the Notes or to make any funds available for that
purpose. In addition, dividends, loans, or other distributions to
us from such subsidiaries may be subject to contractual and other
restrictions and are subject to other business considerations. Our
right to receive any assets of any of our subsidiaries on such
subsidiary's bankruptcy, liquidation, or reorganization, and,
therefore, the right of the holders of Notes to participate in
those assets, will be subject to prior claims of creditors of the
subsidiary, including trade creditors, and such subsidiary may not
have sufficient assets remaining to make any payments to us as a
shareholder or otherwise. We advise holders of Notes that there may
not be sufficient assets remaining to pay amounts due on any or all
the Notes then outstanding.
25
Operating our business requires a significant amount of cash, and
we may not have sufficient cash flow from our business to pay the
Notes and any other debt.
Our
ability to make payments of the principal of, to pay interest on,
or to refinance the Notes or other indebtedness depends on our
future performance, which is subject to economic, financial,
competitive, and other factors beyond our control. Our business may
not continue to generate cash flow from operations in the future
sufficient to service our debt and make necessary capital
expenditures. If we are unable to generate such cash flow, we may
be required to adopt one or more alternatives, such as selling
assets, restructuring debt, obtaining additional debt financing, or
issuing additional equity securities, any of which may be on terms
that are not favorable to us or, in the case of equity securities,
highly dilutive. Our ability to refinance the Notes or our other
indebtedness will depend on the capital markets, our business, and
our financial condition at such time. We may not be able to engage
in any of these activities or engage in these activities on
desirable terms, which could result in a default on our debt
obligations. In addition, our future debt agreements may contain
restrictive covenants that may prohibit us from adopting any of
these alternatives. Our failure to comply with any such covenants
could result in an event of default which, if not cured or waived,
could result in the acceleration of our debt.
Recent and future regulatory actions and other events may adversely
affect the trading price and liquidity of the Notes.
We
expect that many investors in, and potential purchasers of, the
Notes will employ, or seek to employ, a convertible arbitrage
strategy with respect to the Notes. Investors would typically
implement such a strategy by selling short the Class B Common Stock
underlying the Notes and dynamically adjusting their short position
while continuing to hold the Notes. Investors may also implement
this type of strategy by entering into swaps on our Class B Common
Stock in lieu of or in addition to short selling the Class B Common
Stock.
The SEC
and other regulatory and self-regulatory authorities have
implemented various rules and taken certain actions, and may in the
future adopt additional rules and take other actions, that may
impact those engaging in short selling activity involving equity
securities (including our Class B Common Stock) and securities
convertible into or exchangeable for equity securities. Such rules
and actions include Rule 201 of SEC Regulation SHO, the adoption by
the Financial Industry Regulatory Authority, Inc. and the national
securities exchanges of a "Limit Up-Limit Down" program, the
imposition of market-wide circuit breakers that halt trading of
securities for certain periods following specific market declines,
and the implementation of certain regulatory reforms required by
the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010. Any government or regulatory action that restricts the
ability of investors in or potential purchasers of the Notes to
effect short sales of our Class B Common Stock, borrow our Class B
Common Stock, or enter into swaps on our Class B Common Stock could
adversely affect the trading price and the liquidity of the
Notes.
The trading price for our Class B Common Stock may be volatile and
could be subject to wide fluctuations in per share price which
could adversely impact the trading price of the Notes.
Our
Class B Common Stock is listed for trading on The NASDAQ Capital
Market under the trading symbol "RMBL," however historically there
has been a limited public market for our Class B Common Stock. The
liquidity of any market for the shares of our Class B Common Stock
will depend on a number of factors, including:
●
the number of
stockholders;
●
our operating
performance and financial condition;
●
the market for
similar securities;
●
the extent of
coverage of us by securities or industry analysts; and
●
the interest of
securities dealers in making a market in the shares of our common
stock.
The
market price for our Class B Common Stock may be highly volatile
and could be subject to wide fluctuations. In addition, the price
of shares of our Class B Common Stock could decline significantly
if our future operating results fail to meet or exceed the
expectations of market analysts and investors and actual or
anticipated variations in our quarterly operating results could
negatively affect our share price.
26
Other
factors may also contribute to volatility of the price of our Class
B Common Stock and could subject our Class B Common Stock to wide
fluctuations. These include:
●
developments in the
financial markets and worldwide or regional economies;
●
announcements of
innovations or new products or services by us or our
competitors;
●
announcements by
the government relating to regulations that govern our
industry;
●
significant sales
of our Class B Common Stock or other securities in the open
market;
●
variations in
interest rates;
●
changes in the
market valuations of other comparable companies; and
●
changes in
accounting principles.
A
decrease in the market price of our Class B Common Stock would
likely adversely impact the trading price of the Notes. The market
price of our Class B Common Stock could also be affected by
possible sales of our Class B Common Stock by investors who view
the Notes as a more attractive means of investing in us and by
hedging or arbitrage trading activity that we expect to develop
involving our Class B Common Stock. This trading activity could
adversely affect the trading price of the Notes.
We may incur substantially more debt in the future or take other
actions which would intensify the risks discussed in these risk
factors.
We and
our subsidiaries may be able to incur substantial additional debt
in the future (including secured debt), subject to the restrictions
contained in our debt instruments. We are not restricted under the
terms of the indenture governing the Notes from incurring
additional debt, securing existing or future debt, refinancing our
debt, repurchasing our stock, pledging our assets, making
investments, paying dividends, guaranteeing debt, or taking a
number of other actions that are not limited by the terms of the
indenture governing the Notes, any of which could have the effect
of diminishing our ability to make payments on the Notes when
due.
We may not have the ability to raise the funds necessary to settle
the Notes in cash on a conversion, to repurchase the Notes on a
fundamental change, or to repay the Notes at maturity. In addition,
the terms of our future debt may contain limitations on our ability
to pay cash on conversion or repurchase of the Notes.
Holders
of the Notes have the right to require us to repurchase all or a
portion of their Notes on the occurrence of a fundamental change at
a fundamental change repurchase price equal to 100% of the
principal amount of the Notes to be repurchased, plus accrued and unpaid interest,
if any, to, but excluding the fundamental change repurchase date,
as described in the Indenture. In addition, on conversion of the
Notes, unless we elect to deliver only shares of our Class B Common
Stock to settle such conversion (other than paying cash in lieu of
delivering any fractional share), we will be required to make cash
payments in respect of the Notes being converted. Moreover, we are
required to repay the Notes in cash at their maturity unless
earlier converted or repurchased. Our ability to meet our
obligations to holders of the Notes depends on our operating
results and cash flow. However, we may not have enough available
funds on hand or be able to obtain financing at the time we are
required to make payments with respect to Notes at maturity, on
surrender for repurchase, or on conversion.
In
addition, our ability to repurchase the Notes or to pay cash on
conversions of the Notes may be limited by law, regulations, or
agreements governing our future indebtedness. Our failure to
repurchase Notes at a time when the repurchase is required by the
indenture governing the Notes or to pay any cash payable on future
conversions of the Notes or at maturity as required by such
indenture would constitute a default under such indenture. A
default under such indenture or the fundamental change itself could
also lead to a default under agreements governing our future
indebtedness. If the repayment of the related indebtedness were to
be accelerated after any applicable notice or grace periods, we may
not have sufficient funds to repay the indebtedness and repurchase
the Notes or make cash payments on conversions of the Notes, if
settled in cash.
Redemption may adversely affect the return on the
Notes.
We may
not redeem the Notes prior to January 14, 2023. We may redeem for
cash all or any portion of the Notes, at our option, on or after
January 14, 2023 if the last reported sale price of our Class B
Common Stock has been at least 130% of the conversion price of the
Notes then in effect for at least 20 trading days (whether or not
consecutive), including the trading day immediately preceding the
date on which we provide notice of redemption, during any 30
consecutive trading day period ending on, and including, the
trading day immediately preceding the date on which we provide
notice of redemption, at a redemption price equal to 100% of the
principal amount of Notes to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date. We may choose to
redeem some or all of the Notes, including at times when prevailing
interest rates are relatively low. Holders of the Notes may not be
able to reinvest the proceeds from the redemption of the Notes in a
comparable security at an effective interest rate as high as the
interest rate on the Notes being redeemed.
27
The conditional conversion feature of the Notes, if triggered, may
adversely affect our financial condition and operating
results.
In the
event the conditional conversion feature of the Notes is triggered,
holders of such Notes will be entitled to convert their Notes at
any time during specified periods at their option. If any holder
elects to convert its Notes, unless we elect to satisfy our
conversion obligation by delivering only shares of our Class B
Common Stock (other than paying cash in lieu of delivering any
fractional share), we would be required to settle a portion or all
of our conversion obligation in cash, which could adversely affect
our liquidity. In addition, even if holders do not elect to convert
their Notes, we could be required under applicable accounting rules
to reclassify all or a portion of the outstanding principal of the
Notes as a current liability rather than a long-term liability,
which would result in a material reduction of our net working
capital and may harm our business.
Conversion of the Notes may dilute the ownership interest of our
stockholders or may otherwise depress the market price of our Class
B Common Stock.
The
conversion of some or all of the Notes may dilute the ownership
interests of our stockholders. On conversion of the Notes, we have
the option to pay or deliver, as the case may be, cash, shares of
our Class B Common Stock, or a combination of cash and shares of
our Class B Common Stock. In addition, in certain circumstances, we
will make an interest make-whole payment to a converting holder
which may be paid in cash or shares of our common stock. If we
elect to settle our conversion obligation (or the interest
make-whole payment) in shares of our Class B Common Stock or a
combination of cash and shares of our Class B Common Stock, any
sales in the public market of our Class B Common Stock issuable on
such conversion could adversely affect prevailing market prices of
our Class B Common Stock. In addition, the existence of the Notes
may encourage short selling by market participants because the
conversion of the Notes could be used to satisfy short positions,
or anticipated conversion of the Notes into shares of our Class B
Common Stock could depress the market price of our Class B Common
Stock.
Future sales of our Class B Common Stock or equity-linked
securities in the public market could lower the market price for
our Class B Common Stock and adversely impact the trading price of
the Notes.
In the
future, we may raise funds by selling additional equity,
equity-linked securities, or debt securities. In addition, a
substantial number of shares of our Class B Common Stock is
reserved for issuance on the exercise of stock options, settlement
of restricted stock units, and conversion of the Notes. We cannot
predict the size of future issuances or the effect, if any, that
they may have on the market price for our Class B Common Stock. The
issuance and sale of substantial amounts of our Class B Common
Stock or equity-linked securities, or the perception that such
issuances and sales may occur, could adversely affect the trading
price of the Notes and the market price of our Class B Common
Stock, and impair our ability to raise capital through the sale of
additional equity or equity-linked securities.
Holders of Notes are not entitled to any rights with respect to our
Class B Common Stock, but they will be subject to all changes made
with respect to them to the extent our conversion obligation
includes shares of our Class B Common Stock.
Holders
of Notes are not entitled to any rights with respect to our Class B
Common Stock (including, without limitation, rights to receive any
dividends or other distributions on our Class B Common Stock) prior
to the conversion date relating to such Notes (if we have elected
to settle the conversion by delivering only shares of our Class B
Common Stock, other than paying cash in lieu of delivering any
fractional share) or the last trading day of the observation period
(if we elect to pay and deliver, as the case may be, a combination
of cash and shares of our Class B Common Stock in respect of the
conversion). But, holders of Notes will be subject to all changes
affecting our Class B Common Stock. For example, if an amendment is
proposed to our certificate of incorporation or bylaws requiring
stockholder approval and the record date for determining the
stockholders of record entitled to vote on the amendment occurs
prior to the conversion date with respect to any Notes surrendered
for conversion, then the holder surrendering such Notes will not be
entitled to vote on the amendment, although such holder will
nevertheless be subject to any changes affecting our Class B Common
Stock.
The conditional conversion feature of the Notes could result in
holders receiving less than the value of our Class B Common Stock
into which the Notes would otherwise be convertible.
Prior
to the close of business on the business day immediately preceding
July 1, 2024, holders may convert their Notes only if specified
conditions are met. If the specific conditions for conversion are
not met, holders will not be able to convert their Notes during
that period, and they may not be able to receive the shares of
Class B Common Stock (or the value of such shares in cash or a
combination of cash and shares of Class B Common Stock) into which
the Notes would otherwise be convertible.
28
On conversion of the Notes, holders may receive less valuable
consideration than expected because the value of our Class B Common
Stock may decline after holders exercise their conversion rights
but before we settle our conversion obligation.
Under
the Notes, a converting holder will be exposed to fluctuations in
the value of our Class B Common Stock during the period from the
date such holder surrenders Notes for conversion until the date we
settle our conversion obligation.
On
conversion of the Notes, we have the option to pay or deliver, as
the case may be, cash, shares of our Class B Common Stock, or a
combination of cash and shares of our Class B Common Stock
(including, if applicable, any interest make-whole payment we
elect, or are deemed to have elected to satisfy by delivering
shares of our Class B Common Stock). If we elect to satisfy our
conversion obligation in cash or a combination of cash and shares
of our Class B Common Stock, the amount of consideration that
holders will receive on conversion of their Notes will be
determined by reference to the volume-weighted average price of our
Class B Common Stock for each trading day in a 40-trading day
observation period and an interest make-whole payment, if
applicable.
Accordingly, if the
price of our Class B Common Stock decreases during the applicable
period, the amount and value of consideration holders receive will
be adversely affected. In addition, if the market price of our
Class B Common Stock at the end of such period is below the
volume-weighted average price of our Class B Common Stock during
such period, the value of any shares of our Class B Common Stock
that holders will receive in satisfaction of our conversion
obligation will be less than the value used to determine the number
of shares that holders will receive.
If we
elect to satisfy our conversion obligation only in shares of our
Class B Common Stock on conversion of the Notes, we will, subject
to the blocker provisions to the extent applicable, be required to
deliver the shares of our Class B Common Stock, together with cash
for any fractional share, on the second business day following the
conversion date (provided that, with respect to any conversion date
following the regular record date immediately preceding the
maturity date where physical settlement applies to the related
conversion, we will settle any such conversion on the maturity
date). Accordingly, if the price of our Class B Common Stock
decreases during this period, the value of the shares that holders
receive will be adversely affected and would be less than the
conversion value of the Notes on the conversion date.
The increase in the conversion rate for Notes converted in
connection with a make-whole fundamental change or a notice of
redemption may not adequately compensate holders for any lost value
of their Notes as a result of such transaction or
redemption.
If a
make-whole fundamental change occurs prior to the maturity date for
the Notes or if we deliver a notice of redemption with respect to
the Notes, we will, under certain circumstances, increase the
conversion rate for the Notes by a number of additional shares of
our Class B Common Stock for Notes converted in connection with
such make-whole fundamental change or notice of redemption. The
increase in the conversion rate will be determined based on the
date on which the make-whole fundamental change occurs or becomes
effective, or the date we deliver the notice of redemption, as the
case may be, and the price paid (or deemed to be paid) per share of
our Class B Common Stock in the make-whole fundamental change or
determined with respect to the notice of redemption, as the case
may be. The increase in the conversion rate for Notes converted in
connection with a make-whole fundamental change or a notice of
redemption may not adequately compensate you for any lost value of
your Notes as a result of such transaction or redemption. In
addition, if the "stock price" (as defined in the Indenture) is
greater than $1.00 per share or less than the Make-Whole Adjustment
Reference Price (as defined in the Indenture”), no additional
shares of Class B Common Stock will be added to the conversion
rate. Moreover, in no event will the conversion rate per $1,000
principal amount of Notes as a result of this adjustment exceed
61.6523 shares of Class B Common Stock, subject to adjustment in
the same manner as the conversion rate for the Notes.
Our
obligation to increase the conversion rate for Notes converted in
connection with a make-whole fundamental change or a notice of
redemption could be considered a penalty, in which case the
enforceability would be subject to general principles of
reasonableness and equitable remedies.
The conversion rate of the Notes may not be adjusted for dilutive
events.
The
conversion rate of the Notes is subject to adjustment for certain
events, including, but not limited to, the issuance of certain
stock dividends on our Class B Common Stock, the issuance of
certain rights or warrants, subdivisions or combinations of our
Class B Common Stock, distributions of capital stock, indebtedness,
or assets, cash dividends, and certain issuer tender or exchange
offers as described under the Indenture. However, the conversion
rate will not be adjusted for other events, such as a third-party
tender or exchange offer or an issuance of Class B Common Stock for
cash, that may adversely affect the trading price of the Notes or
our Class B Common Stock. An event that adversely affects the value
of the Notes may occur, and that event may not result in an
adjustment to the conversion rate. We have no obligation to
consider the specific interests of the holders of the Notes in
engaging in any such offering or transaction.
29
Some significant restructuring transactions may not constitute a
fundamental change, in which case we would not be obligated to
offer to repurchase the Notes.
On the
occurrence of a fundamental change, you have the right to require
us to repurchase all or a portion of your Notes. However, the
fundamental change provisions do not afford protection to holders
of Notes in the event of other transactions that could adversely
affect the Notes. For example, transactions such as leveraged
recapitalizations, refinancings, restructurings, or acquisitions
initiated by us may not constitute a fundamental change requiring
us to repurchase the Notes. In the event of any such transaction,
the holders would not have the right to require us to repurchase
the Notes, even though each of these transactions could increase
the amount of our indebtedness or otherwise adversely affect our
capital structure or any credit ratings, thereby adversely
affecting the holders of Notes.
Certain provisions in the indenture governing the Notes may delay
or make it more expensive for a third party to acquire
us.
Certain
provisions in the indenture governing the Notes may make it more
difficult or expensive for a third party to acquire us. For
example, the indenture governing the Notes requires us, at the
noteholders' election, to repurchase the Notes for cash on the
occurrence of a fundamental change and, in certain circumstances,
to increase the conversion rate for a holder that converts its
Notes in connection with a make-whole fundamental change. A
takeover of us may trigger the requirement that we repurchase the
Notes or increase the conversion rate, which could make it more
costly for a third party to acquire us. Furthermore, the indenture
for the Notes prohibits us from engaging in certain mergers or
acquisitions unless, among other things, the surviving entity
assumes our obligations under the Notes. These and other provisions
in the indenture could deter or prevent a third party from making
bids to acquire us even when the acquisition may be favorable to
you.
Holders of Notes are not entitled to receive any shares of our
Class B Common Stock otherwise deliverable upon conversion of the
Notes to the extent that such receipt would cause such holders to
become, directly or indirectly, a beneficial owner of shares of our
Class B Common Stock in excess of 4.99% of the total number of the
shares of our Class B Common Stock then issued and
outstanding.
Notwithstanding
anything to the contrary herein, holders of Notes are not entitled
to receive any shares of our Class B Common Stock otherwise
deliverable upon conversion of the Notes to the extent, but only to
the extent, that such receipt would cause such holders to become,
directly or indirectly, the "beneficial owner" (within the
meaning of Section 13(d) under the Exchange Act and the rules
promulgated thereunder) of our Class B Common Stock in excess
4.99% of the total number of the shares of our Class B Common Stock
then issued and outstanding. Any purported delivery of shares of
our Class B Common Stock upon conversion of the Notes shall be void
and have no effect to the extent, but only to the extent, that such
delivery would result in any person becoming the beneficial owner
of shares of our Class B Common Stock outstanding at such time in
excess of the beneficial ownership limits then applicable to such
person.
As a
result of the beneficial ownership limits, shares of Class B Common
Stock otherwise deliverable upon conversion of Notes may be
delayed, or never delivered at all. These limitations on beneficial
ownership may force you to sell shares of our Class B Common Stock
or other securities you own in order to receive shares you would
otherwise be entitled to receive upon conversion. If holders
convert their Notes and do not receive any shares otherwise
deliverable upon conversion, we are not be responsible for any lost
value due to a delayed delivery, or if they are never delivered as
a result of the conversion restrictions described
above.
We cannot assure you that an active trading market will develop for
the Notes.
Prior
to the 2020 Note Offering (as defined below), there has been no
trading market for the Notes, and we do not intend to apply to list
the Notes on any securities exchange or to arrange for quotation on
any automated dealer quotation system. We have been informed by the
initial purchaser that it intended to make a market in the Notes
after the 2020 Note Offering. However, the initial purchaser may
cease its market-making at any time without notice. The liquidity
of the trading market in the Notes, and the market price quoted for
the Notes, may be adversely affected by changes in the overall
market for this type of security and by changes in our financial
performance or prospects or in the prospects for companies in our
industry generally. We cannot assure you that an active trading
market will develop for the Notes. If an active trading market does
not develop or is not maintained, the market price and liquidity of
the Notes may be adversely affected. In that case you may not be
able to sell your Notes at a particular time or you may not be able
to sell your Notes at a favorable price.
Any adverse rating of the Notes may cause their trading price to
fall.
We do
not intend to seek a rating on the Notes. However, if a rating
service were to rate the Notes and if such rating service were to
lower its rating on the Notes below the rating initially assigned
to such Notes or otherwise announce its intention to put such Notes
on credit watch, the trading price of the Notes could
decline.
30
Unresolved Staff Comments.
None.
Item 2.
Properties.
Powersports and Automotive Segments
We
currently maintain our corporate offices at 901 W Walnut Hill Lane,
Irving, Texas 75038, that initially comprises 23,337 square feet,
which amount shall increase to (i) 30,337 rentable square feet on
November 1, 2020 and (ii) 37,337 rentable square feet on November
1, 2021. Base rent is currently $60,287 per month and increases to
$78,371 on November 1, 2020 and to $96,454 on November 1, 2021. We
also pay our pro rata share of the building's operating expenses.
This lease expires on April 30, 2023; however we can elect to
extend the term for up to seven years at a rate equal to (i) the
lesser of prevailing rental rates at the time of renewal or (ii) 5%
of the annual Base Rent for the immediately preceding term. We
provided the sublandlord a security deposit of approximately
$10,000. In addition, in March 2019 we entered into a short-term
sublease expiring in October 2019 in Las Colinas, Texas for
approximately 11,000 square feet to support the company's
initiatives.
We are
a co-leasee on a warehouse space in Missouri from which we operate
our licensed dealer operation; total shared monthly rent for the
building is $4,250.
We have
two main facilities in the greater Nashville, TN metropolitan area
that we assumed as part as the acquisitions of Wholesale. One
serves as a general office/administrative location as well as a
staging and reconditioning property, while the other serves as a
retail sales location where we display vehicles and operate a
traditional used car sales lot, with minimal vehicle maintenance
services provided. Each location has a lease term expiring on
October 30, 2021, and for each property we have two (2) renewal
option, each of which provides for five (5) additional years with
ten percent (10%) increase in the base rent. The collective rent
for the two locations is approximately $23,500 per
month.
We also
lease or sub-lease space to support the operations in (i) West Palm
Beach, FL that we assumed as part of the Autosport acquisition and
for which we pay approximately $75,000 per year and (ii) Las Vegas,
NV to support the development of the RumbleOn Finance business and
for which we pay approximately $160,000 per year. Both the FL and
NV ancillary location leases currently expire in the second half of
2020.
The
Company is establishing fulfillment centers in strategic locations
throughout the United States. Initial locations, for which leases
have been executed include Arlington, Texas, Ocoee, Florida and
North Las Vegas, Nevada.
We
moved into the Arlington, Texas center in September 2019. This
location is approximately 7,000 square feet. The lease has an
initial term of 24.5 months and has one three-year renewal option.
We pay approximately $57,000 per year.
The
Ocoee, Florida center is approximately 56,012 square feet and is
scheduled to open in the first half of 2020. This lease has an
initial term of 64 months with one five-year renewal option. Annual
rent will be approximately $470,000.
We
moved into the North Las Vegas center in October 2019. This
location is approximately 43,916 square feet and has an initial
term of 36 months. Annual rent is approximately
$270,000.
Vehicle Logistics and Transportation Services
The
needs of the Vehicle Logistics and Transportation Services segment
of our operations have been serviced out of facilities we lease in
Mesa, AZ, and Detroit, MI, as well as a portion of space we have in
Nashville, TN. Collective annual rent for the MI and AZ locations
is approximately $125,000. In December 2019 we moved into 5,853 of
space in Chandler, Arizona to support our Wholesale Express
operations. The lease has a 39-month term and our annual rent is
approximately $120,000.
Item 3.
Legal Proceedings.
We are
not a party to any material legal proceedings other than ordinary
routine litigation incidental to our business.
Item 4.
Mine Safety Disclosures.
Not
Applicable.
31
PART II
Item 5.
Market For Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchase Of Equity
Securities
Market Information
As of
October 29, 2017, our Class B Common Stock has been listed on the
Nasdaq Global Select Market ("NASDAQ") under the symbol RMBL. Before October
29, 2017, our common stock traded on the OTCQB Market under the
symbol RMBL, and before January 1, 2017, our common stock was not
traded, except for 250 shares, which traded on the OTC Markets Pink
Sheets on January 22, 2016.
Holders of Common Stock
As of
May 26, 2020, we had approximately 52 stockholders of record of
2,162,716 issued and outstanding shares of Class B Common Stock and
two holders of record of 50,000 issued and outstanding shares of
Class A Common Stock.
Dividends
We have
never declared or paid any cash dividends. We currently do not
intend to pay cash dividends in the foreseeable future on the
shares of common stock. We intend to reinvest any earning in the
development and expansion of our business. Any cash dividends in
the future to common stockholders will be payable when, as and if
declared by our board of directors, based upon the
Board's assessment
of:
●
our financial
condition;
●
earnings;
●
need for
funds;
●
capital
requirements;
●
prior claims of
preferred stock to the extent issued and outstanding;
and
●
other factors,
including any applicable law.
Therefore, there
can be no assurance that any dividends on the common stock will
ever be paid.
Item 6.
Selected Financial Data
This
item is not applicable, as we are considered a smaller reporting
company.
32
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The
management's discussion and
analysis of financial condition and results of operations should be
read in conjunction with the audited financial statements and
accompanying notes included in this annual report.
Overview
We are
a technology driven, motor vehicle dealer and e-commerce platform
provider disrupting the vehicle supply chain using innovative
technology that aggregates, processes and distributes inventory in
a faster and more cost-efficient manner.
We
operate an infrastructure-light platform that facilitates the
ability of all participants in the supply chain, including
RumbleOn, other dealers and consumers to
Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to
transform the way VIN-specific pre-owned vehicles are bought and
sold by providing users with the most comprehensive, efficient,
timely and transparent transaction experiences. While our initial
customer facing emphasis through most of 2018 was on motorcycles
and other powersports vehicles, we continue to enhance our platform
to accommodate nearly any VIN-specific vehicle including
motorcycles, ATVs, boats, RVs, cars and trucks. Since our
acquisition of Wholesale, Inc. ("Wholesale") in October 2018, we
have significantly increased our sales of cars and light truck
categories ("automotive"). Of the 43,143 vehicles we sold in 2019,
29,952 (69.4%) were automotive and 13,191 (30.6%) were powersports
vehicles. In 2018 we sold 12,529 vehicles of which 4,005 (32.0%)
were automotive and 8,524 (68.0%) were powersports
vehicles.
The
COVID-19 situation has created an unprecedented and challenging
time. Our current focus is on positioning the Company for a strong
recovery when this crisis is over. We have taken steps to reduce
our inventory and align our operating expenses to the state of the
business. We plan to continue to operate as permitted to support
our customers’ needs for reliable vehicles and to provide as
many jobs as possible for our associates. As noted above, 169
associates were temporarily laid-off effective April 9, 2020,
however our receipt of PPP funds, as discussed below will allow us
to gradually recall these associates over time. All ongoing
employment determinations are subject to change due to the COVID-19
situation future government mandates, as well as future business
conditions. We will continue to monitor the COVID-19 situation and
look for ways to preserve cash and reduce our operating expenses as
we are able, however, we expect the consequences of the COVID-19
outbreak will likely have a significant negative impact on our
business, sales, results of operations, financial condition, and
liquidity.
Acquisition of Wholesale and Wholesale Express
On
October 26, 2018, we entered into an Agreement and Plan of Merger
(as amended, the "Merger Agreement") with our newly-formed
acquisition subsidiary RMBL Tennessee, LLC, a Delaware limited
liability company ("Merger Sub"), Wholesale Holdings, Inc., a
Tennessee corporation ("Holdings"), Wholesale, Steven Brewster and
Janelle Brewster (each a "Stockholder", and together the
"Stockholders"), Steven Brewster, a Tennessee resident, as the
representative of each Stockholder, and Marshall Chesrown and
Steven R. Berrard, providing for the merger (the "Wholesale
Merger") of Holdings with and into Merger Sub, with Merger Sub
surviving the Wholesale Merger as our wholly-owned subsidiary. Also
on October 26, 2018, we entered into a Membership Interest Purchase
Agreement (the "Purchase Agreement") with Steven Brewster and
Justin Becker (together the "Express Sellers"), and Steven Brewster
as representative of the Express Sellers, pursuant to which we
acquired all of the membership interests (the "Express
Acquisition") in Wholesale Express, LLC ("Wholesale Express"). On
October 30, 2018 (the "Wholesale Acquisition Date"), we completed
the Wholesale Merger and Express Acquisition. Wholesale is one of the largest independent
distributors of pre-owned vehicles in the United States and
Wholesale Express is a related logistics company. The
results of operations of Wholesale and Wholesale Express from the
Wholesale Acquisition Date to December 31, 2018 (the " Wholesale
Acquisition Period") are included in the Company's consolidated
financial statements for the year ended December 31, 2018. In this
Management's Discussion and Analysis of Financial Condition and
Results of Operations, no comparable information is discussed with
respect to Wholesale and Wholesale Express for periods before the
Wholesale Acquisition Date. For additional information, see Note 4
– "Acquisitions" in the accompanying Notes to the
Consolidated Financial Statements.
Acquisition of Autosport
On
February 3, 2019 (the "Autosport Acquisition Date"), the Company
completed the acquisition (the "Autosport Acquisition") of all of
the equity interests of Autosport USA, Inc. ("Autosport"),
an independent pre-owned vehicle
distributor, pursuant to a Stock Purchase Agreement,
dated February 1, 2019 (the "Stock Purchase Agreement"), by and
among RMBL Express, LLC (the "Buyer"), a wholly owned subsidiary of
Company, Scott Bennie (the "Seller") and Autosport. The results of
operations of Autosport from the Autosport Acquisition Date to
December 31, 2019 (the "Autosport Acquisition Period," and together
with the Wholesale Acquisition Period, the "Acquisition Period")
are included in the Company's consolidated financial statements for
the year ended December 31, 2019. In this Management's Discussion
and Analysis of Financial Condition and Results of Operations, no
comparable information is discussed with respect to Autosport for
periods before the Autosport Acquisition Date. For additional
information, see Note 4 – "Acquisitions" in the accompanying
Notes to the Consolidated Financial Statements.
33
Reportable Segments
Business segments are defined as
components of an enterprise about which discrete financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and
in assessing operating performance. Our operations are organized by
management into operating segments by line of business. We have
determined that we have three reportable segments as defined in
generally accepted accounting principles for segment
reporting: (1) powersports, (2) automotive
and (3) vehicle logistics and transportation. Our powersports
and automotive segments consist of the distribution of pre-owned
vehicles. The powersports segment consists of the distribution of
principally motorcycles, while the automotive segment distributes
cars and trucks. Our vehicle logistics and transportation
service segment provides nationwide automotive transportation
services primarily between dealerships and auctions. Our vehicle logistics and
transportation service reportable segment has been determined
to represent one operating segment and reporting unit.
The
accounting policies of the segments are the same and are described
in Note 1 – "Description of Business and Significant
Accounting Policies" in the accompanying Notes to the Consolidated
Financial Statements.
For the
year ended December 31, 2019, our powersports segment accounted for
approximately 12.0% of our total revenue and approximately 24.4% of
our total gross profit, our automotive
segment accounted for approximately 85.3% of our total revenue and
approximately 62.7% of our total gross profit, and our
vehicle logistics and transportation service segment accounted for
approximately 2.7% of our total revenue and approximately
12.9% of our total gross profit. For the year ended December 31,
2018, our vehicle distribution segment accounted for approximately
97.0% of our total revenue and approximately 91.5% of our total
gross profit, and our vehicle logistics and transportation service
segment accounted for approximately 3.0% of our total revenue
and approximately 8.5% of our total gross profit.
Key Operation Metrics - Powersports and Automotive
Segments
We
regularly review a number of metrics, to evaluate our vehicle
distribution business, measure our progress, and make strategic
decisions. Our key operating metrics reflect what we believe will
be the key drivers of our growth, including increasing brand
awareness, maximizing the opportunity to source the purchase of low
cost pre-owned vehicles from consumers and dealers while enhancing
the selection of vehicles we make available to our
customers. Our key
operating metrics also demonstrate our ability to translate these
drivers into sales and to monetize these retail sales through a
variety of product offerings.
|
Powersports:
|
2019
|
2018
|
|
Vehicles
sold
|
13,191
|
8,524
|
|
Regional
Partners
|
7
|
7
|
|
Average days to
sale
|
34
|
32
|
|
Total vehicle
revenue
|
$ 101,008,976
|
$ 61,204,416
|
|
Gross
Profit
|
$ 12,335,460
|
$ 6,870,350
|
|
Automotive:
|
2019
|
2018
|
|
Vehicles
sold
|
29,952
|
4,005
|
|
Regional
Partners
|
7
|
9
|
|
Average days to
sale
|
23
|
26
|
|
Total vehicle
revenue
|
$ 717,042,511
|
$ 91,369,996
|
|
Gross
Profit
|
$ 31,728,617
|
$ 5,608,491
|
34
Vehicles Sold
We
define vehicles sold as the number of pre-owned vehicles sold to
consumers and dealers in each period, net of returns under our
various return policies. We view vehicles sold as a key measure of
our growth for several reasons. First, vehicles sold is the primary
driver of our revenue and, indirectly, gross profit, since vehicle
sales enable multiple complementary revenue streams, including
financing, vehicle service contracts and trade-ins. Second, growth
in vehicles sold increases the base of available customers for
referrals and repeat sales. Third, growth in vehicles sold is an
indicator of our ability to successfully scale our logistics,
fulfillment, and customer service operations.
Regional Partners
Our
operations are designed to be scalable by working through an
infrastructure and capital light model that is achievable by virtue
of a synergistic relationship with regional partners. We utilize
these regional partners to provide inspection, reconditioning and
distribution services. These regional partners earn incremental
revenue and enhance profitability through fees from inspection,
reconditioning and distribution programs. As regional partners are
added throughout the U.S., the cost and time associated with
distribution programs will be significantly reduced as the pickup
and delivery of pre-owned vehicles will become more localized thus
reducing shipping costs and the average days to sale for pre-owned
vehicles.
Average Days to Sale
We
define average days to sale as the average number of days between
vehicle acquisition by us and delivery to a customer for all
pre-owned vehicles sold in a period. However, this metric does not
include any pre-owned vehicles that remain unsold at period end. We
view average days to sale as a useful metric due to its impact on
pre-owned vehicle average selling price. We anticipate that average
days to sale will increase in future periods until we reach an
optimal pooled inventory level and fully scale our acquisition and
sales channel processes.
Revenue
Revenue
is primarily comprised of pre-owned vehicle sales. We sell
pre-owned vehicles through consumer and dealer sales channels.
These multiple sales channels provide us the opportunity to
maximize profitability through increased sales volume and lower
average days to sale by selling to the channel where the
opportunity is the greatest at any given time based on customer
demand, market conditions or inventory availability. The number of
pre-owned vehicles sold to any given channel may vary from period
to period based on customer demand, market conditions and available
inventory. We expect pre-owned vehicle sales to increase as we
begin to utilize a combination of brand building as well as direct
response channels to efficiently source and scale our addressable
markets while expanding our suite of product offerings to consumers
who may wish to trade-in or to sell us their vehicle independent of
a retail sale. Factors affecting pre-owned vehicle sales include
the number of retail pre-owned vehicles sold and the average
selling price of these vehicles.
Gross Profit
Gross
profit is generated on pre-owned vehicle sales from the difference
between the vehicle selling price and our cost of revenue
associated with acquiring the vehicle and preparing it for sale.
The aggregate dollar gross profit achieved from the consumer and
dealer sales channels are different. Pre-owned vehicles sold to
consumers through our website generally have the highest dollar
gross profit since the vehicle is sold directly to the consumer.
Pre-owned vehicles sold to dealers through our website are sold at
a price below the retail price offered to consumers, thus the
dealer and RumbleOn are sharing the gross profit. Pre-owned
vehicles sold to dealers through auctions are sold at market.
Factors affecting gross profit from period to period include the
mix of pre-owned vehicles we acquire and hold in inventory, retail
market prices, our average days to sale, and our pricing strategy.
We may opportunistically choose to shift our inventory mix to
higher or lower cost vehicles, or to opportunistically raise or
lower our prices relative to market to take advantage of supply or
demand imbalances in our sales channels, which could temporarily
lead to average selling prices and gross profits increasing or
decreasing in any given channel.
35
Key Operations Metrics – Powersports
|
|
2019
|
2018
|
|
Key Operation
Metrics:
|
|
|
|
Vehicles sold
|
13,191
|
8,524
|
|
|
|
|
|
Total
Powersports Revenue
|
$101,008,976
|
$61,204,416
|
|
Gross Profit
|
$12,335,461
|
$6,870,350
|
|
Gross Profit per
vehicle
|
$935
|
$806
|
|
Gross Margin
|
12.2%
|
11.2%
|
|
Average selling
price
|
$7,657
|
$7,180
|
|
|
|
|
|
Consumer:
|
|
|
|
Vehicles sold
|
955
|
733
|
|
|
|
|
|
Total Consumer
Revenue
|
$8,295,615
|
$6,506,265
|
|
Gross Profit
|
$2,058,743
|
$1,272,135
|
|
Gross Profit per
vehicle
|
$2,156
|
$1,736
|
|
Gross Margin
|
24.8%
|
19.6%
|
|
Average selling
price
|
$8,687
|
$8,876
|
|
|
|
|
|
Dealer:
|
|
|
|
Vehicles sold
|
12,236
|
7,791
|
|
|
|
|
|
Total Dealer
Revenue
|
$92,713,361
|
$54,698,150
|
|
Gross Profit
|
$10,276,718
|
$5,598,215
|
|
Gross Profit per
vehicle
|
$840
|
$719
|
|
Gross Margin
|
11.1%
|
10.2%
|
|
Average selling
price
|
$7,577
|
$7,021
|
Key Operations Metrics – Automotive
|
|
2019
(1)
|
2018
(2)
|
|
Key Operation
Metrics:
|
|
|
|
Total vehicles
sold
|
29,952
|
4,005
|
|
|
|
|
|
Total Automotive
Revenue
|
$717,042,511
|
$91,369,996
|
|
Gross Profit
|
$31,728,617
|
$5,608,490
|
|
Gross Profit per
vehicle
|
$1,059
|
$1,400
|
|
Gross Margin
|
4.4%
|
6.1%
|
|
Average selling
price
|
$23,940
|
$22,814
|
|
|
|
|
|
Consumer:
|
|
|
|
Vehicles sold
|
2,792
|
512
|
|
|
|
|
|
Total Consumer
Revenue
|
$75,950,236
|
$12,532,850
|
|
Gross Profit
|
$9,939,683
|
$2,091,978
|
|
Gross Profit per
vehicle
|
$3,560
|
$4,086
|
|
Gross Margin
|
13.1%
|
16.7%
|
|
Average selling
price
|
$27,203
|
$24,478
|
|
|
|
|
|
Dealer:
|
|
|
|
Vehicles sold
|
27,160
|
3,493
|
|
|
|
|
|
Total Dealer
Revenue
|
$641,092,275
|
$78,837,146
|
|
Gross Profit
|
$21,788,934
|
$3,516,512
|
|
Gross Profit per
vehicle
|
$802
|
$1,007
|
|
Gross Margin
|
3.4%
|
4.5%
|
|
Average selling
price
|
$23,604
|
$22,570
|
(1)
Inclusive only of the Autosport Acquisition Period.
(2)
Inclusive only of the Wholesale Acquisition Period.
Key Operation Metrics - Vehicle Logistics and Transportation
Services Segment
We
regularly review a number of metrics, to evaluate our vehicle
logistics and transportation business, measure our progress, and
make strategic decisions. Our key operating metrics reflect what we
believe will be the key drivers of our growth, including increasing
brand awareness, and maximizing the opportunity to drive increased
transportation and logistics unit volume. Our key operating metrics also
demonstrate our ability to translate these drivers into revenue and
increased profitability.
36
|
|
2019
|
2018
(1)
|
|
Revenue
|
$31,931,488
|
$4,931,558
|
|
|
|
|
|
Vehicles
Delivered
|
77,449
|
11,571
|
|
|
|
|
|
Gross
Profit
|
$6,553,899
|
$1,067,963
|
|
|
|
|
|
Gross Profit Per
Vehicle Delivered
|
$85
|
$92
|
(1)
Inclusive only of the Wholesale Acquisition Period.
