RideNow Group, Inc 10-Q for FY2020 Q3
RideNow Group, Inc. (RDNW)
10-Q
2020-11-16
For: 2020-09-30
View Original
Added on
April 12, 2026
About this 10-Q
RideNow Group, Inc filed this 10-Q on November 16, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $117.26M
- down 46.8% from $220.32M a year earlier
- Net income
- $1.49M
- compared with a net loss of $8.87M a year earlier
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark
One)
|
☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
quarterly period ended September 30,
2020
OR
For the
transition period from
to
Commission file number 001-38248
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RumbleOn, Inc.
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|
(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)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
|
|
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)
|
(Former name, former address and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered
|
|
Class B Common Stock, $0.001 par value
|
|
RMBL
|
|
The NASDAQ Capital Market
|
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. ☒ Yes ☐ No
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). ☒ Yes
☐ No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of "large
accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer ☐
Non-accelerated
filer ☒
|
Accelerated
filer ☐
Smaller
reporting company ☒
Emerging
growth company ☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
No
The
number of shares of Class B Common Stock, $0.001 par value,
outstanding on November 13, 2020 was 2,191,633 shares. In addition,
50,000 shares of Class A Common Stock, $0.001 par value, were
outstanding on November 13, 2020.
RUMBLEON, INC.
QUARTERLY PERIOD ENDED September 30, 2020
Table of Contents to Report on Form 10-Q
PART I - FINANCIAL
INFORMATION
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Page
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1
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21
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47
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47
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PART II - OTHER
INFORMATION
|
49
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49
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49
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49
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49
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49
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50
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51
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PART I - FINANCIAL
INFORMATION
Item
1.
Financial
Statements
RumbleOn, Inc.
Condensed
Consolidated Balance Sheets
(Unaudited)
|
|
As of
September 30,
2020
|
As of
December 31,
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$3,412,772
|
$49,660
|
|
Restricted
cash
|
5,545,892
|
6,676,622
|
|
Accounts
receivable, net
|
11,342,600
|
8,482,707
|
|
Inventory
|
11,424,094
|
57,381,281
|
|
Prepaid
expense and other current assets
|
2,506,910
|
1,210,474
|
|
Total
current assets
|
34,232,268
|
73,800,744
|
|
|
|
|
|
Property
and equipment, net
|
6,494,940
|
6,427,674
|
|
Right-of-use
assets
|
5,926,393
|
6,040,287
|
|
Goodwill
|
26,886,563
|
26,886,563
|
|
Other
assets
|
174,457
|
237,823
|
|
Total
assets
|
$73,714,621
|
$113,393,091
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable and other accrued liabilities
|
$10,720,627
|
$12,421,094
|
|
Accrued
interest payable
|
807,360
|
749,305
|
|
Current
portion of convertible debt
|
960,338
|
1,363,590
|
|
Current
portion of long-term debt
|
17,640,426
|
59,160,970
|
|
Total
current liabilities
|
30,128,751
|
73,694,959
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
Note
payable
|
1,974,218
|
1,924,733
|
|
Convertible
Debt
|
26,681,826
|
20,136,229
|
|
Derivative
liabilities
|
20,345
|
27,500
|
|
Other
long-term liabilities
|
5,399,716
|
4,722,101
|
|
Total
long-term liabilities
|
34,076,105
|
26,810,563
|
|
|
|
|
|
Total
liabilities
|
64,204,856
|
100,505,522
|
|
|
|
|
|
Commitments
and contingencies (Notes 4, 7, 8, 9, 13, 18)
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
Class
B Preferred stock, $0.001 par value, 10,000,000 shares authorized,
0 and 0 shares issued and outstanding as of September 30, 2020 and
December 31, 2019
|
-
|
-
|
|
Common
A stock, $0.001 par value, 50,000 shares authorized, 50,000 shares
issued and outstanding as of September 30, 2020 and December 31,
2019
|
50
|
50
|
|
Common
B stock, $0.001 par value, 4,950,000 shares authorized, 2,191,633
and 1,111,681 shares issued and outstanding as of September 30,
2020 and December 31, 2019
|
2,192
|
1,112
|
|
Additional
paid in capital
|
108,396,284
|
92,268,213
|
|
Accumulated
deficit
|
(98,888,761)
|
(79,381,806)
|
|
Total
stockholders' equity
|
9,509,765
|
12,887,569
|
|
|
|
|
|
Total liabilities
and stockholders' equity
|
$73,714,621
|
$113,393,091
|
See
Notes to the Condensed Consolidated Financial
Statements.
1
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
Three-Months Ended
September 30,
|
Nine-Months Ended
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Revenue:
|
|
|
|
|
|
Pre-owned
vehicle sales:
|
|
|
|
|
|
Powersports
|
$7,303,131
|
$27,144,202
|
$38,641,607
|
$84,379,049
|
|
Automotive
|
99,315,335
|
187,108,303
|
281,242,442
|
611,871,819
|
|
Transportation
and vehicle logistics
|
10,440,367
|
6,058,546
|
25,191,459
|
17,417,846
|
|
Other
|
198,571
|
9,272
|
672,450
|
9,272
|
|
Total
revenue
|
117,257,404
|
220,320,323
|
345,747,958
|
713,677,986
|
|
|
|
|
|
|
|
Cost
of revenue:
|
|
|
|
|
|
Powersports
|
5,606,366
|
24,280,599
|
33,691,814
|
74,367,614
|
|
Automotive
|
86,473,154
|
179,672,614
|
257,045,834
|
585,163,984
|
|
Transportation
and vehicle logistics
|
8,373,829
|
4,352,585
|
19,324,621
|
12,523,281
|
|
Cost
of revenue before impairment loss
|
100,453,349
|
208,305,798
|
310,062,269
|
672,054,879
|
|
Impairment
loss on automotive inventory
|
-
|
-
|
11,738,413
|
|
|
Total
cost of revenue
|
100,453,349
|
208,305,798
|
321,800,682
|
672,054,879
|
|
|
|
|
|
|
|
Gross
profit
|
16,804,055
|
12,014,525
|
23,947,276
|
41,623,107
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
13,279,151
|
19,010,939
|
42,509,865
|
64,458,520
|
|
|
|
|
|
|
|
Insurance
recovery proceeds
|
-
|
-
|
(5,615,268)
|
-
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
536,381
|
473,670
|
1,567,697
|
1,283,333
|
|
|
|
|
|
|
|
Operating
income (loss)
|
2,988,523
|
(7,470,084)
|
(14,515,018)
|
(24,118,746)
|
|
|
|
|
|
|
|
Interest
expense
|
(1,488,090)
|
(2,031,697)
|
(5,187,256)
|
(5,351,689)
|
|
|
|
|
|
|
|
Change
in derivative liability
|
(13,518)
|
630,000
|
7,155
|
820,000
|
|
|
|
|
|
|
|
Gain
(Loss) on early extinguishment of debt
|
-
|
-
|
188,164
|
(1,499,250)
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
1,486,915
|
(8,871,781)
|
(19,506,955)
|
(30,149,685)
|
|
|
|
|
|
|
|
Benefit
for income taxes
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Net
income (loss)
|
$1,486,915
|
$(8,871,781)
|
$(19,506,955)
|
$(30,149,685)
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and fully
diluted
|
2,234,838
|
1,158,915
|
2,165,167
|
1,098,809
|
|
|
|
|
|
|
|
Net
income (loss) per share - basic and fully diluted
|
$.67
|
$(7.66)
|
$(9.01)
|
$(27.44)
|
See
Notes to the Condensed Consolidated Financial
Statements.
2
RumbleOn, Inc.