Revenue
Revenue
is derived from freight
brokerage agreements with dealers, distributors, or private
party individuals to transport vehicles from a point of origin to a
designated destination. The transaction price
is based on the consideration specified in the customer's
contract. The freight
brokerage agreements are fulfilled by independent
third-party transporters who are obligated to meet our performance
obligations and standards. Generally, customers
are billed either upon shipment of the vehicle or on a monthly
basis, and remit payment according to approved payment
terms. Revenue is recognized as risks and rewards of
transportation of the vehicle is transferred to the owner during
delivery. Wholesale Express is considered the principal in the
delivery transactions since it is primarily responsible for
fulfilling the service. As a result, revenue is recorded gross. In
the normal course of operations, Wholesale Express provides
transportation services to Wholesale. Revenue and cost of revenue
for these services for the year ended December 31, 2019 and the
Wholesale Acquisition Period was $9,353,628 and $1,107,739,
respectively, and was eliminated in the consolidated financial
statements for the years ended December 31, 2019 and 2018,
respectively.
Vehicles Delivered
We
define vehicles delivered as the number of vehicles delivered from
a point of origin to a designated destination under freight
brokerage agreements with dealers, distributors, or private
party individuals. Vehicles delivered is the primary driver of
revenue growth and in turn profitability in the vehicle logistics
and transportation services segment.
Gross Profit
Gross
profit is generated on the difference between the price received
from a customer under a freight
brokerage agreement for the
transport of a vehicle from a point of origin to a designated
destination minus our cost to contract an independent third-party transporter to fulfill
our obligation under the freight brokerage agreement with the
customer. We define gross profit per vehicle delivered as
the aggregate gross profit in a given period divided by the number
of pre-owned vehicles delivered in that period.
COMPONENTS OF RESULTS OF OPERATIONS
Revenue
Revenue
for our powersports and automotive segments is derived from our
online marketplace and auctions and primarily includes the sale of
pre-owned vehicles to consumer and dealers.
Revenue
from our vehicle logistics and transportation service segment is
derived by providing automotive transportation services between
dealerships and auctions throughout the United States.
The
Company recognizes revenue using the modified retrospective method.
ASC 606 prescribes a five-step model that includes: (1) identify
the contract; (2) identify the performance obligations; (3)
determine the transaction price; (4) allocate the transaction price
to the performance obligations; and (5) recognize revenue when (or
as) performance obligations are satisfied. Based on the manner in
which we historically recognized revenue, the adoption of ASC 606
did not have a material impact on the amount or timing of our
revenue recognition, and we recognized no cumulative effect
adjustment upon adoption. See Item 8
of Part II, Financial Statements and Supplementary
Data—Note 1—
"Description of Business and Significant Accounting Policies
– Revenue Recognition" for a further description of the
Company's revenue recognition.
37
Pre-owned Vehicle Sales
Pre-owned vehicle
sales are primarily comprised of revenue of pre-owned vehicle
sales.
We sell
pre-owned vehicles through consumer and dealer sales channels.
These multiple sales channels provide us the opportunity to
maximize profitability through increased sales volume and lower
average days to sale by selling to the channel where the
opportunity is the greatest at any given time based on customer
demand, market conditions or inventory availability. The number of
pre-owned vehicles sold to any given channel may vary from period
to period based on customer demand, market conditions and available
inventory.
Pre-owned vehicle
sales represent the aggregate sales of pre-owned vehicles to
consumers and dealers through our website or at
auctions. We expect
pre-owned vehicle sales to increase as we begin to utilize a
combination of brand building as well as direct response channels
to efficiently source and scale our addressable markets while
expanding our suite of product offerings to consumers who may wish
to trade-in or to sell us their vehicle independent of a retail
sale. Factors affecting pre-owned vehicle sales include the number
of retail pre-owned vehicles sold and the average selling price of
these vehicles.
The
number of pre-owned vehicles we sell depends on our volume of
website traffic, volume of cash offers made, our inventory levels
and selection, the effectiveness of our branding and marketing
efforts, the quality of our customer sales experience, our volume
of referrals and repeat customers, the competitiveness of our
pricing, competition and general economic conditions. On a
quarterly basis, the number of pre-owned vehicles we sell is also
affected by seasonality, with demand for pre-owned vehicles
reaching the high point in the first half of each year,
commensurate with the timing of tax refunds, and diminishing
through the rest of the year, with the lowest relative level of
pre-owned vehicle sales expected to occur in the fourth calendar
quarter.
Our
average retail selling price depends on the mix of pre-owned
vehicles we acquire and hold in inventory, retail market prices in
our markets, our average days to sale, and our pricing strategy. We
may choose to shift our inventory mix to higher or lower cost
pre-owned vehicles, or to opportunistically raise or lower our
prices relative to market to take advantage of supply or demand
imbalances, which could temporarily lead to average selling prices
increasing or decreasing.
The
number of pre-owned vehicles sold to dealers at auctions is
determined based on a number of factors including: (i) filling
auction sales channel market demand opportunities to maximize sales
and gross margin; (ii) a need to balance the Company's overall
inventory mix and quantity levels against days to sales targets;
and (iii) a need to liquidate those pre-owned vehicles that do
not meet the Company's quality standards to be sold through
Rumbleon.com.
Vehicle Logistics and Transportation Services
Vehicle
logistics and transportation services revenue is generated
primarily by entering into freight
brokerage agreements with dealers, distributors, or private
party individuals to transport vehicles from a point of origin to a
designated destination. The transaction price
is based on the consideration specified in the customer's contract.
A performance obligation is created when the customer under a
transportation contract submits a bill of lading for the transport
of goods from origin to destination. These performance obligations
are satisfied as the shipments move from origin to
destination. The freight
brokerage agreements are fulfilled by independent
third-party transporters. While the Company is primarily
responsible for fulfilling to customers, these transporters are
obligated to meet our performance obligations and standards.
Performance
obligations are short-term, with transit days less than one week.
Generally, customers are billed either upon shipment of the vehicle
or on a monthly basis, and remit payment according to approved
payment terms, generally not to exceed 30 days. Revenue is
recognized as all risks and rewards of transportation of the
vehicle are transferred to the owner during delivery.
Cost of Revenue – Pre-owned Vehicles Sales
Cost of
revenue is primarily comprised of cost of pre-owned vehicle
sales.
Cost of
pre-owned vehicle sales to consumers and dealers includes the cost
to acquire pre-owned vehicles and the reconditioning and
transportation costs associated with preparing these vehicles for
resale. Vehicle acquisition costs are driven by the mix of vehicles
we acquire, the source of those vehicles and supply and demand
dynamics in the vehicle market. Reconditioning costs are billed by
third-party providers and include parts, labor, and other repair
expenses directly attributable to specific pre-owned vehicles.
Transportation costs consist of costs incurred to transport the
vehicles from the point of acquisition. Cost of pre-owned vehicle
sales also includes any necessary adjustments to reflect vehicle
inventory at the lower of cost or net realizable
value.
38
Cost of Revenue – Vehicle Logistics and Transportation
Services
Cost of
vehicle transportation and logistics services primarily include the
costs of independent third-party transporters to deliver a vehicle
from a point of origin to a designated destination.
Selling, General and Administrative Expense
Selling, general
and administrative expenses include costs and expenses for
compensation and benefits, advertising and marketing, development
and operating our product procurement and distribution system,
managing our logistics system, establishing our dealer partner
arrangements, and other corporate overhead expenses, including
expenses associated with technology development, legal, accounting,
finance, and business development. Selling, general and
administrative expenses also include the transportation cost
associated with selling vehicles but excludes the cost of
reconditioning, inspecting, and auction fees which are included in
Cost of revenue. Selling, general and administrative expenses will
continue to increase substantially in future periods as we execute
and aggressively expand our business through increased marketing
spending and the addition of management and support personnel to
ensure we adequately develop and maintain operational, financial
and management controls as well as our reporting systems and
procedures, but we anticipate they will decline as a percentage of
sales revenue.
Depreciation and Amortization
Depreciation and
amortization is comprised of the: (i) amortization of capitalized and
acquired technology development; and (ii) depreciation of vehicles, leasehold
improvements, furniture and equipment. Depreciation and
amortization will continue to increase as continued investments are
made in connection with the expansion and growth of the
business.
Interest Expense
Interest expense
includes interest incurred on notes payable and other long-term
debt, which was used to fund startup costs and expenses, technology
development, inventory, our transportation fleet, property and
equipment and the acquisition of NextGen.
Seasonality
The
volume of vehicles sold will generally fluctuate from
quarter-to-quarter. This seasonality is caused by several factors
including weather, the timing of pre-owned vehicles available for
sale from selling consumers, the availability and quality of
vehicles, holidays, and the seasonality of the retail market for
pre-owned vehicles. As a result, revenue and operating expenses
related to volume will fluctuate accordingly on a quarterly basis.
The fourth calendar quarter typically experiences lower used
vehicle auction accessibility as well as additional costs
associated with the holidays and winter weather.
RESULTS OF OPERATIONS
The
following table provides our results of operations for the year
ended December 31, 2019 and 2018, including key financial
information relating to our business and operations. This financial
information should be read in conjunction with our audited
Consolidated Financial Statements and Notes to Consolidated
Financial Statements included in Item 8 of Part II. The results of
operations of Wholesale and Wholesale Express are included in the
Company's consolidated financial statements for the year ended
December 31, 2018 for the Wholesale Acquisition Period. The results
of operations of Autosport are included in the Company's
Consolidated Financial Statements for the year ended December 31,
2019 for the Autosport Acquisition Period. In this Management's
Discussion and Analysis of Financial Condition and Results of
Operations, no comparable
information is discussed with respect to Wholesale or Wholesale
Express for periods before the Wholesale Acquisition Date and
Autosport for the periods before the Autosport Acquisition
Date.
39
|
|
For the Year ended December 31, 2019
(1)
|
|
||||
|
|
Powersports
|
Automotive
|
Vehicle
Logistics and Transportation Services
|
Elimination(3)
|
Total
|
2018(2)
|
|
Revenue:
|
|
|
|
|
|
|
|
Pre-owned Vehicle
Sales:
|
|
|
|
|
|
|
|
Powersports
|
$ 101,008,976
|
$ -
|
$ -
|
$ -
|
$101,008,976
|
$61,204,416
|
|
Automotive (2)
|
-
|
717,042,511
|
-
|
-
|
717,042,511
|
91,369,996
|
|
Transportation and Vehicle
Logistics (2)
|
-
|
-
|
31,931,488
|
(9,353,628)
|
22,577,860
|
3,823,819
|
|
Total
Revenue
|
101,008,976
|
717,042,511
|
31,931,488
|
(9,353,628)
|
840,629,347
|
156,398,231
|
|
|
|
|
|
|
|
|
|
Cost of
Revenue:
|
|
|
|
|
|
|
|
Powersports
|
88,673,515
|
-
|
-
|
-
|
88,673,515
|
54,334,066
|
|
Automotive (2)
|
-
|
685,313,894
|
-
|
-
|
685,313,894
|
85,761,505
|
|
Transportation (2)
|
-
|
-
|
25,377,590
|
(9,353,628)
|
16,023,962
|
2,755,856
|
|
Total Cost of
Revenue
|
88,673,515
|
685,313,894
|
25,377,590
|
(9,353,628)
|
790,011,371
|
142,851,427
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
$ 12,335,461
|
$ 31,728,617
|
$ 6,553,898
|
$-
|
$50,617,976
|
$13,546,804
|
(1)
Inclusive only of the Autosport Acquisition Period.
(2)
Inclusive only of the Wholesale Acquisition Period.
(3)
Intercompany freight services from Wholesale Express are eliminated
in the consolidated financial statements
Powersports and Automotive
Segments
The
following table provides our results of operations for the years
ended December 31, 2019 and 2018 for the powersports and automotive
segments, including key financial information relating to these
segments. Our vehicle distribution segment consists of the
distribution of powersports and automotive vehicles, as further
described below. This financial information should be read in
conjunction with our audited Consolidated Financial Statements and
Notes to Consolidated Financial Statements included in Item 8 of
Part II. The results of operations of Wholesale are included in the
Company's Consolidated Financial Statements for the year ended
December 31, 2018 for the Wholesale Acquisition Period. The results
of operations of Autosport are included in the Company's
Consolidated Financial Statements for the year ended December 31,
2019 for the Autosport Acquisition Period. In this Management's
Discussion and Analysis of Financial Condition and Results of
Operations, no comparable
information is discussed with respect to Wholesale for periods
before Wholesale Acquisition Date and Autosport for the periods
before the Autosport Acquisition Date.
40
|
|
2019
|
2018
|
|
Revenue:
|
|
|
|
Pre-owned
Vehicle Sales:
|
|
|
|
Powersports
|
$101,008,976
|
$61,204,416
|
|
Automotive (1)
|
717,042,511
|
91,369,996
|
|
Total
vehicle revenue
|
818,051,487
|
152,574,412
|
|
|
|
|
|
Cost
of Revenue:
|
|
|
|
Powersports
|
88,673,515
|
54,334,066
|
|
Automotive (1)
|
685,313,894
|
85,761,505
|
|
Total
cost of revenue
|
773,987,409
|
140,095,571
|
|
|
|
|
|
Gross
Profit
|
44,064,078
|
12,478,841
|
|
|
|
|
|
Selling,
General and Administrative
|
82,006,330
|
34,934,997
|
|
|
|
|
|
Depreciation
and Amortization
|
1,779,021
|
982,772
|
|
|
|
|
|
Operating
loss
|
(39,721,273)
|
(23,438,928)
|
|
|
|
|
|
Interest
expense
|
(7,186,418)
|
(1,780,685)
|
|
Decrease in
derivative liability
|
1,302,500
|
-
|
|
Loss on early
extinguishment of debt
|
(1,499,250)
|
-
|
|
Net
loss before provision for income taxes
|
(47,104,441)
|
(25,219,613)
|
|
|
|
|
|
Benefit
for income taxes
|
-
|
-
|
|
|
|
|
|
Net
loss
|
$(47,104,441)
|
$(25,219,613)
|
(1)
Inclusive only of the Acquisition Period.
Total
revenue increased by $665,477,075 to $818,051,487 for the year
ended December 31, 2019 compared to $152,574,412 for the same
period of 2018. The increase was primarily due to an increase in
the number of pre-owned vehicles sold to 43,143 for the year ended
December 31, 2019 as compared to 12,529 for the same period of
2018. The increase in vehicles sold was a result of the continued
expansion of our powersports business and the acquisition of
Wholesale. Powersport vehicle sales revenue increased by
$39,804,560 to $101,008,976 for the year ended December 31, 2019 as
compared to $61,204,416 for the same period in 2018. Automotive
sales revenue increased by $625,672,515 to $717,042,511 for the
year ended December 31, 2019 as compared to $91,369,996 for the
Wholesale Acquisition Period.
Total
cost of revenue increased $633,891,838 to $773,987,409 for the year
ended December 31, 2019 compared to $140,095,571 for the same
period of 2018. The increase was primarily due to an increase in
the number of pre-owned vehicles sold for the year ended December
31, 2019 as compared to the same period of 2018 and the acquisition
of Wholesale. Powersport
total cost of revenue increased by $34,339,449 to $88,673,515 for
the year ended December 31, 2019 as compared to the same period of
2018. Automotive total cost of revenue increased by $599,552,389 to
$685,313,894 for the year ended December 31, 2019 as compared to
$85,761,505 for the Wholesale Acquisition Period.
Powersports
The
following table provides the results of operations for the year
ended December 31, 2019 and 2018 for our powersports segment,
including key financial information relating to the powersports
business. This financial information should be read in conjunction
with our audited Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in Item 8 of Part
II.
41
|
|
2019
|
2018
|
|
Powersports
|
|
|
|
|
|
|
|
Vehicle
revenue:
|
|
|
|
Consumer
|
$8,295,615
|
$6,506,266
|
|
Dealer
|
92,713,361
|
54,698,150
|
|
Total
vehicle revenue
|
$101,008,976
|
$61,204,416
|
|
|
|
|
|
Vehicle
gross Profit:
|
|
|
|
Consumer
|
$2,058,743
|
$1,272,135
|
|
Dealer
|
10,276,718
|
5,598,215
|
|
Total
vehicle gross profit
|
$12,335,461
|
$6,870,350
|
|
|
|
|
|
Vehicles
sold:
|
|
|
|
Consumer
|
955
|
733
|
|
Dealer
|
12,236
|
7,791
|
|
Total
vehicles Sold
|
13,191
|
8,524
|
|
|
|
|
|
Gross
profit per vehicle:
|
|
|
|
Consumer
|
$2,156
|
$1,736
|
|
Dealer
|
$840
|
$719
|
|
Total
|
$935
|
$806
|
|
|
|
|
|
Gross
margin per vehicle:
|
|
|
|
Consumer
|
24.8%
|
19.6%
|
|
Dealer
|
11.1%
|
10.2%
|
|
Total
|
12.2%
|
11.2%
|
|
|
|
|
|
Average
vehicle selling price:
|
|
|
|
Consumer
|
$8,687
|
$8,876
|
|
Dealer
|
$7,577
|
$7,021
|
|
Total
|
$7,657
|
$7,180
|
Powersports Vehicle Revenue
Total
powersports vehicle revenue increased by $39,804,560 to
$101,008,976 for the year ended December 31, 2019 compared to
$61,204,416 for the same period of 2018. The growth in powersports
revenue was primarily due to an increase in the number of pre-owned
vehicles sold to 13,191 for the year ended December 31, 2019
as compared to 8,524 for the same period of 2018, and an increase
in the average selling price per vehicle to $7,657 for the year
ended December 31, 2019 from $7,180 for the same period of 2018.
The increase in units sold was driven by a significant growth in
visits to the RumbleOn website, an increase in requests for cash
offers by consumers and dealers, expanded levels of inventory
available for sale, an enhanced digital and social media
advertising campaign, increased awareness of the RumbleOn brand and
customer referrals and the launch of our Dealer Direct online
acquisition platform which allows dealers to use our web or mobile
application to view, bid and buy inventory when and where they
want. The increase in the average selling price of pre-owned
vehicles for the year ended December 31, 2019 as compared to the
same period of 2018 was due to a shift in inventory mix
available for sale and higher sales prices. We anticipate that pre-owned
vehicle sales will continue to grow as we further increase
selection and availability of our online pre-owned vehicle
inventory and enhance our website with additional functionality
while continuing to efficiently source and scale our addressable
markets of consumers and dealers through brand building, direct
response marketing and event marketing and the expansion of our
consumer classified listing site.
Powersports Cost of Revenue
Powersport cost of
vehicle revenue increased by $34,339,449 to $88,673,515 for the
year ended December 31, 2019 and consisted of: (i) the acquisition
cost of vehicles sold to consumers and dealers of $85,143,181 from
the sale of 13,191 pre-owned vehicles at an average acquisition
cost of $6,455 and (ii) aggregate reconditioning and transportation
costs of $3,530,334. For the year ended December 31, 2018, the
$54,334,066 cost of vehicle revenue consisted of: (i) the
acquisition cost of vehicles sold to consumers and dealers of
$52,061,289 from the sale of 8,524 pre-owned vehicles at an average
acquisition cost of $6,108 and (ii) aggregate reconditioning and
transportation costs of $2,272,777.
42
Powersports Gross Profit
Powersport vehicle
gross profit increased $5,465,111 to $12,335,461 for the year ended
December 31, 2019 as compared to $6,870,350 for the same period of
2018. The increase was primarily due to an increase in the number
of pre-owned vehicles sold at an average higher gross profit for
the year ended December 31, 2019 as compared to the same period of
2018. The increase in powersport gross profit was driven primarily
by an increase in gross profit per vehicle to $935 or a 12.2%
gross margin for the year ended December 31, 2019 as compared to
$806 or 11.2 % gross margin for the same period of 2018. The
increase was primarily a result of: (i) a shift in inventory mix
available for sale and higher sales prices and (ii) an increase in
transportation and dealer fees.
Automotive
The
following table provides the results of operations for the year
ended December 31, 2019 and 2018 for the automotive segment including key
financial information relating to the automotive business. Our
automotive distribution business was added on the Wholesale
Acquisition Date in connection with the Wholesale acquisition. The
results of operations of Autosport are included in the Company's
Consolidated Financial Statements for the year ended December 31,
2019 for the Autosport Acquisition Period. This financial
information should be read in conjunction with our audited
Consolidated Financial Statements and Notes to Consolidated
Financial Statements included in Item 8 of Part II. In this Management's Discussion
and Analysis of Financial Condition and Results of Operations, no
comparable information is discussed with respect to Wholesale for
periods before the Wholesale Acquisition Date and Autosport for the
periods before the Autosport Acquisition Date.
|
|
2019(1)
|
2018(2)
|
|
Automotive
|
|
|
|
|
|
|
|
Vehicle
revenue:
|
|
|
|
Consumer
|
$75,950,236
|
$12,532,850
|
|
Dealer
|
641,092,275
|
78,837,146
|
|
Total vehicle
revenue
|
717,042,511
|
91,369,996
|
|
|
|
|
|
Gross
Profit:
|
|
|
|
Consumer
|
$9,939,683
|
$2,091,978
|
|
Dealer
|
21,788,934
|
3,516,512
|
|
Total vehicle gross profit
|
$31,728,617
|
$5,608,490
|
|
|
|
|
|
Vehicles
sold:
|
|
|
|
Consumer
|
2,792
|
512
|
|
Dealer
|
27,160
|
3,493
|
|
Total vehicles
sold
|
29,952
|
4,005
|
|
|
|
|
|
Gross profit per
vehicle
|
|
|
|
Consumer
|
$3,560
|
$4,086
|
|
Dealer
|
$802
|
$1,007
|
|
Total
|
$1,059
|
$1,400
|
|
|
|
|
|
Gross margin per
vehicle
|
|
|
|
Consumer
|
13.1%
|
16.7%
|
|
Dealer
|
3.4%
|
4.5%
|
|
Total
|
4.4%
|
6.1%
|
|
|
|
|
|
Average selling
price:
|
|
|
|
Consumer
|
$27,203
|
$24,478
|
|
Dealer
|
$23,604
|
$22,570
|
|
Total
|
$23,940
|
$22,814
|
(1)
Inclusive only of the Autosport Acquisition Period.
(2)
Inclusive only of the Wholesale Acquisition Period.
43
Automotive Revenue
Total
revenue increased by $625,672,515 to $717,042,511 for the year
ended December 31, 2019 compared to $91,369,996 for the Wholesale
Acquisition Period. For the year ended December 31, 2019, 29,952
pre-owned vehicles were sold at an average selling price of
$23,940. During the Wholesale Acquisition Period, 4,005 preowned
vehicles were sold at an average selling price of $22,814. The
average selling price of pre-owned vehicles sold will fluctuate
from period to period as a result of changes in the sales mix to
consumers and dealers in any given period.
Total
revenue from the sale to consumers for the year ended December 31,
2019 was $75,950,236 comprised of the sale of 2,792 preowned
vehicles at an average selling price of $27,203. Total revenue from
the sale to consumers for the Wholesale Acquisition Period was
$12,532,850 comprised of the sale of 512 preowned vehicles at an
average selling price of $24,478.
Total
revenue from the sale to dealers for the year ended December 31,
2019 was $641,092,275 comprised of the sale of 27,160 preowned
vehicles at an average selling price of $23,604. Total revenue from
the sale to dealers for the Wholesale Acquisition Period was
$78,837,146 comprised of the sale of 3,493 preowned vehicles at an
average selling price of $22,570. Substantially all sales to
dealers were conducted through third-party auctions.
Automotive Cost of Revenue
Total
cost of revenue for the year ended December 31, 2019 was
$685,313,894, which
included $66,010,553
from the sales to consumers and $619,303,341 from sales to
dealers. During the year ended December 31, 2019, we sold
29,952 preowned
vehicles that had (i) an acquisition cost of $673,039,189 and (ii) aggregate
reconditioning and transportation costs of $12,274,705. Total cost of
revenue for the Wholesale Acquisition Period was $85,761,505, which
included $10,440,871 from the sales to consumers, $75,320,634 from
sales to dealers. During the Wholesale Acquisition Period, we sold
4,005 preowned vehicles that had (i) an acquisition cost of
$84,009,915 and (ii) aggregate reconditioning and transportation
costs of $1,751,590.
Total
cost of revenue from the sale to consumers for the year ended
December 31, 2019 was $66,010,553 comprised of the sale
of 2,792 vehicles
that had: (i) a per vehicle acquisition cost of $23,069 and (ii) aggregate
reconditioning and transportation costs of $1,600,597. Total cost of revenue
from the sale to dealers for the year ended December 31, 2019 was
$619,303,341
comprised of the sale of 27,160 preowned vehicles that
had: (i) a per vehicle acquisition cost of $22,409 and (ii) aggregate
reconditioning and transportation costs of $10,674,108.
Total
cost of revenue from the sale to consumers for the Wholesale
Acquisition Period was $10,440,872 comprised of the sale of 512
vehicles that had: (i) a per vehicle acquisition cost of $19,847
and (ii) aggregate reconditioning and transportation costs of
$278,961. Total cost of revenue from the sale to dealers for the
Wholesale Acquisition Period was $75,320,634 comprised of the sale
of 3,493 preowned vehicles that had: (i) a per vehicle acquisition
cost of $21,142 and (ii) aggregate reconditioning and
transportation costs of $1,472,629. The average cost of pre-owned
vehicles sold will fluctuate from period to period as a result of
changes in the sales mix to consumers and dealers in any given
period.
Automotive Gross Profit
Total
gross profit for the year ended December 31, 2019 was
$31,728,617 from sales to consumers
and dealers. Gross profit per vehicle sold to consumers and dealers
was $1,059 or a
4.4% gross margin.
Total gross profit for the Wholesale Acquisition Period was
$5,608,490, which included $2,091,978 from the sales to consumers
and $3,516,512 from sales to dealers. Gross profit per vehicle sold
to consumers and dealers was $1,400 or a 6.1% gross margin.
Total
gross profit per vehicle sold to consumers for the year ended
December 31, 2019 was $3,560 or a 13.1% gross margin. Total gross
profit per vehicle sold to dealers for the year ended December 31,
2019 was $802 or a 3.4% gross margin. Total gross
profit per vehicle sold to consumers for the Wholesale Acquisition
Period was $4,086 or a 16.7% gross margin. Total gross profit per
vehicle sold to dealers for the Wholesale Acquisition Period was
$1,007 or a 4.5% gross margin. The gross profit of pre-owned
vehicles sold will fluctuate from period to period as a result of
changes in the sales mix to consumers and dealers in any given
period.
44
Vehicle Logistics and Transportation Services Segment
The
following table provides our results of operations for the year
ended December 31, 2019 and 2018 for our vehicle logistics and
transportation services segment, including key financial
information relating to this segment. Our vehicle logistics and
transportation services were added on the Wholesale Acquisition
Date in connection with the Express Acquisition. The results of
operations of Wholesale Express are included in the Company's
Consolidated Financial Statements for the year ended December 31,
2018 for the Wholesale Acquisition Period. This financial
information should be read in conjunction with our audited
Consolidated Financial Statements and Notes to Consolidated
Financial Statements included in Item 8 of Part II. In this
Management's Discussion and Analysis of Financial Condition and
Results of Operations, no comparable information is discussed with
respect to Wholesale Express for periods before the Wholesale
Acquisition Date.
|
|
2019
|
2018
|
|
Vehicle Logistics and Transportation Services
|
|
|
|
|
|
|
|
Total
revenue
|
$31,931,488
|
$4,931,558
|
|
|
|
|
|
Cost of
revenue
|
25,377,590
|
3,863,595
|
|
|
|
|
|
Gross
profit
|
6,553,898
|
1,067,963
|
|
|
|
|
|
Selling, general
and administrative
|
4,617,920
|
1,028,933
|
|
|
|
|
|
Depreciation and
Amortization
|
7,405
|
1,234
|
|
|
|
|
|
Operating
income
|
1,928,573
|
37,796
|
|
|
|
|
|
Interest
Expense
|
1,186
|
-
|
|
|
|
|
|
Net Income before
income tax
|
$1,927,387
|
$37,796
|
|
|
|
|
|
Vehicles
delivered
|
77,449
|
11,571
|
|
|
|
|
|
Revenue
per delivery
|
$412
|
$426
|
|
|
|
|
|
Gross
profit per delivery
|
$85
|
$92
|
|
|
|
|
|
Gross
margin per delivery
|
20.5%
|
21.7%
|
Vehicle Logistics and Transportation Services
Revenue
Total
revenue for the year ended December 31, 2019 was $31,931,488 resulting from the
transport of 77,449
preowned vehicles at an average price per vehicle transported of
$412. Total revenue
for the Acquisition Period was $4,931,558 resulting from the
transport of 11,571 preowned vehicles at an average price per
vehicle transported of $426. In the normal course of operations,
the Company utilizes transportation services of Wholesale Express.
For the year ended December 31, 2019 and the Wholesale Acquisition
Period, intercompany freight services provided by Wholesale Express
was $9,353,628 and $1,107,739, respectively and was eliminated in
the consolidated financial statements.
Vehicle Logistics and Transportation Services Cost of
Revenue
Total
cost of revenue for the year ended December 31, 2019 was
$25,377,590 and was
comprised of the delivery of 77,449 units at a delivery cost
per unit of $328.
Total cost of revenue for the Wholesale Acquisition Period was
$3,863,595 and was comprised of the delivery of 11,571 units at a
delivery cost per unit of $334. Included in cost of revenue for the
year ended December 31, 2019 and the Wholesale Acquisition Period,
was freight services purchases from Wholesale Express of $9,353,628
and $1,107,739, respectively and was eliminated in the consolidated
financial statements.
Vehicle Logistics and Transport Services Gross Profit
Total
gross profit for the year ended December 31, 2019 was $6,553,898 or $85 per unit transported as
compared to $1,067,963 or $92 per unit for the Wholesale
Acquisition Period.
45
Selling, general and administrative
|
|
2019
|
2018
|
|
Selling
general and administrative:
|
|
|
|
Compensation and
related costs
|
$33,502,020
|
$10,656,107
|
|
Advertising and
marketing
|
18,228,262
|
11,457,572
|
|
Professional
fees
|
2,542,357
|
1,788,425
|
|
Technology
development
|
2,408,338
|
1,152,108
|
|
General and
administrative
|
29,943,272
|
10,909,718
|
|
|
$86,624,249
|
$35,963,930
|
Selling, general
and administrative expenses increased by $50,660,319 to $86,624,249 for
the year ended December 31, 2019 compared to $35,963,930 for the
same period of 2018. The increase was a result of a $29,750,886
increase for Wholesale and Express in 2019 as compared to the
Wholesale Acquisition Period, and the recognition of an impairment
loss on goodwill of $1,850,000. The remainder of the $19,059,433
increase was from the continued rapid growth and expansion of our
business which resulted in: (i) an increase in expenses associated
with advertising and marketing; (ii) increase headcount associated
with the development and operating our product procurement,
distribution and logistics systems, human resources, marketing and
business development; (iii) continued investment in technology
development; (iv) increases in transportation costs and auction
fees associated with selling vehicles; and (v) an increase in other
corporate overhead costs and expenses, including accounting and
finance.
Compensation and
related costs increased by $22,845,913 to $33,502,020 for
the year ended December 31, 2019 compared to $10,656,107 for the
same period of 2018. The increase was primarily a result of a
$15,859,146 increase for Wholesale and Express in 2019 as compared
to the Wholesale Acquisition Period. The remainder of the increase
of $6,986,767 was driven by the rapid expansion of our business
which resulted in increased headcount to support this
growth. The Company had
approximately 297
employees at the end of 2019 versus 288 employees at the end of
2018. As our business grows, we will continue to add headcount in
all areas of the Company, which will result in an increase in
compensation and related expenses in absolute dollar terms but
significantly decrease as a percentage of total
revenue.
Advertising and
marketing increased by $6,770,690 to $18,228,262 for the
year ended December 31, 2019 compared to $11,457,572 for the same
period of 2018. The increase was primarily a result of a $2,451,098
increase for Wholesale and Express in 2019 as compared to the
Wholesale Acquisition Period. . The
remainder of the increase of $4,319,592 is a result of a
significant increase in our marketing spend among our digital,
social and search marketing campaigns.
We are continuing to successfully develop our
omnichannel marketing strategy, targeting both consumers and
dealers, by combining brand building, lead generation, and content
marketing to efficiently source and scale our addressable markets.
In addition to a strong social media marketing strategy, our
digital paid advertising efforts also include programmatic, display
advertisements, IP and Geo-Targeting, cascading data retargeting,
organic search and content creation, video marketing, personalized
automation, and aggressive event and experiential marketing. Our
traditional mediums have expanded further into localized radio, OOH
advertising and the production of future television and connected
TV brand awareness advertising for 2020. We believe our lifestyle
focus of nurturing the buyer/seller personas of both consumers and
dealers ensures loyalty which will drive both high participation in
the buying and selling process, while increasing referrals and
third-party partnerships. This nurturing will scale tremendously as
we prepare to launch personalized video experiences, unique to each
user looking to acquire a cash offer through the end of 2020 and
the appendage and unification of our current user data, to provide
a more targeted message for each stage of the customers'
journey. In addition to our paid channels, in future
periods we intend to attract new customers through increased media
spending and public relations efforts while continuing to invest in
our proprietary technology platforms and the overall user
experience. As we continue to gain share in our addressable market,
we expect advertising and marketing spending will continue to
increase in absolute dollar terms but will decrease as a percentage
of total revenue.
Professional fees
increased by $753,932 to
$2,542,357 for the year ended December 31, 2019 compared to
$1,788,425 for the same period of 2018. The increase was
primarily a result of a $243,151 increase for Wholesale and Express
in 2019 as compared to the Wholesale Acquisition Period. The
remainder of the increase of $510,781 was primarily a result of
legal, accounting and other professional fees and expenses incurred
in connection with the activities associated with the rapid growth
and expansion of the business. Fees and expenses were incurred for:
(i) equity financings; (ii) debt financings; (iii) acquisition
activities; (iv) general corporate matters; (v) the preparation of
quarterly and annual financial statements; and (vi) the preparation
and filing of regulatory reports required of the Company for public
reporting purposes For additional information, see Note 4 –
"Acquisitions" and Note 8 - "Notes Payable and Lines of Credit" and
Note 9 - "Stockholders' Equity," in the accompanying Notes to the
Consolidated Financial Statements.
46
Technology
development expenses increased $1,256,230 to $2,408,338 for the
year ended December 31, 2019 compared to $1,152,108 for the same
period of 2018. The increase was a result of a significant increase
in headcount and third-party contractors to meet an increase level
of technology development projects and initiatives. Included in
these new technology development projects and initiatives were
modules or significant upgrades to existing platforms for: (i)
Retail online auction; (ii) Native App in IOS and Android;
(iii) new architecture on website design and functionality;
(iv) RumbleOn Marketplace; (v) redesigned cash offer tool;
(vi) deal-jacket tracking tool; (vii) inventory tracking tool;
(viii) CRM and multiple third-party integrations; (ix) new
analytics and machine learning initiatives; and (x) IT monitoring
infrastructure. Total technology costs and expenses incurred for
the year ended December 31, 2019 were $5,494,081 of which
$3,085,743 was capitalized. For the year ended December 31, 2018,
total technology costs and expenses incurred were $3,314,815 of
which $2,162,707 was capitalized. For the year ended December 31,
2019, a third-party contractor billed $1,028,884 of the total
technology development costs as compared to $2,117,739 for the same
period of 2018. The amortization of capitalized technology
development costs for the year ended December 31, 2019 was
$1,436,088 as compared to $825,782 for the same period of 2018. We
expect our technology development expenses to increase as we
continue to upgrade and enhance our technology infrastructure,
invest in our products, expand the functionality of our platform
and provide new product offerings. We also expect technology
development expenses to continue to be affected by variations in
the amount of capitalized internally developed
technology.
General
and administrative expenses increased by $19,033,554 to $29,943,272
for the year ended December 31, 2019 compared to $10,909,718 for
the same period of 2018. The increase was primarily a result of a
$11,197,491 increase for Wholesale and Express in 2019 as compared
to the Wholesale Acquisition Period. The remainder of the increase
of $7,836,063 is a result of the recognition of an impairment loss
on goodwill of $1,850,000 and the cost and expenses associated with
the continued progress made and growth experienced in the
development of our business, expansion of our Dallas and
Nashville operation centers and meeting the requirements of being a
public company. The increase in general and administrative costs
and expenses consists primarily of: (i) insurance of $926,385; (ii)
travel of $595,710; (iii) office supplies and process application
software of $236,191; (iv) rent of $1,247,411;
(v) transportation cost and auction fees associated with
selling vehicles of $8,457,250. As our business grows,
we will continue to add cost and expenses in all areas of the
Company, which will result in an increase in selling and
administrative costs in absolute dollar terms but significantly
decrease as a percentage of total revenue.
Depreciation and Amortization
Depreciation and
amortization increased by $802,420 to $1,786,426 for the year ended
December 31, 2019 compared to $984,006 for the same period of 2018.
The increase in depreciation and amortization is a result of the
cumulative investments made in connection with the expansion and
growth of the business which for the year ended December 31, 2019
included capitalized technology acquisition and development costs
of $3,085,743. For the year ended December 31, 2019, amortization
of capitalized technology development was $1,436,088 as compared to
$825,782 for the same period of 2018. Depreciation and amortization
on vehicle, furniture, equipment and leasehold improvements was
$350,338 as compared to $158,224 for the same period of
2018.
Interest Expense
Interest expense
increased by $5,406,919 to $7,187,604 for the year ended December
31, 2019 compared to $1,780,685 for the same period of 2018.
Interest expense consists of interest on the: (i) Hercules Loan;
(ii) Private Placement Notes; (iii) the subordinated secured
promissory note issued to NextGen (the "NextGen Note"); (iv) the
Credit Facility and the NextGear Credit Line (each as defined
below) (together, the "Line of Credit-Floor Plans"); (v) Notes; and
(vi) the notes issued in connection with the Autosport Acquisition
(the "Convertible Notes-Autosport"). The increase resulted from:
(i) interest on a higher level of debt outstanding; (ii) the
amortization of the beneficial conversion feature on the Private
Placement Notes; (iii) the amortization of the debt issuance costs
on the Hercules Loan, Notes and Convertible Notes-Autosport; and
(iv) amortization of transaction costs on the Notes. Interest
expense for the year ended December 31, 2019 for the: (i) Hercules
Loan was $758,466 and included $342,841 of debt issuance cost
amortization; (ii) Private Placement Notes was $316,091; (iii) Line
of Credit-Floor Plans was $3,239,293; (iv) Convertible
Notes-Autosport was $228,002 and included $103,005 of debt discount
amortization; (v) Notes was $2,523,064 and included $1,218,064 of
debt discount and transaction fee amortization; (vi) NextGen Note
was $110,484. Interest expense for the year ended December 31, 2018
for the: (i) Hercules Loan was $770,810 and included $304,213, of
debt issuance cost amortization; (ii) Private Placement Notes
was $259,177 which included $205,926 of debt discount amortization;
(iii) NextGen Note was $87,617; and (iv) Line of Credit
– Floor Plans was $663,081. Included in interest
expense is $513,305 for Wholesale for the Wholesale
Acquisition
Period. See Part II, Financial Statements and Supplementary
Data—Note 8—"Notes Payable and Lines of Credit
" for additional
discussion.
On May
14, 2019, the Company made a payment to Hercules Capital Inc.
("Hercules") of $11,134,696, representing the principal, accrued
and unpaid interest, fees, costs and expenses outstanding under its
Loan and Security Agreement (the "Loan Agreement") with Hercules
dated April 30, 2018 (the "Hercules Indebtedness"). Upon the
payment, all outstanding indebtedness and obligations of the
Company owed to Hercules under the Loan Agreement were paid in
full, and the Loan Agreement was terminated. The Company used a
portion of the net proceeds from the Note Offering (described
below) to pay the Hercules Indebtedness. In accordance with the
guidance in ASC 470-50, Debt, the Company accounted for the
extinguishment of the Hercules Loan Agreement as an extinguishment
and recognized a loss on early extinguishment of debt of $1,499,250
for the year ended December 31, 2019 the Consolidated Statements of
Operations. The loss on early extinguishment consisted primarily of
the prepayment penalty paid to Hercules and unamortized debt
discounts including the remaining portion of warrant values and
debt issuance costs.
47
Derivative Liability
In
connection with the Notes, a derivative liability was recorded at
issuance with an interest make-whole provision of $1,330,000 based
on a Monte-Carlo Simulation using a volatility of 85.0% and a
risk-free rate of 2.3%. This amount was recorded as a debt discount
and is amortized to interest expense over the term of the Notes
using the effective interest rate. The derivative liability is
remeasured at each reporting date with the change in value of
$1,302,500 being recorded in the Statements of Operations for the
year ended December 31, 2019. The value of the derivative liability
as of December 31, 2019 is $27,500.
Adjusted EBITDA
Adjusted EBITDA is
a non-GAAP financial measure and should not be considered as an
alternative to operating income or net income as a measure of
operating performance or cash flows or as a measure of liquidity.
Non-GAAP financial measures are not necessarily calculated the same
way by different companies and should not be considered a
substitute for or superior to U.S. GAAP.
Adjusted EBITDA is
defined as net loss adjusted to add back interest expense including
debt extinguishment and depreciation and amortization, and certain
charges and expenses, such as non-cash compensation costs,
acquisition related costs, derivative income, financing activities,
litigation expenses, severance, new business development costs,
technology implementation costs and expenses, and facility closure
and lease termination costs, as these charges and expenses are not
considered a part of our core business operations and are not an
indicator of ongoing, future company performance.
Adjusted EBITDA is
one of the primary metrics used by management to evaluate the
financial performance of our business. We present Adjusted EBITDA
because we believe it is frequently used by analysts, investors and
other interested parties to evaluate companies in our industry.
Further, we believe it is helpful in highlighting trends in our
operating results, because it excludes, among other things, certain
results of decisions that are outside the control of management,
while other measures can differ significantly depending on
long-term strategic decisions regarding capital structure and
capital investments.
The
following tables reconcile Adjusted EBITDA to net loss for the
periods presented:
|
|
2019
|
2018
|
|
Net loss
|
$(45,177,053)
|
$(25,181,817)
|
|
Add back:
|
|
|
|
Interest
expense (including debt extinguishment)
|
8,686,854
|
1,780,685
|
|
Depreciation
and amortization
|
1,786,426
|
984,006
|
|
EBITDA
|
(34,703,773)
|
(22,417,126)
|
|
Adjustments
|
|
|
|
Goodwill
impairment
|
1,850,000
|
-
|
|
Non-cash-stock-based
compensation
|
3,836,518
|
1,657,680
|
|
Derivative
income
|
(1,302,500)
|
-
|
|
Severance
|
1,079,438
|
-
|
|
New
business development
|
1,224,523
|
-
|
|
Other
non-recurring costs
|
1,639,666
|
-
|
|
Adjusted EBITDA
|
$(26,376,128)
|
$(20,759,446)
|
Liquidity and Capital Resources
We
generate cash from the sale of used retail vehicles, the sale of
wholesale vehicles, and providing vehicle logistics and
transportation services for used vehicles. We generate additional
cash flows through our financing activities including our
short-term revolving inventory floor plan facilities, the issuance
of long-term notes, and new issuances of equity. Historically, cash
generated from financing activities has funded growth and expansion
and strategic initiatives and we expect this to continue in the
future.
48
Our
ability to service our debt and fund working capital, capital
expenditures, and business development efforts will depend on our
ability to generate cash from operating and financing activities,
which is subject to our future operating performance, as well as to
general economic, financial, competitive, legislative, regulatory,
and other conditions, some of which may be beyond our control. Our
future capital requirements will depend on many factors, including
our rate of revenue growth, our
expansion of our various lines of business and the timing and
extent of our spending to support our technology and software
development efforts.
We had
the following liquidity resources available as of December 31, 2019
and December 31, 2018:
|
|
2019
|
2018
|
|
Cash
and cash equivalents
|
$49,660
|
$9,134,902
|
|
Restricted cash (1)
|
6,676,622
|
6,650,000
|
|
Total
cash, cash equivalents, and restricted cash
|
6,726,282
|
15,784,902
|
|
Availability
under short-term revolving facilities
|
35,839,030
|
16,133,106
|
|
Committed
liquidity resources available
|
$42,565,652
|
$31,918,008
|
(1)
Amounts included in restricted cash represent the deposits required
under the Company's short-term revolving facilities.
On
January 14, 2020, the Company closed a public offering at a public
price of $11.40 per share (the "2020 Public Offering"). On January
16, 2020, the Company received notice of the Underwriters' intent
to exercise the over-allotment option in full (the "Over-allotment
Exercise"). On January 17, 2020, the Company closed the
Over-allotment Exercise. The Over-allotment Exercise increased the
aggregate number of shares sold in the 2020 Public Offering to
1,035,000. Including the Over-allotment Exercise, proceeds from the
2020 Public Offering, after deducting the 7.0% underwriter’s
commission and $75,000 for underwriter expenses, were
$10,898,070.
Also on
January 10, 2020, the Company entered into a Note Exchange and
Subscription Agreement, as amended by the Joinder Agreement, with
the investors in the 2019 Note Offering (as defined below),
pursuant to which the Company agreed to complete (i) a note
exchange pursuant to which $30,000,000 of the Old Notes (as defined
below) would be cancelled in exchange for a new series of 6.75%
Convertible Senior Notes due 2025 (the "New Notes"), and (ii) the
issuance of additional New Notes in a private placement in reliance
on the exemption from registration provided by Rule 506 of
Regulation D of the Securities Act as a sale not involving any
public offering. On January 14, 2020, the Company closed the 2020
Note Offering. The proceeds for the
2020 Note Offering, after deducting for the payment of accrued
interest and offering-related expenses, but exclusive of company
costs were $8,272,375.
As of
December 31, 2019, and 2018, excluding operating lease
liabilities and the derivative liability, the outstanding principal
amount of indebtedness was $82,585,522 and $67,347,925,
respectively, summarized in the table below. See Note 8 —
Notes Payable and Lines of Credit and Note 19 – Subsequent
Events to our consolidated financial statements included in Part
II, Item 8, Financial Statements and Supplementary Data of this
Annual Report on Form 10-K for further information on our
debt.
49
|
|
December
31,
|
|
|
Asset-Based
Financing:
|
2019
|
2018
|
|
Inventory
|
$59,160,970
|
$56,372,501
|
|
Total asset-based
financing
|
59,160,970
|
56,372,501
|
|
Convertible senior
notes
|
31,333,334
|
12,190,834
|
|
Senior unsecured
notes
|
2,568,843
|
667,000
|
|
Total
debt
|
93,063,147
|
69,230,335
|
|
Less: unamortized
discount and debt issuance costs
|
(10,477,625)
|
(1,882,410)
|
|
Total debt,
net
|
$82,585,522
|
$67,347,925
|
The
following table sets forth a summary of our cash flows for the year
ended December 31, 2019 and 2018:
|
|
2019
|
2018
|
|
Net cash used in
operating activities
|
$(39,747,330)
|
$(23,452,753)
|
|
Net cash used in
investing activities
|
(3,871,223)
|
(17,564,367)
|
|
Net cash provided
by financing activities
|
34,559,933
|
47,631,370
|
|
Net (decrease)
increase in cash
|
$(9,058,620)
|
$6,614,250
|
Operating Activities
Net
cash used in operating activities increased $16,294,577 to
$39,747,330 for the year ended December 31, 2019, as compared to the year ended
December 31, 2018. The increase in net cash used is primarily due
to a $19,995,236 increase in our net loss offset by a $3,700,659
increase in non-cash expense items. The increase in the net loss
for the year ended December 31, 2019 was a result of the continued
expansion and progress made on our business plan, including a
significant increase in compensation, marketing and advertising
spend, costs and expenses associated with the sale of inventory,
continued development of the Company's business and for working capital
purposes.
Investing Activities
Net
cash used in investing activities decreased $13,693,144 to
$3,871,223 for the year ended December 31, 2019 as compared to the
year ended December 31, 2018. The decrease in cash used for
investment activities was primarily due to a decrease of
$14,560,251 for acquisitions, offset by an increase in costs
incurred for technology development of $923,036. In 2019 the
Company used $835,000 to acquire Autosport, while in 2018 the
Company used cash of $15,395,251 to acquire Wholesale, Inc and
Wholesale Express, LLC.
On February 3, 2019, the Company
completed the Autosport Acquisition pursuant to the Stock Purchase
Agreement, by and among the Buyer, the Seller and Autosport.
Aggregate consideration for the Autosport Acquisition consisted of
(i) a closing cash payment of $600,000, plus (ii) the Promissory
Note in favor of the Seller, plus (iii) the Convertible Note in
favor of the Seller, plus (iv) contingent Earn-Out Shares for up to
an additional $787,500 if Autosport achieves certain performance
thresholds. In connection with the Autosport Acquisition, the Buyer
also paid outstanding debt of Autosport of $235,000 and assumed
additional debt of $257,933 pursuant to the Second Convertible
Note. The fair value of the
contingent earn-out payment was considered immaterial at the date
of acquisition and was excluded from the purchase price allocation.
As of December 31, 2019, there have been no payments earned under
the performance thresholds.
On October 26, 2018, we entered into the Merger Agreement with the
Merger Sub, Holdings, Wholesale, the Stockholders, the
Representative, and, for the limited purposes of Section 5.8,
Marshall Chesrown and Steven R. Berrard, providing for the
Wholesale Merger. Also, on October 26, 2018, we entered into the
Purchase Agreement with the Express Sellers, and Steven Brewster as
representative of the Express Sellers, pursuant to which the
Company completed the Express Acquisition. On October 30, 2018, the
Company completed the Wholesale Merger and Express Acquisition. As
consideration for the Wholesale Merger, we (i) paid cash
consideration of $12,353,941, subject to certain customary
post-closing adjustments, and (ii) issued to the Stockholders the
Stock Consideration. As consideration for the Express Acquisition,
we paid cash consideration of $4,000,000, subject to certain
customary post-closing adjustments.
50
Financing Activities
Year Ended December 31, 2019
Net cash provided by financing
activities decreased $13,071,437 to $34,559,933 for the year ended December 31, 2019 as
compared to the same period in 2018. This decrease is primarily a
result of a reduction in the finance offerings in 2019 compared to
2018, as discussed below. The proceeds from these transactions were
used to: (i) acquire vehicle inventory; (ii) accelerate technology
development; and (iii) continue development of the Company's
business and for working capital purposes.
On February 11, 2019, the Company completed an
underwritten public offering of 63,825 shares of its Class B Common
Stock at a price of $111.00 per share for net proceeds to the
Company of $6,543,655 (the "February 2019 Public Offering"). The
completed offering included 8,325 shares of Class B Common Stock
issued upon the underwriter's exercise in full of its
over-allotment option. The Company used the net proceeds from the
offering for working capital and general corporate purposes, which
included purchases of additional inventory held for sale, increased
spending on marketing and advertising and capital expenditures
necessary to grow the business.
On
May 9, 2019, the Company entered into a purchase agreement (the
"Note Purchase Agreement") with JMP Securities LLC ("JMP
Securities") to issue and sell $30,000,000 in aggregate principal
amount of the Company's 6.75% Convertible Senior Notes due 2024
(the "Notes" or "Old Notes") in a private placement to qualified
institutional buyers pursuant to Rule 144A under the Securities Act
(the "2019 Note Offering"). Proceeds from the 2019 Note Offering,
after deducting the initial purchaser's discounts, advisory fees,
and related offering expenses, were $27,385,500.
The
Notes were issued on May 14, 2019 pursuant to an Indenture (the
"Indenture"), by and between the Company and Wilmington Trust,
National Association, as trustee. The Notes bore interest at 6.75%
per annum, payable semiannually on May 1 and November 1 of each
year, beginning on November 1, 2019. The Notes could bear
additional interest under specified circumstances relating to the
Company's failure to comply with its reporting obligations under
the Indenture or if the Notes were not freely tradeable as required
by the Indenture. The Notes would have matured on May 1, 2024,
unless earlier converted, redeemed or repurchased pursuant to their
terms.
The
initial conversion rate of the Notes was 8.6956 shares of Class B
Common Stock per $1,000 principal amount of the Notes, subject to
adjustment (which is equivalent to an initial conversion price of
approximately $115.00 per share, subject to adjustment). The
conversion rate was subject to adjustment in some events but would
not have be adjusted for any accrued and unpaid interest. In
addition, upon the occurrence of a make-whole fundamental change
(as defined in the Indenture), the Company would, in certain
circumstances, increase the conversion rate by a number of
additional shares for a holder that elects to convert its Notes in
connection with such make-whole fundamental change.
Before
the close of business on October 31, 2023, the Notes were
convertible only under certain circumstances specified in the
Indenture. On or after November 1, 2023, to the close of business
on the business day immediately preceding the maturity date,
holders could have converted all or any portion of their notes at
the applicable conversion rate at any time, in multiples of $1,000
principal amount, at the option of the holder regardless of such
conditions. Upon conversion, the Company would pay or deliver cash,
shares of Class B Common Stock, or a combination of cash and shares
of Class B Common Stock, at the Company's election.
The
Notes were not redeemable by the Company prior to the May 6, 2022.
The Company could have redeemed for cash all or any portion of the
Notes, at its option, on or after May 6, 2022 if the last reported
sale price of the Class B Common Stock had been at least 150.0% of
the conversion price then in effect for at least 20 trading days
(whether or not consecutive). No sinking fund was provided for the
Notes.
The
Notes were the Company's senior unsecured obligations and rank
senior in right of payment to any of the Company's indebtedness
that is expressly subordinated in right of payment to the Notes;
equal in right of payment to any of the Company's unsecured
indebtedness that is not so subordinated; effectively junior in
right of payment to any of the Company's secured indebtedness to
the extent of the value of the assets securing such indebtedness;
and structurally junior to all indebtedness and other liabilities
of current or future subsidiaries of the Company (including trade
payables).
The
Notes were subject to events of default typical for this type of
instrument. If an event of default, other than an event of default
in connection with certain events of bankruptcy, insolvency or
reorganization occurs and is continuing, the Trustee or the holders
of at least 25.0% in principal amount of the outstanding Notes,
could have declared 100.0% of the principal of and accrued and
unpaid interest on the Notes immediately due and
payable.
51
On
May 9, 2019, the Company also entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") with certain
accredited investors (the "Investors") pursuant to which the
Company agreed to sell in a private placement (the "2019 Private
Placement") an aggregate of 95,000 shares of the Class B Common
Stock (the "Private Placement Shares"), at a purchase price of
$100.00 per share. JMP Securities served as the placement agent for
the 2019 Private Placement. The Company paid JMP Securities a
commission of 7.0% of the gross proceeds in the 2019 Private
Placement. Upon closing, the proceeds for the 2019 Private
Placement, after deducting commissions and related offering
expenses, were $8,665,000.
On
May 14, 2019, the Company used a portion of net proceeds from the
2019 Note Offering to pay Hercules (as defined below) $11,134,695,
representing the principal, accrued and unpaid interest, fees,
costs and expenses outstanding under the Loan Agreement (as defined
below). Upon the payment, all outstanding indebtedness and
obligations of the Company owed to Hercules under the Loan
Agreement were paid in full, and the Loan Agreement was
terminated.
Year Ended December 31, 2018
Net cash provided by financing
activities increased $28,308,507 to $47,631,370 for the year ended December 31, 2018 as
compared to the same period in 2017. This increase is primarily a
result of the: (i) 2018 public offering of 116,438 shares of
Class B Common Stock with net proceeds of $13,015,825; (ii)
the private placement of an aggregate of 151,500 shares of our
Class B Common Stock (the "2018 Private Placement") with net proceeds of $20,086,155;
(iii) proceeds of $9,227,035 from Hercules loans; and
(iv) Net advances of $5,302,355 under floor plan lines of
credit. The proceeds from these transactions were used to: (i)
acquire vehicle inventory; (ii) accelerate technology development;
(iii) fund the acquisition of Wholesale and Express; and (iv)
continue development of the Company's business and for working
capital purposes.
On
February 16, 2018, the Company, through RMBL Missouri, entered into
an Inventory Financing and Security Agreement (the "Credit
Facility") with Ally Bank, a Utah chartered state bank ("Ally
Bank") and Ally Financial, Inc., a Delaware corporation (together
with Ally Bank "Ally"), pursuant to which Ally may provide up to
$25,000,000 in financing, or such lesser sum which may be advanced
to or on behalf of RMBL Missouri from time to time, as part of its
floorplan vehicle financing program. Advances under the Credit
Facility require RMBL
Missouri to maintain 10.0% of the advanced amount as restricted
cash. Advances under the Credit Facility will bear interest at a
per annum rate designated from time to time by Ally and will be
determined using a 365/360 simple interest method of calculation,
unless expressly prohibited by law. Advances under the Credit
Facility, if not demanded earlier, are due and payable for each
vehicle financed under the Credit Facility as and when such vehicle
is sold, leased, consigned, gifted, exchanged, transferred, or
otherwise disposed of. Interest under the Credit Facility is due
and payable upon demand, but, in general, in no event later than 60
days from the date of request for payment. Upon any event of
default (including, without limitation, the Borrower's obligation
to pay upon demand any outstanding liabilities of the Credit
Facility), Ally may, at its option and without notice to RMBL
Missouri, exercise its right to demand immediate payment of all
liabilities and other indebtedness and amounts owed to Ally and its
affiliates by RMBL Missouri and its affiliates. The Credit Facility
is secured by a grant of a security interest in the vehicle
inventory and other assets of RMBL Missouri and payment is
guaranteed by the Company pursuant to a guaranty in favor of Ally
and secured by the Company pursuant to a General Security
Agreement.
On
April 30, 2018 (the "Closing Date"), the Company, and it wholly
owned subsidiaries, (collectively the "Initial Borrowers"),
entered into a Loan and Security Agreement (the "Loan Agreement")
with Hercules Capital, Inc. a Maryland Corporation ("Hercules")
pursuant to which Hercules may provide one or more term loans in an
aggregate principal amount of up to $15,000,000 (the "Hercules
Loan"). Under the terms of the Loan Agreement, $5,000,000 was
funded at closing with the balance available in two additional
tranches over the term of the Loan Agreement, subject to certain
operating targets and otherwise as set forth in the Loan Agreement.
The Hercules Loan has an initial 36-month maturity and initial
10.5% interest rate. The Hercules Loan is subject to various
covenants, including gross profit and EBITDA. As of December 31,
2018, the Company was in compliance with such
covenants.
Under
the Loan Agreement, on the Closing Date, the Company issued
Hercules a warrant to purchase 4.091 (increasing to 5,455 if a
fourth tranche in the principal amount of up to $5,000,000 is
advanced at the party's agreement) shares of the Company's Class B
Common Stock (the "Warrant') at an exercise price of $110.00
per share (the "Warrant Price"). The Warrant is immediately
exercisable and expires on April 30, 2023.
Advances under the
Hercules Loan ("Advances") will bear interest at a per annum rate
equal to the greater of either (i) the prime rate plus 5.75%,
or (ii) 10.25%, based on a year consisting of 360 days.
Advances under the Loan Agreement are due and payable on May 1,
2021, unless the Initial Borrowers achieve certain performance
milestones, in which case Advances will be due and payable on
November 1, 2021.
52
Upon
any event of default, Hercules may, at its option, exercise its
right to demand immediate payment of all liabilities and other
indebtedness and amounts owed to Hercules by the Initial
Borrowers.
The
Hercules Loan is secured by a grant of a security interest in
substantially all assets (the "Collateral") of the Initial
Borrowers, except the Collateral does not include (a) certain
outstanding equity of the Initial Borrowers' foreign subsidiaries,
if any, or (b) nonassignable licenses or contracts of the Initial
Borrowers, if any.
On July
20, 2018, the Company completed an underwritten public offering of
116,438 shares of its Class B Common Stock at a price of $121.00
per share for aggregate net proceeds to the Company of $13,015,825.
The completed offering included 15,188 shares of Class B Common
Stock issued upon the underwriter's exercise in full of its
over-allotment option. The Company intends to use the net proceeds
from the offering for working capital and general corporate
purposes, which may include purchases of additional inventory held
for sale, increased spending on marketing and advertising and
capital expenditures necessary to grow the business.
On
October 26, 2018, we entered into the Merger Agreement by and among
the Company, Merger Sub, Holdings, Wholesale, and the
Stockholders), Steven Brewster, a Tennessee resident, as the
representative of each Stockholder (the "Representative"), and, for
the limited purposes of Section 5.8, Marshall Chesrown and Steven
R. Berrard, providing for the Wholesale Merger of Holdings with and
into Merger Sub, with Merger Sub surviving the Wholesale Merger as
a wholly-owned subsidiary of the Company. On October 29, 2018, we
entered into an Amendment to the Merger Agreement making a
technical correction to the definition of "Parent Consideration
Shares" contained in the Merger Agreement.
Also,
on October 26, 2018, we entered into the Purchase Agreement, by and
among the Company, the Express Sellers, and Steven Brewster as
representative of the Express Sellers, pursuant to which we
acquired all of the membership interests (the "Express
Acquisition") in Wholesale Express.
The
Wholesale Merger and the Express Acquisition were both completed on
October 30, 2018 (the "Wholesale Closing Date"). As consideration
for the Wholesale Merger, we (i) paid cash consideration of
$12,353,941, subject to certain customary post-closing adjustments,
and (ii) issued to the Stockholders 1,317,329 shares (the "Stock
Consideration") of our Series B Non-Voting Convertible Preferred
Stock, par value $0.001. As consideration for the Express
Acquisition, we paid cash consideration of $4,000,000, subject to
certain customary post-closing adjustments.
On
October 30, 2018, the Company, NextGen Pro, LLC, ("NextGen Pro"),
RMBL Missouri, LLC, ("RMBL Missouri"), RMBL Texas, LLC ("RMBL
Texas", and together with the Company, NextGen Pro, and RMBL
Missouri, each, an "Existing Borrower", and collectively, the
"Existing Borrowers"), Merger Sub, Wholesale, Wholesale Express,
RMBL Express, LLC, ("RMBL Express", and together with Merger
Sub, Wholesale and Wholesale Express, the "New Borrowers"; together
with the Existing Borrowers, the "Borrowers"), Hercules, in its
capacity as lender (in such capacity, "Lender"), and Hercules, in
its capacity as administrative agent and collateral agent for
Lender (in such capacities, "Agent"), entered into the First
Amendment and Waiver to Loan and Security Agreement (the
"Amendment"), amending the Loan Agreement, (as amended by the
Amendment, the "Amended Loan Agreement"), by and among the Existing
Borrowers, Lender and Agent. Under the terms of the Amendment,
$5,000,000 (less certain fees and expenses) was funded by Lender to
the Borrowers in connection with the Wholesale Closing Date (the
"Tranche II Advance"). The Tranche II Advance has a maturity date
of October 1, 2021 and an initial interest rate of 11.00%. Pursuant
to the Amendment, we issued to Hercules a warrant to purchase 1,048
shares of Class B Common Stock at an exercise price of $143.13 per
share. In connection with the Company's public offering in February
2019, the exercise price of the warrant was adjusted to $110.94 and
the number of shares of Class B Common Stock underlying the warrant
was adjusted to 1,352. The warrant is immediately exercisable and
expires on October 30, 2023.
Also,
on October 30, 2018, Wholesale, as borrower, entered into a
floorplan vehicle financing credit line (the "NextGear Credit
Line") with NextGear Capital, Inc. ("NextGear"). The available
credit under the NextGear Credit Line is initially $63,000,000, it
was increased to $70,000,000 after February 28, 2019. The NextGear
Credit Line is due and payable on demand. Advances under the
NextGear Credit Line will bear interest at an initial per annum
rate of 5.25%, based upon a 360-day year, and compounded daily, and
the per annum interest rate will vary based on a base rate, plus
the contract rate, which is currently negative 2.00%, until the
outstanding liabilities to NextGear are paid in full. See Note 8
– Notes Payable and Lines of Credit to our consolidated
financial statements included in Part II, Item 8, Financial
Statements and Supplementary Data of this Annual Report on Form
10-K for further information on this loan
On
October 30, 2018, we completed the 2018 Private Placement at a
price of $142.00 per share for non-affiliates of the Company,
and, with respect to directors participating in the 2018 Private
Placement, at a price of $162.00 per share. The gross proceeds for
the 2018 Private Placement were $21,553,000. National Securities
Corporation, a wholly owned subsidiary of National Holdings
Corporation, and Craig-Hallum Capital Group (together the
"Placement Agents") served as the placement agents for the 2018
Private Placement. We paid the Placement Agents a fee of 6.5% of
the gross proceeds in the 2018 Private Placement. Net proceeds from
the 2018 Private Placement and $5,000,000 funded under the Tranche
II Advance were used to partially fund the cash consideration of
the Wholesale Merger and the Express Acquisition and the balance
will be used for working capital purposes.
53
Liquidity
We have
incurred losses and negative cash flow from operations since
inception through December 31, 2019 and expect to incur additional
losses and negative cash flow in the future. As we continue to
expand our business, build our brand name and awareness, and
continue technology and software development efforts, we may need
access to additional capital. Historically, we have raised
additional capital to fund our expansion through equity issuances
or debt instruments; refer to Note 8 — Notes Payable and
Lines of Credit and Note 9 — Stockholders Equity. Also, we
have historically funded vehicle inventory purchases through our
Line of Credit-Floor Plans. As of May 28, 2020, we had
approximately $15,000,000 available under our NextGear Credit Line
that we may draw against through December 31, 2020 to fund future
vehicle inventory purchases, as described further in Note 8 —
Notes Payable and Lines of Credit.
Due to
the impact of COVID-19 on the economy, we have a strong focus on
preserving liquidity. Our primary liquidity sources are available
cash and cash equivalents, amounts available under the NextGear
Credit Line, proceeds from the Paycheck Protection Program loan,
monetization of our retail loan portfolio and through rationalizing
costs and expenses, including temporarily laying off 169 employees.
Although we have experienced a decrease in revenue as a result of
the impact of the COVID-19 pandemic, as of May 28, 2020, the
Company has $9,000,000 of unrestricted cash and has approximately
$15,000,000 of remaining availability under the NextGear
Credit.
The
Company’s consolidated financial statements have been
prepared assuming that will continue as a going concern, which
assumes the continuity of operations, the realization of assets and
the satisfaction of liabilities as they come due in the normal
course of business. Although the Company believes that we will be
able to generate sufficient liquidity from the measures described
above, our current circumstances including uncertainties due to
Covid-19 pandemic raise substantial doubt about our ability to
operate as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Off-Balance Sheet Arrangements
As of
December 31, 2019, we did not have any off-balance sheet
arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial
condition, revenue or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to
investors.
Subsequent Events
Public Offering
On
January 10, 2020, the Company entered into the Underwriting
Agreement with the Underwriters relating to the Company's 2020
Public Offering of the 900,000 Firm Shares and the 135,000
Additional Shares.
The
Underwriters agreed to purchase the Firm Shares at a price of
$11.40 per share. The Firm Shares were offered, issued, and sold
pursuant to a prospectus supplement and accompanying prospectus
filed with the SEC pursuant to an effective shelf registration
statement filed with the SEC on Form S-3 (Registration No.
333-234340) under the Securities Act.
On
January 14, 2020, the Company issued the Firm Shares and closed the
2020 Public Offering at a public price of $11.40 per share. On
January 16, 2020, the Company received notice of the Underwriters'
intent to complete the Over-allotment Exercise. On January 17,
2020, the Company issued the Additional Shares and closed the
Over-allotment Exercise. The Over-allotment Exercise increased the
aggregate number of shares sold in the 2020 Public Offering to
1,035,000. Including the Over-allotment Exercise, proceeds from the
2020 Public Offering, after deducting the 7.0% underwriter’s
commission and $75,000 for underwriter expenses, were $10,898,070.
Certain of the Company's officers and directors participated in the
2020 Public Offering.
The
Company intends to use the net proceeds of the 2020 Public Offering
for working capital and general corporate purposes, which may
include further technology development, increased spending on
marketing and advertising and capital expenditures necessary to
grow the business. Pending these uses, the Company
may invest the net proceeds in short-term interest-bearing
investment grade instruments.
54
Convertible Note Exchange and Offer
Also on
January 10, 2020, the Company entered into a Note Exchange and
Subscription Agreement, as amended by the Joinder Agreement, with
the investors in the 2019 Note Offering, pursuant to which the
Company agreed to complete (i) a note exchange pursuant to which
$30,000,000 of the Old Notes would be cancelled in exchange for a
new series of 6.75% Convertible Senior Notes due 2025 and (ii) the
issuance of additional New Notes in a private placement in reliance
on the exemption from registration provided by Rule 506 of
Regulation D of the Securities Act as a sale not involving any
public offering. On January 14, 2020, the Company closed the 2020
Note Offering. The proceeds
for the 2020 Note Offering, after deducting for payment of accrued
interest on the Old Notes and offering-related expenses were
approximately $8,272,375.
The New Notes were issued
on January 14, 2020 pursuant to an Indenture (the "New
Indenture"), by and between the Company and Wilmington Trust,
National Association, as trustee (the "Trustee"). The Note
Agreement includes customary representations, warranties and
covenants by the Company and customary closing conditions. The New
Notes bear interest at 6.75% per annum, payable semiannually on
January 1 and July 1 of each year, beginning on July 1, 2020. The
New Notes may bear additional interest under specified
circumstances relating to the Company's failure to comply with its
reporting obligations under the New Indenture or if the New Notes
are not freely tradeable as required by the New Indenture. The New
Notes will mature on January 1, 2025, unless earlier converted,
redeemed or repurchased pursuant to their terms.
The
initial conversion rate of the New Notes is 25 shares of Class B
Common Stock per $1,000 principal amount of New Notes, which is
equal to an initial conversion price of $40.00 per share. The
conversion rate is subject to adjustment in certain events as set
forth in the New Indenture but will not be adjusted for any accrued
and unpaid interest. In addition, upon the occurrence of a
"make-whole fundamental change" (as defined in the New Indenture),
the Company will, in certain circumstances, increase the conversion
rate by a number of additional shares for a holder that elects to
convert its New Notes in connection with such make-whole
fundamental change. Before July 1, 2024, the New Notes will be
convertible only under circumstances as described in the New
Indenture. No adjustment to the conversion rate as a result
of conversion or a make-whole fundamental change adjustment will
result in a conversion rate greater than 61.6523 shares per $1,000
in principal amount.
The New Indenture contains a "blocker provision" which provides
that no holder (other than the depositary with respect to the
notes) or beneficial owner of a New Note shall have the right to
receive shares of the Class B Common Stock upon conversion to the
extent that, following receipt of such shares, such holder or
beneficial owner would be the beneficial owner of more than 4.99%
of the outstanding shares of the Class B Common Stock.
The New Notes are not redeemable by the
Company before the January 14, 2023. The
Company may redeem for
cash all or any portion of the New Notes, at its option, on or
after January 14, 2023 if the last reported sale price of the Class
B Common Stock has been at least 130% of the conversion price then
in effect for at least 20 trading days (whether or not
consecutive), including the trading day immediately preceding the
date on which the Company provides notice of redemption, during any
30 consecutive trading day period ending on, and including, the
trading day immediately preceding the date on which the Company
provides notice of redemption at a redemption price equal to 100.0%
of the principal amount of the notes to be redeemed, plus accrued
and unpaid interest to, but excluding, the redemption date. No
sinking fund is provided for the notes.
The New
Notes rank senior in right of payment to any of the Company's
indebtedness that is expressly subordinated in right of payment to
the New Notes; equal in right of payment to any of the Company's
unsecured indebtedness that is not so subordinated; effectively
junior in right of payment to any of the Company's secured
indebtedness to the extent of the value of the assets securing such
indebtedness; and structurally junior to all indebtedness and other
liabilities of current or future subsidiaries of the Company
(including trade payables).
The New
Notes are subject to events of default typical for this type of
instrument. If an event of default, other than an event of default
in connection with certain events of bankruptcy, insolvency or
reorganization of the Company or any significant subsidiary, occurs
and is continuing, the Trustee by notice to the Company, or the
holders of at least 25.0% in principal amount of the outstanding
New Notes by notice to the Company and the Trustee, may declare
100.0% of the principal of and accrued and unpaid interest, if any,
on all the New Notes then outstanding to be due and
payable.
In
connection with the 2020 Note Offering, on January 14, 2020, the
Company entered into a registration rights agreement with the Note
Investors, pursuant to which the Company has agreed to file with
the SEC a shelf registration statement registering the sale, on a
continuous or delayed basis, of all of the New Notes and to use its
commercially reasonable efforts to cause the shelf registration
statement to become or be declared effective under the Securities
Act no later than the day that is 120 days after January 14,
2020.
55
Investor Note Exchange
Also,
in connection with the closing of the 2020 Public Offering and the
2020 Note Offering, the Company repaid $500,000 plus accrued
interest related to the note payable to Halcyon, and certain of the
Company's investors extended the maturity of currently outstanding
promissory notes, and exchanged such notes for the New Investor
Notes, pursuant to the Investor Note Exchange Agreement, by and
between the Company and each Investor, including Halcyon, an entity
affiliated with Kartik Kakarala, a director of the Company, such
New Investor Note for an aggregate principal amount of $833,333,
Blue Flame, an entity affiliated with Denmar Dixon, a director of
the Company, such New Investor Note for an aggregate principal
amount of $99,114 and Mr. Dixon, individually, such New Investor
Note for an aggregate principal amount of $272,563. The New
Investor Notes, having an aggregate principal amount of
approximately $1,502,352, will mature on January 31, 2021, and will
be convertible at any time at the Investor's option at a price of
$60.00 per share. In connection with the issuance of the New
Investor Notes, the Company also entered into a Security Agreement,
dated as of January 14, 2020 with the Investors, pursuant to which
the Company granted to the Investors a security interest in certain
collateral to secure, on a pro rata basis based on the percentage
equal to the amount of principal outstanding on each New Investor
Note divided by the amount of principal outstanding on all of the
New Investor Notes to each Investor.
The New
Investor Notes and the New Notes were sold to the investors
pursuant to the Investor Note Exchange Agreement and the Note
Agreement, respectively, in a private placement in reliance on the
exemption from registration provided by Rule 506 of Regulation D of
the Securities Act as a sale not involving any public offering. To
the extent that any shares of Class B Common Stock are issued upon
conversion of the New Investor Notes and the New Notes, they will
be issued in transactions anticipated to be exempt from
registration under the Securities Act by virtue of
Section 3(a)(9) thereof, because no commission or other
remuneration is expected to be paid in connection with conversion
of the New Investor Notes and the New Notes, and any resulting
issuance of shares of Class B Common Stock.
Nasdaq Notices
On
January 17, 2020, the Company received a notice from the Listing
Qualifications department of the Nasdaq Stock Market ("Nasdaq")
indicating that the Company is not in compliance with the minimum
bid price requirement of $1.00 per share set forth in Nasdaq
Listing Rule 5450(a)(1) based upon the closing bid price for the 30
consecutive business days ended January 16, 2020. The Nasdaq notice
does not impact the Company's listing at this time and the
Company's stock will continue to trade on Nasdaq while the Company
works to regain compliance with the Nasdaq.
As a
result of the Reverse Stock Split, as defined below, the Company
believes it has regained compliance with Rule
5450(a)(1).
Nashville Tornado
In the
early morning hours of March 3, 2020, a severe tornado struck the
greater Nashville area causing significant damage to our facilities
in Nashville. We maintain insurance coverage for damage to our
facilities and inventory, as well as business interruption
insurance. We continue in the process of reviewing damages and
coverages with our insurance carriers. The loss comprises three
components: (1) inventory loss, currently assessed by the insurance
carrier at approximately $13,000,000; (2) building and personal
property loss, primarily impacting our leased facilities, currently
assessed by the insurance carrier at $3,369,087; and (3) loss of
business income, for which we have coverage in the amount of
$6,000,000.
All
three components of our loss claim have been submitted to its
insurers. Our inventory claim is subject to a dispute with the
carrier as to the policy limits applicable to the loss. The
building insurer has agreed to pay $3,369,087 on the building and
personal property loss, reflecting a complete recovery, net of
$5,000 reflecting our deductible. The insurer has made an interim
payment on the building and personal property loss of $2,269,507
and has an outstanding balance of $1,094,580 which is expected to
be paid during the second quarter of 2020. The loss of business
income claim is ongoing and remains in the process of negotiation,
however, the insurer has advanced $250,000 against the final
settlement. We believe there will be a full recovery of all three
loss components, however no assurance can be given regarding the
amounts, if any, that will be ultimately recovered.
COVID-19 Pandemic
On
March 11, 2020, the World Health Organization declared the outbreak
of COVID-19 a global pandemic and recommended containment and
mitigation measures worldwide. The global outbreak of COVID-19 has
led to severe disruptions in general economic activities,
particularly retail operations, as businesses and federal, state,
and local governments take increasingly broad actions to mitigate
this public health crisis. We have experienced significant
disruption to our business, both in terms of disruption of our
operations and the adverse effect on overall economic conditions.
These conditions will significantly negatively impact all aspects
of our business. Our business is also dependent on the continued
health and productivity of our associates throughout this crisis.
Individually and collectively, we expect the consequences of the
COVID-19 outbreak will likely have a significant negative impact on
our business, sales, results of operations, financial condition,
and liquidity.
The
COVID-19 situation has created an unprecedented and challenging
time. Our current focus is on positioning the Company for a strong
recovery when this crisis is over. We have taken steps to reduce
our inventory and align our operating expenses to the state of the
business. We plan to continue to operate as permitted to support
our customers’ needs for reliable vehicles and to provide as
many jobs as possible for our associates. Effective April 9, 2020,
169 associates were temporarily laid-off effective, however our
receipt of PPP funds, as discussed below will allow us to gradually
recall these associates over time. All ongoing employment
determinations are subject to change due to the COVID-19 situation
future government mandates, as well as future business conditions.
We will continue to monitor the COVID-19 situation and look for
ways to preserve cash and reduce our operating expenses as we are
able, however, we expect the consequences of the COVID-19 outbreak
will likely have a significant negative impact on our business,
sales, results of operations, financial condition, and
liquidity.
56
PPP Loan
On May
1, 2020, the Company, and its wholly owned subsidiaries Wholesale,
Inc. and Wholesale Express, LLC (together, the "Subsidiaries," and
with the Company, the "Borrowers"), each entered into loan
agreements and related promissory notes (the "SBA Loan Documents")
to receive U.S. Small Business Administration Loans (the "SBA
Loans") pursuant to the Paycheck Protection Program (the "PPP")
established under the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act"), in the aggregate amount of
$5,176,845 (the "Loan Proceeds"). The Borrowers received the Loan
Proceeds on May 1, 2020. Under the SBA Loan Documents, the SBA
Loans have a fixed interest rate of 1.0%, repayment begins six
months from the date of disbursement of each SBA Loan, and the SBA
Loans mature two years from the date of first disbursement. There
is no prepayment penalty.
Pursuant to the
terms of the SBA Loan Documents, the Borrowers may apply for
forgiveness of the amount due on the SBA Loans in an amount equal
to the sum of the following costs incurred by the Borrowers during
the eight-week period (or any other period that may be authorized
by the U.S. Small Business Administration) beginning on the date of
first disbursement of the SBA Loans: payroll costs, any payment of
interest on a covered mortgage obligation, payment on a covered
rent obligation, and any covered utility payment. The amount of SBA
Loan forgiveness shall be calculated in accordance with the
requirements of the PPP, including the provisions of Section 1106
of the CARES Act, although no more than 25% of the amount forgiven
can be attributable to non-payroll costs. No assurance is provided
that forgiveness for any portion of the SBA Loans will be
obtained.
The
promissory notes evidencing the SBA Loans contain customary events
of default relating to, among other things, payment defaults,
breach of representations and warranties, or provisions of the
promissory notes. The occurrence of an event of default may result
in the repayment of all amounts outstanding, collection of all
amounts owing from the Borrowers, and/or filing suit and obtaining
judgment against the Borrowers.
Reverse Stock Split
On May
18, 2020, the Company filed a Certificate of Change to the
Company’s Articles of Incorporation with the Secretary of
State of the State of Nevada to effect a one-for-twenty reverse
stock split of its issued and outstanding Class A Common Stock and
Class B Common Stock (the "Reverse Stock Split"). The Reverse Stock
Split was effective at 12:01 a.m., Eastern Time, on May 20, 2020.
No fractional shares were issued as a result of the Reverse Stock
Split. Any fractional shares that would have resulted from the
Reverse Stock Split were rounded up to the nearest whole share. The
authorized preferred stock of the Company was not impacted by the
Reverse Stock Split. Following the Reverse Stock Split, the Company
has outstanding 50,000 shares of Class A Common Stock and
approximately 2,162,696 shares of Class B Common Stock. On May 20,
2020, the Company’s Class B Common Stock commenced trading on
the Nasdaq Capital Market on a split-adjusted basis. The Company
has retrospectively adjusted the 2018 and 2019 financial statements
for loss per share and share amounts as a result of the reverse
stock split.
Critical Accounting Policies and Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles of the United States ("GAAP")
requires estimates and assumptions that affect the reported amounts
of assets and liabilities, revenue and expenses, and related
disclosures of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. The
Securities and Exchange Commission (the "SEC")
has defined a company's
critical accounting policies as the ones that are most important to
the portrayal of the company's financial condition and results of
operations, and which require the company to make its most
difficult and subjective judgments, often as a result of the need
to make estimates of matters that are inherently uncertain. Based
on this definition, we have identified the critical accounting
policies and judgments addressed below. We also have other key
accounting policies, which involve the use of estimates, judgments,
and assumptions that are significant to understanding our results.
For additional information, see Item 8 of Part II, Financial Statements
and Supplementary Data Note 1 — "Description of Business and Significant
Accounting Policies. Although we believe that our estimates,
assumptions, and judgments are reasonable, they are based upon
information presently available. Actual results may differ
significantly from these estimates under different assumptions,
judgments, or conditions.
Revenue Recognition
We
adopted ASC 606, Revenue from
Contracts with Customers on January 1, 2018 using the
modified retrospective method. ASC 606 prescribes a five-step model
that includes: (1) identify the contract; (2) identify the
performance obligations; (3) determine the transaction price; (4)
allocate the transaction price to the performance obligations; and
(5) recognize revenue when (or as) performance obligations are
satisfied. Based on the manner in which we historically
recognized revenue, the adoption of ASC 606 did not have a material
impact on the amount or timing of our revenue recognition, and we
recognized no cumulative effect adjustment upon
adoption.
57
For
vehicles sold at wholesale to dealers we satisfy our performance
obligation for vehicles sales when the wholesale purchaser obtains
control of the underlying vehicle, which is upon delivery when the
transfer of title, risks and rewards of ownership and control pass
to the dealer. We recognize revenue at the amount we expect to
receive for the pre-owned vehicle, which is the fixed price
determined at the auction. The purchase price of the wholesale
vehicle is typically due and collected within 30 days of delivery
of the wholesale vehicle.