Condensed
Consolidated Statement of Stockholders' Equity
(Unaudited)
|
|
Preferred Shares
|
Class A Common Shares
|
Class B Common Shares
|
Additional Paid in
|
Accumulated
|
Total Stockholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance as of June 30,
2020
|
-
|
$-
|
50,000
|
$50
|
2,179,907
|
$2,180
|
$107,533,741
|
$(100,375,676)
|
$7,160,295
|
|
Issuance of
common stock for restricted stock units
|
-
|
-
|
-
|
-
|
11,726
|
12
|
(12)
|
-
|
-
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
862,555
|
-
|
862,555
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,486,915
|
1,486,915
|
|
Balance as of September 30,
2020
|
-
|
$-
|
50,000
|
$50
|
2,191,633
|
$2,192
|
$108,396,284
|
$(98,888,761)
|
$9,509,765
|
|
|
Preferred Shares
|
Class A Common Shares
|
Class B Common Shares
|
Additional Paid in
|
Accumulated
|
Total Stockholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance, as of
December 31, 2019
|
-
|
-
|
50,000
|
$50
|
1,111,681
|
$1,112
|
$92,268,213
|
$(79,381,806)
|
$12,887,569
|
|
Issuance of
common stock, net of issuance cost
|
-
|
-
|
-
|
-
|
1,035,000
|
1,035
|
10,779,045
|
-
|
10,780,080
|
|
Issuance of
common stock for restricted stock units
|
-
|
-
|
-
|
-
|
37,821
|
38
|
(38)
|
-
|
-
|
|
Convertible
note exchange
|
-
|
-
|
-
|
-
|
-
|
-
|
2,923,755
|
-
|
2,923,755
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
2,425,316
|
-
|
2,425,316
|
|
Adjust for
fractional shares in reverse stock split
|
-
|
-
|
-
|
-
|
7,131
|
7
|
(7)
|
-
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(19,506,955)
|
(19,506,955)
|
|
Balance as of September 30,
2020
|
-
|
$-
|
50,000
|
$50
|
2,191,633
|
$2,192
|
$108,396,284
|
$(98,888,761)
|
$9,509,765
|
|
|
Preferred Shares
|
Class A Common Shares
|
Class B Common Shares
|
Additional Paid in
|
Accumulated
|
Total Shareholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance as of June 30,
2019
|
-
|
$-
|
50,000
|
$50
|
1,106,256
|
$1,106
|
$90,059,932
|
$(55,482,657)
|
$34,578,431
|
|
Issuance of
common stock for restricted stock units
|
-
|
-
|
-
|
-
|
4,715
|
5
|
(5)
|
-
|
-
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
689,130
|
-
|
689,130
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(8,871,781)
|
(8,871,781)
|
|
Balance as of September 30,
2019
|
-
|
$-
|
50,000
|
$50
|
1,110,971
|
$1,111
|
$90,749,057
|
$(64,354,439)
|
$26,395,780
|
|
|
Preferred Shares
|
Class A Common Shares
|
Class B Common Shares
|
Additional Paid in
|
Accumulated
|
Total Stockholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance, as of
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
|
-
|
-
|
-
|
-
|
11,965
|
12
|
(12)
|
-
|
-
|
|
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
|
15,155,387
|
-
|
15,155,546
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
2,335,242
|
-
|
2,335,242
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(30,149,685)
|
(30,149,685)
|
|
Balance as of September 30,
2019
|
-
|
$-
|
50,000
|
$50
|
1,110,971
|
$1,111
|
$90,749,057
|
$(64,354,439)
|
$26,395,780
|
See
Notes to the Condensed Consolidated Financial
Statement
3
RumbleOn, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine-Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net
loss
|
$(19,506,955)
|
$(30,149,685)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization
|
1,567,697
|
1,283,333
|
|
Amortization
of debt discounts
|
1,498,690
|
1,308,061
|
|
Share
based compensation
|
2,425,316
|
2,335,242
|
|
Impairment
loss on inventory
|
11,738,413
|
-
|
|
Impairment
loss on fixed assets
|
177,626
|
-
|
|
Loss
from change in value of derivatives
|
(7,155)
|
(820,000)
|
|
Loss
(gain) from extinguishment of debt
|
(188,164)
|
1,499,250
|
|
Changes
in operating assets and liabilities:
|
|
|
|
(Increase)
in prepaid expenses and other current assets
|
(1,296,436)
|
(261,207)
|
|
Decrease
in inventory
|
34,218,774
|
5,530,532
|
|
(Increase)
in accounts receivable
|
(2,859,892)
|
(1,564,145)
|
|
Decrease
(increase) in other assets
|
63,366
|
(18,403)
|
|
Decrease
in accounts payable and accrued liabilities
|
(1,691,839)
|
(5,824,733)
|
|
Increase
in accrued interest payable
|
58,055
|
888,821
|
|
Net
cash provided by (used in) operating activities
|
26,197,496
|
(25,792,934)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
Cash
used for acquisitions; net of cash received
|
-
|
(835,000)
|
|
Purchase
of property and equipment
|
(174,786)
|
-
|
|
Proceeds
from sales of property and equipment
|
-
|
40,620
|
|
Technology
development
|
(1,598,067)
|
(2,619,551)
|
|
Net
cash used in investing activities
|
(1,772,853)
|
(3,413,931)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
Proceeds
from notes payable and convertible debt
|
8,272,375
|
27,455,537
|
|
Payments
on notes payable
|
(1,713,825)
|
(11,134,695)
|
|
Net
repayments on lines of credit
|
(44,707,736)
|
(4,660,270)
|
|
Net
proceeds from sale of common stock
|
10,780,080
|
15,155,547
|
|
Proceeds
from PPP loan
|
5,176,845
|
-
|
|
Net
cash (used in) provided by financing activities
|
(22,192,261)
|
26,816,119
|
|
|
|
|
|
NET
CHANGE IN CASH
|
2,232,382
|
(2,390,746)
|
|
|
|
|
|
CASH AND RESTRICTED
CASH AT BEGINNING OF PERIOD
|
6,726,282
|
15,784,902
|
|
|
|
|
|
CASH AND RESTRICTED
CASH AT END OF PERIOD
|
$8,958,664
|
$13,394,156
|
See
Notes to the Condensed Consolidated Financial
Statements.
4
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 – DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
Organization
RumbleOn, Inc. was
incorporated in October 2013 under the laws of the State of Nevada,
as Smart Server, Inc. On February 13, 2017, the Company
changed its name from Smart Server, Inc. to RumbleOn, Inc. The
reference to the Company in these financial statements refers to
the Company and its subsidiaries.
Description of Business
Overview
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 light trucks, via
its acquisition of Wholesale, Inc. ("Wholesale") in October
2018.
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.
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 are modules or significant upgrades to the existing
platforms for: (i) Retail and dealer online auctions; (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.
Acquisitions
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").
5
Basis of Presentation
The
unaudited condensed consolidated financial statements of the
Company as of September 30, 2020 and December 31, 2019 and for the
three and nine-months ended September 30, 2020 and September 30,
2019, have been prepared in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP")
for interim information and with the instructions on Form 10-Q and
Rule 10-01 of Regulation S-X pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). All
of the Company's subsidiaries are wholly owned. The condensed
consolidated financial statements include the accounts of RumbleOn
Inc. and its wholly owned subsidiaries. In accordance with those
rules and regulations, the Company has omitted certain information
and notes required by U.S. GAAP for annual consolidated financial
statements. In the opinion of management, the condensed
consolidated financial statements contain all material adjustments,
except as otherwise noted, necessary for the fair presentation of
the Company's financial position and results of operations for the
periods presented. The year-end condensed balance sheet data as of
December 31, 2019 was derived from audited financial statements.
These condensed consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto included in the Company's Annual Report on Form 10-K
("Annual Report") for the fiscal year ended December 31, 2019. The
results of operations for the three-month and nine-month periods
ended September 30, 2020 are not necessarily indicative of the
results expected for the entire fiscal year. All intercompany
accounts and material intercompany transactions have been
eliminated.
Liquidity
We have
incurred cumulative losses and negative cash flow from operations
since inception through September 30, 2020 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, including
through debt and equity financing. 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, Note 9 - Convertible Notes, and Note 11 -
Stockholder Equity. Also, we have historically funded vehicle
inventory purchases through our Line of Credit-Floor Plans. 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, amounts available under the NextGear Credit Line, proceeds
from the Paycheck Protection Program loan, monetization of our
retail loan portfolio, insurance recoveries and through
rationalizing costs and expenses, including a workforce
reduction.
The
worldwide spread of the COVID-19 outbreak has resulted in a global
slowdown of economic activity which decreased demand for a broad
variety of goods and services, while also disrupting sales
channels, marketing activities and supply chains for an unknown
period of time until the outbreak is contained. This is impacting
the Company's business and the powersport, automotive and transport
industries as a whole. The Company has positioned its business
today to be lean and flexible in this period of lower demand and
higher uncertainty with the goal of preparing the Company for a
strong recovery as the crisis is contained. The Company believes
its online business model allows it to quickly respond to market
demand or changes in the businesses it operates as the COVID-19
pandemic continues.
The
Company's condensed consolidated financial statements have been
prepared assuming that the Company 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 it will be able to generate sufficient liquidity from
the measures described above, its current circumstances including
uncertainties due to COVID-19 pandemic raise substantial doubt
about the Company's ability to operate as a going concern. The
accompanying condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Use of Estimates
The
preparation of these condensed 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 the Company's operations, may
impact future estimates including, but not limited to inventory
valuations, fair value measurements, asset impairment charges and
discount rate assumptions.