For
vehicles sold to consumers the purchase price is set forth in the
customer contracts at a stand-alone selling price which is agreed
upon prior to delivery. We satisfy our performance obligation for
pre-owned vehicle sales upon delivery when the transfer of title,
risks and rewards of ownership and control pass to the customer. We
recognize revenue at the agreed upon purchase price stated in the
contract, including any delivery charges, less an estimate for
returns. Our return policy allows customers to initiate a return
during the first three days after delivery. Estimates for returns
are based on an analysis of historical experience, trends and sales
data. Changes in these estimates are reflected as an adjustment to
revenue in the period identified. The amount of consideration
received for pre-owned vehicle sales to consumers includes noncash
consideration representing the value of trade-in vehicles, if
applicable, as stated in the contract. Prior to the delivery of the
vehicle, the payment is received, or financing has been arranged.
Payments from customers that finance their purchases with third
parties are typically due and collected within 30 days of delivery
of the pre-owned vehicle. In future periods additional provisions
may be necessary due to a variety of factors, including changing
customer return patterns due to the maturation of the online
vehicle buying market, macro- and micro-economic factors that could
influence customer return behavior and future pricing environments.
If these factors result in adjustments to sales returns, they could
significantly impact our future operating results. Revenue
exclude any sales taxes, title and registration fees, and other
government fees that are collected from customers.
Vehicle
logistics and transportation services revenue is generated
primarily by entering into freight
brokerage agreements with dealers, distributors, or private
party individuals to transport vehicles from a point of origin to a
designated destination. The transaction price
is based on the consideration specified in the customer's contract.
A performance obligation is created when the customer under a
transportation contract submits a bill of lading for the transport
of goods from origin to destination. These performance obligations
are satisfied as the shipments move from origin to
destination. The freight
brokerage agreements are fulfilled by independent
third-party transporters. While the Company is primarily
responsible for fulfilling to customers, these transporters are
obligated to meet our performance obligations and standards.
Performance
obligations are short-term, with transit days less than one week.
Generally, customers are billed either upon shipment of the vehicle
or on a monthly basis, and remit payment according to approved
payment terms, generally not to exceed 30 days. Revenue is
recognized as risks and rewards of transportation of the vehicle is
transferred to the owner during delivery. Wholesale Express is
considered the principal in the delivery transactions since it is
primarily responsible for fulfilling the service. As a result,
revenue is recorded gross.
Valuation of Inventory
Pre-owned vehicle
inventory is accounted for pursuant to ASC 330, Inventory and
consists of pre-owned vehicles primarily acquired from consumers
and includes the cost to acquire and recondition a pre-owned
vehicle. Reconditioning costs are billed by third-party providers
and includes parts, labor, and other repair expenses directly
attributable to a specific vehicle. Transportation costs are
expensed as incurred. Pre-owned inventory is stated at the lower of
cost or net realizable value. Vehicle inventory cost is determined
by specific identification. Net realizable value is based on the
estimated selling price less costs to complete, dispose and
transport the vehicles. Selling prices are derived from historical
data and trends, such as sales price and inventory turn data of
similar vehicles, as well as independent market resources. Each
reporting period, the Company recognizes any necessary adjustments
to reflect pre-owned vehicle inventory at the lower of cost or net
realizable value, which is recognized in cost of revenue in our
Consolidated Statements of Operations.
Purchase Accounting for Business Combinations
On
February 3, 2019, the Company completed the Autosport Acquisition
pursuant to the Stock Purchase Agreement, by and among the Buyer,
the Seller and Autosport. Aggregate consideration for the Autosport
Acquisition consisted of (i) a closing cash payment of $600,000,
plus (ii) the Promissory Note in favor of the Seller, plus (iii)
the Convertible Note in favor of the Seller, plus (iv) contingent
earn-out payments payable in the form of cash and/or the Company's
Class B Common Stock for up to an additional $787,500 if Autosport
achieves certain performance thresholds. In connection with the
Autosport Acquisition, the Buyer also paid outstanding debt of
Autosport of $235,000 and assumed additional debt of $257,933
pursuant to the Second Convertible Note.
On
October 26, 2018, we entered into the Merger Agreement with the
Merger Sub, Holdings, Wholesale, the Stockholders, the
Representative, and, for the limited purposes of Section 5.8,
Marshall Chesrown and Steven R. Berrard, providing for the
Wholesale Merger. On October 29, 2018, we entered into an Amendment
to the Merger Agreement making a technical correction to the
definition of "Parent Consideration Shares" contained in the Merger
Agreement.
58
Also,
on October 26, 2018, we entered into the Purchase Agreement with
the Express Sellers, and Steven Brewster as representative of the
Express Sellers, pursuant to which the Company completed the
Express Acquisition. On October 30, 2018, the Company completed the
Wholesale Merger and Express Acquisition. As consideration for the
Wholesale Merger, we (i) paid cash consideration of $12,353,941,
subject to certain customary post-closing adjustments, and (ii)
issued to the Stockholders the Stock Consideration. As
consideration for the Express Acquisition, we paid cash
consideration of $4,000,000, subject to certain customary
post-closing adjustments.
The
Wholesale, Express and Autosport acquisitions were accounted under
the acquisition method of accounting for business combinations.
Under the acquisition method of accounting, the cost, including
transaction costs was preliminarily allocated to the underlying net
assets, based on their respective estimated fair values. The excess
of the purchase price over the estimated fair values of the net
assets acquired was recorded as goodwill. Consistent with
accounting principles generally accepted in the U.S. at the time
the acquisition was consummated, the Company valued the purchase
price to acquire Wholesale, Wholesale Express and Autosport based
upon the fair value of the consideration paid.
The
judgments made in determining the estimated fair value and expected
useful lives assigned to each class of assets and liabilities
acquired can significantly impact net income (loss). For example,
different classes of assets will have useful lives that differ.
Consequently, to the extent a longer-lived asset is ascribed
greater value under the acquisition method than a shorter-lived
asset there may be less amortization recorded in a given
period.
Determining the
fair value of certain assets and liabilities acquired requires
significant judgment and often involves the use of significant
estimates and assumptions. As provided by the accounting rules, the
Company used the one-year period following the consummation of the
acquisition to finalize the estimates of the fair value of assets
and liabilities acquired. One of the areas that requires more
judgment in determining fair values and useful lives is intangible
assets. To assist in this process, the Company obtained an
appraisal from an independent valuation firm for certain intangible
assets. While there are a number of different methods used in
estimating the value of the intangibles acquired, there are two
approaches primarily used: discounted cash flow and market multiple
approaches. Some of the more significant estimates and assumptions
inherent in the two approaches include: projected future cash flows
(including timing); discount rate reflecting the risk inherent in
the future cash flows; perpetual growth rate; determination of
appropriate market comparables; and the determination of whether a
premium or a discount should be applied to
comparables.
See
Item 8 of Part II, Financial Statements and Supplementary Data,
Note 1 – Description of Business and Significant Accounting
Policies and Note 4 — "Acquisitions" for additional
discussion.
Goodwill
Goodwill represents
the excess purchase price over the fair value of net assets
acquired which is not allocable to separately identifiable
intangible assets. Other identifiable intangible assets, such as
domain names, customer relationships, and trade names are
separately recognized if the intangible asset is obtained through
contractual or other legal right or if the intangible asset can be
sold, transferred, licensed or exchanged.
Goodwill is not
amortized but tested for impairment at the reporting unit
level annually on December 31 and upon the occurrence of an
indicator of impairment. We have the option to qualitatively
or quantitatively assess goodwill for impairment and we evaluated
our goodwill using a quantitative assessment process. Our operations are
organized by management into operating segments by line of
business. We have determined that we have three reportable segments
as defined in generally accepted accounting principles for segment
reporting: (1) powersports, (2) automotive and
(3) vehicle logistics and transportation. Our powersports and
automotive segments consist of the distribution of pre-owned
vehicles. The powersports segment consists of the distribution of
principally motorcycles, while the automotive segment distributes
cars and trucks. Each of these segments are considered separate
reporting units for purposes of goodwill testing. Our vehicle
logistics and transportation service segment provides nationwide
automotive transportation services between dealerships and
auctions. Our vehicle
logistics and transportation service reportable segment has
been determined to represent one operating segment and reporting
unit.
59
We have
the option to qualitatively or quantitatively assess goodwill for
impairment and we evaluated our goodwill using a quantitative
assessment process. During
2019, for the three reporting units we performed
quantitative impairment testing of the fair value of our reporting
units using an income and market valuation approach. The income
valuation approach estimates our enterprise value using a net
present value model, which discounts projected free cash flows of
our business using the weighted average cost of capital as the
discount rate. We also validated the fair value for each reporting
unit using the income approach by calculating a cash earnings
multiple and determining whether the multiple was reasonable
compared to recent market transactions completed in the industry.
As part of that assessment, we also reconcile the estimated
aggregate fair values of our reporting units to our market
capitalization. We believe this reconciliation process is
consistent with a market participant perspective. This
consideration would also include a control premium that represents
the estimated amount an investor would pay for our equity
securities to obtain a controlling interest, and other significant
assumptions including revenue and profitability growth, profit
margins, residual values and the cost of
capital.
For the year ended December 31, 2019,
we recognized an impairment loss on goodwill of $1,850,000 related
to powersports, which is recorded in selling, general and
administrative expenses in the Consolidated Statement of
Operations. No goodwill impairment resulted from the quantitative
impairments tests of the remaining reporting units as of December
31, 2019 and 2018. The remaining reporting units had sufficient
excess fair value over the respective carrying values.
No other impairment charges related to intangible assets were
recognized in 2018.
Stock-Based Compensation
The
Company is required to make estimates and assumptions related to
our valuation and recording of stock-based compensation expense
under current accounting standards. These standards require all
stock-based compensation to employees to be recognized in the
statement of operations based on their respective grant date fair
values over the requisite service periods and also requires an
estimation of forfeitures when calculating compensation
expense.
On June 30, 2017 the
Company's shareholders approved a Stock
Incentive Plan (the "Plan") reserving for issuance under the Plan
in the form of restricted stock units ("RSUs"), stock options
("Options"), Performance Units, and other equity awards
(collectively "Awards") for our employees, consultants, directors,
independent contractors and certain prospective employees who have
committed to become an employee (each an "Eligible Individual") of
up to 12.0% of the shares of Class B Common Stock outstanding from
time to time. On June 25, 2018, the Company's shareholders approved
an amendment to the Plan to increase the number of shares
authorized for issuance under the Plan from 12.0% of the Company's
issued and outstanding shares of Class B Common Stock from time to
time to 100,000 shares of Class B Common Stock (the "First Plan
Amendment"). On May 20, 2019, the Company's stockholders approved
another amendment to the Plan to increase the number of shares
authorized for issuance under the Plan from 100,000 shares of Class
B Common Stock to 200,000 shares of Class B Common Stock (the
"Second Plan Amendment"). To date, the vesting of RSU and Option
awards for most employees is service / time based, however some
senior level employees have been granted awards that include a mix
of service based, performance based and market condition-based
vesting. Substantially all service/time based RSU and Option awards
issued typically vest over a three-year period approximating the
following vesting schedule: (i) 20.0%
vesting anywhere from eight-months to thirteen month after grant
date, (ii) an additional
30.0% during the subsequent twelve months of the initial
vesting, and
(iii) the final 50.0%
during the following twelve months. All currently outstanding
performance-based awards and market condition-based awards granted
to date have vesting schedules dependent on achieving a particular
objective within sixteen (16) months. More specifically, the
Company granted to certain members of management an aggregate of
(i) 12,213 performance-based awards that vest after two consecutive
quarters of $1.00 or greater operating income and trailing four
quarter revenue of $900,000,000 at any time through September 30,
2020, and (ii) 36,938 market-based awards. The Company estimates the fair value of
awards granted under the Plan on the date of grant. Fair
value of all awards is based on the share price of the Class B
Common Stock on the date of the award, and in the case of options,
calculated using the Black-Scholes option valuation model. See Item
8 of Part II, Financial Statements and Supplementary Data Note 1
"Description of Business and
Significant Accounting Policies—Stock-Based
Compensation."
Newly Issued Accounting Pronouncements
In February 2016, the FASB issued an accounting
pronouncement (FASB ASU 2016-02) related to the accounting for
leases. This pronouncement requires lessees to record most leases
on their balance sheet while also disclosing key information about
those lease arrangements. Under the new guidance, lease
classification as either a finance lease or an operating lease will
affect the pattern and classification of expense recognition in the
income statement. The classification criteria to distinguish
between finance and operating leases are generally consistent with
the classification criteria to distinguish between capital and
operating leases under existing lease accounting guidance. This
pronouncement is effective for fiscal years, and for interim
periods within those fiscal years, beginning after December
15, 2018. We adopted the new standard
for our fiscal year beginning January 1, 2019.
60
In May
2014, the Financial Accounting Standards Board ("FASB") issued a
new accounting standard (ASC Topic 606) that amends the accounting
guidance on revenue recognition. The new accounting standard is
intended to provide a more robust framework for addressing revenue
issues, improve comparability of revenue recognition practices, and
improve disclosure requirements. Under the new standard, revenue is
recognized when a customer obtains control of promised goods or
services and is recognized in an amount that reflects the
consideration which the entity expects to receive in exchange for
those goods or services. The principles in the standard should be
applied using a five-step model that includes 1) identifying the
contract(s) with a customer, 2) identifying the performance
obligations in the contract, 3) determining the transaction price,
4) allocating the transaction price to the performance obligations
in the contract, and 5) recognizing revenue when (or as) the
performance obligations are satisfied. The standard also requires
disclosure of the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. In
addition, the standard amends the existing requirements for the
recognition of a gain or loss on the transfer of nonfinancial
assets that are not in a contract with a customer (for example,
sales of real estate) to be consistent with the standard's guidance
on recognition and measurement (including the constraint on
revenue). The FASB also subsequently issued several amendments to
the standard, including clarification on principal versus agent
guidance, identifying performance obligations, and immaterial goods
and services in a contract.
The new
accounting standard update must be applied using either of the
following transition methods: (i) a full retrospective approach
reflecting the application of the standard in each prior reporting
period with the option to elect certain practical expedients, or
(ii) a modified retrospective approach with the cumulative effect
of initially adopting the standard recognized at the date of
adoption (which requires additional footnote disclosures).
The Company adopted ASC 606,
Revenue from
Contracts with Customers on
January 1, 2018 using the modified retrospective method. Based on
the manner in which the Company historically recognized revenue,
the adoption of ASC 606 did not have a material impact on the
amount or timing of its revenue recognition and the Company
recognized no cumulative effect adjustment upon
adoption.
Quantitative and Qualitative
Disclosures About Market Risk.
This
item in not applicable as we are currently considered a smaller
reporting company.
See
Index to Financial Statements and Financial Statement Schedules
beginning on page F-1 of this Form 10-K.
Item 9.
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
None.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
December 31, 2019. We maintain disclosure controls and procedures
that are designed to provide reasonable assurance that information
required to be disclosed in our reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms and that such
information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required
disclosure. Our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and
procedures.
Based
on the evaluation of disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), the
Company's Chief Executive
Officer and Chief Financial Officer concluded that the
Company's disclosure controls
and procedures were effective as of December 31, 2019.
Management's Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as is defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act. These internal
controls are designed to provide reasonable assurance that the
reported financial information is presented fairly, that
disclosures are adequate and that the judgments inherent in the
preparation of financial statements are reasonable. There are
inherent limitations in the effectiveness of any system of internal
controls, including the possibility of human error and overriding
of controls. Consequently, an effective internal control system can
only provide reasonable, not absolute, assurance with respect to
reporting financial information.
61
Our
internal control over financial reporting includes policies and
procedures that: (i) pertain to maintaining records that
in reasonable detail accurately and fairly reflect our
transactions; (ii) provide
reasonable assurance that transactions are recorded as necessary
for preparation of our financial statements in accordance with
generally accepted accounting principles and the receipts and
expenditures of company assets are made and in accordance with our
management and directors authorization; and (iii) provide reasonable assurance
regarding the prevention or timely detection of unauthorized
acquisition, use or disposition of assets that could have a
material effect on our financial statements.
Management has
undertaken an assessment of the effectiveness of our internal
control over financial reporting based on the framework and
criteria established in the Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). Based upon this evaluation, management
concluded that our internal control over financial reporting was
effective as of December 31, 2019.
This
annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by
our registered public accounting firm pursuant to the temporary
rules of the Securities and Exchange Commission that permit the
company to provide only the management's report in this Annual Report on Form
10-K.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during our most recent fiscal quarter that have
materially affected, or reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B.
Other Information.
On May
27, 2020, the Compensation Committee terminated the Executive RSUs
(defined below) previously granted to Messrs. Chesrown, Berrard and
Levy. For additional information regarding the Executive RSUs, see
Part III, Item 11 – Executive Compensation.
On
April 9, 2020, the Company reported that it would implement
temporary salary reductions for those employees whose annual
salaries exceed $75,000, including, in consultation with the
Compensation Committee of the Company's Board of Directors, the
salaries of our Chief Executive Officer and Chief Financial
Officer. As a result of the Company’s approval of Paycheck
Protection Program funds on May 1, 2020, the Company has determined
that these salary reductions are not needed at this time and such
reductions were not implemented.
PART III
Item 10.
Directors, Executive Officers and
Corporate Governance.
Directors and Executive Officers
Below
are the names of and certain information regarding our executive
officers and directors:
|
Name
|
|
Age
|
|
Position
|
|
Marshall
Chesrown
|
|
62
|
|
Chief
Executive Officer and Chairman
|
|
Steven
R. Berrard
|
|
65
|
|
Chief
Financial Officer and Director
|
|
Denmar
Dixon
|
|
58
|
|
Director
|
|
Richard
A. Gray, Jr.
|
|
72
|
|
Director
|
|
Kartik
Kakarala
|
|
42
|
|
Director
|
|
Peter
Levy
|
|
50
|
|
Chief
Operating Officer
|
|
Michael
Marchlik
|
|
47
|
|
Director
|
|
Kevin
Westfall
|
|
64
|
|
Director
|
Marshall Chesrown has served as our
Chief Executive Officer and Chairman since October 24, 2016. Mr.
Chesrown has over 35 years of leadership experience in the
automotive retail sector. From December 2014 to September 2016, Mr.
Chesrown served as Chief Operating Officer and as a director of
Vroom.com, an online direct car retailer ("Vroom"). Mr. Chesrown
served as Chief Operating Officer of AutoAmerica, an automotive
retail company, from May 2013 to November 2014. Previously, Mr.
Chesrown served as the President of Chesrown Automotive Group from
January 1985 to May 2013, which was acquired by AutoNation, Inc., a
leading automotive retail company, in 1997. Mr. Chesrown served as
Senior Vice President of Retail Operations for AutoNation from 1997
to 1999. From 1999 to 2013, Mr. Chesrown served as the Chairman and
Chief Executive Officer of Blackrock Development, a real estate
development company widely known for development of the nationally
recognized Golf Club at Black Rock. Mr. Chesrown filed for personal
bankruptcy in May 2013, which petition was discharged in January
2017.
62
We
believe that Mr. Chesrown possesses attributes that qualify him to
serve as a member of our Board, including his extensive experience
in the automotive retail sector.
Steven R. Berrard has served as our
Chief Financial Officer since January 9, 2017 and served as Interim
Chief Financial Officer from July 13, 2016 through January 9, 2017
and as Chief Executive Officer from July 13, 2016 through October
24, 2016. Mr. Berrard served as Secretary from July 13, 2016
through June 30, 2017 and has served on our Board since July 13,
2016. Mr. Berrard served as a director of Walter Investment
Management Corp. ("Walter Investment") from 2010 until May 2017.
Mr. Berrard served on the Board of Directors of Swisher Hygiene
Inc., a publicly traded industry leader in hygiene solutions and
products, from 2004 until May 2014. Mr. Berrard is the Managing
Partner of New River Capital Partners, a private equity fund he
co-founded in 1997. Mr. Berrard was the co-founder and Co-Chief
Executive Officer of AutoNation from 1996 to 1999. Prior to joining
AutoNation, Mr. Berrard served as President and Chief Executive
Officer of the Blockbuster Entertainment Group, at the time the
world's largest video store operator. Mr. Berrard served as
President of Huizenga Holdings, Inc., a real estate management and
development company, and served in various positions with
subsidiaries of Huizenga Holdings, Inc. from 1981 to 1987. Mr.
Berrard was employed by Coopers & Lybrand (now
PricewaterhouseCoopers LLP ("PwC")) from 1976 to 1981. Mr. Berrard
currently serves on the Board of Directors of Pivotal Fitness,
Inc., a chain of fitness centers operating in a number of markets
in the United States. He has previously served on the Boards of
Directors of Jamba, Inc., (2005 – 2009), Viacom, Inc., (1987
– 1996), Birmingham Steel (1999 – 2002), HealthSouth
(2004 – 2006), and Boca Resorts, Inc. (1996 – 2004).
Mr. Berrard earned his B.S. in Accounting from Florida Atlantic
University.
We
believe that Mr. Berrard's management experience and financial
expertise is beneficial in guiding our strategic direction. He has
served in senior management and on the Board of several prominent,
publicly traded companies. In several instances, he has led
significant growth of the businesses he has managed. In addition,
Mr. Berrard has served as the Chairman of the audit committee of
several boards of directors.
Denmar Dixon has served on our Board
since January 9, 2017. Mr. Dixon served as a director of Walter
Investment from April 2009 (and for its predecessor since December
2008) until June 2016. Effective October 2015, Mr. Dixon was
appointed Chief Executive Officer and President of Walter
Investment and served until his resignation effective June 2016.
Mr. Dixon previously served as Vice Chairman of the Board of
Directors and Executive Vice President of Walter Investment since
January 2010 and Chief Investment Officer of Walter Investment
since August 2013. Before becoming an executive officer of Walter
Investment, Mr. Dixon also served as a member of Walter
Investment's Audit Committee and Nominating and Corporate
Governance Committee and as Chairman of the Compensation and Human
Resources Committee. Before serving on the Board of Walter
Investment, Mr. Dixon was elected to the board of managers of JWH
Holding Company, LLC, a wholly-owned subsidiary of Walter
Industries, Inc., in anticipation of the spin-off of Walter
Investment Management, LLC from Walter Industries, Inc. (now known
as Walter Energy, Inc.). In 2008, Mr. Dixon founded Blue Flame
Capital, LLC, a consulting, financial advisory and investment firm.
Before forming Blue Flame, Mr. Dixon spent 23 years with Banc of
America Securities, LLC and its predecessors. At the time of his
retirement, Mr. Dixon was a Managing Director in the Corporate and
Investment Banking group and held the position of Global Head of
the Basic Industries Group of Banc of America
Securities.
We
believe that Mr. Dixon possesses attributes that qualify him to
serve as a member of our Board, including his extensive business
development, mergers and acquisitions and capital
markets/investment banking experience within the financial services
industry. As a director, he provides significant input into, and is
actively involved in, leading our business activities and strategic
planning efforts. Mr. Dixon has significant experience in the
general industrial, consumer and business services
industries.
Richard A. Gray, Jr., has served on our
Board since October 1, 2017. Mr. Gray has served as President of
Gray & Co. Realtors, Inc., a licensed real estate service
provider he founded, since 1987. Gray & Co. Realtors has been
involved in the development, liquidation, the joint venture, and
management of commercial real estate, representing both U.S.
investors and foreign investors, and since 1998, has also been
involved in raising venture capital for startup and additional
round funding for public companies in the technology sector. Before
Gray & Co. Realtors, he served as a broker at Wiggins Gray
Interests, a company focused on development of retail and office
properties in Dallas Fort Worth Metroplex, as well as office,
industrial, land and retail brokerage from 1985 to 1987. Before
Wiggins Gray Interests, he served at Hudson & Hudson Realtors
from 1973 to 1985, Murray Investment Company from 1971 to 1973, and
Borden Chemical Company from 1969 to 1971. Mr. Gray has also served
as a director of the Cystic Fibrosis Foundation, Migra Tech, and
Equitable Bank. Mr. Gray received his BBA from Texas Tech
University.
We
believe that Mr. Gray possesses attributes that qualify him to
serve as a member of our Board, including his extensive experience
in funding technology sector public companies.
63
Kartik Kakarala was appointed to our
Board immediately following the completion of the Company's
acquisition of substantially all of the assets of the NextGen
Dealer Solutions, LLC ("NextGen") in February 2017. Mr. Kakarala is
the Chief Executive Officer of Halcyon Technologies, a global
software solutions company. He is responsible for sales, business
development and innovation, as well as the creation of technology
assets. He has been responsible for the growth of a number of
strategic, horizontal competencies, and vertical business units
like automotive, utilities, finance and healthcare practices. Mr.
Kakarala served as the Chief Executive Officer and President of
NextGen from January 2016 to February 2017, which was acquired by
us in February 2017, providing inventory management solutions to
the power sports, recreational vehicle and marine sectors in North
America. He served as Chief Executive Officer and President of
NextGenAuto from July 2013 to December 2015. Mr. Kakarala served as
Co-Founder and Managing Partner of Red Bumper from July 2010 to
August 2014, a company which provided pre-owned car inventory
management solutions used by thousands of automotive dealers across
North America and which was later acquired by ADP in 2014. Mr.
Kakarala served as Director/Co-Founder of GridFirst solutions since
2012, a company providing home automation solutions to energy
customers. Mr. Kakarala holds a master’s degree in Computer
Science from University of Houston.
We
believe that Mr. Kakarala possesses attributes that qualify him to
serve as a member of our Board, as he is regarded as a pioneer in
developing several systems in the automotive industry including
CRM, ERP, inventory management and financial
applications.
Peter Levy has served as our Chief
Operating Officer since May 20, 2019. From November 2017 to
present, Mr. Levy served as our Senior Vice President of Operations
overseeing the day-to-day inventory logistics, auctions, dealer
networks, and managing the teams responsible for driving sales
within the Company. Mr. Levy is a seasoned and highly respected
operating executive who has been involved in the automotive
industry for over 25 years. Mr. Levy previously served as a
Business Development Partner of AWG Remarketing Whann
Technology/Integrated Auction Solutions, LLC from January 2011 to
November 2017. Also, Mr. Levy's distinguished career includes
multiple executive and management level positions within the
industry at companies such as AutoNation and Automotive Remarketing
Services, all focusing on business development and creative uses of
technology to gain market share. Mr. Levy graduated from Indiana
University with a B.S. in Marketing and Finance.
Michael Marchlik has served on our Board
since May 6, 2020. Mr. Marchlik has served as the Chief Executive
Officer of the Advisory & Valuations division of Great American
Group ("GA") since April 2017 and is responsible for overseeing the
operations and client service efforts for lenders, sponsors and
borrowers. Prior to that, he served as a Partner and National Sales
and Marketing Director of GA from January 2010 to April 2017, as
Executive Vice President, Western Region of GA from January 2004 to
December 2009, as Senior Vice President of Sales, Western Region of
GA from June 2001 to December 2003, and as Director of Operations
at GA from July 1996 to May 2001. With nearly two and a half
decades of experience in all segments of the asset disposition and
valuation industries, he has extensive understanding of corporate
transactional services, credit structure and asset-based valuation,
lending solutions and business operations. Mr. Marchlik attended
Northeastern University in Boston where he received a Bachelor of
Science in Finance.
We
believe that Mr. Marchlik possesses attributes that qualify him to
serve as a member of our Board, including his extensive
understanding of corporate transactional services, credit structure
and asset-based valuation, lending solutions and business
operations.
Kevin Westfall has served on our Board
since January 9, 2017. Mr. Westfall was a co-founder and served as
Chief Executive Officer of Vroom from January 2012 through November
2015. Previously, from March 1997 through November 2011, Mr.
Westfall served as Senior Vice President of Sales and Senior Vice
President of Automotive Finance at AutoNation. Mr. Westfall was a
founder of BMW Financial Services in 1990 and served as its
President until March 1997. Mr. Westfall also served as Retail
Lease Manager of Chrysler Credit Corporation from 1987 until 1990
and as President of World Automotive Imports and Leasing from 1980
until 1987.
We
believe that Mr. Westfall possesses attributes that qualify him to
serve as a member of our Board, including his more than 30 years of
executive experience in automotive retail and finance
operations.
Corporate Governance Principles and Code of Ethics
Our
Board is committed to sound corporate governance principles and
practices. Our Board's core principles of corporate governance are
set forth in our Corporate Governance Principles. In order to
clearly set forth our commitment to conduct our operations in
accordance with our high standards of business ethics and
applicable laws and regulations, our Board also adopted a Code of
Business Conduct and Ethics, which is applicable to all directors,
officers and employees. A copy of the Code of Business Conduct and
Ethics and the Corporate Governance Principles are available on our
corporate website at www.rumbleon.com. You also may obtain without
charge a printed copy of the Code of Ethics and Corporate
Governance Principles by sending a written request to: Investor
Relations, RumbleOn, Inc., 901 W Walnut Hill Lane, Irving, Texas
75038. Amendments or waivers of the Code of Business Conduct and
Ethics will be provided on our website within four business days
following the date of the amendment or waiver.
64
Board of Directors
The
business and affairs of our company are managed by or under the
direction of the Board. The Board is currently composed of seven
members. The Board has not appointed a lead independent director;
instead the presiding director for each executive session is
rotated among the Chairs of the committees of our
Board.
The
Board held five meetings and took one action by unanimous written
consent during the year ended December 31, 2019. In 2019, each
person serving as a director attended at least 75% of the total
number of meetings of our Board and any Board committee on which he
served.
Our
directors are expected to attend our Annual Meeting of
Stockholders. Any director who is unable to attend our Annual
Meeting is expected to notify the Chairman of the Board in advance
of the Annual Meeting. All of our directors serving at the time of
the 2019 Annual Meeting of Stockholders were in
attendance.
Board Committees
Pursuant to our
bylaws, our Board may establish one or more committees of the Board
however designated, and delegate to any such committee the full
power of the Board, to the fullest extent permitted by
law.
Our
Board has established three separately designated standing
committees to assist the Board in discharging its responsibilities:
the Audit Committee, the Compensation Committee, and the Nominating
and Corporate Governance Committee. The charters for our Board
committees set forth the scope of the responsibilities of that
committee. The Board will assess the effectiveness and contribution
of each committee on an annual basis. The charters for our Board
committees were adopted by the Board in May 2017. These charters
are available at www.rumbleon.com,
and you may obtain a printed copy of any of these charters by
sending a written request to: Investor Relations, RumbleOn, Inc.,
901 W Walnut Hill Lane, Irving, Texas 75038.
Audit Committee. The current members of
the Audit Committee are Messrs. Dixon (chair), Marchlik, Gray, and
Westfall. The Board has determined that Mr. Dixon is an "audit
committee financial expert," as defined in Item 407 of Regulation
S-K and is the Chairman of the Audit Committee.
The
primary function of the Audit Committee is to assist the Board in
fulfilling its responsibilities by overseeing our accounting and
financial processes and the audits of our financial statements. The
independent auditor is ultimately accountable to the Audit
Committee, as representatives of the stockholders. The Audit
Committee has the ultimate authority and direct responsibility for
the selection, appointment, compensation, retention and oversight
of the work of our independent auditor that is engaged for the
purpose of preparing or issuing an audit report or performing other
audit, review or attest services for us (including the resolution
of disagreements between management and the independent auditors
regarding financial reporting), and the independent auditor must
report directly to the Audit Committee. The Audit Committee also is
responsible for the review of proposed transactions between us and
related parties. For a complete description of the Audit
Committee's responsibilities, you should refer to the Audit
Committee Charter. The Audit Committees held seven meetings and
took two actions by unanimous written consent during the year ended
December 31, 2019.
Compensation Committee. The current
members of the Compensation Committee are Messrs. Westfall (chair),
Marchlik, and Dixon. The Compensation Committee was established to,
among other things, administer and approve all elements of
compensation and awards for our executive officers. The
Compensation Committee has the responsibility to review and approve
the business goals and objectives relevant to each executive
officer's compensation, evaluate individual performance of each
executive in light of those goals and objectives, and determine and
approve each executive's compensation based on this evaluation. For
a complete description of the Compensation Committee's
responsibilities, you should refer to the Compensation Committee
Charter. The Compensation Committee held three meetings and took
one actions by unanimous written consent during the year ended
December 31, 2019.
Nominating and Corporate Governance
Committee. The current members of the Nominating and
Corporate Governance Committee are Messrs. Dixon (chair) and Gray.
The Nominating Committee is responsible for identifying individuals
qualified to become members of the Board or any committee thereof;
recommending nominees for election as directors at each annual
stockholder meeting; recommending candidates to fill any vacancies
on the Board or any committee thereof; and overseeing the
evaluation of the Board. For a complete description of the
Nominating and Corporate Governance Committee's responsibilities,
you should refer to the Nominating and Corporate Governance
Committee Charter. The Nominating and Corporate Governance
Committees took one action by unanimous written consent during the
year ended December 31, 2019.
The
Nominating and Corporate Governance Committee will consider all
qualified director candidates identified by various sources,
including members of the Board, management and stockholders.
Candidates for directors recommended by stockholders will be given
the same consideration as those identified from other sources. The
Nominating and Corporate Governance Committee is responsible for
reviewing each candidate's biographical information, meeting with
each candidate and assessing each candidate's independence, skills
and expertise based on a number of factors. While we do not have a
formal policy on diversity, when considering the selection of
director nominees, the Nominating and Corporate Governance
Committee considers individuals with diverse backgrounds,
viewpoints, accomplishments, cultural background and professional
expertise, among other factors.
65
Item 11.
Executive Compensation.
Executive and Director Compensation
Summary Compensation Table
The
following table provides the compensation paid to our principal
executive officer and other executive officers whose total
compensation exceeded $100,000 for the years ended December 31,
2019 and December 31, 2018.
|
Name and
Principal Position
|
|
Fiscal
Year
|
|
|
Salary
|
|
|
|
Bonus
|
|
|
|
Stock
Awards(1)
|
|
|
|
Total
|
|
|
Marshall
Chesrown
Chief
Executive Officer
|
|
2019
|
|
$
|
360,000
|
|
|
$
|
200,000
|
|
|
|
-
|
|
|
|
560,000
|
|
|
|
|
2018
|
|
|
240,000
|
|
|
|
150,000
|
(2)
|
|
|
-
|
|
|
$
|
390,000
|
|
|
Steven
R. Berrard
Chief
Financial Officer
|
|
2019
|
|
$
|
360,000
|
|
|
$
|
200,000
|
|
|
|
-
|
|
|
|
560,000
|
|
|
|
|
2018
|
|
|
240,000
|
|
|
|
150,000
|
(2)
|
|
|
-
|
|
|
$
|
390,000
|
|
|
Peter
Levy(3)
Chief
Operating Officer
|
|
2019
|
|
$
|
280,273
|
|
|
$
|
50,500
|
|
|
|
204,000
|
(4)
|
|
$
|
534,773
|
|
(1)
Does not include the grant date fair value of performance and
market based restricted stock units granted to each of Mr. Chesrown
and Mr. Berrard in the amount of $838,000 and to Mr. Levy in the
amount of $204,250, each as determined pursuant to FASB ASC Topic
718, which restricted stocks unit were terminated as described
below under the section titled Executive Employment
Arrangement.
(2)
Represents a discretionary bonus approved by the Company's
Compensation Committee for service provided to the Company in
connection with the acquisitions of Wholesale, Inc. and Wholesale
Express, LLC in October 2018.
(3)
On May 20, 2019, Peter Levy was promoted to Chief Operating Officer
of the Company. As a result, compensation for only 2019 is
presented above.
(4)
Does not reflect compensation paid to Mr. Levy. Instead, the
amount shown reflects the grant date fair value of restricted stock
units granted to Mr. Levy determined pursuant to FASB ASC Topic
718.
Executive Employment Arrangement
Marshall Chesrown and Steven Berrard
On May
25, 2019, the Compensation Committee approved an increase in the
annual base salary for Marshall Chesrown and Steven Berrard from
$240,000 to $360,000, retroactive to January 1, 2019. The
Compensation Committee also approved a discretionary bonus of up to
$500,000 for each of Messrs. Chesrown and Berrard payable as
follows: (i) $100,000 payable immediately in connection with the
Company's performance for the quarter ended March 31, 2019 and the
launch of the Company's finance business, (ii) $100,000 upon
reaching the revenue target approved by the Committee for the year
ending December 31, 2019 and payable upon completion of the
Company's audited financial statements for the year ending December
31, 2019, (iii) $100,000 payable upon achieving powersports and
automotive unit sales with a target average gross margin per unit
approved by the Committee at any time through December 31, 2019,
and (iv) $100,000 payable in two equal installments upon achieving
a certain percentage of revenue and gross margin targets approved
by the Committee for the quarters ended June 30, 2019 and September
30, 2019. Messrs. Chesrown and Berrard each achieved and were paid
$200,000 under the bonus plan.
The
Committee also approved grants of up to 20,000 restricted stock
units ("RSUs") for each of Messrs. Chesrown and Berrard, which vest
as follows: (i) 5,000 RSUs vest after two consecutive quarters of
$1.00 or greater operating income and trailing four quarter revenue
targets approved by the Committee at any time through September 30,
2020, (ii) 5,000 RSUs vest at such time as the shares of Class B
Common Stock trade at a minimum closing price of $200.00 per share
for 30 consecutive trading days at any time through September 30,
2020, and (iii) 10,000 RSUs vest at such time as the shares of
Class B Common Stock trade at a minimum closing price of $300.00
per share for thirty consecutive trading days at any time through
September 30, 2020. Messrs. Chesrown and Berrard received these
RSUs on June 3, 2019 (the "CEO and CFO RSUs").
On May
27, 2020, the Committee terminated the CEO and CFO
RSUs.
The
Company has not entered into employment agreements or arrangements
with Messrs. Chesrown or Berrard. Accordingly, Messrs. Chesrown and
Berrard are employed as the Company's Chief Executive Officer and
Chief Financial Officer, respectively, on an at-will
basis.
66
Peter Levy
We have
not entered into an employment agreement or arrangement with Mr.
Levy. Accordingly, he is employed as our Chief Operating Officer on
an at-will basis. Mr. Levy currently receives an annual salary of
$300,000, which is paid weekly, in accordance with our standard
payroll practice. Mr. Levy is eligible for equity compensation
under our equity compensation plans, as determined from time to
time by the Compensation Committee of the Board.
On
August 22, 2019, the Compensation Committee approved a grant of
2,500 RSUs to Mr. Levy, which vest (1) 20% on the last day of the
ninth month following the grant date, (2) 7.5% every three months
on the last day of each three month period beginning on the last
day of the twelfth month following the grant date through the last
of the twenty-first month following the grant date and (3) 12.5%
every three months on the last day of each three month period
beginning on the last day of the twenty-fourth month following the
grant date through the last day of the thirty-first month following
the grant date.
Also,
on August 22, 2019, the Committee approved a grant of up to 5,000
RSUs to Mr. Levy, which vest as follows: (i) 1,250 RSUs vest after
two consecutive quarters of $1.00 or greater operating income and
trailing four quarter revenue of $900,000,000 at any time through
June 30, 2020, (ii) 1,250 RSUs vest at such time as the shares of
Class B Common Stock trade at a minimum closing price of $200.00
per share for 30 consecutive trading days at any time through June
30, 2020, and (iii) 2,500 RSUs vest at such time as the shares of
Class B Common Stock trade at a minimum closing price of $300.00
per share for 30 consecutive trading days at any time through June
30, 2020 (the “COO RSUs, collectively with the CEO and CFO
RSUs, the "Executive RSUs").
On May
27, 2020, the Committee terminated the COO RSUs.
Non-Employee Director Compensation
We have
not yet established a policy for non-employee director
compensation. During the year ended December 31, 2019, no
compensation was paid to our non-employee directors, except an
award of 1,750 RSUs under the Incentive Plan to Messrs. Dixon,
Gray, Kakarala, Westfall and Reece for their service to the
Board.
The
following table summarizes the compensation paid to our
non-employee directors for the year ended December 31,
2019.
|
Name
|
Stock
Awards
(1)(2)
|
Total
|
|
Denmar
Dixon
|
$ 160,300
|
$ 160,300
|
|
Richard A. Gray,
Jr.
|
$ 160,300
|
$ 160,300
|
|
Kartik
Kakarala
|
$ 160,300
|
$ 160,300
|
|
Kevin
Westfall
|
$ 160,300
|
$ 160,300
|
|
Joseph Reece
(3)
|
$ 160,300
|
$ 160,300
|
(1)
Represents RSUs granted under the Incentive Plan. Represents the
aggregate grant date fair value computed in accordance with FASB
ASC Topic 718. In determining the grant date fair value, we used
$91.60 per share. The RSUs vest one year from the grant date and
are subject to pro rata vesting if a director leaves the Board of
Directors before the one-year period.
(2)
As of December 31, 2019, each of Messrs. Dixon, Gray, Kakarala, and
Westfall held RSUs as follows: Mr. Dixon – 6,025; Mr. Gray
– 4,550; Mr. Kakarala – 3,150; and Mr. Westfall –
4,025.
(3)
Mr. Reece resigned from the board on October 21, 2019, and
forfeited all vested and unvested RSUs.
67
Item 12.
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
Security Ownership of Certain Beneficial Owners and
Management
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities. In accordance with the SEC rules, shares of our common
stock that may be acquired upon exercise or vesting of equity
awards within 60 days of the date of the table below are deemed
beneficially owned by the holders of such options and are deemed
outstanding for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage of ownership of any other
person.
As of
May 26, 2020, 50,000 shares of Class A Common Stock and 2,162,716
shares of Class B Common Stock were issued and outstanding. The
following table sets forth information with respect to the
beneficial ownership of our common stock as of May 26, 2020, by
(i) each of our directors
and executive officers, (ii) all of our directors and executive
officers as a group, and (iii) each stockholder known by us to be
the beneficial owner of more than 5% of our common stock. To the
best of our knowledge, except as otherwise indicated, each of the
persons named in the table has sole voting and investment power
with respect to the shares of common stock beneficially owned by
such person, except to the extent such power may be shared with a
spouse. To our knowledge, none of the shares listed below are held
under a voting trust or similar agreement, except as noted. To our
knowledge, there is no arrangement, including any pledge by any
person of our securities or any of our parents, the operation of
which may at a subsequent date result in a change in control of our
company.
Unless
otherwise noted below, the address of each person listed on the
table is c/o RumbleOn, Inc., 901 W
Walnut Hill Lane, Irving, Texas 75038.
|
Beneficial
Owner Executive Officers and Directors
|
Class A
Common Stock Beneficially Owned
|
Percentage
of Class A Common
Stock
Beneficially Owned (%)(1)
|
Class B
Common Stock Beneficially Owned
|
|
Percentage
of Class B Common Stock Beneficially Owned (%)(2)
|
|
Marshall
Chesrown(3)
|
43,750
|
87.5%
|
93,750
|
|
4.33%
|
|
Steven
Berrard(4)
|
6,250
|
12.5%
|
108,500
|
|
5.02%
|
|
Denmar
Dixon(5)
|
-
|
-
|
78,874
|
(8)
|
3.65%
|
|
Kevin
Westfall
|
-
|
-
|
4,851
|
(9)
|
*
|
|
Kartik
Kakarala(6)
|
-
|
-
|
78,772
|
(10)
|
3.64%
|
|
Peter
Levy
|
-
|
-
|
6,944
|
(11)
|
*
|
|
Richard
Gray
|
-
|
-
|
5,071
|
(12)
|
*
|
|
Michael
Marchlik
|
-
|
-
|
-
|
|
-
|
|
All executive
officers and directors as a group (8 persons) (7)
|
-
|
-
|
376,762
|
(13)
|
17.42%
|
*Represents
beneficial ownership of less than 1%.
(1)
Based on 50,000 shares of Class A Common Stock issued and
outstanding as of May 26, 2020. The Class A Common Stock has ten
votes for each share outstanding compared to one vote for each
share of Class B Common Stock outstanding
(2)
Based on 2,162,716 shares of Class B Common Stock issued and
outstanding as of May 26, 2020.
(3)
As of May 26, 2020, Mr. Chesrown has voting power representing
approximately 19.95% of our outstanding common stock.
(4)
Shares are owned directly through Berrard Holdings, a limited
partnership controlled by Steven R. Berrard. Mr. Berrard has the
sole power to vote and the sole power to dispose of each of the
shares of common stock which he may be deemed to beneficially own.
As of May 26, 2020, Mr. Berrard has voting power representing
approximately 6.42% of our outstanding common stock.
(5)
62,642 shares are owned directly through Blue Flame Capital, LLC,
an entity controlled by Mr. Dixon, 638 shares are held by Mr.
Dixon's spouse, 75 shares are held by Mr. Dixon's son and 12,600
shares are directly held by Mr. Dixon. Mr. Dixon has the sole power
to vote and the sole power to dispose of each of the shares of
common stock which he may be deemed to beneficially own. As of May
26, 2020, Mr. Dixon has voting power representing 2.85% of our
outstanding common stock.
68
(6)
Shares are owned indirectly through Halcyon Consulting, LLC, a
limited liability company owned by Kartik Kakarala and his brother,
Srinivas Kakarala. Kartik Kakarala has shared power to vote and
shared power to dispose of such shares of common stock with his
brother. As of May 26, 2020, Mr. Kakarala has voting power
representing 2.87% of our outstanding common stock.
(7)
As of May 26, 2020, all directors and executive officers as a group
have voting power representing approximately 32.46% of our
outstanding common stock.
(8)
Includes 2,919 restricted stock units that have vested and are
pending delivery or will vest within 60 days.
(9)
Includes 2,231 restricted stock units that have vested and are
pending delivery or will vest within 60 days.
(10)
Includes 2,231 restricted stock units that have vested and are
pending delivery or will vest within 60 days.
(11)
Includes 2,501 restricted stock units that have vested and are
pending delivery or will vest within 60 days.
(12)
Includes 2,596 restricted stock units that have vested and are
pending delivery or will vest within 60 days.
(13)
Includes 12,478 restricted stock units that have vested and are
pending delivery or will vest within 60 days.
Securities Authorized for Issuance Under Equity Compensation
Plans
On
January 9, 2017, our Board approved the adoption of the Incentive
Plan subject to stockholder approval at our 2017 Annual Meeting of
Stockholders. On June 30, 2017, the Incentive Plan was approved by
our stockholders at the 2017 Annual Meeting of Stockholders. The
purposes of the Incentive Plan are to attract, retain, reward and
motivate talented, motivated and loyal employees and other service
providers, or the Eligible Individuals, by providing them with an
opportunity to acquire or increase a proprietary interest in our
company and to incentivize them to expend maximum effort for the
growth and success of our company, so as to strengthen the
mutuality of the interests between such persons and our
stockholders. The Incentive Plan allows us to grant a variety of
stock-based and cash-based awards to Eligible Individuals. On May
10, 2018, the Board approved, subject to stockholder approval, an
amendment to the Incentive Plan to increase the number of shares of
Class B Common Stock authorized for issuance under the Incentive
Plan from twelve percent (12%) of all issued and outstanding Class
B Common Stock from time to time to 100,000 shares of Class B
Common Stock (the "Plan Increase"). On June 25, 2018, the Plan
Increase was approved by our stockholders at the 2018 Annual
Meeting of Stockholders. On May 20, 2019, the Company's
stockholders approved another amendment to the Plan to increase the
number of shares authorized for issuance under the Plan from
100,000 shares of Class B Common Stock to 200,000 shares of Class B
Common Stock. We have not maintained any other equity compensation
plans since our inception.
The
following table provides information as of December 31, 2019, with
respect to all of our compensation plans under which equity
securities are authorized for issuance:
|
Plan Category
|
|
Number of securities
to be issued upon exercise of outstanding options, warrants and
rights
|
|
|
Number of securities remaining available for future
issuance
|
|
||
|
Equity
compensation plans approved by stockholders
|
|
|
136,076
|
(1)
|
|
|
41,299
|
(2)
|
|
Equity
compensation plans not approved by stockholders
|
|
|
-
|
|
|
|
-
|
|
(1)
Represents restricted stock units outstanding under the Incentive
Plan.
(2)
Represents securities remaining available for future issuance under
the Incentive Plan.
69
Item 13.
Certain Relationships and Related
Transactions, and Director Independence.
We have
been a party to the following transactions since January 1, 2018,
in which the amount involved exceeds $120,000 and in which any
director, executive officer, or holder of more than 5% of any class
of our voting stock, or any member of the immediate family of or
entities affiliated with any of them, had or will have a material
interest.
November 2016 Private Placement
On
November 28, 2016, we completed a private placement with certain
purchasers, with respect to the sale of an aggregate of 45,000
shares of common stock of the Company at a purchase price of $30.00
per share for total consideration of $1,350,000 (the "2016 Private
Placement"). In connection with the 2016 Private Placement, the
Company also entered into loan agreements with the investors
pursuant to which the investors would loan the Company their pro
rata share of up to $1,350,000 in the aggregate upon our request
any time on or after January 31, 2017 and before
November 1, 2020, pursuant
to the terms of a convertible promissory note attached to the loan
agreements.
In
connection with the 2016 Private Placement, Blue Flame, an entity
controlled by Denmar Dixon, one of the Company's directors, paid $250,000 for 45,000
shares of the Company's Class B
Common Stock.
On
March 31, 2017, we completed funding of the second tranche of the
2016 Private Placement, pursuant to which the investors each
received their pro rata share of (1) 58,096 shares of common stock
and (2) the Private Placement Notes, in the amount of $667,000, and
cancellation of loan agreements having an aggregate principal
amount committed by the purchasers of $1,350,000. The Private
Placement Notes were not convertible. As a result, Blue Flame
received 32,276 shares of Class B Common Stock and a promissory
note in the principal amount of $370,556. As of December 31, 2019
and 2018, the amount outstanding on the promissory notes due to
Blue Flame, including accrued interest was $394,287 and $378,495,
respectively. Interest expense on the promissory notes due to Blue
Flame for the year ended December 31, 2019 and 2018 was $183,286
and $143,987, respectively, which included debt discount
amortization of $144,109 and $114,404, respectively. The interest
was charged to interest expense in the Consolidated Statements of
Operations.
Test Dealer
In
connection with the development of the regional partner program,
the Company tested various aspects of the program by utilizing a
dealership to which Mr. Chesrown, the Company's Chief Executive Officer has provided
financing in the form of a $400,000 convertible promissory note
(the "Dealer"). The note, which could be converted into
a 25.0% ownership interest in the Dealer at any time, was to mature
on May 1, 2019, with interest payable monthly at 5.0% per annum
This
financing arrangement was terminated in April 2018. Revenue
recognized by the Company from the Dealer for the year ended
December 31, 2018 was $619,193 or .04% of 2018 total
revenue.
In
addition, the Company previously subleased warehouse space from the
Dealer that is separate and distinct from the location of the
dealership, on the same terms as paid by the Dealer. This subleased
facility serves as the northwestern regional distribution center
for the Company. The lease was
terminated on June
30, 2018.
For the year ended December 31, 2018, the Company paid $90,000 in
rent under the sublease. Included in accounts
receivable at December 31, 2018 was $40,176 owed to the Company by
the Dealer.
Services Agreement
In
connection with the NextGen Acquisition, on February 8, 2017, we
entered into a Services Agreement with Halcyon, to provide
development and support services to us. Mr. Kakarala currently
serves as the Chief Executive Officer of Halcyon. Pursuant to the
Services Agreement, we paid Halcyon hourly fees for specific
services, set forth in the Services Agreement, and such fees could
increase on an annual basis, provided that the rates were not
higher than 110.0% of the immediately preceding year's rates. We also reimbursed Halcyon for
any reasonable travel and pre-approved out-of-pocket expenses
incurred in connection with its services to us. The Services
Agreement was terminated on March 31, 2018. During the year ended
December 31, 2018, we paid a total of $54,159 under the Services
Agreement.
October 2018 PIPE Transaction
On
October 25, 2018, the Company entered into a Securities Purchase
Agreement with certain accredited investors (the "Investors") pursuant to which
the Company agreed to sell in a private placement (the "PIPE
Transaction") an aggregate of 151,500 shares of its Class B Common
Stock, at a purchase price of $142.00 per share for non-affiliates
of the Company.
70
Mr.
Dixon, who invested through Blue Flame, purchased 1,500 shares of
Class B Common Stock in the PIPE Transaction at a price of $162.00
per share (the per share price to affiliates of the Company) for an
aggregate purchase price of $243,000. Also, Mr. Reece, a Director
at the time, individually purchased 500 shares of Class B Common
Stock for an aggregate purchase price of $81,000. The Board of
Directors approved these purchases in accordance with Rule
16b-3(d)(1) of the Exchange Act. Messrs. Dixon and Reece abstained
from the Board of Directors' vote approving the PIPE
Transaction.
Nashville Leases
In
connection with the acquisition of Wholesale, we entered into
leases for two facilities in the greater Nashville area owned by
Mr. Brewster, a former 5% or greater holder of our Class B
Common Stock. Each location has a lease term expiring on October
30, 2021, and for each property we have two (2) renewal options,
each of which provides for five (5) additional years with a ten
percent (10.0%) increase in the base rent. The aggregate rent for
the two locations is approximately $55,000 per month.
Related Party Transaction Policy
In May
2017, our Board adopted a formal policy that our executive
officers, directors, holders of more than 5.0% of any class of our
voting securities, and any member of the immediate family of and
any entity affiliated with any of the foregoing persons, are not
permitted to enter into a related party transaction with us without
the prior consent of the Audit Committee, or other independent
members of our Board if it is inappropriate for the Audit Committee
to review such transaction due to a conflict of interest. Any
request for us to enter into a transaction with an executive
officer, director, principal stockholder, or any of their immediate
family members or affiliates, in which the amount involved exceeds
$120,000 must first be presented to the Audit Committee for review,
consideration and approval. In approving or rejecting any such
proposal, the Audit Committee is to consider the relevant facts and
circumstances available and deemed relevant to the audit committee,
including, whether the transaction is on terms no less favorable
than terms generally available to an unaffiliated third party under
the same or similar circumstances and the extent of the related
party's interest in the
transaction.
Director Independence
Our
Board has determined that all of our directors, other than Messrs.
Chesrown, Berrard, and Kakarala, qualify as "independent" directors in accordance with the listing
requirements of The NASDAQ Stock Market. The NASDAQ independence
definition includes a series of objective tests regarding a
director's independence and
requires that the Board make an affirmative determination that a
director has no relationship with us that would interfere with such
director's exercise of
independent judgment in carrying out the responsibilities of a
director. There are no family relationships among any of our
directors or executive officers.
On
November 19, 2019, the Audit Committee of the Company engaged Grant
Thornton LLP ("Grant Thornton") as the Company's independent
registered public accounting firm, effective November 19, 2019.
Also, effective November 19, 2019, the Audit Committee of the
Company dismissed Scharf Pera & Co., PLLC ("Scharf Pera") as
the Company's independent registered public accounting
firm.
Scharf
Pera audited the Company's financial statements as of and for the
years ended December 31, 2017 and December 31, 2018. Scharf Pera's
reports on the Company's financial statements as of and for the
years ended December 31, 2017 and December 31, 2018 did not contain
any adverse opinion or disclaimer of opinion, nor was it qualified
or modified as to uncertainty, audit scope, or accounting
principles.
In
connection with Scharf Pera's audits of the Company's financial
statements as of and for the years ended December 31, 2017 and
December 31, 2018 and the subsequent interim period through
November 19, 2019, there were (i) no "disagreements" (as that term
is defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions) between the Company and Scharf Pera on any matter of
accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Scharf Pera, would have caused
Scharf Pera to make a reference to the subject matter thereof in
connection with its reports on the Company's financial statements
for such years and (ii) no "reportable events" (as that term is
defined in Item 304(a)(1)(v) of Regulation S-K and the related
instructions).
During
the years ended December 31, 2017 and December 31, 2018, and
through the subsequent interim period as of November 19, 2019,
neither the Company, nor any party on its behalf, consulted with
Grant Thornton regarding either (i) the application of accounting
principles to a specific transaction, either completed or proposed,
or the type of audit opinion that might be rendered with respect to
the Company's financial statements, and no written reports or oral
advice was provided to the Company by Grant Thornton that was an
important factor considered by the Company in reaching a decision
as to any accounting, auditing or financial reporting issue or (ii)
any matter that was either the subject of a disagreement (as that
term is defined in Item 304(a)(1)(iv) of Regulation S-K and related
instructions) or a reportable event (as that term is defined in
Item 304(a)(1)(v) of Regulation S-K).
71
The
following table sets forth Grant Thornton's and Scharf Pera’s
fees for the years ended December 31, 2019 and 2018.
|
|
2019
|
2018
|
|
|
Audit Fees
(1)
|
$340,000
|
$80,294
|
|
|
Tax
Fees
|
-
|
12,415
|
(2)
|
|
All Other
Fees
|
-
|
17,717
|
(3)
|
|
Total
|
$340,000
|
$110,426
|
|
(1)
These audit fees include the fees billed by Grant Thornton of
$340,000 for the audit of the Company for the year ended December
31, 2019. The fees for 2018 are for amounts billed by Scharf Pera
for (i) the audits of the Company for the years ended December 31,
2018 and 2017 and (ii) their review of the Company's unaudited 2018
Quarterly financial statements.
(2)
These tax fees consist of tax fees billed by Scharf Pera in
2018.
(3)
These other fees consist of fees billed by Scharf Pera in 2018 for
review of Registration Statements.
Policy for Approval of Audit and Permitted Non-Audit
Services
The
Audit Committee has adopted a policy and related procedures
requiring its pre-approval of all audit and non-audit services to
be rendered by its independent registered public accounting firm.
These policies and procedures are intended to ensure that the
provision of such services do not impair the independent registered
public accounting firm's
independence. These services may include audit services, audit
related services, tax services and other services. The policy
provides for the annual establishment of fee limits for various
types of audit services, audit related services, tax services and
other services, within which the services are deemed to be
pre-approved by the Audit Committee. The independent registered
public accounting firm is required to provide to the Audit
Committee back up information with respect to the performance of
such services.
All
services provided by Grant Thornton and Scharf Pera during the
fiscal year ended December 31, 2019 and 2018 were approved by the
Audit Committee. The Audit Committee has delegated to its Chair the
authority to pre-approve services, up to a specified fee limit, to
be rendered by the independent registered public accounting firm
and requires that the Chair report to the Audit Committee any
pre-approved decisions made by the Chair at the next scheduled
meeting of the Audit Committee.
72
PART IV
Item 15.
Exhibits, Financial Statement
Schedules.
(a)
We have filed the
following documents as part of this Annual Report on Form
10-K:
1.
The financial
statements listed in the "Index to Financial Statements" on page
F-1 are filed as part of this report.
2.
Financial statement
schedules are omitted because they are not applicable, or the
required information is shown in the financial statements or notes
thereto.
3.
Exhibits included
or incorporated herein: See below.
|
Exhibit Number
|
|
Description
|
|
|
Agreement
and Plan of Merger, dated October 26, 2018, by and among RumbleOn,
Inc., RMBL Tennessee, LLC, Wholesale Holdings, Inc., Steven
Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster as
representative, and for limited purposes, Marshall Chesrown and
Steven R. Berrard.
(Incorporated
by reference to Exhibit 2.1 in the Company's Current Report on Form 8-K, filed on
October 31, 2018).
|
|
|
|
Amendment
to the Agreement and Plan of Merger, dated October 29, 2018, by and
among RumbleOn, Inc., RMBL Tennessee, LLC, Wholesale Holdings,
Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and
Steven Brewster as representative (Incorporated by reference to
Exhibit 2.2 in the Company's
Current Report on Form 8-K, filed on October 31,
2018).
|
|
|
|
Membership Interest Purchase Agreement, dated October 26, 2018, by
and among RumbleOn, Inc. Steven Brewster, Justin Becker, and Steven
Brewster as representative. (Incorporated by reference to
Exhibit 2.3 in the Company's
Current Report on Form 8-K, filed on October 31,
2018).
|
|
|
|
Articles
of Incorporation filed on October 24, 2013 (Incorporated by
reference to Exhibit 3(i)(a) in the Company's Registration Statement on Form S-1/A,
filed on March 20, 2014).
|
|
|
|
By-Laws,
as Amended (Incorporated by reference to Exhibit 3.2 in the
Company's Annual Report on Form
10-K, filed on February 14, 2017).
|
|
|
|
Certificate
of Amendment to Articles of Incorporation, filed on February 13,
2017 (Incorporated by reference to Exhibit 3.3 in the
Company's Annual Report on Form
10-K, filed on February 14, 2017).
|
|
|
|
Certificate
of Amendment to Articles of Incorporation, filed on June 25, 2018
(Incorporated by reference to Exhibit 3.1 in the
Company's Current Report on
Form 8-K, filed on June 28, 2018).
|
|
|
|
Certificate
of Designation for the Series B Preferred Stock (Incorporated by
reference to Exhibit 3.1 in the Company's Current Report on Form 8-K, filed on
October 31, 2018).
|
|
|
|
Amended
and Restated Stockholders Agreement, dated February 8, 2017
(Incorporated by reference to Exhibit 10.1 in the
Company's Annual Report on Form
10-K, filed on February 14, 2017).
|
|
|
|
Registration
Rights Agreement, dated February 8, 2017 (Incorporated by reference
to Exhibit 10.2 in the Company's Annual Report on Form 10-K, filed on
February 14, 2017).
|
|
|
|
Stockholder's
Agreement, dated October 24, 2016 (Incorporated by reference to
Exhibit 10.1 in the Company's
Current Report on Form 8-K, filed on October 28,
2016).
|
|
|
|
Sample
Stock Certificate – Class
B Common Stock (Incorporated by reference to Exhibit 4.4 in the
Company's Registration
Statement on Form S-1/A filed on September 27, 2017).
|
|
|
|
Form of
Warrant to Purchase Class B Common Stock, dated October 18, 2017
(Incorporated by reference to Exhibit 4.1 in the
Company's Current Report on
Form 8-K, filed October 24, 2017).
|
|
|
|
Warrant,
dated April 30, 2018 (Incorporated by reference to Exhibit 4.1 in
the Company's Current Report on Form 8-K, filed on May 1,
2018).
|
|
|
|
Warrant
to Purchase Class B Common Stock, dated October 30, 2018
(Incorporated by reference to Exhibit 4.1 in the
Company's Current Report on
Form 8-K, filed on October 31, 2018).
|
|
|
|
Indenture,
dated May 14, 2019, between RumbleOn, Inc. and Wilmington Trust
National Association (Incorporated by reference to Exhibit 4.1 in
the Company's Current Report on
Form 8-K, filed on May 15, 2019).
|
|
|
|
Form of 6.75% Convertible Senior Note due 2024 (included as Exhibit
A to the Indenture filed as Exhibit 4.8) (Incorporated by
reference to Exhibit 4.2 in the Company's Current Report on Form 8-K, filed on May
15, 2019).
|
|
|
|
Registration
Rights Agreement, dated May 14, 2019, between the Company and JMP
Securities LLC (Incorporated by reference to Exhibit 4.3 in the
Company's Current Report on
Form 8-K, filed on May 15, 2019).
|
|
|
|
Description
of Registrant's Securities.
|
|
|
10.1
|
|
2017
RumbleOn, Inc. Stock Incentive Plan + (Incorporated by reference to
Exhibit 10.1 in the Company's
Current Report on Form 8-K, filed on January 9, 2017).
|
|
10.2
|
|
Unconditional
Guaranty Agreement (Incorporated by reference to Exhibit 10.12 in
the Company's Annual Report on
Form 10-K, filed on February 14, 2017).
|
|
10.3
|
|
Security
Agreement (Incorporated by reference to Exhibit 10.13 the
Company's Annual Report on Form
10-K, filed on February 14, 2017).
|
73
|
10.4
|
|
NextGen
Promissory Note, dated February 8, 2017 (Incorporated by reference
to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q, filed on
May 15, 2017).
|
|
10.5
|
|
RumbleOn,
Inc. Form of Promissory Note (Incorporated by reference to Exhibit
10.1 in the Company's Current
Report on Form 8-K, filed on April 5, 2017).
|
|
10.6
|
|
Amendment
to Amended and Restated Stockholders' Agreement of RumbleOn, Inc., dated
September 29, 2017 (Incorporated by reference to Exhibit 10.1 in
the Company's Current Report on
Form 8-K, filed on October 5, 2017).
|
|
|
Inventory
Financing and Security Agreement, by and among RMBL Missouri, LLC,
Ally Bank and Ally Financial, Inc., dated February 16, 2018
(Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on
Form 8-K, filed on February 23, 2018).
|
|
|
|
Addendum
to Inventory Financing and Security Agreement, by and among RMBL
Missouri, LLC, Ally Bank and Ally Financial, Inc., dated February
16, 2018 (Incorporated by reference to Exhibit 10.2 in the
Company's Current Report on
Form 8-K, filed on February 23, 2018).
|
|
|
|
Cross
Collateral, Cross Default and Guaranty Agreement, by and among Ally
Bank, Ally Financial, Inc., RumbleOn, Inc., and RMBL Missouri, LLC,
dated February 16, 2018 (Incorporated by reference to Exhibit 10.3
in the Company's Current Report
on Form 8-K, filed on February 23, 2018).
|
|
|
|
General
Security Agreement, by and among RumbleOn, Inc., Ally Bank and Ally
Financial, Inc., dated February 16, 2018 (Incorporated by reference
to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on
February 23, 2018).
|
|
|
10.11
|
|
Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. +
(Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on
Form 8-K, filed on June 28, 2018).
|
|
10.12
|
|
Registration
Rights Agreement, dated October 30, 2018, by and among RumbleOn,
Inc., Steven Brewster and Janet Brewster, and Steven Brewster
as representative (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on
Form 8-K, filed on October 31, 2018).
|
|
|
Escrow
Agreement, dated October 30, 2018, by and among RumbleOn, Inc.,
Steven Brewster as representative, and Continental Stock Transfer
and Trust Company (Incorporated by reference to Exhibit 10.2 in the
Company's Current Report on
Form 8-K, filed on October 31, 2018).
|
|
|
10.14
|
|
Demand
Promissory Note and Loan and Security Agreement, dated October 30,
2018, by and between NextGear Capital, Inc. and Wholesale, LLC
(Incorporated by reference to Exhibit 10.4 in the
Company's Current Report on
Form 8-K, filed on October 31, 2018).
|
|
|
Corporate
Guaranty, in favor of NextGear Capital, Inc., dated October 30,
2018 (Incorporated by reference to Exhibit 10.5 in the
Company's Current Report on
Form 8-K, filed on October 31, 2018).
|
|
|
10.16
|
|
Form of
Securities Purchase Agreement, dated October 25, 2018(Incorporated
by reference to Exhibit 10.6 in the Company's Current Report on Form 8-K, filed on
October 31, 2018).
|
|
|
Purchase
Agreement, dated May 9, 2019, between the Company and JMP
Securities LLC (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on May 15,
2019).
|
|
|
|
Form of
Securities Purchase Agreement, dated May 9, 2019 (Incorporated by
reference to Exhibit 10.1 in the Company's Current Report on Form
8-K, filed on May 15, 2019).
|
|
|
|
Amendment
to the RumbleOn, Inc. 2017 Stock Incentive Plan. + (Incorporated by
reference to Exhibit 10.1 in the Company's Current Report on Form
8-K, filed on May 22, 2019).
|
|
|
|
Subsidiaries
|
|
|
|
Consent
of Grant Thornton LLP
|
|
|
|
Consent
of Scharf Pera & Co., PLLC
|
|
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
|
32.1*
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
32.2*
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
101.INS
|
|
XBRL
Instance Document.
|
|
101.SCG
|
|
XBRL
Taxonomy Extension Schema.
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase.
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase.
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase.
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase.
|
*
Furnished
herewith
+
Management
Compensatory Plan
Item 16.
Form 10-K Summary.
Registrants may
voluntarily include a summary of information required by Form 10-K
under this Item 16. The Company has elected not to include such
summary information.
74
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
RumbleOn, Inc.
|
|
|
|
|
|
|
Date:
May 29, 2020
|
By:
|
/s/ Marshall
Chesrown
|
|
|
|
Marshall
Chesrown
Chief
Executive Officer
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Marshall
Chesrown
|
|
Chairman
of the Board of Directors and
|
|
May 29,
2020
|
|
Marshall
Chesrown
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Steven R.
Berrard
|
|
Director
and Chief Financial Officer
|
|
May 29,
2020
|
|
Steven
R. Berrard
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Denmar
Dixon
|
|
Director
|
|
May 29,
2020
|
|
Denmar
Dixon
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Richard A. Gray,
Jr.
|
|
Director
|
|
May 29,
2020
|
|
Richard
A. Gray, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kartik
Kakarala
|
|
Director
|
|
May 29,
2020
|
|
Kartik
Kakarala
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Michael
Marchlik
|
|
Director
|
|
May 29,
2020
|
|
Michael
Marchlik
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kevin
Westfall
|
|
Director
|
|
May 29,
2020
|
|
Kevin
Westfall
|
|
|
|
|
75
Index to Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board of Directors and Stockholders
RumbleOn, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of
RumbleOn, Inc. (a Nevada corporation) and subsidiaries (the
“Company”) as of December 31, 2019, the related
consolidated statements of operations, stockholders’ equity,
and cash flows for the year in the period ended December 31, 2019,
and the related notes (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, 2019, and the results of
its operations and its cash flows for the year in the period ended
December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
Change in accounting principle
As discussed in Note 1 to the consolidated financial statements,
the Company has changed its method of accounting for leases on
January 1, 2019 due to the adoption of Accounting Standards Update
No. 2016-02: Leases (Topic 842).
Going concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has incurred
recurring losses from operations and negative cash flows from
operations. These conditions, along with the uncertainty arising
from the impact of COVID-19 and other matters as set forth in Note
1, raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
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
audit. 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 audit 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 audit 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 audit 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 supporting the amounts and disclosures in the financial
statements. Our audit 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 audit provides a reasonable basis
for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since
2019.
Dallas, Texas
May 29, 2020
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of RumbleOn, Inc.
Opinion on the Financial
Statements
We have audited the accompanying consolidated balance sheets of
RumbleOn, Inc. (the “Company”)as of December, 31 2018,
and the related consolidated statements of income,
stockholders’ equity, and cash flows for the year ended
December 31, 2018, and the related notes (collectively referred to
as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of
December 31, 2018, and the results of its operations and its cash
flows for the year ended December 31, 2018, 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 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/ Scharf Pera & Co., PLLC
We have served as the Company’s auditor since
2016
Charlotte, North Carolina
April 1, 2019
F-3
RumbleOn, Inc.
Consolidated Balance Sheets
December 31, 2019
and 2018
|
|
2019
|
2018
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$49,660
|
$9,134,902
|
|
Restricted
cash
|
6,676,622
|
6,650,000
|
|
Accounts
receivable, net
|
8,482,707
|
8,465,810
|
|
Inventory
|
57,381,281
|
52,191,523
|
|
Prepaid expense and
other current assets
|
1,210,474
|
1,096,945
|
|
Total current
assets
|
73,800,744
|
77,539,180
|
|
|
|
|
|
Property and
equipment, net
|
6,427,674
|
5,177,877
|
|
Right-of-use
assets
|
6,040,287
|
-
|
|
Goodwill
|
26,886,563
|
26,107,146
|
|
Other
assets
|
237,823
|
102,178
|
|
Total
assets
|
$113,393,091
|
$108,926,381
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued liabilities
|
$12,421,094
|
$10,554,913
|
|
Accrued interest
payable
|
749,305
|
206,037
|
|
Current portion of
convertible debt, net
|
1,363,590
|
-
|
|
Current portion of
long-term debt
|
59,160,970
|
58,555,006
|
|
Total current
liabilities
|
73,694,959
|
69,315,956
|
|
|
|
|
|
Long -term
liabilities:
|
|
|
|
Notes
payable
|
1,924,733
|
8,792,919
|
|
Convertible debt,
net
|
20,136,229
|
-
|
|
Derivative
liabilities
|
27,500
|
-
|
|
Operating
lease liability, long-term portion
|
4,722,101
|
-
|
|
Total long-term
liabilities
|
26,810,563
|
8,792,919
|
|
Total
liabilities
|
100,505,522
|
78,108,875
|
|
|
|
|
|
Commitments and
contingencies (Notes 4, 7, 8, 9, 13, 16)
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
Class B Preferred
stock, $0.001 par value, 10,000,000 shares authorized, 0 and
1,317,329 shares issued and outstanding as of December 31, 2019 and
2018, respectively
|
-
|
1,317
|
|
Common A stock,
$0.001 par value, 50,000 shares authorized, 50,000 shares issued
and outstanding as of December 31, 2019 and 2018,
respectively
|
50
|
50
|
|
Common B stock,
$0.001 par value, 4,950,000 shares authorized, 1,111,681 and
874,315 shares issued and outstanding as of December 31, 2019 and
2018, respectively
|
1,112
|
874
|
|
Additional paid in
capital
|
92,268,213
|
65,016,379
|
|
Accumulated
deficit
|
(79,381,806)
|
(34,201,114)
|
|
Total
stockholders'
equity
|
12,887,569
|
30,817,506
|
|
|
|
|
|
Total liabilities
and stockholders'
equity
|
$113,393,091
|
$108,926,381
|
See
Accompanying Notes to Financial Statements.
F-4
RumbleOn, Inc.
Consolidated
Statements of Operations
For the Two Years Ended December 31, 2019 and
2018
|
|
2019
|
2018
|
|
Revenue:
|
|
|
|
Pre-owned Vehicle
Sales:
|
|
|
|
Powersports
|
$101,008,976
|
$61,204,416
|
|
Automotive
|
717,042,511
|
91,369,996
|
|
Transportation and
Vehicle Logistics
|
22,577,860
|
3,823,819
|
|
Total
revenue
|
840,629,347
|
156,398,231
|
|
|
|
|
|
Cost of
revenue:
|
|
|
|
Powersports
|
88,673,515
|
54,334,066
|
|
Automotive
|
685,313,894
|
85,761,505
|
|
Transportation
|
16,023,962
|
2,755,856
|
|
Total cost of
revenue
|
790,011,371
|
142,851,427
|
|
|
|
|
|
Gross
profit
|
50,617,976
|
13,546,804
|
|
|
|
|
|
Selling, general
and administrative
|
86,624,249
|
35,963,930
|
|
|
|
|
|
Depreciation and
amortization
|
1,786,426
|
984,006
|
|
|
|
|
|
Operating
loss
|
(37,792,699)
|
(23,401,132)
|
|
|
|
|
|
Interest
expense
|
(7,187,604)
|
(1,780,685)
|
|
Decrease in
derivative liability
|
1,302,500
|
-
|
|
Loss on early
extinguishment of debt
|
(1,499,250)
|
-
|
|
Net loss before
provision for income taxes
|
(45,177,053)
|
(25,181,817)
|
|
|
|
|
|
Benefit for income
taxes
|
-
|
-
|
|
|
|
|
|
Net
loss
|
$(45,177,053)
|
$(25,181,817)
|
|
|
|
|
|
Weighted average
number of common shares outstanding - basic and fully
diluted
|
1,114,714
|
741,659
|
|
|
|
|
|
Net loss per share
- basic and fully diluted
|
$(40.53)
|
$(33.95)
|
See
Accompanying Notes to Financial Statements.
F-5
RumbleOn, Inc.
Consolidated
Statement of Stockholders' Equity
For the Two Years
Ended December 31, 2019 and 2018
|
|
Preferred Shares
|
Common A Shares
|
Common B Shares
|
Additional Paid in
|
Accumulated
|
Total Stockholders' Equity
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
(Deficit)
|
|
Balance,
December 31, 2017
|
-
|
-
|
50,000
|
50
|
596,427
|
596
|
23,384,643
|
(9,019,297)
|
14,365,992
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock
|
-
|
-
|
-
|
-
|
267,938
|
268
|
33,101,711
|
-
|
33,101,979
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock for restricted stock units
exercise
|
-
|
-
|
-
|
-
|
9,950
|
10
|
(10)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
1,657,680
|
-
|
1,657,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
warrants in connection with loan agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
221,160
|
-
|
221,160
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
preferred stock in connection with acquisition
|
1,317,329
|
1,317
|
-
|
-
|
-
|
-
|
6,651,195
|
-
|
6,652,512
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(25,181,817)
|
(25,181,817)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
1,317,329
|
$1,317
|
50,000
|
$50
|
874,315
|
$874
|
$65,016,379
|
$(34,201,114)
|
$30,817,506
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of accounting change (see Note 1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,639)
|
(3,639)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
component of convertible senior notes, net of issuance
costs
|
-
|
-
|
-
|
-
|
-
|
-
|
7,745,625
|
-
|
7,745,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock for restricted stock units
|
-
|
-
|
-
|
-
|
12,675
|
13
|
(13)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature on convertible notes
|
-
|
-
|
-
|
-
|
-
|
-
|
495,185
|
-
|
495,185
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
preferred shares to common stock
|
(1,317,329)
|
(1,317)
|
-
|
-
|
65,866
|
66
|
1,251
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock
|
-
|
-
|
-
|
-
|
158,825
|
159
|
15,173,268
|
-
|
15,173,427
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
3,836,518
|
-
|
3,836,518
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(45,177,053)
|
(45,177,053)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
-
|
$-
|
50,000
|
$50
|
1,111,681
|
$1,112
|
$92,268,213
|
$(79,381,806)
|
$12,887,569
|
See
Accompanying Notes to Financial Statements.
F-6
RumbleOn, Inc.
Consolidated
Statements of Cash Flows
For the Two Years
Ended December 31, 2019 and 2018
|
|
2019
|
2018
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
Net
loss
|
$(45,177,053)
|
$(25,181,817)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
1,786,426
|
984,006
|
|
Amortization of
debt discount
|
1,664,000
|
510,139
|
|
Bad debt
expense
|
1,123,739
|
33,326
|
|
Stock based
compensation expense
|
3,836,518
|
1,657,680
|
|
Loss from
extinguishment of debt
|
1,499,250
|
-
|
|
Goodwill
impairment
|
1,850,000
|
-
|
|
Gain from change in
value of derivatives
|
(1,302,500)
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Decrease (increase)
in accounts receivable
|
2,037,023
|
(319,335)
|
|
(Increase) in
inventory
|
(2,327,754)
|
(1,717,504)
|
|
(Increase) Decrease
in prepaid expenses and other current assets
|
(113,529)
|
340,483
|
|
(Increase) in other
assets
|
(135,645)
|
(51,485)
|
|
(Decrease) increase
in accounts payable and accrued liabilities
|
(5,031,073)
|
152,336
|
|
Increase in accrued
interest payable
|
543,268
|
172,083
|
|
Decrease in other
liabilities
|
-
|
(32,665)
|
|
Net cash used in
operating activities
|
(39,747,330)
|
(23,452,753)
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
Net cash used for
acquisitions
|
(835,000)
|
(15,395,251)
|
|
Proceeds from sales
of property and equipment
|
169,268
|
-
|
|
Technology
development
|
(3,085,743)
|
(2,162,707)
|
|
Purchase of
property and equipment
|
(119,748)
|
(6,409)
|
|
Net cash used in
investing activities
|
(3,871,223)
|
(17,564,367)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
Proceeds from notes
payable and convertible debt
|
27,455,537
|
9,227,035
|
|
Repayments for
notes payable
|
(10,857,500)
|
-
|
|
Net proceeds from
lines of credit
|
2,788,469
|
5,302,355
|
|
Proceeds from sale
of common stock
|
15,173,427
|
33,101,980
|
|
Net cash provided
by financing activities
|
34,559,933
|
47,631,370
|
|
|
|
|
|
NET CHANGE IN
CASH
|
(9,058,620)
|
6,614,250
|
|
|
|
|
|
CASH AND RESTRICTED
CASH AT BEGINNING OF PERIOD
|
15,784,902
|
9,170,652
|
|
|
|
|
|
CASH AND RESTRICTED
CASH AT END OF PERIOD
|
$6,726,282
|
$15,784,902
|
See
Accompanying Notes to Financial Statements.
F-7
Notes to
Financial Statements
NOTE 1 –DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
Organization
RumbleOn, Inc. (the
"Company") was incorporated in
October 2013 under the laws of the State of Nevada, as Smart
Server, Inc. ("Smart Server"). On February 13, 2017, the Company
changed its name from Smart Server, Inc. to RumbleOn,
Inc.
Description of Business
In July
2016, Berrard Holdings Limited Partnership ("Berrard Holdings")
acquired 99.5% of the common stock of the Company from the
principal stockholder. Shortly after the Berrard Holdings common
stock purchase, the Company began exploring the development of a
capital light e-commerce platform facilitating the ability of both
consumers and dealers to Buy-Sell-Trade-Finance pre-owned vehicles
in one online location and in April 2017, the Company launched its
platform. The Company's goal is to transform the way pre-owned
vehicles are bought and sold by providing users with the most
efficient, timely and transparent transaction experience. While the
Company's initial customer facing emphasis through most of 2018 was
on motorcycles and other powersports, the Company continues to
enhance its platform to accommodate nearly any VIN-specific vehicle
including motorcycles, ATVs, boats, RVs, cars and trucks, and via
its acquisition of Wholesale, Inc. in October 2018, the Company is
making a concerted effort to grow its cars and light truck
categories.
On
October 26, 2018, the Company entered into an Agreement and Plan of
Merger (as amended, the "Merger Agreement") with the Company's
newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware
limited liability company ("Merger Sub"), Wholesale Holdings, Inc.,
a Tennessee corporation ("Holdings"), Wholesale, LLC, a Tennessee
limited liability company ("Wholesale"), Steven Brewster and
Janelle Brewster (each a "Stockholder," and together the
"Stockholders"), Steven Brewster, a Tennessee resident, as the
representative of each Stockholder (the "Representative"), and
Marshall Chesrown and Steven R. Berrard, providing for the merger
of Holdings with and into Merger Sub, with Merger Sub surviving the
merger as a wholly-owned subsidiary of the Company (the "Wholesale
Transaction"). On October 29, 2018, the Company entered into
an Amendment to the Merger Agreement making a technical correction
to the definition of "Parent Consideration Shares" contained in the
Merger Agreement.