6
Recent Pronouncements
Adoption of New Accounting Standards
In June
2016, the FASB issued Accounting Standards Update No. 2016-13
"Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments," ("ASU 2016-13"), which
amends the impairment model by requiring entities to use a
forward-looking approach based on expected losses to estimate
credit losses on certain types of financial instruments, which
include trade and other receivables, loans and held-to-maturity
debt securities, to record an allowance for credit risk based on
expected losses rather than incurred losses, otherwise known as
"CECL". In addition, this guidance changes the recognition for
credit losses on available-for-sale debt securities, which can
occur as a result of market and credit risk and requires additional
disclosures. On November 15, 2019, the FASB issued ASU No. 2019-10
"Financial Instruments-Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815), and Leases (Topic 842)" ("ASU 2019-10"), which
provides a framework to stagger effective dates for future major
accounting standards and amends the effective dates for certain
major new accounting standards to give implementation relief to
certain types of entities. ASU 2019-10 amends the effective dates
for ASU 2016-13 for smaller reporting companies with fiscal years
beginning after December 15, 2022, and interim periods within those
years. The Company is evaluating the level of impact adopting ASU
2016-13 will have on the Company's condensed 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 nine-months ended September 30, 2019.
The standard did not have a material impact on the Company's
condensed consolidated statements of operations or statements of
cash flows.
NOTE 2 – ACCOUNTS RECEIVABLE, NET
Accounts receivable
consists of the following as of:
|
|
September 30,
2020
|
December 31,
2019
|
|
Trade
|
$12,585,367
|
$9,369,733
|
|
Finance
|
27,333
|
147,893
|
|
Other
|
23,326
|
-
|
|
|
12,636,026
|
9,517,626
|
|
Less:
allowance for doubtful accounts
|
(1,293,426)
|
(1,034,919)
|
|
|
$11,342,600
|
$8,482,707
|
NOTE 3 – INVENTORY
Inventory consists
of the following as of:
|
|
September 30,
2020
|
December 31,
2019
|
|
Pre-owned
vehicles:
|
|
|
|
Powersport
vehicles
|
$1,801,234
|
$10,365,050
|
|
Automobiles
and trucks
|
12,078,123
|
47,599,433
|
|
|
13,879,357
|
57,964,483
|
|
Less:
Reserve
|
(2,455,263)
|
(583,202)
|
|
|
$11,424,094
|
$57,381,281
|
Included in the inventory reserve at
September 30, 2020 is an impairment loss on automotive inventory of
$1,976,525 for vehicles that were declared a total
loss from the tornado that occurred on March 3, 2020 at the
Company’s Nashville, Tennessee facility. The total impairment
on inventory related to the tornado was $11,738,413 and is recorded
as part of cost of revenue on the statement of operations for the
nine-months ended September 30, 2020. See Note 13 – Loss
Contingencies and Insurance Recoveries.
7
NOTE 4 – ACQUISITIONS
On
February 3, 2019, the Company completed the Autosport Acquisition
pursuant to the Stock Purchase Agreement. 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 September 30, 2020, 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 following
table summarizes the final 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
|
Supplemental pro forma unaudited information
(unaudited)
The
following unaudited supplemental pro forma information presents the
financial results as if the Autosport Acquisition was made as of
January 1, 2019 for the three-months and nine-months ended
September 30, 2019.
Pro-forma
adjustments for the three-month and nine-month periods ended
September 30, 2019 primarily include adjustments to reflect the:
(i) amortization of stock compensation expense of $0 and $18,351,
respectively, and (ii) interest expense on convertible and
promissory notes of $0 and $20,174, respectively.
|
|
Three-Months Ended
September 30, 2019
|
Nine-Months Ended
September 30, 2019
|
|
Unaudited
|
|
|
|
Pro
forma revenue
|
$220,320,323
|
$719,996,595
|
|
Pro
forma net loss
|
$(8,871,781)
|
$(30,186,709)
|
|
Loss
per share - basic and fully diluted
|
$(7.66)
|
$(27.06)
|
|
Weighted-average
common shares and common stock equivalents outstanding basic and
fully diluted
|
1,158,915
|
1,115,735
|
NOTE 5 – PROPERTY AND EQUIPMENT, NET
The
following table summarizes property and equipment, net of
accumulated depreciation and amortization as of September 30, 2020
and December 31, 2019:
8
|
|
September 30,
2020
|
December 31,
2019
|
|
Vehicles
|
$316,764
|
$158,327
|
|
Furniture
and equipment
|
191,048
|
448,074
|
|
Technology
development and software
|
10,461,314
|
8,863,247
|
|
Leasehold
improvements
|
254,324
|
246,135
|
|
Total
property and equipment
|
11,223,450
|
9,715,783
|
|
Less:
accumulated depreciation and amortization
|
(4,728,510)
|
(3,288,109)
|
|
Total
|
$6,494,940
|
$6,427,674
|
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.
Included in
Technology development and software above on September 30, 2020 is
capitalized technology development costs of $10,253,304, which includes $2,900,000 of software acquired in the
NextGen transaction. Total technology development costs incurred
for the three-months and nine-month periods ended September 30,
2020 were $1,164,015 and
$2,635,286, respectively, of
which $983,954 and
$1,598,067, respectively, was
capitalized and $180,061 and
$1,037,219, respectively, was
charged to expense in the accompanying condensed consolidated
statements of operations. Depreciation expense for the three-month
and nine-month periods ended September 30, 2020 were $536,381 and $1,567,697, respectively, which included the
amortization of capitalized technology development costs of
$477,420 and $1,366,996, respectively. Total technology
development costs incurred for the three-month and nine-month
periods ended September 30, 2019 were $1,420,405 and $4,371,267,
respectively, of which $699,982 and $2,619,551, respectively, was
capitalized and $720,423 and $1,751,716, respectively, was charged
to expense in the accompanying condensed consolidated statements of
operations. Depreciation expense for the three-month and nine-month
periods ended September 30, 2019 was $473,671 and $1,283,334
respectively, which included the amortization of capitalized
technology development costs of $386,519 and $1,018,551,
respectively.
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The
following is a summary of the carrying amount of goodwill and other
indefinite-lived assets as of December 31, 2019 and September 30,
2020. Due to the significant decline in the Company's stock price
and the economic effect of COVID-19, the Company determined a
triggering event for Goodwill impairment existed at March 31, 2020.
As a result, the Company performed a quantitative impairment
analysis for the Automotive segment. The Company's impairment test
indicated no impairment existed as the estimated fair value of the
reporting unit exceeded its carrying value at March 31, 2020.
Management determined no triggering event occurred during the
quarters ended June 30, 2020 or September 30, 2020.
|
|
September
30,
2020
|
December 31,
2019
|
|
Goodwill
|
$26,886,563
|
$26,886,563
|
|
|
|
|
|
Indefinite lived
intangible asset
|
$45,515
|
$45,515
|
The
$45,515 of indefinite lived
intangible asset is included in other assets in the Company's
condensed consolidated balance sheets.
NOTE 7 – ACCOUNTS PAYABLE AND OTHER ACCRUED
LIABILITIES
The
following table summarizes accounts payable and other accrued
liabilities as of September 30, 2020 and December 31,
2019:
|
|
September 30,
2020
|
December 31,
2019
|
|
Accounts
payable
|
$4,096,927
|
$8,730,624
|
|
Operating
lease liability-current portion
|
1,556,705
|
1,423,610
|
|
Accrued
payroll
|
1,275,557
|
715,658
|
|
State
and local taxes
|
633,116
|
912,062
|
|
Other
accrued expenses
|
3,158,322
|
639,140
|
|
Total
|
$10,720,627
|
$12,421,094
|
9
NOTE 8 – NOTES PAYABLE AND LINES OF CREDIT
Notes
payable and lines of credit consisted of the following as of
September 30, 2020 and December 31, 2019:
|
|
September 30,
2020
|
December 31,
2019
|
|
Notes
payable-NextGen dated February 8, 2017 and exchanged January 14,
2020. Interest payable semi-annually at 6.5% through February 9,
2019 and 10.0% quarterly through maturity, which is January 31,
2021.
|
$833,334
|
$1,333,334
|
|
|
|
|
|
Notes
payable-private placement dated March 31, 2017 and exchanged
January 14, 2020. Interest payable semi-annually at 6.5% through
September 30, 2019 and 10.0% quarterly through maturity which is
January 31, 2021.
|
669,175
|
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. Principal and interest are payable on
demand.