Also,
on October 26, 2018, the Company entered into a Membership Interest
Purchase Agreement (the "Purchase Agreement"), by and among the
Company, Steven Brewster and Justin Becker (together the "Express
Sellers"), and Steven Brewster as representative of the Express
Sellers, pursuant to which the Company acquired all of the
membership interests (the "Express Transaction," and together with
the Wholesale Transaction, the "Transactions") in Wholesale
Express, LLC, a Tennessee limited liability company ("Wholesale
Express"). The Transactions were both completed on October 30, 2018
(the "Acquisition Date"). As consideration for the Wholesale
Transaction, the Company (i) paid cash consideration of
$12,353,941, subject to certain customary post-closing adjustments,
and (ii) issued to the Stockholders 1,317,329 shares (the "Stock
Consideration") of the Company's Series B Non-Voting Convertible
Preferred Stock, par value $0.001 (the "Series B Preferred"). As
consideration for the Express Transaction, the Company paid cash
consideration of $4,000,000, subject to certain customary
post-closing adjustments. Wholesale Inc. is one of the largest
independent distributors of pre-owned vehicles in the United States
and Wholesale Express, LLC is a related logistics
company.
On
February 3, 2019, the Company completed the acquisition (the
"Autosport Acquisition") of all of the equity interests of
Autosport USA, Inc. ("Autosport"), an independent pre-owned vehicle
distributor, pursuant to a Stock Purchase Agreement, dated February
1, 2019 (the "Stock Purchase Agreement"), by and among RMBL
Express, LLC (the "Buyer"), a wholly owned subsidiary of Company,
Scott Bennie (the "Seller") and Autosport. Aggregate consideration
for the Autosport Acquisition consisted of (i) a closing cash
payment of $600,000, plus (ii) a fifteen-month $500,000 promissory
note (the "Promissory Note") in favor of the Seller, plus
(iii) a three-year $1,536,000 convertible promissory note (the
"Convertible Note") in favor of the Seller, plus (iv) contingent
earn-out payments payable in the form of cash and/or the Company's
Class B Common Stock (the "Earn-Out Shares") for up to an
additional $787,500 if Autosport achieves certain performance
thresholds. In connection with the Autosport Acquisition, the Buyer
also paid outstanding debt of Autosport of $235,000 and assumed
additional debt of $257,933 pursuant to a promissory note payable
to Seller (the "Second Convertible Note").
Serving
both consumers and dealers, through its online marketplace
platform, the Company makes cash offers for the purchase of
pre-owned vehicles. In addition, the Company offers a large
inventory of pre-owned vehicles for sale along with third-party
financing and associated products. The Company's operations are
designed to be scalable by working through an infrastructure and
capital light model that is achievable by virtue of a synergistic
relationship with its regional partners, which are primarily
auctions. The Company utilizes regional partners in the acquisition
of pre-owned vehicles to provide inspection, reconditioning and
distribution services. These regional partners earn incremental
revenue and enhance profitability through fees from inspection,
reconditioning and distribution programs.
F-8
Our
business model is driven by our proprietary technology platform.
Our initial platform was acquired in February 2017, through our
acquisition of substantially all of the assets of NextGen Dealer
Solutions, LLC ("NextGen"). Since that time, we have expanded the
functionality of that platform through a significant number of
high-quality technology development projects and initiatives.
Included in these new technology development projects and
initiatives were modules or significant upgrades to the existing
platforms for: (i) Retail online auction; (ii) native IOS and
Android apps; (iii) new architecture on website design and
functionality; (iv) RumbleOn Marketplace; (v) redesigned cash offer
tool; (vi) deal-jacket tracking tool; (vii) inventory tracking
tool; (viii) CRM and multiple third-party integrations; (ix) new
analytics and machine learning initiatives; and (x) IT monitoring
infrastructure.
The
COVID-19 situation has created an unprecedented and challenging
time. The Company’s current focus is on positioning the
Company for a strong recovery when this crisis is over. The Company
has taken steps to reduce its inventory and align its operating
expenses to the state of the business. The Company plans to
continue to operate as permitted to support its customers’
needs for reliable vehicles and to provide as many jobs as possible
for its associates. Effective April 9, 2020, 169 associates were
temporarily laid-off, however the Company’s receipt of PPP
funds, as discussed in Note 19 - Subsequent Events will allow the
Company to gradually recall these associates over time. All ongoing
employment determinations are subject to change due to the COVID-19
situation, future government mandates, as well as future business
conditions. The Company will continue to monitor the COVID-19
situation and look for ways to preserve cash and reduce its
operating expenses as the Company is able. However, the Company
expects that the consequences of the COVID-19 outbreak will likely
have a significant negative impact on its business, revenue,
results of operations, financial condition, and
liquidity.
Basis of Presentation
The accompanying consolidated financial
statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of
America ("U.S. GAAP"). All of the Company’s subsidiaries are
wholly owned. The consolidated financial statements include
the accounts of RumbleOn Inc. and its wholly owned subsidiaries
(the Company). All
intercompany accounts and material intercompany transactions have
been eliminated.
Liquidity
We have
incurred losses and negative cash flow from operations since
inception through December 31, 2019 and expect to incur additional
losses and negative cash flow in the future. As we continue to
expand our business, build our brand name and awareness, and
continue technology and software development efforts, we may need
access to additional capital. Historically, we have raised
additional capital to fund our expansion through equity issuances
or debt instruments; refer to Note 8 — Notes Payable and
Lines of Credit and Note 9 — Stockholders Equity. Also, we
have historically funded vehicle inventory purchases through our
Line of Credit-Floor Plans. As of May 28, 2020, we had
approximately $15,000,000 available under our NextGear Credit Line
that we may draw against through December 31, 2020 to fund future
vehicle inventory purchases, as described further in Note 8 —
Notes Payable and Lines of Credit.
Due to
the impact of COVID-19 on the economy, we have a strong focus on
preserving liquidity. Our primary liquidity sources are available
cash and cash equivalents, amounts available under the NextGear
Credit Line, proceeds from the Paycheck Protection Program loan,
monetization of our retail loan portfolio and through rationalizing
costs and expenses, including temporarily laying off 169 employees.
Although we have experienced a decrease in revenue as a result of
the impact of the COVID-19 pandemic, as of May 28, 2020, the
Company has $9,000,000 of unrestricted cash and has approximately
$15,000,000 of remaining availability under the NextGear
Credit.
The
Company’s consolidated financial statements have been
prepared assuming that will continue as a going concern, which
assumes the continuity of operations, the realization of assets and
the satisfaction of liabilities as they come due in the normal
course of business. Although the Company believes that we will be
able to generate sufficient liquidity from the measures described
above, our current circumstances including uncertainties due to
Covid-19 pandemic raise substantial doubt about our ability to
operate as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
F-9
Use of Estimates
The
preparation of these consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions. Certain accounting estimates involve significant
judgments, assumptions and estimates by management that have a
material impact on the carrying value of certain assets and
liabilities, disclosures of contingent assets and liabilities and
the reported amounts of revenue and expenses during the reporting
period, which management considers to be critical accounting
estimates. The judgments, assumptions and estimates used by
management are based on historical experience, management's
experience and other factors, which are believed to be reasonable
under the circumstances. Because of the nature of the judgments and
assumptions made by management, actual results could differ
materially from these judgments and estimates. In particular, the
novel COVID-19 pandemic and the resulting adverse impacts to global
economic conditions, as well as our operations, may impact future
estimates including, but not limited to inventory valuations, fair
value measurements, asset impairment charges and discount rate
assumptions.
Earnings (Loss) Per Share
The
Company follows the FASB Accounting Standards Codification ("ASC")
Topic 260-Earnings per share. Basic earnings per common share
("EPS") calculations are determined by dividing net income (loss)
by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings (loss) per common
share calculations are determined by dividing net income (loss) by
the weighted average number of common shares and dilutive common
share equivalents outstanding. During periods when common stock
equivalents, if any, are anti-dilutive they are not considered in
the computation. Common share and dilutive common share equivalents
include: (i) Class A common: (ii) Class B common; (iii) Class B
participating preferred shares; (iv) restrictive stock units;
(v) stock options; (vi) warrants to acquire Class B common stock;
and (vii) shares issued in connection with convertible
debt.
Revenue Recognition
Revenue
for our powersports and automotive segments is derived from our
online marketplace and auctions and primarily includes the sale of
pre-owned vehicles to consumer and dealers.
Revenue
from our vehicle logistics and transportation service segment is
derived by providing automotive transportation services between
dealerships and auctions throughout the United States.
We
adopted ASC 606, Revenue from
Contracts with Customers on January 1, 2018 using the
modified retrospective method. ASC 606 prescribes a five-step model
that includes: (1) identify the contract; (2) identify the
performance obligations; (3) determine the transaction price; (4)
allocate the transaction price to the performance obligations; and
(5) recognize revenue when (or as) performance obligations are
satisfied. Based on the manner in which we historically
recognized revenue, the adoption of ASC 606 did not have a material
impact on the amount or timing of our revenue recognition, and we
recognized no cumulative effect adjustment upon
adoption.
For
vehicles sold at wholesale to dealers we satisfy our performance
obligation when the wholesale purchaser obtains control of the
underlying vehicle, which is upon delivery when the transfer of
title, risks and rewards of ownership and control pass to the
dealer. We recognize revenue at the amount we expect to
receive for the used vehicle, which is the fixed price determined
at the auction. The purchase price of the wholesale vehicle is
typically due and collected within 30 days of delivery of the
wholesale vehicle.
For
vehicles sold to consumers the purchase price is set forth in the
customer contracts at a stand-alone selling price which is agreed
upon prior to delivery. We satisfy our performance obligation for
used vehicle sales upon delivery when the transfer of title, risks
and rewards of ownership and control pass to the customer. We
recognize revenue at the agreed upon purchase price stated in the
contract, including any delivery charges, less an estimate for
returns. Our return policy allows customers to initiate a
return during the first three days after delivery. Estimates
for returns are based on an analysis of historical experience,
trends and sales data. Changes in these estimates are reflected as
an adjustment to revenue in the period identified. The amount
of consideration received for used vehicle sales to consumers
includes noncash consideration representing the value of trade-in
vehicles, if applicable, as stated in the contract. Prior to the
delivery of the vehicle, the payment is received, or financing has
been arranged. Payments from customers that finance their purchases
with third parties are typically due and collected within 30 days
of delivery of the used vehicle. In future periods additional
provisions may be necessary due to a variety of factors, including
changing customer return patterns due to the maturation of the
online vehicle buying market, macro- and micro-economic factors
that could influence customer return behavior and future pricing
environments. If these factors result in adjustments to sales
returns, they could significantly impact our future operating
results. Revenue exclude any sales taxes, title and registration
fees, and other government fees that are collected from
customers.
Vehicle
logistics and transportation services revenue is generated
primarily by entering into freight
brokerage agreements with dealers, distributors, or private
party individuals to transport vehicles from a point of origin to a
designated destination. The transaction price
is based on the consideration specified in the customer's contract.
A performance obligation is created when the customer under a
transportation contract submits a bill of lading for the transport
of goods from origin to destination. These performance obligations
are satisfied as the shipments move from origin to
destination. The freight
brokerage agreements are fulfilled by independent
third-party transporters. While the Company is primarily
responsible for fulfilling to customers, these transporters are
obligated to meet our performance obligations and standards.
Performance
obligations are short-term, with transit days less than one week.
Generally, customers are billed either upon shipment of the vehicle
or on a monthly basis, and remit payment according to approved
payment terms, generally not to exceed 30 days. Revenue is
recognized as risks and rewards of transportation of the vehicle
are transferred to the owner during delivery. Wholesale Express is
considered the principal in the delivery transactions since it is
primarily responsible for fulfilling the service. As a result,
revenue is recorded gross.
F-10
Purchase Accounting for Business Combinations
The
Company accounts for acquisitions by allocating the fair value of
the consideration transferred to the fair value of the assets
acquired and liabilities assumed on the date of the acquisition and
any remaining difference is recorded as goodwill. Adjustments may
be made to the preliminary purchase price allocation when facts and
circumstances that existed on the date of the acquisition surface
during the allocation period subsequent to the preliminary purchase
price allocation, not to exceed one year from the date of
acquisition. Contingent consideration is recorded at fair value
based on the facts and circumstances on the date of the acquisition
and any subsequent changes in the fair value are recorded through
earnings each reporting period. During the year ended December 31,
2019, the Company finalized the preliminary purchase price
allocation recorded at the acquisition date for Wholesale Express
and made a measurement period adjustment to the preliminary
purchase price allocation which resulted in a decrease in goodwill
of $334,861. The Company made this measurement period adjustment to
reflect facts and circumstances related to accounts receivable and
accounts payable that existed as of the acquisition date and did
not result from intervening events subsequent to such
date.
Goodwill
Goodwill represents
the excess purchase price over the fair value of net assets
acquired which is not allocable to separately identifiable
intangible assets. Other identifiable intangible assets, such as
domain names, are separately recognized if the intangible asset is
obtained through contractual or other legal right or if the
intangible asset can be sold, transferred, licensed or
exchanged.
Goodwill is not amortized but
tested for impairment at the reporting unit
level annually on December 31 and upon the occurrence of an
indicator of impairment. We have the option to qualitatively
or quantitatively assess goodwill for impairment and we evaluated
our goodwill using a quantitative assessment process. Our operations are
organized by management into operating segments by line of
business. We have determined that we have three reportable segments
as defined in generally accepted accounting principles for segment
reporting: (1) powersports, (2) automotive and
(3) vehicle logistics and transportation. Our powersports and
automotive segments consist of the distribution of pre-owned
vehicles. The powersports segment consists of the distribution
principally of motorcycles, while the automotive segment
distributes cars and trucks. Our vehicle logistics and
transportation service segment provides nationwide automotive
transportation services between dealerships and auctions.
Each of these segments
are considered separate reporting units for purposes of goodwill
testing. Our vehicle logistics and transportation
service reportable segment has
been determined to represent one operating segment and reporting
unit.
During 2019, for the three
reporting units we
performed quantitative impairment testing of the fair value of our
reporting units using an income and market valuation approach. The
income valuation approach estimates our enterprise value using a
net present value model, which discounts projected free cash flows
of our business using the weighted average cost of capital as the
discount rate. The market valuation approach estimates our
enterprise value by applying a cash earnings multiple and selecting
a multiple that is reasonable compared to recent market
transactions completed in the industry. As part of that assessment,
we also reconcile the estimated aggregate fair values of our
reporting units to our market capitalization. We believe this
reconciliation process is consistent with a market participant
perspective. This consideration would also include a control
premium that represents the estimated amount an investor would pay
for our equity securities to obtain a controlling interest, and
other significant assumptions including revenue and profitability
growth, profit margins, residual values and the cost of capital.
For the year ended December 31, 2019, we recognized an impairment
loss on goodwill of $1,850,000, which is recorded in selling,
general and administrative expenses in the Consolidated Statement
of Operations. No impairment charges related to intangible
assets were recognized in 2018.
Leases
Effective January
1, 2019, the Company adopted ASC 842, Leases. In accordance
with ASC 842, the Company first determines if an arrangement
contains a lease and the classification of that lease, if
applicable, at inception. This standard requires the recognition of
right-of-use ("ROU") assets and lease liabilities for the Company's
operating leases. For contracts with lease and non-lease
components, the Company has elected not to allocate the contract
consideration, and to account for the lease and non-lease
components as a single lease component. The Company has also
elected not to recognize a lease liability or ROU asset for leases
with a term of 12 months or less and recognize lease payments for
those short-term leases on a straight-line basis over the lease
term in the Consolidated Statements of Operations. Operating leases
are included in Right-of-use assets, Accounts payable and accrued
liabilities and Operating lease liabilities, long-term portion in
the Consolidated Balance Sheets.
F-11
ROU
assets represent the Company's right to use an underlying asset for
the lease term and lease liabilities represent the Company's
obligation to make lease payments under the lease. ROU assets and
lease liabilities are recognized at the lease commencement date
based on the present value of lease payments over the lease term.
The implicit rate within the Company's leases is generally not
determinable and therefore the incremental borrowing rate at the
lease commencement date is utilized to determine the present value
of lease payments. The determination of the incremental borrowing
rate requires judgment. Management determines the incremental
borrowing rate for each lease using the Company's estimated
borrowing rate, adjusted for various factors including level of
collateralization, term and currency to align with the terms of the
lease. The ROU asset also includes any lease prepayments, offset by
lease incentives. Certain of the Company's leases include options
to extend or terminate the lease. An option to extend the lease is
considered in connection with determining the ROU asset and lease
liability when the Company is reasonably certain that the option
will be exercised. An option to terminate is considered unless the
Company is reasonably certain the option will not be
exercised.
Other Assets
Included in
"Other assets" on the
Company's Consolidated Balance
Sheets are amounts related to acquired internet domain names which
are considered to be an indefinite lived intangible assets.
Indefinite lived intangible assets are tested for impairment, at a
minimum, on an annual basis using an income approach or sooner
whenever events or changes in circumstances indicate that an asset
may be impaired. There was no impairment of indefinite lived assets
as of December 31, 2019 and 2018.
Long-Lived Assets
Property and
equipment are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. Recoverability of assets to be
held and used are measured by a comparison of the carrying amount
of an asset to the future net cash flows expected to be generated
by the asset. If such assets or asset groups are considered to be
impaired, the impairment to be recognized will be measured by the
amount by which the carrying amount of the assets or asset groups
exceeds the related fair values. The Company also performs a
periodic assessment of the useful lives assigned to the long-lived
assets. The
Company recorded no impairment charges on property and equipment
during the years ended December 31, 2019 and 2018. See Note 5
— Property and Equipment, Net for additional information on
property and equipment.
Technology Development Costs
Technology
development costs are accounted for pursuant to ASC
350, Intangibles —
Goodwill and Other. Technology development costs include
internally developed software and website applications that are
used by the Company for its own internal use and to provide
services to its customers, which include consumers, dealer partners
and ancillary service providers. Under the terms of these customer
arrangements the Company retains the revenue generating technology
and hosts the applications on its servers and mobile applications.
The customer does not have a contractual right to take possession
of the software during the term of the arrangement and are not
permitted to run the software itself or contract with another party
unrelated to the entity to host the software. Technology
development costs consist principally of (i) development activities including
payroll and related expenses billed by a third-party contractor
involved in application, content, production, maintenance,
operation, and platform development for new and existing products
and services, (ii) technology infrastructure expenses,
and (iii) costs of Company
employees devoted to the development and maintenance of software
products. Technology and
content costs for design, maintenance and post-implementation
stages of internal-use
software and general website development are expensed as incurred.
For costs incurred to develop new website functionality as well as
new software products and significant upgrades to existing
internally used platforms or modules, capitalization begins during
the application development stage and ends when the software is
available for general use. Capitalized technology development is
amortized on a straight-line basis over periods ranging from 3 to 7
years. The Company will perform periodic assessment of the useful
lives assigned to capitalized software applications. Additionally,
the Company from time-to-time may abandon additional development
activities relating to specific software projects or applications
and charge accumulated costs to technology development expense in
the period such determination is made.
Vehicle Inventory
Vehicle
inventory is accounted for pursuant to ASC 330, Inventory and
consists of the cost to acquire and recondition a pre-owned
vehicle. Reconditioning costs are billed by third-party providers
and includes parts, labor, and other repair expenses directly
attributable to a specific vehicle. Pre-owned inventory is stated
at the lower of cost or net realizable value. Pre-owned vehicle
inventory cost is determined by specific identification. Net
realizable value is the estimated selling price less costs to
complete, dispose and transport the vehicles. Selling prices are
derived from historical data and trends, such as sales price and
inventory turn times of similar vehicles, as well as independent
market resources. Each reporting period, the Company recognizes any
necessary adjustments to reflect pre-owned vehicle inventory at the
lower of cost or net realizable value through cost of revenue in
the accompanying Consolidated Statements of
Operations.
F-12
Accounts Receivable, Net
Accounts receivable,
net of an allowance for doubtful accounts, includes certain amounts
due from customers. The Company estimates the allowance for
doubtful accounts for accounts receivable by considering a number
of factors, including overall credit quality, age of outstanding
balances, historical write-off experience and specific account
analysis that projects the ultimate collectability of the
outstanding balances. Ultimately, actual results could differ from
these assumptions. The allowance
for doubtful accounts was approximately $1,034,919 and $176,190 as
of December 31, 2019 and 2018, respectively.
Cash and Cash Equivalents
The
Company considers all cash accounts and all highly liquid
short-term investments purchased with an original maturity of three
months or less to be cash or cash equivalents. As of December 31,
2019, and 2018, the Company did not have any investments with
maturities greater than three months. At times, the Company has
cash balances in domestic bank accounts that exceed Federal Deposit
Insurance Corporation limits. The Company has not experienced any
losses related to these cash concentrations.
Restricted Cash
In
connection with the execution of the Inventory Financing and
Security Agreement (the "Credit Facility") by and among the
Company's subsidiary, RMBL Missouri, LLC ("RMBL MO"), Ally Bank
("Ally") and Ally Financial, Inc., dated February 16, 2018 the
parties entered into a Credit Balance Agreement, and so long as the
Company owes any debt to Ally or until the bank otherwise consents,
the Company agrees to maintain a Credit Balance at Ally of 1) at
least 10.0% of the amount of the Company's approved and available
credit line under the Credit Facility and 2) no greater than 25.0%
of the total principal amount owed to Ally for inventory financed
under the Credit Facility.
In
connection with the inventory financing contract (the "NextGear
Facility"), entered into by the Company, its wholly owned
subsidiary RMBL Tennessee, Inc, Wholesale, Inc. and NextGear
Capital, Inc. ("NextGear"), dated October 30, 2018, Wholesale, Inc
and NextGear entered into a Reserve Agreement requiring Wholesale,
Inc to pay to NextGear $5,500,000 (the "Reserve") to be collateral
and security for Wholesale Inc.'s liability under the NextGear
Facility as well as any amounts owed by Wholesale, Inc. to NextGear
and its Affiliates, and each of their respective directors,
officers, principals, trustees, partners, shareholders or other
holders of any ownership interest, as the case may be, employees,
representatives, attorneys and agents. NextGear is not
required to pay Wholesale Inc. interest on the Reserve
balance. Upon the satisfaction of all obligations and
the termination by NextGear of the NextGear Facility, NextGear will
return to Wholesale, Inc., upon its written request to NextGear no
earlier than ten (10 business days from the date the obligations
were indefeasibly paid and satisfied in full and the NextGear
Facility and terminated by Lender.
Property and Equipment, Net
Property and
equipment is stated at cost less accumulated depreciation and
amortization and consists of capitalized technology development
costs, furniture and equipment. Depreciation and amortization is
recorded on a straight-line basis over the estimated useful life of
the assets. Costs of significant additions, renewals and
betterments, are capitalized and depreciated. Maintenance and
repairs are charged to expense when incurred.
Fair Value of Financial Instruments
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
December 31, 2019 and December 31, 2018. The respective carrying
value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include
cash, prepaid expenses and accounts payable. Fair values were
assumed to approximate carrying values for cash and payables
because they are short term in nature and their carrying amounts
approximate fair values or they are payable on demand.
ASC
Topic 820-10-30-2-Fair Value Measurement
establishes a fair value hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring the most
observable inputs be used when available. Observable inputs are
from sources independent of the Company, whereas unobservable
inputs reflect the Company's
assumptions about the inputs market participants would use in
pricing the asset or liability developed on the best information
available in the circumstances. The fair value hierarchy is
categorized into three levels based on the inputs as
follows:
F-13
Level
1: The preferred inputs to valuation efforts are "quoted prices in active markets for
identical assets or liabilities," with the caveat that the reporting entity
must have access to that market. Information at this level is based
on direct observations of transactions involving the same assets
and liabilities, not assumptions, and thus offers superior
reliability. However, relatively few items, especially physical
assets, actually trade in active markets.
Level
2: FASB acknowledged that active markets for identical assets and
liabilities are relatively uncommon and, even when they do exist,
they may be too thin to provide reliable information. Inputs other
than quoted market prices included in Level 1, that are observable
for the asset or liability, either directly or indirectly, are
Level 2 inputs.
Level
3: If inputs from levels 1 and 2 are not available, FASB
acknowledges that fair value measures of many assets and
liabilities are less precise. The board describes Level 3 inputs as
"unobservable," and limits their use by saying they "shall be used
to measure fair value to the extent that observable inputs are not
available." This category allows "for situations in which there is little,
if any, market activity for the asset or liability at the
measurement date". Earlier in
the standard, FASB explains that "observable inputs" are gathered from sources other than the
reporting company and that they are expected to reflect assumptions
made by market participants.
Embedded Conversion Features
The
Company evaluates embedded conversion features within convertible
debt under ASC 815, Derivatives and Hedging to determine
whether the embedded conversion feature(s) should be bifurcated
from the host instrument and accounted for as a derivative at fair
value with changes in fair value recorded in earnings. If the
conversion feature does not require derivative treatment under ASC
815, the instrument is evaluated under ASC 470-20; Debt with
Conversion and Other Options. Under the ASC 470-20, an entity must
separately account for the liability and equity components of the
convertible debt instruments that may be settled entirely or
partially in cash upon conversion in a manner that reflects the
issuer's economic interest cost. The effect of ASC 470-20 on the
accounting for our convertible debt instruments is that the equity
component is required to be included in the additional paid-in
capital section of stockholders' equity on the consolidated balance
sheets and the value of the equity component is treated as original
issue discount for purposes of accounting for the debt component of
the notes. As a result, we are required to record non-cash interest
expense as a result of the amortization of the discounted carrying
value of the convertible debt to their face amount over the term of
the convertible debt.
From
time to time, the Company has issued convertible notes that have
conversion prices that create an embedded beneficial conversion
feature pursuant to the guidelines established by the ASC Topic
470-20. The Beneficial Conversion Feature ("BCF") of a convertible
security is normally characterized as the convertible portion or
feature of certain securities that provide a rate of conversion
that is below market value or in-the-money when issued. The Company
records a BCF related to the issuance of a convertible security
when issued and also records the estimated fair value of any
conversion feature issued with those securities. Beneficial
conversion features that are contingent upon the occurrence of a
future event are recorded when the contingency is resolved. The
debt discount is amortized to interest expense over the life of the
note using the effective interest method. The Company calculates
the fair value of the conversion feature embedded in any
convertible security using either a) the Black Scholes valuation
model or b) a discount cash flow analysis tested for sensitivity to
key Level 3 inputs using Monte Carlo simulation.
Common Stock Warrants
The
Company accounts for common stock warrants in accordance with
applicable accounting guidance provided in Accounting Standards
Codification (ASC) 815, Derivatives and Hedging
– Contracts in Entity's Own Equity, as either
derivative liabilities or as equity instruments depending on the
specific terms of the warrant agreement. Any warrants that
(i) require physical
settlement or net-share settlement or (ii) provide the Company with a choice of
net-cash settlement or settlement in its own shares (physical
settlement or net-share settlement) provided that such warrants are
indexed to the Company's own
stock is classified as equity. The Company classifies as assets or
liabilities any warrants that (i) require net-cash settlement
(including a requirement to net cash settle the contract if an
event occurs and if that event is outside the Company's control), (ii) gives the counterparty a choice of
net-cash settlement or settlement in shares (physical settlement or
net-share settlement) or (iii) that contain reset provisions that do
not qualify for the scope exception. The Company assesses
classification of its common stock warrants at each reporting date
to determine whether a change in classification between assets and
liabilities is required. The Company's freestanding derivatives financing
satisfy the criteria for classification as equity instruments as
these warrants do not contain cash settlement features or variable
settlement provision that cause them to not be indexed to the
Company's own stock. There are
16,530 warrants to purchase common stock outstanding at December
31, 2019 consisting of: (i) 10,913 warrants issued to underwriters
in connection with the October 23, 2017 public offering of Class B
common stock; (ii) 5,617 warrants issued to Hercules in connection
with the 2018 financings.
In July
2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260);
Distinguishing Liabilities from
Equity (Topic 480); Derivatives and Hedging (Topic 815):
Accounting for Certain Financial Instruments with Down Round
Features. The amendments of this ASU update the classification
analysis of certain equity-linked financial instruments, or
embedded features, with down round features, as well as clarify
existing disclosure requirements for equity-classified instruments.
When determining whether certain financial instruments should be
classified as liabilities or equity instruments, a down round
feature no longer precludes equity classification when assessing
whether the instrument is indexed to an entity's own stock. The
guidance in this ASU is effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020, with early adoption permitted.
The Company adopted ASU 2017-11 during 2018. The adoption of this
standard did not have a material effect on the Company's
Consolidated Financial Statements.
F-14
Debt Issuance Costs
Debt
issuance costs are accounted for pursuant to FASB ASU
2015-03,
"Simplifying the Presentation of Debt Issuance Costs" ("ASU
2015-03"). ASU 2015-03 requires that debt issuance costs be
presented as a direct deduction from the carrying amount of the
related debt liability, consistent with the presentation of debt
discounts.
Cost of Revenue
Cost of
vehicle sales includes the cost to acquire vehicles and the
reconditioning and transportation costs associated with preparing
the vehicles for resale. Vehicle acquisition costs are driven by
the mix of vehicles the Company acquires, the source of those
vehicles, and supply and demand dynamics in the vehicle market.
Reconditioning costs are billed by third-party providers and
include parts, labor, and other repair expenses directly
attributable to specific vehicles. Transportation costs consist of
costs incurred to transport the vehicles from the point of
acquisition. Cost of revenue also includes any necessary
adjustments to reflect vehicle inventory at the lower of cost or
net realizable value.
Selling, General and Administrative Expenses
Selling, general
and administrative expenses include costs and expenses for
compensation and benefits, advertising to consumers and dealers,
development and operating our product procurement and distribution
system, managing our logistics system, transportation cost
associated with selling vehicles, establishing our dealer partner
arrangements, and other corporate overhead expenses, including
expenses associated with technology development, legal, accounting,
finance, and business development.
Advertising and Marketing Costs
Advertising and
marketing costs are expensed as incurred and are included in
Selling, general and administrative expenses in the accompanying
Consolidated Statements of Operations. Advertising and marketing
expenses was $18,228,262 and $11,457,572 for the years ended
December 31, 2019 and 2018, respectively.
Stock-Based Compensation
On June
30, 2017 the Company's
shareholders approved a Stock Incentive Plan (the "Plan") reserving
for issuance under the Plan in the form of restricted stock units
("RSUs"), stock options
("Options"), Performance Unites, and other equity awards
(collectively "Awards") for our employees, consultants, directors,
independent contractors and certain prospective employees who have
committed to become an employee (each an "Eligible Individual") of
up to 12.0% of the shares of Class B Common Stock outstanding from
time to time. On June 25, 2018, the Company's shareholders approved
an amendment to the Plan to increase the number of shares
authorized for issuance under the Plan from 12.0% of the Company's
issued and outstanding shares of Class B Common Stock from time to
time to 100,000 shares of Class B Common Stock (the "First Plan
Amendment"). On May 20, 2019, the Company's stockholders approved
another amendment to the Plan to increase the number of shares
authorized for issuance under the Plan from 100,000 shares of Class
B Common Stock to 200,000 shares of Class B Common Stock (the
"Second Plan Amendment"). To date, the vesting of RSU and Option
awards for most employees is service / time based, however some
senior level employees have been granted awards that include a mix
of service based, performance based and market condition-based
vesting. Substantially all service/time based RSU and Option awards
issued typically vest over a three-year period approximating the
following vesting schedule: (i) 20.0%
vesting anywhere from eight-months to thirteen month after grant
date, (ii) an additional
30.0% during the subsequent twelve months of the initial
vesting, and
(iii) the final 50.0%
during the following twelve months. All performance-based awards
and market condition-based awards granted to date have vesting
schedules dependent on achieving a particular objective within
sixteen (16) months. The Company estimates the fair
value of awards granted under the Plan on the date of grant.
Fair value of all awards is based on the share price of the Class B
Common Stock on the date of the award, and in the case of options,
calculated using the Black-Scholes option valuation model.
During the
year ended December 31, 2019, the Company granted 80,050 RSUs under
the Plan to members of the Board of Directors, officers and
employees. More specifically, the Company granted to certain
members of management an aggregate of (i) 12,213 performance-based
awards that vest after two consecutive quarters of $1.00 or greater
operating income and trailing four quarter revenue of $900,000,000
at any time through September 30, 2020, and (ii) 36,938
market-based awards. These awards were terminated on May 27,
2020.
Compensation expense for the year
ended December 31, 2019 was $3,836,518 and is included in
selling, general and administrative expenses in the consolidated
statements of operations. Compensation expense for the year ended December
31, 2018 was $1,657,680 and is
included in selling, general and administrative expenses in the
consolidated statements of operations. At December 31, 2019,
total unrecognized compensation cost related to RSUs was $5,450,009
and the weighted average period over which this cost is expected to
be recognized is approximately 0.8 years.
F-15
Income Taxes
The
Company follows ASC Topic 740, Income Taxes, for
recording the provision for income taxes. Deferred tax assets and
liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the
asset or liability each period. If available evidence suggests that
it is more likely than not that some portion or all of the deferred
tax assets will not be realized, a valuation allowance is required
to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the
period of change. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for
financial accounting and tax purposes in different
periods.
The
Company applies a more-likely-than-not recognition threshold for
all tax uncertainties. ASC Topic 740 only allows the recognition of
those tax benefits that have a greater than fifty percent
likelihood of being sustained upon examination by the taxing
authorities. As of December 31, 2019, the Company reviewed its tax
positions and determined there were no outstanding, or retroactive
tax positions with less than a fifty percent likelihood of being
sustained upon examination by the taxing authorities, therefore
this standard has not had a material effect on the
Company.
The
Company does not anticipate any significant changes to its total
unrecognized tax positions within the next 12 months.
Recent Pronouncements
Adoption of
New Accounting Standards.
In
January 2017, the FASB issued new guidance, ASU No. 2017-4,
Intangibles–Goodwill and Other (Topic 350): Simplifying the test for Goodwill
Impairment. This guidance simplifies subsequent goodwill
measurement by eliminating Step 2 from the goodwill impairment
test. Under this update, an entity should perform its annual, or
interim, goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. An entity should recognize
an impairment charge for the amount by which the carrying amount
exceeds the reporting unit's fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated
to that reporting unit. The new standard is effective for annual
periods, and interim periods within those annual periods, beginning
after December 15, 2019 with early adoption permitted for annual
goodwill impairment tests performed after January 1, 2017. The
standard must be applied prospectively. Upon adoption, the standard
will impact how the Company assesses goodwill for
impairment. The
Company adopted ASU 2017-04 on January 1, 2018 and it did not have a material effect
on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .
ASU 2016-02 requires that the rights and obligations created by
leases with a duration greater than 12 months be recorded as assets
and liabilities on the balance sheet of the lessee. This guidance
is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. The Company has
adopted this standard as of January 1, 2019 using the modified
retrospective approach for all leases entered into before the
effective date. The Company has also elected the option, as
permitted in ASU 2018-11, Leases (Topic 842): Targeted Improvements
, whereby initial application of the new lease standard would occur
at the adoption date and a cumulative-effect adjustment, if any,
would be recognized to the opening balance of retained earnings in
the period of adoption. For comparability purposes, the Company
will continue to comply with previous disclosure requirements in
accordance with existing lease guidance for all periods presented
in the year of adoption. The Company has elected the practical
expedients permitted under the transition guidance which enabled
the Company: (1) to carry forward the historical lease
classification; (2) not to reassess whether expired or existing
contracts are or contain leases; and, (3) not to reassess the
treatment of initial direct costs for existing leases. In addition,
the Company has made an accounting policy election to keep leases
with an initial term of 12 months or less off the balance sheet.
Upon adoption of this standard on January 1, 2019, the Company
recognized a total operating lease liability in the amount of
$3,118,038, representing the present value of the minimum rental
payments remaining as of the adoption date and a right-of-use asset
in the amount of $3,114,399. The cumulative effect of this
accounting change of $3,639 is included in the accumulated deficit
for the year ended December 31, 2019. The standard did not have a
material impact on the Company's consolidated statements of
operations or statements of cash flows.
F-16
In
August 2016, the FASB issued an accounting pronouncement (FASB ASU
2016-15) related to the classification of certain cash receipts and
cash payments on the statement of cash flows. The pronouncement
provides clarification guidance on eight specific cash flow
presentation issues that have developed due to diversity in
practice. The issues include, but are not limited to, debt
prepayment or extinguishment costs, settlement of zero-coupon debt,
proceeds from the settlement of insurance claims, and cash receipts
from payments on beneficial interests in securitization
transactions. The pronouncement is effective for fiscal years, and
for interim periods within those fiscal years, beginning after
December 15, 2017, with early adoption permitted. We adopted this
pronouncement for our fiscal year beginning January 1, 2018,
and it did
not have a material effect on its consolidated financial
statements.
In May
2014, the Financial Accounting Standards Board ("FASB") issued a
new accounting standard (ASC Topic 606) that amends the accounting
guidance on revenue recognition. The new accounting standard is
intended to provide a more robust framework for addressing revenue
issues, improve comparability of revenue recognition practices, and
improve disclosure requirements. Under the new standard, revenue is
recognized when a customer obtains control of promised goods or
services and is recognized in an amount that reflects the
consideration which the entity expects to receive in exchange for
those goods or services. The principles in the standard should be
applied using a five-step model that includes 1) identifying the
contract(s) with a customer, 2) identifying the performance
obligations in the contract, 3) determining the transaction price,
4) allocating the transaction price to the performance obligations
in the contract, and 5) recognizing revenue when (or as) the
performance obligations are satisfied. The standard also requires
disclosure of the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. In
addition, the standard amends the existing requirements for the
recognition of a gain or loss on the transfer of nonfinancial
assets that are not in a contract with a customer (for example,
sales of real estate) to be consistent with the standard's guidance
on recognition and measurement (including the constraint on
revenue). The FASB also subsequently issued several amendments to
the standard, including clarification on principal versus agent
guidance, identifying performance obligations, and immaterial goods
and services in a contract.
The new
accounting standard update must be applied using either of the
following transition methods: (i) a full retrospective approach
reflecting the application of the standard in each prior reporting
period with the option to elect certain practical expedients, or
(ii) a modified retrospective approach with the cumulative effect
of initially adopting the standard recognized at the date of
adoption (which requires additional footnote disclosures).
The Company adopted ASC 606,
Revenue from
Contracts with Customers on
January 1, 2018 using the modified retrospective method. Based on
the manner in which the Company historically recognized revenue,
the adoption of ASC 606 did not have a material impact on the
amount or timing of its revenue recognition and the Company
recognized no cumulative effect adjustment upon
adoption.
Accounting Standards Issued But Not Yet Adopted
In June
2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses
(Topic 326): Measurement of Credit Losses on Financial
Instruments ("ASU 2016-13"), which amends the
guidance on the impairment of financial instruments by requiring
measurement and recognition of expected credit losses for financial
assets held. ASU 2016-13 is effective for fiscal years,
and for interim periods within those fiscal years, beginning after
December 15, 2019, and earlier adoption is permitted beginning
in the first quarter of fiscal 2019. The Company is currently
evaluating the impact on its consolidated financial statements and
plans to adopt this ASU for its fiscal year beginning
January 1, 2020. Finance receivables originated in connection
with the Company's vehicle sales are held for sale and are
subsequently sold. At December 31, 2019 and 2018, finance
receivables were $147,893 and $148,378, respectively.
NOTE 2 –ACCOUNTS RECEIVABLE, NET
Accounts receivable
consists of the following as of December 31:
|
|
2019
|
2018
|
|
Trade
|
$9,369,733
|
$8,264,045
|
|
Finance
|
147,893
|
148,378
|
|
Other
|
-
|
229,577
|
|
|
9,517,626
|
8,642,000
|
|
Less:
allowance for doubtful accounts
|
1,034,919
|
176,190
|
|
|
$8,482,707
|
$8,465,810
|
F-17
NOTE 3 – INVENTORY
Inventory consists
of the following as of December 31,
|
|
2019
|
2018
|
|
Pre-owned vehicles:
|
|
|
|
Powersport
vehicles
|
$10,365,050
|
$9,783,093
|
|
Automobiles
and trucks
|
47,599,433
|
43,081,136
|
|
|
57,964,483
|
52,864,229
|
|
Less:
Reserve
|
583,202
|
672,706
|
|
|
$57,381,281
|
$52,191,523
|
NOTE 4 – ACQUISITIONS
On
February 3, 2019, the Company completed the Autosport Acquisition
pursuant to the Stock Purchase Agreement, by and among the Buyer,
the Seller and Autosport. Aggregate consideration for the Autosport
Acquisition consisted of (i) a closing cash payment of $600,000,
plus (ii) the Promissory Note in favor of the Seller, plus (iii)
the Convertible Note in favor of the Seller, plus (iv) contingent
earn-out payments payable in the form of cash and/or the Company's
Class B Common Stock for up to an additional $787,500 if Autosport
achieves certain performance thresholds. In connection with the
Autosport Acquisition, the Buyer also paid outstanding debt of
Autosport of $235,000 and assumed debt of $257,933 pursuant to the
Second Convertible Note. The fair
value of the contingent earn-out payment was considered immaterial
at the date of acquisition and was excluded from the purchase price
allocation. As of December 31, 2019, there have been no payments
earned under the performance threshold. See Note 1 –
Description of Business and Significant Accounting Policies for
additional information on the Autosport Acquisition.
The
allocation of the purchase price is based on the best information
available to management. This allocation is provisional, as the
Company is required to recognize additional assets or liabilities
if new information is obtained about facts and circumstances that
existed as of February 3, 2019 that, if known, would have resulted
in the recognition of those assets or liabilities as of that date.
The Company may adjust the preliminary purchase price allocation
after obtaining additional information regarding asset valuation,
liabilities assumed and revisions of previous estimates. The
following table summarizes the allocation of the purchase price
based on the estimated fair value of the acquired assets and
assumed liabilities of Autosport as of December 31,
2019:
|
Purchase
price consideration:
|
|
|
Cash
|
$835,000
|
|
|
|
|
$1,536,000
convertible note
|
1,536,000
|
|
$500,000
promissory note
|
500,000
|
|
$257,933
Promissory note
|
257,933
|
|
Total purchase
price consideration
|
$3,128,933
|
|
|
|
|
Estimated
fair value of assets:
|
|
|
Accounts
receivable
|
3,177,660
|
|
Inventory
|
2,862,004
|
|
|
6,039,664
|
|
|
|
|
Estimated
fair value of accounts payable and other
|
5,875,009
|
|
|
|
|
Excess
of assets over liabilities
|
164,655
|
|
|
|
|
Goodwill
|
2,964,278
|
|
|
|
|
Total net assets
acquired
|
$3,128,933
|
F-18
On
October 26, 2018, we entered into an Agreement and Plan of Merger
(as amended, the "Merger Agreement") with the Company's
newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware
limited liability company ("Merger Sub"), Wholesale Holdings, Inc.,
a Tennessee corporation ("Holdings"), Wholesale, LLC, a Tennessee
limited liability company ("Wholesale"), Steven Brewster and
Janelle Brewster (each a "Stockholder", and together the
"Stockholders"), Steven Brewster, a Tennessee resident, as the
representative of each Stockholder (the "Representative"), and, for
the limited purposes of Section 5.8, Marshall Chesrown and Steven
R. Berrard, providing for the merger (the "Wholesale Merger") of
Holdings with and into Merger Sub, with Merger Sub surviving the
Wholesale Merger as a wholly-owned subsidiary of the Company.
Also on October 26, 2018, we entered into a Membership Interest
Purchase Agreement (the "Purchase Agreement"), with Steven Brewster
and Justin Becker (together the "Express Sellers"), and Steven
Brewster as representative of the Express Sellers, pursuant to
which the Company acquired all of the membership interests (the
"Express Acquisition") in Wholesale Express, LLC, a Tennessee
limited liability company ("Wholesale Express"). On October
30, 2018, the Company completed the Wholesale Merger and Express
Acquisition. Also, on October 26, 2018, we entered into a
Membership Interest Purchase Agreement (the "Purchase Agreement"),
by and among the Company, Steven Brewster and Justin Becker
(together the "Express Sellers"), and Steven Brewster as
representative of the Express Sellers, pursuant to which we
acquired all of the membership interests (the "Express
Acquisition") in Wholesale Express, LLC, a Tennessee limited
liability company ("Wholesale Express. The Wholesale Merger and the
Express Acquisition were both completed on October 30, 2018 (the
"Wholesale Closing Date"). As consideration for the Wholesale
Merger, we (i) paid cash consideration of $12,353,941, subject
to certain customary post-closing adjustments, and (ii) issued to
the Stockholders 1,317,329 shares (the "Stock Consideration") of
our Series B Non-Voting Convertible Preferred Stock, par value
$0.001. As consideration for the Express Acquisition, we paid cash
consideration of $4,000,000, subject to certain customary
post-closing adjustments.
The
following tables summarize the consideration paid in cash and
equity securities for the acquisitions and the amount of identified
assets acquired and liabilities assumed as of the acquisition
date:
|
|
Wholesale
|
Express
|
|
Issuance of
shares
|
$6,652,512
|
$-
|
|
Cash
paid
|
12,353,941
|
4,000,000
|
|
Total purchase
price
|
$19,006,453
|
$4,000,000
|
|
|
|
|
|
Estimated fair
value of assets:
|
|
|
|
Cash
|
183,846
|
774,844
|
|
Accounts
receivable
|
5,130,788
|
2,663,077
|
|
Inventory
|
47,639,354
|
-
|
|
Prepaid
expenses
|
186,659
|
59,377
|
|
Property &
equipment
|
617,422
|
14,702
|
|
Due from Related
party
|
-
|
720,000
|
|
Other
Assets
|
1,026,203
|
-
|
|
|
54,784,272
|
4,232,000
|
|
|
|
|
|
Estimated fair
value of liabilities assumed:
|
|
|
|
Accounts payable
and other
|
8,144,040
|
1,079,509
|
|
Floor plan
liability
|
49,988,553
|
-
|
|
Due to related
party
|
720,000
|
-
|
|
|
58,852,593
|
1,079,509
|
|
|
|
|
|
Excess of
(liabilities over assets) assets over liabilities
|
(4,068,321)
|
3,152,491
|
|
|
|
|
|
Goodwill
|
23,074,774
|
847,509
|
|
Total net assets
acquired
|
$19,006,453
|
$4,000,000
|
The
Company finalized the purchase price allocation for Express which
resulted in a decrease in goodwill of $334,861 during the year
ended December 31, 2019. The Company made this measurement period
adjustment to reflect facts and circumstances that related to
accounts receivable and accounts payable that existed at the
acquisition date and did not result from intervening events
subsequent to such date.
Supplemental pro forma unaudited information
(unaudited)
The
results of operations of Wholesale and Express since the
acquisition date are included in the accompanying Consolidated
Financial Statements.
The
following unaudited supplemental pro forma information presents the
financial results as if the acquisitions of Wholesale, Express and
Autosport were made as of January 1, 2019 for the year ended
December 31, 2019 and as of January 1, 2018 for the year ended
December 31, 2018.
Pro
forma adjustments for the year ended December 31, 2019 primarily
include adjustments to reflect the: (i) amortization of stock
compensation expense of $34,859; and (ii)
interest expense of $8,906. Pro forma adjustments for the year
ended December 31, 2018 primarily include adjustments to reflect
the: (i) amortization of stock compensation expense of $833,333;
(ii) elimination of intercompany sales and cost of revenue of
$3,744,911; (iii) income taxes of $158,742.
F-19
|
|
Year Ended
December 31,
|
|
|
Unaudited
|
2019
|
2018
|
|
Pro forma
revenue
|
$846,947,956
|
$788,428,970
|
|
Pro forma net
loss
|
$(45,296,568)
|
$(24,062,816)
|
|
Loss per share -
basic and fully diluted
|
$(40.37)
|
$(24.42)
|
|
Weighted-average
common shares and common stock equivalents outstanding basic and
fully diluted
|
1,122,058
|
985,332
|
NOTE 5 – PROPERTY AND EQUIPMENT, NET
The
following table summarizes property and equipment, net of
accumulated depreciation and amortization as of
December 31, 2019 and 2018:
|
|
2019
|
2018
|
|
Vehicles
|
$158,327
|
$417,666
|
|
Furniture and
equipment
|
448,074
|
474,546
|
|
Technology
development and software
|
8,863,247
|
5,777,504
|
|
Leasehold
improvements
|
246,135
|
136,386
|
|
Total property and
equipment
|
9,715,783
|
6,806,102
|
|
Less: accumulated
depreciation and amortization
|
3,288,109
|
1,628,225
|
|
Total
|
$6,427,674
|
$5,177,877
|
Amortization and
depreciation on Property and Equipment is determined on a
straight-line basis over the estimated useful lives ranging from 3
to 5 years.
At
December 31, 2019, capitalized technology development costs were
$8,655,236 which
includes $2,900,000 of
software acquired in the NextGen transaction. Total technology
development costs incurred was $5,494,081 for
the year ended December 31, 2019 of which $3,085,743 was
capitalized and $2,408,338 was
charged to expense in the accompanying Consolidated statements of
operations. Depreciation expense for the year ended December 31,
2019 was $1,786,426, which
included the amortization of capitalized technology costs of
$1,436,088. Total technology development costs incurred was
$3,314,815 for the year ended December 31, 2018 of which $2,162,707 was
capitalized and $1,152,108 was charged to expense in the
accompanying Consolidated statements of operations. Depreciation
expense for the year ended December 31, 2018 was $984,006, which
included the amortization of capitalized technology costs of
$825,782.
NOTE 6 – INTANGIBLE ASSETS AND GOODWILL
Following is a
summary of the changes in the carrying amount of goodwill and other
indefinite-lived asset during the years ended December 31, 2019,
2018 and 2017, net of a $334,861 measurement period adjustment
recorded during the year ended December 31, 2019.
|
|
Goodwill
|
Indefinite Lived
Intangible Assets
|
|
Balance at December
31, 2017
|
$1,850,000
|
$45,515
|
|
Acquisitions
|
24,257,146
|
-
|
|
Balance at December
31, 2018
|
26,107,146
|
45,515
|
|
Acquisitions
|
2,964,278
|
-
|
|
Impairment
|
(1,850,000)
|
-
|
|
Measurement period
adjustment
|
(334,861)
|
-
|
|
Balance at December
31, 2019
|
$26,886,563
|
$45,515
|
F-20
The
following is a summary of the changes in the carrying amount of
goodwill by reportable segment during the years ended December 31,
2019 and 2018.
|
|
Powersports
|
Automotive
|
Vehicle
Logistics
|
Total
|
|
Balance at December
31, 2018
|
$ 1,850,000
|
$ 23,074,775
|
$ 1,182,371
|
$26,107,146
|
|
Acquisitions
|
-
|
2,964,278
|
-
|
2,964,278
|
|
Impairment
|
(1,850,000)
|
-
|
-
|
(1,850,000)
|
|
Measurement period
adjustment
|
-
|
-
|
(334,861)
|
(334,861)
|
|
Balance at December
31, 2019
|
$ -
|
$ 26,039,053
|
$ 847,510
|
$26,886,563
|
We test
for impairment of our intangible assets at least annually. During
the year ended December 31, 2019, we recognized an impairment loss
on goodwill of $1,850,000 related to powersports, which is recorded
in selling, general and administrative expenses in the Consolidated
Statement of Operations. There were no impairment charges in 2018.
During the quarter ended September 30, 2019, the Company finalized the
preliminary purchase price allocation recorded at the acquisition
date for Wholesale Express and made a measurement period adjustment
to the preliminary purchase price allocation which resulted in a
decrease in goodwill of $334,861. The Company made this measurement
period adjustment to reflect facts and circumstances related to
accounts receivable and accounts payable that existed as of the
acquisition date and did not result from intervening events
subsequent to such date.
NOTE 7 – ACCOUNTS PAYABLE AND OTHER ACCRUED
LIABILITIES
The
following table summarizes accounts payable and other accrued
liabilities as of December 31, 2019 and 2018:
|
|
2019
|
2018
|
|
Accounts
payable
|
$8,730,624
|
$7,528,003
|
|
Operating lease
liability-current portion
|
1,423,610
|
-
|
|
Accrued
payroll
|
715,658
|
877,180
|
|
State and local
taxes
|
912,062
|
1,073,649
|
|
Other accrued
expenses
|
639,140
|
1,076,081
|
|
Total
|
$12,421,094
|
$10,554,913
|
F-21
NOTE 8 – NOTES PAYABLE AND LINES OF CREDIT
Notes
payable consisted of the following as of December 31, 2019 and
2018:
|
|
2019
|
2018
|
|
Notes
payable-NextGen dated February 8, 2017. Interest is payable
semi-annually at 6.5% through February 9, 2019 and 8.5% through
maturity which is January 31, 2021.
|
$1,333,334
|
$1,333,334
|
|
|
|
|
|
Notes
payable-private placement dated March 31, 2017. Interest is payable
semi-annually at 6.5% through September 30, 2019 and 8.5% through
maturity which is January 31, 2021. Unamortized debt discount of
$75,601 and $334,998 as of December 31, 2019 and December 31, 2018,
respectively.
|
667,000
|
667,000
|
|
|
|
|
|
Line of
credit-floor plan Ally dated February 16, 2018. Facility provides
up to $25,000,000 of available credit secured by vehicle inventory
and other assets. Interest rate at December 31, 2019 was 7.05
%. Principal and interest are payable on demand.
|
8,419,897
|
8,866,894
|
|
|
|
|
|
Loan Agreement with
Hercules Capital Inc. dated April 30, 2018 and as amended for
tranche II on October 30, 2018. Tranche I- Interest only at 10.5%
and is payable monthly through December 1, 2018. Principal and
interest payments commence on June 1, 2019 through maturity which
is May 1, 2021. Trance II-Interest payable monthly at 11.0%.
Principal payable at maturity on October 1, 2021. Unamortized debt
issuance costs as of December 31, 2018 of $1,547,412.
|
-
|
10,857,500
|
|
|
|
|
|
Line of
credit-floor plan NextGear dated October 30, 2018. Secured by
vehicle inventory and other assets. Interest rate at December 31,
2019 was 4.25%. Principal and interest is payable on
demand.
|
50,741,073
|
47,505,607
|
|
|
|
|
|
Less: Debt
discount
|
(75,601)
|
(1,882,410)
|
|
Total notes payable
and lines of credit
|
61,085,703
|
67,347,925
|
|
Less: Current
portion
|
59,160,970
|
58,555,006
|
|
|
|
|
|
Long-term
portion
|
$1,924,733
|
$8,792,919
|
As of
December 31, 2019, future principal debt payments are due as
follows: 2020 - $59,085,369; 2021 - $2,000,334.
Line of Credit-Floor Plan-NextGear
On
October 30, 2018, Wholesale, as borrower, entered into a floorplan
vehicle financing credit line (the "NextGear Credit Line") with
NextGear. As of the date of this filing, based on on-going
discussions with NextGear, we will limit our advances under the
NextGear Credit Line for Wholesale and Autosport to $55,000,000.
Advances under the NextGear Credit Line will bear interest at an
initial per annum rate of 5.25%, based upon a 360-day year, and
compounded daily, and the per annum interest rate will vary based
on a base rate, plus the contract rate, which is currently negative
2.0%, until the outstanding liabilities to NextGear are paid in
full. Interest expense on
the line of credit-floor plan for the years ended December 31, 2019
and 2018, was $2,697,591 and $513,306,
respectively.
Line of Credit-Floor Plan-Ally
On February 16, 2018, the Company, through its wholly-owned
subsidiary RMBL MO entered into an Inventory Financing and Security
Agreement (the "Credit Facility") with Ally and Ally Financial,
Inc., a Delaware corporation ("Ally" together with Ally Bank, the
"Lender"), pursuant to which the Lender may provide up to
$25,000,000 in financing, or such lesser sum which may be advanced
to or on behalf of RMBL MO from time to time, as part of its
floorplan vehicle financing program. Advances under the Credit
Facility require that the Company maintain 10.0% of the advance
amount as restricted cash. Advances under the Credit Facility will
bear interest at a per annum rate designated from time to time by
the Lender and will be determined using a 365/360 simple interest
method of calculation, unless expressly prohibited by law. Advances
under the Credit Facility, if not demanded earlier, are due and
payable for each vehicle financed under the Credit Facility as and
when such vehicle is sold, leased, consigned, gifted, exchanged,
transferred, or otherwise disposed of. Interest under the Credit
Facility is due and payable upon demand, but, in general, in no
event later than 60 days from the date of request for payment. Upon
any event of default (including, without limitation, RMBL MO's
obligation to pay upon demand any outstanding liabilities of the
Credit Facility), the Lender may, at its option and without notice
to the RMBL MO, exercise its right to demand immediate payment of
all liabilities and other indebtedness and amounts owed to Lender
and its affiliates by RMBL MO and its affiliates. The Credit
Facility is secured by a grant of a security interest in the
vehicle inventory and other assets of RMBL MO and payment is
guaranteed by the Company pursuant to a guaranty in favor of the
Lender and secured by the Company pursuant to a General Security
Agreement. Interest expense on the Credit Facility for the years
ended December 31, 2019 and 2018 was $541,702 and $149,776,
respectively. The Ally Line of Credit ended in February
2020.
F-22
Loan Agreement-Hercules Capital Inc.
On May
14, 2019, the Company made a payment to Hercules Capital Inc.
("Hercules") of $11,134,695, representing the principal, accrued
and unpaid interest, fees, costs and expenses outstanding under its
Loan and Security Agreement (the "Loan Agreement") with Hercules
dated April 30, 2018 (the "Hercules Indebtedness"). Upon the
payment, all outstanding indebtedness and obligations of the
Company owed to Hercules under the Loan Agreement were paid in
full, and the Loan Agreement has been terminated. The Company used
a portion of the net proceeds from the Note Offering (described
below) to pay the Hercules Indebtedness. In accordance with the
guidance in ASC 470-50, Debt, the Company accounted for the
extinguishment of the Hercules Loan Agreement as an extinguishment
and recognized a loss on early extinguishment of debt of $1,499,250
for the year ended December
31, 2019 in the Consolidated Statements of Operations. The
loss on early extinguishment consisted primarily of the prepayment
penalty paid to Hercules and unamortized debt discounts including
the remaining portion of warrant values and debt issuance
costs.
Notes Payable
NextGen
On
February 8, 2017, in connection with the acquisition of NextGen,
the Company issued a subordinated secured promissory note in favor
of NextGen (which note was subsequently assigned to Halcyon in
February 2018) in the amount of $1,333,334. Interest accrues and
will be paid semi-annually (i) at a rate of 6.5% annually from the
closing date through the second anniversary of such date and
(ii) at a rate of 8.5%
annually from the second anniversary of the closing date through
the Maturity Date. Upon the occurrence of any event of default, the
outstanding balance under the NextGen Note shall become immediately
due and payable upon election of the holder. The
Company's obligations under the
NextGen Note are secured by substantially all the assets of NextGen
Pro, pursuant to an Unconditional Guaranty Agreement (the
"Guaranty Agreement"), by and among NextGen and NextGen Pro,
and a related Security Agreement between the parties, each dated as
of February 8, 2017. Under the terms of the Guaranty Agreement,
NextGen Pro has agreed to guarantee the performance of all the
Company's obligations under the
NextGen Note. Interest
expense on the Credit Facility for the years ended December 31,
2019 and 2018 was $110,484 and $87,617, respectively. For
additional information see Note 19 – Subsequent Events
– Investor Note Exchange.
Private Placement
On
March 31, 2017, the Company completed funding of the second tranche
of the 2016 Private Placement (as defined below). The investors
were issued 58,096 shares of Class B Common Stock of the Company
and promissory notes (the "Private Placement Notes") in the amount of $667,000, in
consideration of cancellation of loan agreements having an
aggregate principal amount committed by the purchasers of
$1,350,000. Under the terms of the Private Placement Notes,
interest shall accrue on the outstanding and unpaid principal
amounts until paid in full. The Private Placement Notes mature on
January 31, 2021. Interest accrues at a rate of 6.5% annually from
the closing date through the second anniversary of such date and at
a rate of 8.5% annually from the second anniversary of the closing
date through the maturity date. Upon the occurrence of any event of
default, the outstanding balance under the Private Placement Notes
shall become immediately due and payable upon election of the
holders. Based on the relative fair values attributed to the Class
B Common Stock and promissory notes issued in the 2016 Private
Placement, the Company recorded a debt discount on the promissory
notes of $667,000 with the corresponding amounts recorded as an
addition to paid-in capital. The debt discount is amortized to
interest expense until the scheduled maturity of the Private
Placement Notes in January 2021 using the effective interest
method. The effective interest rate at December 31, 2019 was 26.0%.
Interest expense on the Private Placement Notes was $316,091 and $259,177, respectively for the
years ended December 31, 2019 and 2018, which included debt
discount amortization of $70,565 and $205,926, respectively for the
years ended December 31, 2019 and 2018.
Exchange of Notes Payable
Certain
of the Company's investors extended the maturity of currently
outstanding promissory notes, and exchanged such notes for new
notes (the "New Investor Notes"), pursuant to that certain Note
Exchange Agreement, dated January 14, 2020 (the "Investor Note
Exchange Agreement"), by and between the Company and each investor
thereto (the "Investors"), including Halcyon, an entity affiliated
with Kartik Kakarala, a director of the Company, such New Investor
Note for an aggregate principal amount of $833,333 (after taking
account of a $500,000 pay down of the previously outstanding
Halcyon note), Blue Flame Capital, LLC ("Blue Flame"), an entity
affiliated with Denmar Dixon, a director of the Company, such New
Investor Note for an aggregate principal amount of $99,114, and Mr.
Dixon, individually, such New Investor Note for an aggregate
principal amount of $272,563. The New Investor Notes, having an
aggregate principal amount of approximately $1,500,000, will mature
on January 31, 2021, and will be convertible at any time at the
Investor's option at a price of $60.00 per share. For additional
information see Note 19 – Subsequent Events – Investor
Note Exchange.
F-23
Convertible Notes
As of
December 31, 2019, the outstanding convertible promissory notes net
of debt discount and issue costs are summarized as
follows:
|
|
Face
Amount
|
Debt
Discount
|
Carrying
Amount
|
|
Convertible senior
notes
|
$30,000,000
|
$10,402,024
|
$19,597,976
|
|
Convertible
notes-Autosport
|
|
|
|
|
$1,536,000
unsecured note
|
1,536,000
|
379,616
|
1,156,384
|
|
$500,000 unsecured
note
|
500,000
|
6,092
|
493,908
|
|
$257,933 unsecured
note
|
257,933
|
6,382
|
251,551
|
|
|
32,293,933
|
10,794,114
|
21,499,819
|
|
Less: Current
portion
|
(1,461,933)
|
(98,343)
|
(1,363,590)
|
|
Long-term
portion
|
$30,832,000
|
$10,695,771
|
$20,136,229
|
Convertible Senior Notes
On May
9, 2019, the Company entered into a purchase agreement (the
"Purchase Agreement") with JMP Securities LLC ("JMP Securities") to
issue and sell $30,000,000 in aggregate principal amount of its
6.75% Convertible Senior Notes due 2024 (the "Notes") in a private
placement to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Note
Offering"). The Company paid JMP Securities a fee of
7.0% of the gross proceeds in the Note Offering. The proceeds
for the Note Offering after deducting
the initial purchaser's discounts, advisory fees, and related
offering expenses, were $27,385,500.
The
Notes were issued on May 14, 2019 pursuant to an Indenture
(the "Indenture") by and between the Company and Wilmington Trust,
National Association, as trustee. The Purchase Agreement included
customary representations, warranties and covenants by the Company
and customary closing conditions. Under the terms of the Purchase
Agreement, the Company agreed to indemnify JMP Securities against
certain liabilities. The Notes bore interest at 6.75% per annum,
payable semiannually on May 1 and November 1 of each year,
beginning on November 1, 2019. The Notes could bear additional
interest under specified circumstances relating to the Company's
failure to comply with its reporting obligations under the
Indenture or if the Notes were not freely tradeable as required by
the Indenture. The Notes would have matured on May 1, 2024, unless
earlier converted, redeemed or repurchased pursuant to their
terms.
The
initial conversion rate of the Notes was 8.6956 shares of Class B
Common Stock, per $1,000 principal amount of the Notes, subject to
adjustment (which is equivalent to an initial conversion price of
approximately $115.00 per share, subject to adjustment). The
conversion rate was subject to adjustment in some events but would
not have been adjusted for any accrued and unpaid interest. In
addition, upon the occurrence of a make-whole fundamental change
(as defined in the Indenture), the Company would, in certain
circumstances, increase the conversion rate by a number of
additional shares for a holder that elected to convert its Notes in
connection with such make-whole fundamental change.
The
Notes were not redeemable by the Company prior to the May 6,
2022. The Company could have redeemed for cash all or any
portion of the Notes, at its option, on or after May 6, 2022 if the
last reported sale price of the Company's Class B Common Stock had
been at least 150.0% of the conversion price then in effect for at
least 20 trading days (whether or not consecutive), including the
trading day immediately preceding the date on which the Company
provides notice of redemption, during any 30 consecutive trading
day period ending on, and including, the trading day immediately
preceding the date on which the Company provides notice of
redemption at a redemption price equal to 100.0% of the principal
amount of the notes to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date. No sinking fund
was provided for the Notes. If redeemed, the Company would have
made an interest make-whole payment to the converting holder equal
to the sum of the present values of the scheduled payments of
interest that would have been made on the Notes to be converted had
such Notes remained outstanding from the conversion date through
the earlier of the date that is two years after the conversion date
and June 15, 2022.
F-24
In connection with the Note Offering, the Company
entered into a registration rights agreement with JMP Securities,
pursuant to which the Company
has agreed to file with the SEC an automatic shelf registration
statement, if the Company is eligible to do so and has not already
done so, and, if the Company is not eligible for an automatic shelf
registration statement, then in lieu of the foregoing the Company
shall file a shelf registration statement for the registration of,
and the sale on a continuous or delayed basis by the holders of,
all of the Notes pursuant to Rule 415 or any similar rule that may
be adopted by the Commission, and use its commercially reasonable
efforts to cause the shelf registration statement to become or be
declared effective under the Securities Act on the day that is 120
days after May 9, 2019. The Company filed a Registration Statement on Form
S-3, which was declared effective on August 30,
2019.
As
of December 31, 2019, the conditions allowing holders of the
Notes to convert have not been met and therefore the Notes are not
yet convertible.
We account for the Notes in accordance with FASB
ASC 470, Debt and ASC 815, Derivatives and
Hedging, which required
bifurcation of the liability and equity components. We determined
the carrying amount of the liability component as the present value
of its cash flows using an implied discount rate of 20.5%. The
carrying amount of the equity component representing the conversion
option was $8,500,000 and was calculated by deducting the
carrying value of the liability component from the principal amount
of the Notes as a whole. This difference represents a debt discount
that is amortized to interest expense over the term of the Notes
using the effective interest rate method. The equity component is
not remeasured as long as it continues to meet the conditions for
equity classification. We further valued a derivative liability in
connection with the interest make-whole provision at $1,330,000 at
issuance based on a Monte-Carlo Simulation using a volatility of
85.0% and a risk-free rate of 2.3%. This amount was recorded as a
debt discount and is amortized to interest expense over the term of
the Notes using the effective interest rate. The derivative
liability is remeasured at each reporting date with the change in
value of $1,302,000 being recorded in other income for the year
ended December 31, 2019. The value of the derivative liability as
of December 31, 2019 was $27,500.
We
allocate transaction costs related to the issuance of the Notes to
the liability and equity components using the same proportions as
the initial carrying value of the Notes. Transaction costs
attributable to the debt component were $1,790,088 and are
being amortized to interest expense using the effective interest
method over the term of the Notes. Transaction costs attributable
to the equity component were $754,375 and are netted with the
equity component of the Notes in stockholders' equity. Transactions
costs attributable to the derivative liability were $118,038 and
were expensed during the year ended December 31, 2019.
The interest expense recognized related to the Notes for the
year ended December 31, 2019 was as follows:
|
|
2019
|
|
Contractual
interest expense
|
$1,305,000
|
|
Amortization of
debt discounts
|
1,218,064
|
|
Total
|
$2,523,064
|
On
January 10, 2020, the Company entered into a note exchange and
subscription agreement (the "Note Exchange & Subscription
Agreement"), as amended by that certain Joinder and Amendment
effective January 13, 2020 (the "Joinder Agreement," and together
with the Note Exchange & Subscription Agreement, the "Note
Agreement"), with the investors in the 2019 Note Offering (the
"Note Investors"), pursuant to which the Company agreed to complete
(i) a note exchange pursuant to which $30,000,000 of the Old Notes
would be cancelled in exchange for a new series of 6.75%
Convertible Senior Notes due 2025 (the "New Notes") and
(ii) the issuance of additional New Notes in a private
placement in reliance on the exemption from registration provided
by Rule 506 of Regulation D of the Securities Act as a sale not
involving any public offering (the "2020 Note Offering"). On
January 14, 2020, the Company closed the 2020 Note Offering. The
proceeds for the 2020 Note Offering, after deducting for payment of accrued
interest on the Old Notes and offering-related expenses,
were $8,272,375. For additional information see Note 19 –
Subsequent Events – Convertible Note Exchange and
Offer.
Convertible Notes-Autosport USA
On
February 3, 2019, in connection with the Autosport Acquisition, the
Company issued (i) the Promissory Note, and (ii) the
Convertible Note in favor of the Seller. In connection with the
Autosport Acquisition, the Buyer also assumed additional debt of
$257,933 pursuant to the Second Convertible Note.
The
Promissory Note has a term of fifteen months and will accrue
interest at a simple rate of 5.0% per annum. Interest under the
Promissory Note is payable upon maturity. Any interest and
principal due under the Promissory Note is convertible, at the
Buyer's option into shares of the Company's Class B Common Stock at
a conversion price equal to the weighted average trading price of
the Company's Class B Common Stock on the Nasdaq Stock Exchange for
the twenty (20) consecutive trading days preceding the conversion
date. The number of shares of the Company's Class B Common Stock
issuable pursuant to the Promissory Note is indeterminate at this
time.
F-25
The
Convertible Note has a term of three years and will accrue interest
at a rate of 6.5% per annum. Interest under the Convertible Note is
payable monthly for the first 12 months, and thereafter monthly
payments of amortized principal and interest will be due. Any
interest and principal due under the Convertible Note is
convertible into shares of the Company's Class B Common Stock at a
conversion price of $115.00 per share, (i) at the Seller's option,
or (ii) at the Buyer's option, on any day that (a) any portion of
the principal of the Convertible Note remains unpaid and (b) the
weighted average trading price of the Company's Class B Common
Stock on Nasdaq for the twenty (20) consecutive trading days
preceding such day has exceeded $140.00 per share. The maximum
number of shares issuable pursuant to the Convertible Note is
15,962 shares of the Company's Class B Common Stock.
The
Second Convertible Note has a term of one year and will accrue
interest at a simple rate of 5.0% per annum. Monthly payments of
amortized principal and interest will be due under the Second
Convertible Note. Any interest and principal due under the Second
Convertible Note is convertible into shares of the Company's Class
B Common Stock at a conversion price of $115.00 per share, (i) at
the Seller's option, or (ii) at the Buyer's option, on any day that
(a) any portion of the principal of the Second Convertible Note
remains unpaid and (b) the weighted average trading price of the
Company's Class B Common Stock on Nasdaq for the twenty (20)
consecutive trading days preceding such day has exceeded $140.00
per share. The maximum number of shares issuable pursuant to the
Second Convertible Note is 2,336 shares of the Company's Class B
Common Stock.
NOTE 9 – STOCKHOLDERS' EQUITY
Share-Based Compensation
On June 30, 2017 the
Company's shareholders approved a Stock
Incentive Plan (the "Plan") reserving for issuance under the Plan
in the form of restricted stock units ("RSUs"), stock options
("Options"), Performance Units, and other equity awards
(collectively "Awards") for our employees, consultants, directors,
independent contractors and certain prospective employees who have
committed to become an employee (each an "Eligible Individual") of
up to 12.0% of the shares of Class B Common Stock outstanding from
time to time. On June 25, 2018, the Company's shareholders approved
an amendment to the Plan to increase the number of shares
authorized for issuance under the Plan from 12.0% of the Company's
issued and outstanding shares of Class B Common Stock from time to
time to 100,000 shares of Class B Common Stock (the "First Plan
Amendment"). On May 20, 2019, the Company's stockholders approved
another amendment to the Plan to increase the number of shares
authorized for issuance under the Plan from 100,000 shares of Class
B Common Stock to 200,000 shares of Class B Common Stock (the
"Second Plan Amendment"). To date, the vesting of RSU and Option
awards for most employees is service / time based, however some
senior level employees have been granted awards that include a mix
of service based, performance based and market condition-based
vesting. Substantially all service/time based RSU and Option awards
issued typically vest over a three-year period approximating the
following vesting schedule: (i) 20.0%
vesting anywhere from eight-months to thirteen month after grant
date, (ii) an additional
30.0% during the subsequent twelve months of the initial
vesting, and
(iii) the final 50.0%
during the following twelve months. More specifically, the
Company granted to certain members of management an aggregate of
(i) 12,213 performance-based awards that vest after two consecutive
quarters of $1.00 or greater operating income and trailing four
quarter revenue of $900,000,000 at any time through September 30,
2020, and (ii) 36,938 market-based awards. These awards were
terminated on May 27, 2020. The Company estimates the fair value of
awards granted under the Plan on the date of grant. Stock-based
compensation expense is recognized as an expense on a straight-line
basis over the vesting periods described above. The total expense
recognized in Selling, General and Administrative expense was
$3,836,518 and $1,657,680, respectively, for the years ended
December 31, 2019 and 2018, with 2019.
F-26
|
|
For the Years
Ended December 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Restricted Stock
Units
|
$3,812,993
|
$ 1,657,680
|
|
|
|
|
|
Options
|
23,525
|
-
|
|
|
|
|
|
Total stock-based
compensation
|
$3,836,518
|
$1,657,680
|
As of December 31, 2019, unrecognized stock-based compensation
related to outstanding RSU and stock awards and the related
weighted-average period over which it is expected to be recognized
subsequent to December 31, 2019 is presented in the table below.
Total unrecognized equity will be adjusted for actual
forfeitures.
|
|
Unrecognized
Stock Based Compensations Related to Outstanding
Awards
|
Remaining
Weighted-Average Amortization Period (in years)
|
|
|
|
|
|
Restricted Stock
Units
|
$5,300,737
|
0.8
|
|
|
|
|
|
Options
|
149,272
|
1.2
|
|
|
|
|
|
Total Unrecognized
stock-based Compensation
|
$5,450,009
|
0.8
|
Restricted Stock Units
RSU activity during the years ending December 31, 2019 and December
31, 2018 was as follows:
|
|
Number of RSUs
|
Weighted -Average Grant Date Fair Value
|
|
Outstanding at
December 31, 2017
|
35,800
|
$82.82
|
|
Granted
|
51,414
|
116.63
|
|
Vested
|
(9,950)
|
81.20
|
|
Forfeited
|
(1,875)
|
124.05
|
|
Outstanding at
December 31, 2018
|
75,389
|
104.63
|
|
Granted
|
80,050
|
60.81
|
|
Vested
|
(9,000)
|
86.54
|
|
Forfeited
|
(16,501)
|
61.45
|
|
Outstanding at
December 31, 2019
|
129,938
|
$99.00
|
Non-qualified Stock Options
Non-qualified stock
options allow recipients to purchase shares of Class B common stock
at a fixed exercise price. The fixed exercise price is equal to the
price of a share of Class B common stock at the time of grant. The
options expire ten years after the grant date and typically vest
20.0% between nine-months and one-year after the grant date and
thereafter in quarterly installments of 7.5% and 12.5% during the
2nd and
3rd
vesting years, respectively.
F-27
|
|
Number of
Options
|
Weighted Average
Exercise Price
|
Weighted-Average
Remaining Contractual Life (in years)
|
Aggregate
Intrinsic Value
|
|
Outstanding at
December 31, 2017
|
-
|
n/a
|
|
n/a
|
|
Options
Granted
|
-
|
n/a
|
|
n/a
|
|
Options
exercised
|
-
|
n/a
|
|
n/a
|
|
Options forfeited
or expires
|
-
|
n/a
|
|
n/a
|
|
Outstanding at
December 31, 2018
|
-
|
n/a
|
n/a
|
n/a
|
|
|
|
|
|
|
|
Options
Granted
|
5,608
|
$34.20
|
|
$-
|
|
Options
exercised
|
-
|
n/a
|
|
n/a
|
|
Options forfeited
or expires
|
(521)
|
34.20
|
|
$-
|
|
Outstanding at
December 31, 2019
|
5,087
|
$34.20
|
9.6
|
$-
|
|
|
|
|
|
|
|
Vested /
exercisable at December 31, 2019
|
-
|
-
|
n/a
|
$-
|
|
Expected to vest as
of December 31, 2019
|
3,944
|
$34.20
|
9.6
|
$-
|
Fair
value of all awards is based on the share price of the Class B
Common Stock on the date of the award, and in the case of options,
which were only issued in 2019, is calculated using the
Black-Scholes option valuation model using the assumptions in the
following table:
|
|
2019
|
2018
|
|
Risk-free
rate
|
1.5%
|
-%
|
|
Expected
volatility
|
85.0%
|
-%
|
|
Expected life (in
years)
|
5.75
|
-
|
|
Expected dividend
yield
|
-
|
-
|
|
Weighted average
grant date fair value per option
|
$34.20
|
-
|
Security Offerings
On July 20, 2018, the Company completed an underwritten public
offering of 116,438 shares of its Class B Common Stock at a price
of $121.00 per share for net proceeds to the Company of
$13,015,825. The completed offering included 15,188 shares of Class
B Common Stock issued upon the underwriter's exercise in full of
its over-allotment option. The Company will use the net proceeds
from the offering for working capital and general corporate
purposes, which may include purchases of additional inventory held
for sale, increased spending on marketing and advertising and
capital expenditures necessary to grow the business.
On
October 25, 2018, the Company filed the Certificate of Designation,
Preferences, and Rights of Series B Non-Voting Convertible
Preferred Stock ("Certificate of Designation") with the Secretary
of State for the State of Nevada, designating 2,500,000 shares of
the Company's preferred stock, par value $0.001 per share, as
Series B Preferred. Shares of Series B Preferred rank
pari passu with the
Company's Class B Common Stock, except that holders of Series B
Preferred shall not be entitled to vote on any matters presented to
the stockholders of the Company. The Certificate of Designation
became effective on October 25, 2018. Each share of Series B
Preferred is convertible on a one-for-one basis into shares of the
Company's Class B Common Stock. The Series B Preferred will
automatically convert into Class B Common Stock 21 days after the
mailing of a definitive information statement of the type
contemplated by and in accordance with Regulation 14C of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
to the Company's stockholders, without any further action on the
part of the Company or any holder.
On
October 30, 2018, the Company completed the private placement of an
aggregate of 151,500 shares of its Class B Common Stock (the
"Private Placement"), at a price of $142.00 per share for
non-affiliates of the Company, and, with respect to directors
participating in the Private Placement, at a price of $162.00 per
share. The gross proceeds for the Private Placement were
$21,553,000. National Securities Corporation, a wholly owned
subsidiary of National Holdings Corporation, and Craig-Hallum
Capital Group (together the "Placement Agents") served as the
placement agents for the Private Placement. The Company paid the
Placement Agents a fee of 6.5% of the gross proceeds in the Private
Placement. Net proceeds from the Private Placement and $5,000,000
funded under the Tranche II Advance were used to partially fund the
cash consideration of the Wholesale Merger and the Express
Acquisition and the balance will be used for working capital
purposes.
F-28
Denmar
Dixon, a member of the Company's Board of Directors, invested
through Blue Flame Capital, LLC (an entity controlled by Mr. Dixon)
$243,000 in the Private Placement for 1,500 shares of Class B
Common Stock. Also, Joseph Reece, a member of the Company's
Board of Directors at the time, individually invested $81,000 in
the Private Placement for 500 shares of Class B Common Stock. These
purchases were approved by the Company's Board of Directors in
accordance with Rule 16b-3(d)(1) of the Exchange Act. Messrs. Dixon
and Reece abstained from the Company's Board of Directors' vote in
favor of the Private Placement.
On February 11, 2019, the Company completed an underwritten public
offering of 63,825 shares of its Class B Common Stock at a price of
$111.00 per share for net proceeds to the Company of $6,543,655.
The completed offering included 8,325 shares of Class B Common
Stock issued upon the underwriter's exercise in full of its
over-allotment option.
On May 9, 2019, the
Company entered into a Securities Purchase Agreement with certain
accredited investors (the "Investors") pursuant to which the
Company agreed to sell in a private placement (the "Private
Placement") an aggregate of 95,000 shares of its Class B Common
Stock, at a purchase price of $100.00 per share. JMP Securities
served as the placement agent for the Private Placement. The
Company paid JMP Securities a fee of 7.0% of the gross proceeds in
the Private Placement. The Private Placement closed on May 17,
2019. The proceeds for the Private Placement, after deducting commissions and related offering
expenses, were
$8,665,000.
2020 Public Offering
On
January 10, 2020, the Company entered into an underwriting
agreement (the "Underwriting Agreement") with National Securities
Corporation, as representative to the several underwriters named on
Schedule 1-A to the Underwriting Agreement (the "Underwriters"),
relating to the Company's public offering (the "2020 Public
Offering") of 900,000 shares of Class B Common Stock (the "Firm
Shares") and an additional 135,000 shares of Class B Common Stock
(the "Additional Shares"). The Underwriters agreed to purchase the
Firm Shares at a price of $11.40 per share. The issuance and
closing of the Firm Shares took place on January 14, 2020, and of
the Additional Shares on January 17, 2020. For additional
information see Note 19 – Subsequent Events – Public
Offering.