|
-
|
8,419,897
|
|
|
|
|
|
Line
of credit-floor plan-NextGear dated October 30, 2018. Secured by
vehicle inventory and other assets. Interest rate at September 30,
2020 was 5.25%. Principal and interest is payable on
demand.
|
11,950,284
|
50,741,073
|
|
|
|
|
|
PPP
Loans dated May 1, 2020. Interest is payable monthly at 1.0%
through maturity which is April 30, 2022. Payments of principle and
interest is deferred until October 30, 2020.
|
5,176,845
|
-
|
|
|
|
|
|
Revolving
Line of Credit note secured by the loans and other assets of
RumbleOn Finance, LLC. Interest rate at September 30, 2019 was
7.25%. Principal and interest is payable on demand.
|
985,006
|
-
|
|
|
|
|
|
Less: Debt
discount
|
-
|
(75,601)
|
|
Total
notes payable and lines of credit
|
$19,614,644
|
$61,085,703
|
|
Less: Current
portion
|
(17,640,426)
|
59,160,970
|
|
|
|
|
|
Long-term
portion
|
$1,974,218
|
$1,924,733
|
Line of Credit-Floor Plan-NextGear
On
October 30, 2018, Wholesale, as borrower, entered into a
$70,000,000 floorplan vehicle financing credit line (the "NextGear
Credit Line") with NextGear Capital, Inc. ("NextGear"). During the
quarter ended September 30, 2020 the Company and NextGear agreed to
reduce the credit line to $55,000,000 with Wholesale and Autosport
limiting the aggregate amount of advances under the credit line to
$25,000,000 through March 31, 2021, at which time the credit line
will be repaid in full.
Advances under the
NextGear Credit Line require Wholesale to maintain at least
$2,500,000 cash collateral in a reserve account in favor of
NextGear, which amount is subject to change in NextGear's sole
discretion. 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 NextGear Credit
Line for the three-month and nine-month periods ended September 30,
2020 was $239,785 and
$1,450,944, respectively.
Interest
expense on the NextGear Credit Line for the three-month and
nine-month periods ended September 30, 2019 was $693,024 and
$2,203,915, 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 Bank ("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 required that the Company maintain 10.0% of the advance
amount as restricted cash. Advances under the Credit Facility bore
interest at a per annum rate designated from time to time by the
Lender and were determined using a 365/360 simple interest method
of calculation, unless expressly prohibited by law. Advances under
the Credit Facility, if not demanded earlier, were due and payable
for each vehicle financed under the Credit Facility as and when
such vehicle was sold, leased, consigned, gifted, exchanged,
transferred, or otherwise disposed of. Interest under the Credit
Facility was 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 could, 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 was secured by a grant of a security interest in
the vehicle inventory and other assets of RMBL MO and payment was
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
three-month and nine-month periods ended September 30, 2020 was $0
and $77,266. Interest expense on the
Credit Facility for the three-month and nine-month periods ended
September 30, 2019 was $157,343 and $416,017, respectively.
The Credit Facility ended in February 2020.
10
RumbleOn Finance Line of Credit
On June
23, 2020, RumbleOn Finance, LLC, a wholly owned subsidiary of the
Company ("RumbleOn Finance"), entered into a loan agreement
providing for up to $1,500,000 in proceeds (the "RumbleOn Finance
Facility") with CL Rider Finance, L.P. (the "CL Rider") as
evidenced by the loan commitment dated as of June 17, 2020. In
connection with the loan agreement, RumbleOn Finance pledged its
assets to CL Rider to secure the RumbleOn Finance Facility and
executed a promissory note in favor of the CL Rider pursuant to
which the RumbleOn Finance Facility will accrue interest at an
initial rate of 4.0% per annum. Accrued interest is payable
monthly. Outstanding accrued interest and the principal balance are
payable on demand by CL Rider. On July 16, 2020, the Company
received net proceeds of $1,156,632. Interest expense on the
Facility was $16,619 for the three and nine-months ended September
30, 2020.
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 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 Loan Agreement as an extinguishment and
recognized a loss on early extinguishment of debt of $1,499,250 during the nine-months ended
September 30, 2019. 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. There was no interest
expense on the Hercules loan for the three-month and nine-month
periods ended September 30, 2020. For the three-month and
nine-month periods ended September 30, 2019, interest expense on
the Hercules loan was $0 and $758,466,
respectively, and included $0 and $343,841, respectively, of debt
issuance cost amortization.
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
Consulting LLC ("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 January 31, 2021 maturity date (the "NextGen Note").
Upon the occurrence of any event of default, the outstanding
balance under the 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, LLC, the Company's wholly-owned subsidiary ("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 NextGen
Note for the three-month and nine-month periods ended September 30,
2020 were $21,005 and
$66,123, respectively, as
compared to $28,566 and
$81,818, respectively, for the
same periods of 2019. In connection with the Investor Note Exchange
Agreement (described below), in January 2020, $500,000 of the
NextGen Note was paid down and the NexGen Note was exchanged for a
New Investor Note (as defined below).
Private Placement
On
March 31, 2017, the Company completed funding of the second tranche
of a private placement commenced in 2016 (the "2016 Private
Placement"). 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 was amortized to interest expense using
an effective interest rate of 26.0%. Interest expense on the
Private Placement Notes for the three-month and nine-month periods
ended September 30, 2020 was $16,867 and $125,443, respectively, and included $0
and $75,601, respectively, of debt discount
amortization as compared to interest expense of $80,899 and
$231,235, respectively, which included $66,608 and $188,831,
respectively, of debt discount amortization for the same periods of
2019. In connection with the Investor Note Exchange Agreement
(described below) the Private Placement Notes were exchanged for
New Investor Notes (as defined below).
11
Exchange of Notes Payable
Certain
of the Company's investors extended the maturity of 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 former 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 NextGen 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. Interest under the New Investor Notes accrue on
the outstanding and unpaid principal amount at the rate of 10.0%
per annum and shall be paid quarterly in arrears on the last day of
each of the Company's fiscal quarters beginning on March 30, 2020,
and, if applicable, on the January 31, 2021 maturity
date.
PPP Loans
On May
1, 2020, the Company, and its wholly-owned subsidiaries Wholesale
and Wholesale Express (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
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 current terms of two years with maturity dates
of April 30, 2022
and an annual interest rate of
1.0%. Payments of principal and
interest on the PPP Loans will be deferred for the first six-months
of the term of the PPP Loans until October 30, 2020. Principal and
interest are payable monthly and may be prepaid by the Company at
any time prior to maturity with no prepayment
penalties.
Pursuant to the
terms of the SBA Loan Documents, the Borrowers can apply for and receive forgiveness for all, or
a portion of the loans granted
under the PPP. Such forgiveness will be determined, subject to
limitations, based on the use of loan proceeds for certain
permissible purposes as set forth in the PPP, including, but not
limited to, payroll costs, mortgage interest, rent or utility costs
(collectively, "Qualifying Expenses"), and on the maintenance of
employee and compensation levels during a certain time period
following the funding of the PPP Loans. The Company has been using
the proceeds of the PPP Loans for Qualifying Expenses. However, no
assurance is provided that the Company will be able to obtain
forgiveness of the PPP Loans in whole or in part.
Interest expense on the PPP Note for
the three-month and nine-month periods ended September 30, 2020 was
$11,626 and $19,334, respectively.
NOTE 9 – CONVERTIBLE NOTES
As of
September 30, 2020, the outstanding convertible promissory notes
net of debt discount and issue costs are summarized as
follows:
|
|
Principal
Amount
|
Debt
Discount
|
Carrying
Amount
|
|
Convertible
senior notes
|
$38,750,000
|
$(12,237,622)
|
$26,512,378
|
|
Convertible
notes-Autosport:
|
|
|
|
|
$1,536,000
unsecured note
|
1,088,000
|
(336,214)
|
751,786
|
|
$500,000 unsecured
note
|
378,000
|
-
|
378,000
|
|
|
40,216,000
|
(12,573,836)
|
27,642,164
|
|
Less: Current
portion
|
(1,146,000)
|
185,662
|
(960,338)
|
|
Long-term
portion
|
$39,070,000
|
$(12,388,174)
|
$26,681,826
|
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 "Old Notes") in a
private placement to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act") (the "2019 Note Offering"). The Company paid JMP
Securities a fee of 7.0% of the gross proceeds in the 2019 Note
Offering. The proceeds for the 2019 Note Offering after deducting
the initial purchaser's discounts, advisory fees, and related
offering expenses, were approximately $27,385,500.
12
The Old
Notes were issued on May 14, 2019 pursuant to an Indenture (the
"Old Indenture") by and between the Company and Wilmington Trust,
National Association, as trustee (the "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 Old 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 Old
Notes could bear additional interest under specified circumstances
relating to the Company's failure to comply with its reporting
obligations under the Old Indenture or if the Old Notes were not
freely tradeable as required by the Old Indenture. The Old Notes
would have matured on May 1, 2024, unless earlier converted,
redeemed or repurchased pursuant to their terms.
The
initial conversion rate of the Old Notes was 8.6956 shares of Class
B Common Stock, per $1,000 principal amount of the Old 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 Old 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 Old
Notes in connection with such make-whole fundamental
change.
The Old
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
Old 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 Old 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 Old Notes to be converted had such Old 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.
In
connection with the 2019 Note Offering, the Company entered into a
registration rights agreement with JMP Securities, pursuant to
which the Company agreed to file with the SEC a resale shelf
registration statement providing for the resale of the Old Notes
and the shares of Class B Common Stock issuable upon conversion of
the Old Notes. This resale registration statement was filed on
August 22, 2019 and declared effective on August 30,
2019.
On
January 10, 2020, the Company entered into a Note Exchange and
Subscription Agreement, as amended by a Joinder Agreement
(together, the "New Note 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 (the "New Notes," and together
with the Old Notes, the "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 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 the Trustee. The
New 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 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.
13
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 New
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% 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 May 29, 2020 (which date was adjusted for certain
intervening events, including the COVID-19 pandemic). The
registration statement was filed on June 19, 2020 and declared
effective on June 30, 2020. In connection with the filing of the
registration statement, the Company deregistered the Old Notes
previously registered for resale.
As of
September 30, 2020, the conditions allowing holders of the New
Notes to convert have not been met and therefore the New Notes are
not yet convertible.
The
Company accounted for the exchange of the Old Notes and the
issuance of the New Notes in accordance with the conversion
guidance in ASC 470-20 "Debt – Debt with Conversion and Other
Option" (ASC 470-20) and determined that the exchange of the Old
Notes for the New Notes required derecognition of the Old Notes
given that the difference in the fair value of the embedded the
conversion feature of the New Notes relative to the Old Notes was
in excess of 10 percent of the Old Notes conversion feature fair
value. In derecognizing the Old Notes, the Company recognized a
gain of $188,164 equal to difference between the fair value of the
Old Notes liability immediately prior to extinguishment and the
carry amount of the liability component of the Old Notes, including
any all unamortized debt issuance costs. The remaining
consideration of $2,593,163 was allocated to the reacquisition of
the equity component and recognized as a reduction of stockholder's
equity.
The New
Notes were accounted for in accordance with FASB ASC 470,
Debt and ASC 815,
Derivatives and Hedging,
which required bifurcation of the liability and equity components.
The Company determined the carrying amount of the liability
component was $25,280,430 and represents the present value of the
New Notes cash flows using an implied discount rate of 18.7%, which
is a yield applicable to similar debt instruments that do not have
the conversion feature. After allocation of the initial proceeds to
the liability components, the remaining amount was allocated to the
equity component and recorded as additional paid in capital. The
Company recorded $13,529,141 in total debt discount related to the
New Notes which included $59,571 of debt issuance costs. The
Company allocates transaction costs related to the issuance of the
New Notes to the liability and equity components using the same
proportions as the initial carrying value of the New Notes. The
$59,571 of transaction costs attributable to the debt component are
being amortized to interest expense using the effective interest
method over the term of the New Notes. Transaction costs
attributable to the equity component were $40,669 and are netted
with the equity component of the New Notes in stockholders' equity.
The equity component is not remeasured as long as it continues to
meet the conditions for equity classification The Company further
valued a derivative liability in connection with the interest
make-whole provision at $20,673 on the issuance date based on a
lattice model. This amount was recorded as a debt discount and is
amortized to interest expense over the term of the New Notes using
the effective interest rate. The value of the derivative liability
increased to $137,488 as of March 31, 2020. The derivative
liability is remeasured at each reporting date with an increase in
value of $13,518
being
recorded in other income for the three-months ended September 30,
2020. The value of the derivative liability as of September 30,
2020 was $20,345.
14
The
interest expense recognized with respect to the Convertible Senior
Notes was as follows:
|
|
Three-Months Ended
September 30, 2020
|
Nine-Months Ended
September 30, 2020
|
|
Contractual
interest expense
|
$653,906
|
$1,912,265
|
|
Amortization of
debt discounts
|
479,077
|
1,367,213
|
|
Total
|
$1,132,983
|
$3,279,478
|
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
$500,000 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. In June 2020,
principal payments of $122,000 were made and the promissory note
maturity date was extended to October 1, 2020 and the remaining
principal balance of $378,000 will be repaid in four equal
principal plus interest payments beginning July 1, 2020 through
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.
The
$1,536,000 Convertible Note matures on January 31, 2022 and accrues
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 had a term of one year and accrued interest
at a simple rate of 5.0% per annum. The note was repaid in full
during the nine-months ended September 30, 2020.
For the
three and nine-months ended September 30, 2020, interest expense on
convertible notes was $47,140
and $141,000, respectively, and
included $22,442 and
$55,876, respectively, of debt
discount amortization. Interest Expense for
the three-month and nine-months ended September 30, 2019 for the
convertible notes was $67,634 and $163,730, respectively, and
included $31,045 and $81,084, respectively, of debt discount
amortization.
NOTE 10 – EQUITY-BASED COMPENSATION
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 the Company's employees, consultants, directors, independent
contractors and certain prospective employees who have committed to
become an employee (each an "Eligible Individual") of up to 12% 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. 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. On August 25, 2020, the Company's
stockholders approved another amendment to the Plan to increase the
number of shares authorized for issuance under the Plan from
200,000 shares of Class B Common Stock to 700,000 shares of Class B
Common Stock. To date, the vesting of RSU and Option awards for
most employees is service/time based. Substantially all
service/time based RSU and Option awards issued typically vest over
a three-year period with 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. In 2019 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 effective as of
December 31, 2019 and the entire expense for the fair-value of the
market based awards was recognized in 2019. On July 15, 2020 the
Company granted to certain members of management an aggregate of
200,000 market based RSUs (the “2020 Grant”). These
RSUs vest as follows: one third shall vest on the first trading day
after the Company’s Class B Common Stock closes at a stock
price of $50 per share or greater for 30 consecutive trading days;
one third shall vest on the first trading day after the
Company’s Class B Common Stock closes at a stock price of
$100 per share or greater for 30 consecutive trading days; and one
third shall vest on the first trading day after the Company’s
Class B Common stock closes at a stock price of $200 per share or
greater for 30 consecutive trading days. The 2020 Grant has a term
of 30 months, the fair market value of the 2020 Grant is $650,000
and the derived term is 20 months. 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
and is recognized in Selling, General and Administrative expense. A
summary of equity-based compensation expense recognized during the
three and nine-months ended September 30, 2020 and 2019 is as
follows
15
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Restricted
Stock Units
|
$847,096
|
$956,991
|
$2,379,273
|
$1,646,112
|
|
|
|
|
|
|
|
Options
|
15,459
|
-
|
46,041
|
-
|
|
|
|
|
|
-
|
|
Total stock-based
compensation
|
$862,555
|
$956,991
|
$2,425,314
|
$1,646,112
|
As of
September 30, 2020, the total unrecognized compensation expense
related to outstanding equity awards was approximately
$4,439,150, which the Company
expects to recognize over a weighted-average period of
approximately 10 months. Total unrecognized equity-based
compensation expense will be adjusted for actual
forfeitures.
NOTE 11 – STOCKHOLDER EQUITY
2019 Offerings
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 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 14, 2020, pursuant to an underwritten public offering, the
Company issued 900,000 shares of Class B Common Stock 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 issued an additional
135,000 shares of Class B Common Stock 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 8.0% underwriter's
commission and $75,000 for underwriter expenses, were $10,780,080.
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.
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. There were 7,131 fractional shares issued as a
result of rounding up to the nearest whole share in connection with
the Reverse Stock Split. The authorized preferred stock of the
Company was not impacted by the Reverse Stock Split. The Company
has retrospectively adjusted the per share and share amounts
included in this Quarterly Report on Form 10-Q for the Reverse
Stock Split.