NOTE 10 – COMMON STOCK WARRANTS
In
connection with the October 23, 2017 public offering of 145,500 shares of Class B common
stock the Company issued to underwriters warrants to purchase
10,913 shares of Class B common stock, which was equal to 7.5% of
the aggregate number of shares of Class B common stock sold in the
Offering. The Warrants are exercisable at a per share price of
$126.50, which was equal to 115.0% of the Offering price per share
of the shares sold in the Offering and mature on April 20, 2023. In
April, 2018, pursuant to the Loan Agreement by and among Hercules
Capital, the Company, and its wholly owned subsidiaries, the
Company issued Hercules a warrant to purchase 4,091 (increasing to
5,455 if a fourth tranche in the principal amount of up to
$5,000,000 is advanced at the parties agreement) shares of the
Company's Class B Common Stock (the "Hercules April Warrant") at an
exercise price of $110.00 per share (the "Hercules April Warrant
Price"). The Hercules April Warrant is immediately exercisable and
expires on April 30, 2023. In October, 2018, under an amendment to
the Loan Agreement, the company issued Hercules a warrant to
purchase 1,048 shares of the Company's Class B Common Stock (the
"Hercules October Warrant") at an exercise price of $143.13 per
share (the "Hercules October Warrant Price"). The Hercules October
Warrant is immediately exercisable and expires on October 30, 2023.
The Hercules warrants contain anti-dilutive provisions that
increase the number of shares covered by the warrants in the event
the Company makes a New Issuance (as defined in the Loan Agreement)
for no consideration or consideration that is less than the Warrant
Prices. The following table summarizes the warrants outstanding as
of December 31, 2019 and 2018:
|
|
2019
|
2018
|
|
Warrants
outstanding at the beginning of the year
|
16,051
|
10,913
|
|
New warrant
issuances to Hercules
|
-
|
5,138
|
|
Adjustment to the
Hercules warrants due to the anti-dilutive provisions
|
479
|
-
|
|
Warrants
outstanding at the end of the year
|
16,530
|
16,051
|
F-29
The
Company has classified the warrants as equity in accordance with
ASC 815. The fair value of the warrants were valued at issuance
using the Black-Scholes option pricing model with the following
assumptions:
|
|
Underwriter
Warrants
|
Hercules April
Warrants
|
Hercules October
Warrants
|
|
Warrants exercise
price
|
$126.50
|
$110.00
|
$143.20
|
|
Fair value price
per share of common stock
|
$110.00
|
$101.40
|
$114.60
|
|
Volatility
|
62.0%
|
70.0%
|
70.0%
|
|
Expected term
remaining (years)
|
5.0
|
5.0
|
5.0
|
|
Risk-free interest
rate
|
1.31%
|
2.79%
|
2.94%
|
|
Discount for Lack
of Marketability
|
20.0%
|
20.0%
|
20.0%
|
|
Dividend
yield
|
-
|
-
|
-
|
|
Fair value at
initial valuation date
|
$505,273
|
$208,369
|
$59,292
|
NOTE 11 – SELLING, GENERAL AND ADMINISTRATIVE
The
following table summarizes the detail of selling, general and
administrative expense for the years ended December 31, 2019 and
2018:
|
|
2019
|
2018
|
|
Compensation and
related costs
|
$33,502,020
|
$10,656,107
|
|
Advertising and
marketing
|
18,228,262
|
11,457,572
|
|
Professional
fees
|
2,542,357
|
1,788,425
|
|
Technology
development
|
2,408,338
|
1,152,108
|
|
General and
administrative
|
29,943,272
|
10,909,718
|
|
|
$86,624,249
|
$35,963,930
|
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
The
following table includes supplemental cash flow information,
including noncash investing and financing activity for the years
ended December 31, 2019 and 2018:
|
|
2019
|
2018
|
|
Cash
paid for interest
|
$4,888,070
|
$1,226,292
|
|
|
|
|
|
Convertible
notes payable issued in acquisition
|
$2,293,933
|
$-
|
|
|
|
|
|
Issuance
of shares for acquisition
|
$-
|
$6,652,512
|
The
following table provides a reconciliation of cash and restricted
cash reported within the accompanying consolidated balance sheets
that sum to the total of the same amounts shown in the accompanying
consolidated statements of cash flows as of December
31:
|
|
December
31,
|
|
|
|
2019
|
2018
|
|
Cash and cash
equivalents
|
$49,660
|
$9,134,902
|
|
Restricted cash
(1)
|
6,676,622
|
6,650,000
|
|
Total cash, cash
equivalents, and restricted cash
|
$6,726,282
|
$15,784,902
|
(1)
Amounts included in restricted cash represent the deposits required
under the Company's short-term revolving facilities.
F-30
NOTE 13 – INCOME TAXES
U.S. Tax Reform
On
December 22, 2017, legislation commonly known as the Tax Cuts and
Jobs Act, or the Act, was signed in to law. The Tax Act, among
other changes, reduces the U.S. federal corporate tax rate from
35.0% to 21.0%, requires taxpayers to pay a one-time transition tax
on earnings of certain foreign subsidiaries that were previously
tax deferred and creates new taxes on certain foreign sourced
earnings. On December 31,
2019, the Company did not have any foreign subsidiaries and the
international aspects of the Tax Act are not
applicable.
In
connection with the initial analysis of the impact of the Tax Act,
the Company remeasured certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in the
future, which is generally 26.1% including state income taxes. The
remeasurement of the Company's
deferred tax balance was primarily offset by application of its
valuation allowance. On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security
(“CARES”) Act was enacted in response to the novel
coronavirus (COVID-19) pandemic.
The CARES
Act includes numerous provisions relating to, among other things,
refundable payroll tax credits, deferment of employer portion of
certain payroll taxes, net operating loss amounts and carryback
periods, alternative minimum tax credit refunds, modifications to
the net interest deduction limitations and technical corrections to
tax depreciation methods for qualified improvement property. Due to
the recent enactment of the CARES Act, the Company is currently
analyzing the potential impacts of this legislation on its
financial position and results of operations.
Deferred income
taxes reflect the net tax effect of temporary difference between
amounts recorded for financial reporting purposes and amounts used
for tax purposes. The major components of deferred tax assets and
liabilities are as follows:
|
|
2019
|
2018
|
|
Deferred tax
assets:
|
|
|
|
Net operating loss
and interest limitation carryforward
|
$ 18,025,898
|
$8,091,718
|
|
Stock-based
compensation
|
1,287,424
|
564,700
|
|
Accounts receivable
allowance
|
269,403
|
-
|
|
Operating lease
liabilities
|
1,599,651
|
-
|
|
Goodwill
|
385,570
|
-
|
|
Inventory
reserve
|
151,815
|
-
|
|
Property and
equipment
|
191,259
|
-
|
|
Total deferred
income taxes
|
21,911,020
|
8,656,418
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
Property and
equipment
|
-
|
15,045
|
|
Right-of-use
assets
|
1,572,368
|
-
|
|
Goodwill
|
-
|
64,423
|
|
Debt
discounts
|
28,818
|
464,324
|
|
Total deferred tax
liabilities
|
1,601,186
|
543,792
|
|
|
|
|
|
Net deferred tax
asset
|
20,309,834
|
8,112,626
|
|
|
|
|
|
Valuation
allowance
|
(20,309,834)
|
(8,112,626)
|
|
Net deferred
taxes
|
$-
|
$-
|
A
reconciliation of the statutory U.S. Federal income tax rate to the
Company's effective income tax
rate on income tax rate on continuing operations for the years
ended December 31, 2019 and 2018.
|
|
2019
|
2018
|
|
U.S. Federal
statutory rate
|
21.0%
|
21.0%
|
|
State and local,
net of Federal benefit
|
5.0%
|
5.1%
|
|
Permanent
difference
|
(1.1)%
|
(0.2)%
|
|
Valuation
allowance
|
(24.9)%
|
(25.9)%
|
|
Effective tax
rate
|
-%
|
-%
|
F-31
No
current provision for Federal income taxes was recorded for the
years ended December 31, 2019 and 2018 due to the
Company's operating losses. At
December 31, 2019 and 2018, the Company has operating loss
carryforwards of $66,717,013 and $30,961,231, respectively, a
portion of which begin to expire in 2033. We have provided a
valuation allowance on the deferred tax assets of $20,309,834 and
$8,112,626 for the periods ended December 31, 2019 and 2018,
respectively. In assessing
the recovery of the deferred tax assets, management considers
whether it is more likely than not that some portion or all the
deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income in the periods in which those temporary differences
become deductible. Management considers the scheduled reversals of
future deferred tax assets, projected future taxable income, and
tax planning strategies in making this assessment.
NOTE 14 – LOSS PER SHARE
The
Company computes basic and diluted net loss per share attributable
to common stockholders in conformity with the two-class method
required for participating securities. Under the two-class method,
basic net loss per share attributable to common stockholders is
calculated by dividing the net loss attributable to common
stockholders by the weighed-average number of shares of common
stock outstanding during the period. The diluted net loss
per share attributable to common stockholders is computed giving
effect to all potential dilutive common stock equivalents
outstanding for the period. For purposes of this calculation,
129,938 of RSUs, 5,087 of stock options,
16,530 of warrants to purchase shares of Class B Common Stock and
279,182 shares of Class B Common Stock issuable in connection with
convertible debt are considered common stock equivalents but have
been excluded from the calculation of diluted net loss per share
attributable to common stockholders as the effect is
antidilutive.
In
connection with the Company's acquisition of Wholesale, the Company
issued 1,317,329 shares of Series B Non-Voting Convertible
Preferred Stock. The rights of the holder of the Series B Preferred
and Class A and Class B Common Stock are identical, except with
respect to voting. The Series B Preferred automatically converts to
Class B Common Stock 21 days after the mailing of a definitive
information statement prepared in accordance with Regulation 14C of
the Exchange Act, without further action on the part of the
Company, to the holders of Series B Preferred and has no expiration
date. The conversion of Series B Preferred to Class B Common was
effected on March 4, 2019. The Company applies the two-class method
of calculating earnings per share, but as the rights of the Series
B Non-Voting Convertible Preferred Stock and Class A and Class B
Common Stock are identical, except in respect of voting, basic and
diluted earnings per share are the same for all classes. Weighted
average number of shares outstanding of Class A Common Stock, Class
B Common Stock, and Series B Preferred Stock at December 31, 2019
were 50,000, 1,114,714, and 0,
respectively.
NOTE 15 – RELATED PARTY TRANSACTIONS
A key
component of the Company's
business model is to use regional partners in the acquisition of
pre-owned vehicles as well as utilize these regional partners to
provide inspection, reconditioning and distribution services.
Correspondingly, the Company will earn fees and transaction income,
and the regional partner may earn incremental revenue and enhance
profitability through fees from inspection, reconditioning and
distribution programs. In connection with the development of the
regional partner program, the Company tested various aspects of the
program by utilizing a dealership to which Mr. Chesrown, the
Company's Chief Executive
Officer has provided financing in the form of a $400,000
convertible promissory note. The note, which could be converted
into a 25.0% ownership interest in the Dealer at any time, was to
mature on May 1, 2019, with interest payable monthly at 5.0% per
annum. This
financing arrangement was terminated in April 2018. Revenue
recognized by the Company from the Dealer for the year ended
December 31, 2018 was $619,193
or .04% of total revenue. Cost
of revenue for the Company at December 31, 2018 includes
$549,813 or .04% of total cost of revenue. Included in
accounts receivable at December 31, 2018 was $40,176 owed to the
Company by the Dealer.
In
addition, the Company previously subleased warehouse space from the
Dealer that is separate and distinct from the location of the
dealership, on the same terms as paid by the Dealer. This subleased
facility serves as the northwestern regional distribution center
for the Company. The lease was
terminated on June 30,
2018. For the year ended
December 31, 2018, the Company paid $90,000 in rent under the
sublease.
In
connection with the NextGen acquisition, the Company entered into a
Services Agreement (the "Services Agreement") with Halcyon Consulting, LLC
("Halcyon"), to provide development and support
services to the Company. Mr. Kakarala currently serves as the Chief
Executive Officer of Halcyon. Pursuant to the Services Agreement,
the Company paid Halcyon hourly fees for specific services, set
forth in the Services Agreement, and such fees may increase on an
annual basis, provided that the rates were not higher than 110.0%
of the immediately preceding year's rates. The Company reimbursed Halcyon
for any reasonable travel and pre-approved out-of-pocket expenses
in connection with its services to the Company. The Services Agreement
was terminated on March 31, 2018. For the year ended December 31,
2018 the Company paid $54,159 under the Services
Agreement.
F-32
As of
December 31, 2019 and 2018, the Company had promissory notes of
$370,556 and accrued interest
of $23,731 and $7,939,
respectively, due to Blue Flame, an entity controlled by a Denmar
Dixon, a director of the Company. The promissory notes were issued
in connection with the completion of the 2016 Private Placement on
March 31, 2017. Interest expense on the promissory notes due to
Blue Flame, for the years ended December 31, 2019 and 2018 was
$183,286 and $143,987,
respectively, which included debt discount amortization of
$144,409 and $114,404, respectively. The interest was charged to
interest expense in the Consolidated Statements of Operations. On
October 30, 2018, an entity controlled by Mr. Dixon invested
$243,000 in the Private Placement for 1,500 shares of Class B
Common Stock. Joseph Reece, a member of the Company's Board of
Directors at the time, individually invested $81,000 in the Private
Placement for 500 shares of Class B Common Stock. These purchases
were approved by the Company's Board of Directors in accordance
with Rule 16b-3(d)(1) of the Exchange Act. Messrs. Dixon and Reece
abstained from the Company's Board of Directors' vote in favor of
the Private Placement.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
We
determine whether an arrangement is a lease at inception and
whether such leases are operating or financing leases. For each
lease agreement, the Company determines its lease term as the
non-cancellable period of the lease and includes options to extend
or terminate the lease when it is reasonably certain that it will
exercise that option. We use these options in determining our
right-of-use assets and lease liabilities. Our lease agreements do
not contain any material residual value guarantees or material
restrictive covenants. As our leases do not provide an implicit
rate, we use our incremental borrowing rate based on the
information available at commencement date in determine the present
value of the lease payments.
Operating lease
expense is recognized on a straight-line basis over the lease term.
Total operating lease expenses for the year ended December 31, 2019
and 2018 was $1,661,649 and $414,238, respectively. The current
portion of our operating lease liabilities as of December 31, 2019
is $1,423,610 and is included in accounts payable and accrued
liabilities. The long-term portion of our operating lease
liabilities as of December 31, 2019 is $4,722,101.
The
weighted-average remaining lease term and discount rate for our
operating leases are as follows:
|
|
2019
|
|
Weighted-average
remaining lease term
|
4
Years
|
|
Weighted-average
discount rate
|
7.0%
|
Supplemental cash
flow information related to operating leases for the year ended
December 31, 2019 was as follows:
|
|
2019
|
|
Cash payments for
operating leases
|
$1,019,027
|
|
|
|
|
New operating lease
assets obtained in exchange for operating lease
liabilities
|
$6,040,287
|
The following table summarizes the future minimum payments for
operating leases at December 31, 2019 due in each year ending
December 31,
|
2020
|
$1,805,899
|
|
2021
|
1,785,519
|
|
2022
|
1,920,543
|
|
2023
|
744,370
|
|
2024
|
310,200
|
|
thereafter
|
568,700
|
|
Total lease
payments
|
7,135,231
|
|
Less imputed
interest
|
(989,520)
|
|
Present value of
lease liabilities
|
$6,145,711
|
Legal Matters
From
time to time, the Company is involved in various claims and legal
actions that arise in the ordinary course of business. Although the
results of litigation and claims cannot be predicted with
certainty, as of December 31, 2019 and 2018, the Company does
not believe that the ultimate resolution of any legal actions,
either individually or in the aggregate, will have a material
adverse effect on its financial position, results of operations,
liquidity, and capital resources.
F-33
Future
litigation may be necessary to defend the Company by determining
the scope, enforceability and validity of third-party proprietary
rights or to establish its own proprietary rights. The results of
any current or future litigation cannot be predicted with
certainty, and regardless of the outcome, litigation can have an
adverse impact on the Company because of defense and settlement
costs, diversion of management resources, and other
factors.
NOTE 17 – CONCENTRATIONS
The
Company is dependent on third-party providers of wholesale vehicle
auctions. The Company is dependent on their ability to provide
services on a timely basis and at favorable pricing terms. The loss
of these principal providers or a significant reduction in service
availability could have a material adverse effect on the Company.
The Company believes that its relationships with these providers
are satisfactory.
NOTE 18 - SEGMENT
REPORTING
Business segments are defined as
components of an enterprise about which discrete financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and
in assessing operating performance. Our operations are organized by
management into operating segments by line of business. We have
determined that we have three reportable segments as defined in
generally accepted accounting principles for segment
reporting: (1) powersports, (2)
automotive and (3) vehicle logistics and
transportation. Our powersports and automotive segments consist of
the distribution of pre-owned vehicles. The powersports segment
consists of the distribution principally of motorcycles, while the
automotive segment distributes cars and trucks. Our vehicle
logistics and transportation service segment provides nationwide
automotive transportation services between dealerships and
auctions. Our
vehicle logistics and transportation service reportable segment has been determined
to represent one operating segment and reporting unit. The
accounting policies of the segments are the same
and are described in Note 1.
The following table summarizes revenue, operating income (loss),
Depreciation and Amortization and interest expense which are the
measure by which management allocates resources to its segments to
each of our reportable segments.
|
|
Powersports
|
Automotive
|
Vehicle
Logistics and Transportation
|
Eliminations(1)
|
Total
|
|
Year
Ended
December 31,
2019
|
|
|
|
|
|
|
Total
assets
|
$ 55,992,165
|
$ 77,033,326
|
$7,921,578
|
$(27,553,978)
|
$113,393,091
|
|
Revenue
|
$ 101,008,976
|
$ 717,042,511
|
31,931,488
|
$(9,353,628)
|
$840,629,347
|
|
Operating income
(loss)
|
$ (34,402,724)
|
$ (5,318,549)
|
$1,928,574
|
$-
|
$(37,792,699)
|
|
Depreciation and
amortization
|
$ 1,543,023
|
$ 235,998
|
$7,405
|
$-
|
$1,786,426
|
|
Interest
expense
|
$ 4,453,549
|
$ 2,732,869
|
$1,186
|
$-
|
$7,187,604
|
|
Loss on early
extinguishment of debt
|
$ (1,499,250)
|
$ -
|
$ -
|
$ -
|
$(1,499,250)
|
|
|
|
|
|
|
|
|
Year
Ended
December
31, 2018
|
|
|
|
|
|
|
Total
assets
|
$ 55,825,600
|
$ 73,642,034
|
$5,555,397
|
$ (26,096,650)
|
$108,926,381
|
|
Revenue
|
$ 61,204,416
|
$ 91,369,996
|
$4,931,558
|
$(1,107,739)
|
$156,398,231
|
|
Operating income
(loss)
|
$ (22,546,622)
|
$ (892,306)
|
$37,796
|
$-
|
$(23,401,132)
|
|
Depreciation and
amortization
|
$ 958,282
|
$ 24,490
|
$1,234
|
$-
|
$984,006
|
|
Interest
expense
|
$ 1,267,379
|
$ 513,306
|
$-
|
$-
|
$1,780,685
|
(1)
Intercompany investment balances related to the acquisitions of
Wholesale, Inc. and Wholesale Express, and receivables and other
balances related intercompany freight services of Wholesale Express
are eliminated in the Consolidated Balance Sheets. Revenue and
costs for these intercompany freight services have been eliminated
in the Consolidated Statements of Operations.
F-34
NOTE 19 – SUBSEQUENT EVENTS
Public Offering
On
January 10, 2020, the Company entered into the Underwriting
Agreement with the Underwriters relating to the Company's 2020
Public Offering of the 900,000 Firm Shares and the 135,000
Additional Shares.
The
Underwriters agreed to purchase the Firm Shares at a price of
$11.40 per share. The Firm Shares were offered, issued, and sold
pursuant to a prospectus supplement and accompanying prospectus
filed with the SEC pursuant to an effective shelf registration
statement filed with the SEC on Form S-3 (Registration No.
333-234340) under the Securities Act.
On
January 14, 2020, the Company issued the Firm Shares and closed the
2020 Public Offering at a public price of $11.40 per share. On
January 16, 2020, the Company received notice of the Underwriters'
intent to exercise the over-allotment option in full (the
"Over-allotment Exercise"). On January 17, 2020, the Company issued
the Additional Shares and closed the Over-allotment Exercise. The
Over-allotment Exercise increased the aggregate number of shares
sold in the 2020 Public Offering to 1,035,000. Including the
Over-allotment Exercise, net proceeds from the 2020 Public
Offering, after deducting the 7.0% underwriter’s commission
and $75,000 for underwriter expenses, were $10,898,070. Certain of
the Company's officers and directors participated in the 2020
Public Offering.
The
Company intends to use the net proceeds of the 2020 Public Offering
for working capital and general corporate purposes, which may
include further technology development, increased spending on
marketing and advertising and capital expenditures necessary to
grow the business. Pending these uses, the Company
may invest the net proceeds in short-term interest-bearing
investment grade instruments.
Convertible Note Exchange and Offer
Also on
January 10, 2020, the Company entered into a Note Exchange and
Subscription Agreement, as amended by the Joinder Agreement, with
the investors in the 2019 Note Offering, pursuant to which the
Company agreed to complete (i) a note exchange pursuant to which
$30,000,000 of the Old Notes would be cancelled in exchange for a
new series of 6.75% Convertible Senior Notes due 2025 and (ii) the
issuance of additional New Notes in a private placement in reliance
on the exemption from registration provided by Rule 506 of
Regulation D of the Securities Act as a sale not involving any
public offering. On January 14, 2020, the Company closed the 2020
Note Offering. The proceeds
for the 2020 Note Offering after deducting for payment of accrued
interest on the Old Notes and offering-related expenses were
approximately $8,272,375.
The New Notes were issued
on January 14, 2020 pursuant to an Indenture (the "New
Indenture"), by and between the Company and Wilmington Trust,
National Association, as trustee (the "Trustee"). The Note
Agreement includes customary representations, warranties and
covenants by the Company and customary closing conditions. The New
Notes bear interest at 6.75% per annum, payable semiannually on
January 1 and July 1 of each year, beginning on July 1, 2020. The
New Notes may bear additional interest under specified
circumstances relating to the Company's failure to comply with its
reporting obligations under the New Indenture or if the New Notes
are not freely tradeable as required by the New Indenture. The New
Notes will mature on January 1, 2025, unless earlier converted,
redeemed or repurchased pursuant to their terms.
The
initial conversion rate of the New Notes is 25 shares of Class B
Common Stock per $1,000 principal amount of New Notes, which is
equal to an initial conversion price of $40.00 per share. The
conversion rate is subject to adjustment in certain events as set
forth in the New Indenture but will not be adjusted for any accrued
and unpaid interest. In addition, upon the occurrence of a
"make-whole fundamental change" (as defined in the New Indenture),
the Company will, in certain circumstances, increase the conversion
rate by a number of additional shares for a holder that elects to
convert its New Notes in connection with such make-whole
fundamental change. Before July 1, 2024, the New Notes will be
convertible only under circumstances as described in the New
Indenture. No adjustment to the conversion rate as a result
of conversion or a make-whole fundamental change adjustment will
result in a conversion rate greater than 62.0 shares per $1,000 in
principal amount.
The New Indenture contains a "blocker provision" which provides
that no holder (other than the depositary with respect to the
notes) or beneficial owner of a New Note shall have the right to
receive shares of the Class B Common Stock upon conversion to the
extent that, following receipt of such shares, such holder or
beneficial owner would be the beneficial owner of more than 4.99%
of the outstanding shares of the Class B Common Stock.
The New Notes are not redeemable by the
Company before the January 14, 2023. The
Company may redeem for
cash all or any portion of the New Notes, at its option, on or
after January 14, 2023 if the last reported sale price of the Class
B Common Stock has been at least 130% of the conversion price then
in effect for at least 20 trading days (whether or not
consecutive), including the trading day immediately preceding the
date on which the Company provides notice of redemption, during any
30 consecutive trading day period ending on, and including, the
trading day immediately preceding the date on which the Company
provides notice of redemption at a redemption price equal to 100.0%
of the principal amount of the notes to be redeemed, plus accrued
and unpaid interest to, but excluding, the redemption date. No
sinking fund is provided for the notes.
F-35
The New
Notes rank senior in right of payment to any of the Company's
indebtedness that is expressly subordinated in right of payment to
the New Notes; equal in right of payment to any of the Company's
unsecured indebtedness that is not so subordinated; effectively
junior in right of payment to any of the Company's secured
indebtedness to the extent of the value of the assets securing such
indebtedness; and structurally junior to all indebtedness and other
liabilities of current or future subsidiaries of the Company
(including trade payables).
The New
Notes are subject to events of default typical for this type of
instrument. If an event of default, other than an event of default
in connection with certain events of bankruptcy, insolvency or
reorganization of the Company or any significant subsidiary, occurs
and is continuing, the Trustee by notice to the Company, or the
holders of at least 25% in principal amount of the outstanding New
Notes by notice to the Company and the Trustee, may declare 100.0%
of the principal of and accrued and unpaid interest, if any, on all
the New Notes then outstanding to be due and payable.
In
connection with the 2020 Note Offering, on January 14, 2020, the
Company entered into a registration rights agreement with the Note
Investors, pursuant to which the Company has agreed to file with
the SEC a shelf registration statement registering the sale, on a
continuous or delayed basis, of all of the New Notes and to use its
commercially reasonable efforts to cause the shelf registration
statement to become or be declared effective under the Securities
Act no later than the day that is 120 days after January 14,
2020.
Investor Note Exchange
Also,
in connection with the closing of the 2020 Public Offering and the
2020 Note Offering, the Company repaid $500,000 plus accrued
interest related to the note payable to Halcyon, and certain of the
Company's investors extended the maturity of currently outstanding
promissory notes, and exchanged such notes for the New Investor
Notes, pursuant to the Investor Note Exchange Agreement, by and
between the Company and each Investor, including Halcyon, an entity
affiliated with Kartik Kakarala, a director of the Company, such
New Investor Note for an aggregate principal amount of $833,333,
Blue Flame, an entity affiliated with Denmar Dixon, a director of
the Company, such New Investor Note for an aggregate principal
amount of $99,114 and Mr. Dixon, individually, such New Investor
Note for an aggregate principal amount of $272,563. The New
Investor Notes, having an aggregate principal amount of
approximately $1,502,352, will mature on January 31, 2021, and will
be convertible at any time at the Investor's option at a price of
$60.00 per share. In connection with the issuance of the New
Investor Notes, the Company also entered into a Security Agreement,
dated as of January 14, 2020 with the Investors, pursuant to which
the Company granted to the Investors a security interest in certain
collateral to secure, on a pro rata basis based on the percentage
equal to the amount of principal outstanding on each New Investor
Note divided by the amount of principal outstanding on all of the
New Investor Notes to each Investor.
The New
Investor Notes and the New Notes were sold to the investors
pursuant to the Investor Note Exchange Agreement and the Note
Agreement, respectively, in a private placement in reliance on the
exemption from registration provided by Rule 506 of Regulation D of
the Securities Act as a sale not involving any public offering. To
the extent that any shares of Class B Common Stock are issued upon
conversion of the New Investor Notes and the New Notes, they will
be issued in transactions anticipated to be exempt from
registration under the Securities Act by virtue of
Section 3(a)(9) thereof, because no commission or other
remuneration is expected to be paid in connection with conversion
of the New Investor Notes and the New Notes, and any resulting
issuance of shares of Class B Common Stock.
Nasdaq Notices
On
January 17, 2020, the Company received a notice from the Listing
Qualifications department of the Nasdaq Stock Market ("Nasdaq")
indicating that the Company is not in compliance with the minimum
bid price requirement of $1.00 per share set forth in Nasdaq
Listing Rule 5450(a)(1) based upon the closing bid price for the 30
consecutive business days ended January 16, 2020. The Nasdaq notice
does not impact the Company's listing at this time and the
Company's stock will continue to trade on Nasdaq while the Company
works to regain compliance with the Nasdaq.
As a
result of the Reverse Stock Split, as defined below, the Company
believes it has regained compliance with Rule
5450(a)(1).
F-36
Nashville Tornado
In the
early morning hours of March 3, 2020, a severe tornado struck the
greater Nashville area causing significant damage to the Company's
facilities in Nashville. The Company maintains insurance coverage
for damage to its facilities and inventory, as well as business
interruption insurance. The Company continues in the process of
reviewing damages and coverages with its insurance carriers. The
loss comprises three components: (1) inventory loss, currently
assessed by the insurance carrier at approximately $13,000,000; (2)
building and personal property loss, primarily impacting our leased
facilities, currently assessed by the insurance carrier at
$3,369,087; and (3) loss of business income, for which the company
has coverage in the amount of $6,000,000.
All
three components of the Company's loss claim have been submitted to
its insurers. The Company's inventory claim is subject to a dispute
with the carrier as to the policy limits applicable to the loss.
The building insurer has agreed to pay $3,369,087 on the building
and personal property loss, reflecting a complete recovery, net of
$5,000 reflecting the Company's deductible. The insurer has made an
interim payment on the building and personal property loss of
$2,269,507 and has an outstanding balance of $1,094,580 which is
expected to be paid during the second quarter of 2020. The loss of
business income claim is ongoing and remains in the process of
negotiation, however, the insurer has advanced $250,000 against the
final settlement. The Company believes there will be a full
recovery of all three loss components, however no assurance can be
given regarding the amounts, if any, that will be ultimately
recovered.
COVID-19 Pandemic
On
March 11, 2020, the World Health Organization declared the outbreak
of COVID-19 a global pandemic and recommended containment and
mitigation measures worldwide. The global outbreak of COVID-19 has
led to severe disruptions in general economic activities,
particularly retail operations, as businesses and federal, state,
and local governments take increasingly broad actions to mitigate
this public health crisis. The Company has experienced significant
disruption to its business, both in terms of disruption of its
operations and the adverse effect on overall economic conditions.
These conditions will significantly negatively impact all aspects
of the Company’s business. The Company’s business is
also dependent on the continued health and productivity of its
associates throughout this crisis. Individually and collectively,
the Company expects the consequences of the COVID-19 outbreak will
likely have a significant negative impact on its business, sales,
results of operations, financial condition, and
liquidity.
The
COVID-19 situation has created an unprecedented and challenging
time. The Company’s current focus is on positioning the
Company for a strong recovery when this crisis is over. The Company
has taken steps to reduce its inventory and align its operating
expenses to the state of the business. The Company plans to
continue to operate as permitted to support its customers’
needs for reliable vehicles and to provide as many jobs as possible
for its associates. Effective April 9, 2020, 169 associates were
temporarily laid-off, however the Company’s receipt of PPP
funds, as discussed below will allow it to gradually recall these
associates over time. All ongoing employment determinations are
subject to change due to the COVID-19 situation future government
mandates, as well as future business conditions. The Company will
continue to monitor the COVID-19 situation and look for ways to
preserve cash and reduce its operating expenses as the Company is
able, however, the Company expects the consequences of the COVID-19
outbreak will likely have a significant negative impact on its
business, sales, results of operations, financial condition, and
liquidity.
PPP Loan
On May
1, 2020, the Company, and its wholly-owned subsidiaries Wholesale,
Inc. and Wholesale Express, LLC (together, the
“Subsidiaries,” and with the Company, the
“Borrowers”), each entered into loan agreements and
related promissory notes (the “SBA Loan Documents”) to
receive U.S. Small Business Administration Loans (the “SBA
Loans”) pursuant to the Paycheck Protection Program (the
“PPP”) established under the Coronavirus Aid, Relief,
and Economic Security Act (the “CARES Act”), in the
aggregate amount of $5,176,845 (the “Loan Proceeds”).
The Borrowers received the Loan Proceeds on May 1, 2020. Under the
SBA Loan Documents, the SBA Loans have a fixed interest rate of 1%,
repayment begins six months from the date of disbursement of each
SBA Loan, and the SBA Loans mature two years from the date of first
disbursement. There is no prepayment penalty.
Pursuant to the
terms of the SBA Loan Documents, the Borrowers may apply for
forgiveness of the amount due on the SBA Loans in an amount equal
to the sum of the following costs incurred by the Borrowers during
the eight-week period (or any other period that may be authorized
by the U.S. Small Business Administration) beginning on the date of
first disbursement of the SBA Loans: payroll costs, any payment of
interest on a covered mortgage obligation, payment on a covered
rent obligation, and any covered utility payment. The amount of SBA
Loan forgiveness shall be calculated in accordance with the
requirements of the PPP, including the provisions of Section 1106
of the CARES Act, although no more than 25% of the amount forgiven
can be attributable to non-payroll costs. No assurance is provided
that forgiveness for any portion of the SBA Loans will be
obtained.
The
promissory notes evidencing the SBA Loans contain customary events
of default relating to, among other things, payment defaults,
breach of representations and warranties, or provisions of the
promissory notes. The occurrence of an event of default may result
in the repayment of all amounts outstanding, collection of all
amounts owing from the Borrowers, and/or filing suit and obtaining
judgment against the Borrowers.
Reverse Stock Split
On May
18, 2020, the Company filed a Certificate of Change to the
Company’s Articles of Incorporation with the Secretary of
State of the State of Nevada to effect a one-for-twenty reverse
stock split of its issued and outstanding Class A Common Stock and
Class B Common Stock (the “Reverse Stock Split”). The
Reverse Stock Split was effective at 12:01 a.m., Eastern Time, on
May 20, 2020. No fractional shares were issued as a result of the
Reverse Stock Split. Any fractional shares that would have resulted
from the Reverse Stock Split were rounded up to the nearest whole
share. The authorized preferred stock of the Company was not
impacted by the Reverse Stock Split. Following the Reverse Stock
Split, the Company has outstanding 50,000 shares of Class A Common
Stock and approximately 2,162,696 shares of Class B Common Stock.
On May 20, 2020, the Company’s Class B Common Stock commenced
trading on the Nasdaq Capital Market on a split-adjusted basis. The
Company has retrospectively adjusted the 2018 and 2019 financial
statements for loss per share and share amounts as a result of the
reverse stock split.
F-37
Exhibit 4.11
DESCRIPTION OF CAPITAL STOCK
Common Stock
Our
Articles of Incorporation authorize the issuance of 5,000,000
shares of common stock, $0.001 par value per share, of which 50,000
shares are designated as Class A Common Stock and all other shares
of common stock are designated as Class B Common Stock. The Class A
Common Stock ranks pari passu with all of the rights and privileges
of the Class B Common Stock, except that holders of the Class A
Common Stock are entitled to ten votes per share of Class A Common
Stock issued and outstanding. The Class B Common Stock are
identical to the Class A Common Stock in all material respects,
except that holders of the Class B Common Stock will be entitled to
one vote per share of Class B Common Stock issued and outstanding.
Our Class B Common Stock is registered pursuant to Section 12(b) of
the Exchange Act. The number of shares of Class B Common Stock,
$0.001 par value, outstanding on May 26, 2020 was 2,162,716 shares.
In addition, 50,000 shares of Class A Common Stock, $0.001 par
value, were outstanding on May 26, 2020.
Holders
of shares of Class A Common Stock and Class B Common Stock are
entitled to share ratably in dividends, if any, as may be declared,
from time to time by our Board, in its discretion, from funds
legally available to be distributed. In the event of a liquidation,
dissolution or winding up of our company, the holders of shares of
Class A Common Stock and Class B Common Stock are entitled to share
pro rata all assets remaining after payment in full of all
liabilities and the prior payment to the preferred stockholders if
any. Holders of Class A Common Stock and Class B Common Stock have
no preemptive rights to purchase our Class A Common Stock and Class
B Common Stock. There are no conversion rights or redemption or
sinking fund provisions with respect to the Class A Common Stock or
Class B Common Stock.
Preferred Stock
Our Articles of Incorporation authorize the issuance of 10,000,000
shares of preferred stock, $0.001 par value per share, in one or
more classes or series. The rights, preferences, privileges and
restrictions of the preferred stock of each series or class will be
determined by our Board and set forth in a certificate of
designations relating to such series or class that will amend our
Articles of Incorporation. As of May 26, 2020, no shares of
preferred stock were issued and outstanding.
Nevada Laws
The
Nevada Business Corporation Law contains a provision governing
“Acquisition of Controlling Interest.” This law
provides generally that any person or entity that acquires 20% or
more of the outstanding voting shares of a publicly-held Nevada
corporation in the secondary public or private market may be denied
voting rights with respect to the acquired shares, unless a
majority of the disinterested stockholders of the corporation
elects to restore such voting rights in whole or in part. The
control share acquisition act provides that a person or entity
acquires “control shares” whenever it acquires shares
that, but for the operation of the control share acquisition act,
would bring its voting power within any of the following three
ranges:
●
20.0% to 33.0%;
●
33.0% to 50.0%; and
●
more than 50.0%.
A
“control share acquisition” is generally defined as the
direct or indirect acquisition of either ownership or voting power
associated with issued and outstanding control shares. The
stockholders or board of directors of a corporation may elect to
exempt the stock of the corporation from the provisions of the
control share acquisition act through adoption of a provision to
that effect in the articles of incorporation or bylaws of the
corporation. Our Articles of Incorporation and bylaws exempt our
Class A Common Stock and Class B Common Stock from the control
share acquisition act.
Exclusive Forum
Our
Articles of Incorporation and bylaws do not contain an exclusive
forum provision.
Market Information
Our
Class B Common Stock is traded on the Nasdaq Capital Market under
the symbol “RMBL.”
Holders
As of
May 26, 2020, we had approximately 52 stockholders of record of
2,162,716 issued and outstanding shares of Class B Common Stock and
two holders of record of 50,000 issued and outstanding shares of
Class A Common Stock.
Transfer Agent and Registrar
The
transfer agent and registrar for our Class A Common Stock and Class
B Common Stock is West Coast Stock Transfer, Inc.
Exhibit 21
Subsidiaries of the Registrant
|
Name of Subsidiary
|
|
State of Organization
|
|
Autosport
USA, Inc.
|
|
Delaware
|
|
NextGen
Pro, LLC
|
|
Delaware
|
|
RMBL
Express, LLC
|
|
Delaware
|
|
RMBL
Missouri, LLC
|
|
Delaware
|
|
RumbleOn
Dealers, Inc.
|
|
Delaware
|
|
RMBL
Texas, LLC
|
|
Delaware
|
|
RumbleOn
Finance, LLC
|
|
Nevada
|
|
RumbleOn
Tennessee, LLC
|
|
Delaware
|
|
Wholesale
Express, LLC
|
|
Tennessee
|
|
Wholesale,
Inc.
|
|
Tennessee
|
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We have issued our report dated May 29, 2020, with respect to the
consolidated financial statements included in the Annual Report of
RumbleOn, Inc.on Form 10-K for the year ended December 31, 2019. We
consent to the incorporation by reference of said report in the
Registration Statements of RumbleOn, Inc. on Forms S-3 (File No.
333-223425, File No. 333-226514, File No. 333-228483, File No.
333-234340, File No. 333-233399, and File No. 333-231631) and on Forms S-8 (File No. 333-219203,
File No. 333-223428, File No. 333-226440, and File No. 333-231884
).
/s/ GRANT THORNTON LLP
Dallas,
Texas
May 29,
2020
Exhibit
23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We
consent to the incorporation by reference in the Registration
Statements on Form S-8 (Reg. Nos. 333-219203, 333-223428,
333-226440 and 333-231884) and Form S-3 (Reg. Nos. 333-223425,
333-226514, 333-228483, 333-234340, 333-233399, and 333-231631) of
our report dated April 1, 2019, relating to the consolidated
financial statements of RumbleOn, Inc. as of and for the year
ending December 31, 2018, appearing in this Annual Report on Form
10-K of RumbleOn, Inc. for the year ended December 31,
2019.
/s/
Scharf Pera & Co., PLLC
Charlotte,
North Carolina
May 29,
2020
Exhibit 31.1
CERTIFICATION
I, Marshall Chesrown, certify that:
(1) I have reviewed this Annual Report on Form 10-K of RumbleOn,
Inc.;
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
(4) The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over
financial reporting; and
(5) The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrant’s internal control over financial
reporting.
|
May 29, 2020
|
By:
|
/s/ Marshall
Chesrown
|
|
|
|
|
Marshall Chesrown
|
|
|
|
|
Chairman and Chief Executive Officer
|
|
Exhibit 31.2
CERTIFICATION
I, Steven R. Berrard, certify that:
(1) I have reviewed this Annual Report on Form 10-K of RumbleOn,
Inc.;
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
(4) The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over
financial reporting; and
(5) The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrant’s internal control over financial
reporting.
|
May 29, 2020
|
By:
|
/s/ Steven
R. Berrard
|
|
|
|
|
Steven R. Berrard
|
|
|
|
|
Chief Financial Officer
|
|
Exhibit 32.1
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the accompanying Annual Report on Form 10-K of
RumbleOn, Inc. (the "Company") for the year ended December 31,
2019, as filed with the U.S. Securities and Exchange Commission
(the “Report”), the undersigned hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge
and belief, that:
|
(1)
|
the Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
|
|
(2)
|
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
|
|
May 29, 2020
|
By:
|
/s/ Marshall
Chesrown
|
|
|
|
|
Marshall Chesrown
|
|
|
|
|
Chairman and Chief Executive Officer
|
|
Exhibit 32.2
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the accompanying Annual Report on Form 10-K of
RumbleOn, Inc. (the "Company") for the year ended December 31,
2019, as filed with the U.S. Securities and Exchange Commission
(the “Report”), the undersigned hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge
and belief, that:
|
(1)
|
the Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
|
|
(2)
|
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
|
|
May 29, 2020
|
By:
|
/s/ Steven
R. Berrard
|
|
|
|
|
Steven R. Berrard
|
|
|
|
|
Chief Financial Officer
|
|