16
NOTE 12 – SELLING, GENERAL AND ADMINISTRATIVE
The
following table summarizes the detail of selling, general and
administrative expense for the three-month and nine-month periods
ended September 30, 2020 and 2019:
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Compensation
and related costs
|
$7,169,435
|
$8,056,730
|
$20,496,326
|
$24,274,523
|
|
Advertising
and marketing
|
839,752
|
3,288,545
|
4,329,830
|
14,740,227
|
|
Professional
fees
|
533,303
|
440,575
|
2,451,837
|
1,730,792
|
|
Technology
development
|
180,061
|
720,423
|
1,037,219
|
1,751,716
|
|
General and
administrative
|
4,556,600
|
6,504,666
|
14,194,653
|
21,961,262
|
|
|
$13,279,151
|
$19,010,939
|
$42,509,865
|
$64,458,520
|
NOTE 13 – LOSS CONTINGENCIES AND INSURANCE
RECOVERIES
On
March 3, 2020, a severe tornado struck the greater Nashville area
causing significant damage to the Company's facilities including
contents and inventory held for sale. 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: (i) inventory
loss, currently assessed by the insurance carrier at approximately
$13,000,000; (ii) building and personal property loss,
primarily impacting the Company's leased facilities, currently
assessed by the insurance carrier at $3,801,203; and
(iii) 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. However, the
insurer has to-date advanced $5,615,268 against the final
settlement of the inventory claim. The insurer has agreed to pay
$2,778,000 on the building and personal property loss, reflecting
limits of $2,783,000 net of a $5,000 deductible and has made an
interim payment on the building and personal property loss of
$2,269,507 to the landlord. 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 recovery of all three loss
components, however no assurance can be given regarding the
amounts, if any, that will be ultimately recovered or when any such
recoveries will be made.
As a
result of the damage caused by the tornado, the Company has
concluded that the utility of the inventory damaged by the storm is
impaired as a result of physical damage sustained. Whether the
impairment is caused by physical destruction or an adverse change
in the utility of the inventory, entities should assess whether an
inventory impairment or write-off is required in accordance with
ASC 330-10-35-1 through 35-11, which address adjustments of
inventory balances to the lower of cost or net realizable value and
requires that when there is evidence that the utility of goods will
be less than cost, the difference is recognized as a loss in the
current period. For the nine-months ended September 30, 2020, the
Company has recorded an impairment loss on inventory of
$11,738,413 comprised of
$4,453,775 for vehicles that
are a total loss and $7,284,638
of value for vehicles that were partially damaged and require
repair. The impairment loss is reported in cost of revenue in the
September 30, 2020 condensed consolidated statements of operations.
On July 23, 2020, the insurer made an advance against the final
settlement of the damage claim on inventory of $5,615,268. This
recovery has been recorded as a separate component of income from
continuing operations for the nine-month ended September 30,
2020.
NOTE 14 – SUPPLEMENTAL CASH FLOW INFORMATION
The
following table includes supplemental cash flow information,
including noncash investing and financing activity for the
nine-months ended September 30, 2020 and 2019:
|
|
Nine-months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Cash paid for
interest
|
$3,614,922
|
$3,154,806
|
|
|
|
|
|
Convertible notes
payable issued in acquisition
|
$-
|
$2,293,933
|
17
The
following table provides a reconciliation of cash and restricted
cash reported within the accompanying condensed consolidated
balance sheets that sum to the total of the same amounts shown in
the accompanying condensed consolidated statements of cash flows as
of September 30:
|
|
September 30,
|
December 31,
|
|
|
2020
|
2019
|
|
Cash and cash
equivalents
|
$3,412,772
|
$49,660
|
|
Restricted cash
(1)
|
5,545,892
|
6,676,622
|
|
Total cash, cash
equivalents, and restricted cash
|
$8,958,664
|
$6,726,282
|
_________________________
(1) Amounts included in restricted cash represent the deposits
required under the Company's lines of credit.
NOTE 15 – INCOME TAXES
CARES Act
In
March 2020, the Coronavirus Aid, Relief, and Economic Security Act
(the "CARES Act") was enacted in response to the COVID-19 pandemic.
The Company does not expect the provisions of the legislation to
have a significant impact on the effective tax rate or income tax
payable and deferred income tax positions of the Company. No
current provision for Federal income taxes was recorded for the
three-month and nine-month periods ended September 30, 2020 and
2019 due to the Company's historical operating losses. The Company has provided a
valuation allowance on the net deferred tax assets. In assessing
the recovery of the net 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 16 – INCOME (LOSS) PER SHARE
The
Company computes basic and diluted net income (loss) per share
attributable to common stockholders is calculated by dividing the
net income (loss) attributable to common stockholders by the
weighed-average number of shares of common stock outstanding during
the period. The diluted net income (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, 414,499 of RSUs, 2,436 of stock
options, 16,352 of warrants to purchase shares of Class B Common
Stock and 770,231 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 converted
to Class B Common Stock 21 days after the mailing of the definitive
information statement prepared in accordance with Regulation 14C of
the Exchange Act, without further action on the part of the
Company. The conversion of the Series B Preferred to Class B Common
was effected on March 4, 2019. Weighted average number of shares
outstanding of Class A Common Stock, Class B Common Stock, and
Series B Preferred for the three and nine-month periods ended
September 30, 2020 were 50,000,
2,184,838, and 0 and 50,000, 2,115,167, and 0, respectively.
NOTE 17 – RELATED PARTY TRANSACTIONS
As of
September 30, 2020, the Company had promissory notes of
$371,764 and accrued interest
of $9,370 due to an entity
controlled by a director and to the director of the Company. The
promissory notes were issued in connection with the completion of
the 2016 Private Placement on March 31, 2017 and exchanged in
January 2020 for New Investor Notes. Interest expense on the
promissory notes due to Blue Flame, for the three-month and
nine-month periods ended September 30, 2020 was $9,370 and $69,603, respectively. There was no debt
discount amortization during the three-month period ended September
30, 2020. For the nine-month period ended September 30, 2020,
interest expense included $42,001 of debt discount amortization.
Interest
Expense on the promissory notes due to Blue Flame,
for the
three-month and nine-month periods ended September 30, 2019
was
$44,944 and $128,464, respectively,
which included debt discount amortization of $37,005 and $104,906,
respectively. The interest was charged to interest expense
in the condensed consolidated statements of
operations.
18
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
The
Company determines 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. The Company uses these options in determining
its right-of-use assets and lease liabilities. The Company's lease
agreements do not contain any material residual value guarantees or
material restrictive covenants. As the Company's leases do not
provide an implicit rate, it uses its 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 three and nine-months
periods ended September 30, 2020 was $762,927 and $1,626,846, respectively. The current
portion of the Company's operating lease liabilities as of
September 30, 2020 is $1,556,705 and is included in accounts
payable and accrued liabilities in the accompanying condensed
consolidated balance sheets. The long-term portion of the Company's
operating lease liabilities as of September 30, 2020 is
$4,656,572 and is included in
other liabilities in the accompanying condensed consolidated
balance sheets.
The
weighted-average remaining lease term and discount rate for the
Company's operating leases are as follows:
|
|
September 30,
2020
|
|
Weighted-average
remaining lease term
|
4.1
Years
|
|
Weighted-average
discount rate
|
7.0%
|
Supplemental cash
flow information related to operating leases for the nine-months
ended September 30, 2020 was as follows:
|
|
September 30,
2020
|
|
Cash payments for
operating leases
|
$1,191,472
|
The
following table summarizes the future minimum payments for
operating leases at September 30, 2020 due in each year ending
December 31,
|
2020
|
$467,998
|
|
2021
|
1,996,680
|
|
2022
|
1,937,047
|
|
2023
|
1,189,302
|
|
2024
|
801,711
|
|
Thereafter
|
562,093
|
|
Total
lease payments
|
6,954,831
|
|
Less imputed
interest
|
(741,554)
|
|
Present value of
lease liabilities
|
$6,213,277
|
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 September 30, 2020 and December 31, 2019, 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.
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 19 – 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.
19
NOTE 20 - 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. The Company's
operations are organized by management into operating segments by
line of business. The Company has determined that it has three
reportable segments as defined in U.S. GAAP for segment reporting:
(1) powersports, (2) automotive, and (3) vehicle
logistics and transportation. The Company's 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. The
accounting policies of the segments are the same and are described
in Note 1 – Description of Business and Significant
Accounting Policies.
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
|
Other
|
Vehicle Logistics and Transportation
|
Eliminations(1)
|
Total
|
|
Three-Months Ended September 30, 2020
|
|
|
|
|
|
|
|
Total
assets
|
$46,849,686
|
$41,283,620
|
$1,934,136
|
$10,517,834
|
$(26,870,655)
|
$73,714,621
|
|
Revenue
|
$7,303,131
|
$99,315,335
|
$198,571
|
$11,414,932
|
$(974,565)
|
$117,257,404
|
|
Operating
income (loss)
|
$(3,856,158)
|
$6,246,165
|
$(172,274)
|
$770,790
|
$-
|
$2,988,523
|
|
Depreciation
and amortization
|
$506,193
|
$28,337
|
$-
|
$1,851
|
$-
|
$536,381
|
|
Interest
expense
|
$(1,178,941)
|
$(292,164)
|
$(16,619)
|
$(366)
|
$-
|
$(1,488,090)
|
|
Change in
derivative liability
|
$(13,518)
|
$-
|
$-
|
$-
|
$-
|
$(13,518)
|
|
|
|
|
|
|
|
|
|
Three-Months Ended September 30, 2019
|
|
|
|
|
|
|
|
Total
assets
|
$62,696,037
|
$72,298,170
|
$429,542
|
$4,768,969
|
$(25,268,804)
|
$114,923,914
|
|
Revenue
|
$27,144,202
|
$187,108,303
|
$9,272
|
$8,191,939
|
$(2,133,393)
|
$220,320,323
|
|
Operating
income (loss)
|
$(6,516,385)
|
$(1,405,542)
|
$(173,904)
|
$625,747
|
$-
|
$(7,470,084)
|
|
Depreciation
and amortization
|
$412,819
|
$59,000
|
$-
|
$1,851
|
$-
|
$473,670
|
|
Interest
expense
|
$(1,268,835)
|
$(762,269)
|
$-
|
$(593)
|
$-
|
$(2,031,697)
|
|
Change in
derivative liability
|
$630,000
|
|
|
|
|
$630,000
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended September 30, 2020
|
|
|
|
|
|
|
|
Total
assets
|
$46,849,686
|
$41,283,620
|
$1,934,136
|
$10,517,834
|
$(26,870,655)
|
$73,714,621
|
|
Revenue
|
$38,641,607
|
$281,242,442
|
$672,450
|
$28,656,719
|
$(3,465,260)
|
$345,747,958
|
|
Operating
income (loss)
|
$(15,248,938)
|
$(935,478)
|
$(483,187)
|
$2,152,585
|
$-
|
$(14,515,018)
|
|
Depreciation
and amortization
|
$1,450,403
|
$111,740
|
$-
|
$5,554
|
$-
|
$1,567,697
|
|
Interest
expense
|
$(3,565,293)
|
$(1,604,682)
|
$(16,619)
|
$(662)
|
$-
|
$(5,187,256)
|
|
Change in
derivative liability
|
$(7,155)
|
$-
|
$-
|
$-
|
$-
|
$7,155
|
|
Gain on early
extinguishment of debt
|
$188,164
|
$-
|
$-
|
$-
|
$-
|
$188,164
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended September 30, 2019
|
|
|
|
|
|
|
|
Total
assets
|
$62,696,037
|
$72,298,170
|
$429,542
|
$4,768,969
|
$(25,268,804)
|
$114,923,914
|
|
Revenue
|
$84,379,049
|
$611,871,819
|
$9,272
|
$25,197,581
|
$(7,779,735)
|
$713,677,986
|
|
Operating
income (loss)
|
$(23,699,987)
|
$(1,849,690)
|
$(173,904)
|
$1,604,835
|
$-
|
$(24,118,746)
|
|
Depreciation
and amortization
|
$1,100,780
|
$176,999
|
$-
|
$5,554
|
$-
|
$1,283,333
|
|
Interest
expense
|
$(2,981,693)
|
$(2,369,255)
|
$-
|
$(741)
|
$-
|
$(5,351,689)
|
|
Change in
derivative liability
|
$820,000
|
$-
|
$-
|
$-
|
$-
|
$820,000
|
|
Loss on early
extinguishment of debt
|
$(1,499,250)
|
$-
|
$-
|
$-
|
$-
|
$(1,499,250)
|
_________________________
(1) Intercompany investment balances related to the acquisitions of
Wholesale and Wholesale Express, LLC ("Wholesale Express") and
receivables and other balances related intercompany freight
services of Wholesale Express are eliminated in the Condensed
Consolidated Balance Sheets. Revenue and costs for these
intercompany freight services have been eliminated in the Condensed
Consolidated Statements of Operations.
20
Item
2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Unless the context requires otherwise, references in this report to
"RumbleOn," the "Company," "we," "us," and "our" refer to RumbleOn
and its consolidated subsidiaries. The following Management's
Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is provided as a supplement to, and should
be read in conjunction with, our audited consolidated financial
statements, the accompanying notes and the MD&A included in our
most recent Annual Report filed on Form 10-K, as well as our
condensed consolidated financial statements and the accompanying
notes included in Item 1 of this Form 10-Q.
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 trucks
("automotive"). Of the 15,377
vehicles we sold during the nine-months ended September 30, 2020,
71.2% were automotive and
28.8% were powersports
vehicles. For the nine-months ended September 30, 2019, we sold
36,925 vehicles of which
70.5% were automotive and
29.5% were powersports
vehicles.
COVID-19 Update
COVID-19 is having
an impact on businesses nationwide, with local governments,
businesses, and consumers increasingly limiting commercial activity
and capital markets experiencing instability. The worldwide spread
of the COVID-19 outbreak has resulted in a global slowdown of
economic activity which decreased demand for a broad variety of
goods and services, while also disrupting sales channels, marketing
activities and supply chains for an unknown period of time until
the outbreak is contained. This is impacting our business and the
powersport, automotive and transportation industries as a whole. We
have positioned our business today to be lean and flexible in this
period of lower demand and higher uncertainty with the goal of
preparing the Company for a strong recovery once the outbreak is
contained. To this end, we have reduced discretionary growth
expenditures on new hiring, travel, facilities, and information
technology investments. We significantly reduced our staff during
the first quarter of 2020, we have applied and received PPP loan
funds of $5,176,845, and adjusted purchasing levels to align with
demand and market conditions, while closely monitoring key metrics
to determine when and how quickly to adjust. We believe our 100%
online business model allows us to quickly respond to market demand
or changes in the businesses we operate as the COVID-19 pandemic
continues.
Our
most important priority is the well-being of our employees and
customers. We have taken several steps to provide a healthy working
environment, including implementing work from home policies for
employees who are able to work remotely, eliminating all
non-essential travel and group meetings and implementing social
distancing policies. For many customers, selling or buying a
vehicle is an important component of their business or
transportation needs. We believe our online model for buying and
selling, which allows dealers and consumers to sell or buy a
vehicle without ever coming into physical contact with another
person, is the safest way to sell or buy a vehicle. Our touchless
buying and selling processes allows dealers and consumers to sell
or shop for a vehicle from their business or home, complete their
transaction on their phone or laptop, and have the vehicle picked
up or delivered without coming into physical contact with our
personnel.
Our
operational and financial performance will depend on future
developments related to the continuously evolving COVID-19
pandemic. Future developments include the duration, scope and
severity of the pandemic, the actions taken to contain or mitigate
its impact, the development of treatments or vaccines, the
resumption of widespread economic activity, and changes in consumer
sentiment. Due to the inherent uncertainty of the unprecedented and
rapidly evolving situation, we are unable to predict the impact of
the COVID-19 pandemic will have on our future
operations.
Our
financial statements reflect estimates and assumptions made by
management that affect the carrying values of the Company's assets
and liabilities, disclosures of contingent assets and liabilities,
and the reported amounts of revenue and expenses during the
reporting period. 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, including as a
result of the COVID-19 pandemic, which could have a material impact
on the carrying values of the Company's assets and liabilities and
the results of operations. We will continue to evaluate the nature
and extent of the impact to our business and our results of
operations and financial condition as conditions evolve as a result
of the COVID-19 pandemic.
21
Outlook
The COVID-19 pandemic
effect on commercial activity and the significant damage sustained
to our wholesale automotive business from a tornado in early
March 2020 had a significant
negative impact on the growth in unit volume and revenue for our
powersports, automotive and transportation businesses during the
nine-months ended September 30, 2020. Based on the evolving
aspects of COVID-19 and uncertainty surrounding its future
development, it may continue to have a negative impact on unit
volumes and revenue in future periods. Since the significant
decrease in demand experienced in early March through mid-April, we
have seen monthly unit sales and revenue increase sequentially
month-over-month through July 2020. However, during the
three-months ended September 30, 2020, our average days to
sale decreased and average selling prices increased as dealers saw
high industry-wide market prices. The effect of these higher market
prices resulted in lower levels of inventory available to
purchase for resale causing a decline in unit sales beginning in
September as compared to July and August. We believe this supply
and demand imbalance will continue to impact the historically
seasonally adjusted fourth quarter volume, particularly given the
worldwide rise in COVID-19 cases. As the impact of COVID-19 abates
over time, we anticipate that unit purchasing levels and sales will
return to or exceed levels experienced in the first quarter of 2020
as we increase penetration in existing markets and add new dealers,
however we can provide no assurance as to when and how quickly
COVID-19 impacts will continue to abate or if spikes in COVID-19
infections will further negatively impact the economy generally or
our business.
Nashville Tornado
On
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 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, currently assessed by the insurance carrier at
$3,801,203; 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,
however, the insurer has advanced $5,615,268 against the final
settlement. The insurer has agreed to pay $2,778,000 on the
building and personal property loss, reflecting limits of
$2,783,000 net of a $5,000 deductible and has made an interim
payment on the building and personal property loss of $2,269,507 to
the landlord. 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 recovery of all three loss components,
however no assurance can be given regarding the amounts, if any,
that will be ultimately recovered or when any such recoveries will
be made.
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 and Autosport. The results of operations of
Autosport are included in the Company's condensed consolidated
financial statements for the nine-months ended September 30, 2020
and 2019. For additional information, see Note 4 –
"Acquisitions" in the accompanying Notes to the Condensed
Consolidated Financial Statements.
Reportable Segments
Reportable 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.
|
|
For the Three-Months Ended September 30, 2020
|
For the Three-Months Ended September 30, 2019
|
||||||
|
|
Revenue
|
Revenue %
|
Gross Profit
|
GP %
|
Revenue
|
Revenue %
|
Gross Profit
|
GP %
|
|
Segment
|
|
|
|
|
|
|
|
|
|
Powersports
|
$7,303,131
|
6.2%
|
$1,696,765
|
23.2%
|
$27,144,202
|
12.3%
|
$2,863,603
|
10.5%
|
|
Automotive
|
99,315,335
|
84.7%
|
12,842,181
|
12.9%
|
187,108,303
|
84.9%
|
7,435,689
|
4.0%
|
|
Transportation
|
10,440,367
|
8.9%
|
2,066,538
|
19.8%
|
6,058,546
|
2.8%
|
1,705,961
|
28.2%
|
|
Other
|
198,571
|
0.2%
|
198,571
|
100.0%
|
9,272
|
0.0%
|
9,272
|
100.0%
|
|
|
$117,257,404
|
100.0%
|
$16,804,055
|
14.3%
|
$220,320,323
|
100.0%
|
$12,014,525
|
5.5%
|
22
|
|
For the Nine-Months Ended September 30, 2020
|
For the Nine-Months Ended September 30, 2019
|
||||||
|
|
Revenue
|
Revenue %
|
Gross Profit
|
GP %
|
Revenue
|
Revenue %
|
Gross Profit
|
GP %
|
|
Segment
|
|
|
|
|
|
|
|
|
|
Powersports
|
$38,641,607
|
11.2%
|
$4,949,793
|
12.8%
|
$84,379,049
|
11.8%
|
$10,011,435
|
11.9%
|
|
Automotive
|
281,242,442
|
81.3%
|
24,196,608
|
8.6%
|
611,871,819
|
85.7%
|
26,707,835
|
4.4%
|
|
Transportation
|
25,191,459
|
7.3%
|
5,866,838
|
23.3%
|
17,417,846
|
2.4%
|
4,894,565
|
28.1%
|
|
Other
|
672,450
|
0.2%
|
672,450
|
100.0%
|
9,272
|
0.0%
|
9,272
|
100.0%
|
|
Subtotal
|
345,747,958
|
100.0%
|
35,685,689
|
10.3%
|
713,677,986
|
100.0%
|
41,623,107
|
5.8%
|
|
Impairment loss
(1)
|
-
|
-
|
(11,738,413)
|
(3.4)%
|
-
|
-
|
-
|
-
|
|
|
$345,747,958
|
100.0%
|
$23,947,276
|
6.9%
|
$713,677,986
|
100.0%
|
$41,623,107
|
5.8%
|
_________________________
(1) Impairment Loss resulting from the Nashville
Tornado.
Seasonality
Absent
the impact of COVID-19, the volume of vehicles sold or transported
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.
Investment in Growth
As a
result of the COVID-19 pandemic we have reduced discretionary
growth expenditures, however, as the impact of COVID-19 abates over
time, and unit sales return to or exceed levels experienced in the
first quarter of 2020, we will take a measured approach to resuming
investment in inventory, marketing, technology and infrastructure
to support the growth of the business. These anticipated
investments may increase our negative cash flow from operations and
operating losses at least in the near term, and our limited
operating history makes predictions of future operating results
difficult to ascertain. Our prospects must be considered in light
of the risks, including the impact of COVID-19, expenses and
difficulties frequently encountered by companies that are early in
their development, particularly companies in new and rapidly
evolving markets. Such risks for us include an evolving business
model, advancement of technology and the management of growth. To
address these risks, we must, among other things, continue our
development of relevant applications, stay abreast of changes in
the marketplace, as well as implement and successfully execute our
business and marketing strategy. There can be no assurance that we
will be successful in addressing such risks, and the failure to do
so can have a material adverse effect on our business prospects,
financial condition and results of operations.
Liquidity
We have
incurred losses and negative cash flow from operations since
inception 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,
including through debt and equity financing. 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, Note 9 — Convertible Notes, and
Note 11 — Stockholder Equity. Also, we have historically
funded vehicle inventory purchases through our Line of Credit-Floor
Plans. Due to the impact of COVID-19 on the economy and our
business, 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 (as defined
below), proceeds from the Paycheck Protection Program loan,
monetization of our retail loan portfolio, insurance recoveries and
through rationalizing costs and expenses, including a workforce
reduction.
The
worldwide spread of the COVID-19 outbreak has resulted in a global
slowdown of economic activity which decreased demand for a broad
variety of goods and services, while also disrupting sales
channels, marketing activities and supply chains for an unknown
period of time until the outbreak is contained. This is impacting
the Company's business and the powersport, automotive and
transportation industries as a whole. The Company has positioned
its business today to be lean and flexible in this period of lower
demand and higher uncertainty with the goal of preparing the
Company for a strong recovery once the crisis is contained. The
Company believes its online business model allows it to quickly
respond to market demand or changes in the businesses it operates
as the COVID-19 pandemic continues.
The
Company's condensed consolidated financial statements have been
prepared assuming that the Company 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 it will be able to generate sufficient liquidity from
the measures described above, its current circumstances including
uncertainties due to COVID-19 pandemic raise substantial doubt
about the Company's ability to operate as a going concern. The
accompanying condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
23
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 business, 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 sales through a
variety of product offerings.
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
Powersports:
|
2020
|
2019
|
2020
|
2019
|
|
Vehicles
sold
|
747
|
3,623
|
4,423
|
10,903
|
|
Average days
to sale
|
32
|
34
|
46
|
33
|
|
Total vehicle
revenue
|
$7,303,131
|
$27,144,202
|
$38,641,607
|
$84,379,049
|
|
Gross
Profit
|
$1,696,765
|
$2,903,332
|
$5,293,613
|
$10,237,356
|
|
Gross Profit
per vehicle
|
$2,271
|
$801
|
$1,197
|
$939
|
|
Gross
Margin
|
23.2%
|
10.7%
|
13.7%
|
12.1%
|
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
Automotive(1):
|
2020
|
2019
|
2020
|
2019
|
|
Vehicles
sold
|
3,516
|
7,271
|
10,954
|
26,022
|
|
Average days
to sale
|
55
|
24
|
48
|
23
|
|
Total vehicle
revenue
|
$99,315,335
|
$187,108,303
|
$281,242,442
|
$611,871,819
|
|
Gross
Profit
|
$12,842,181
|
$7,563,097
|
$24,992,973
|
$26,858,532
|
|
Gross Profit
per vehicle
|
$3,652
|
$1,040
|
$2,282
|
$1,032
|
|
Gross
Margin
|
12.9%
|
4.0%
|
8.9%
|
4.4%
|
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
Powersports and
Automotive(1):
|
2020
|
2019
|
2020
|
2019
|
|
Vehicles
sold
|
4,236
|
10,894
|
15,377
|
36,925
|
|
Average days
to sale
|
51
|
26
|
48
|
25
|
|
Total vehicle
revenue
|
$106,618,466
|
$214,252,505
|
$319,884,049
|
$696,250,868
|
|
Gross
Profit
|
$14,538,946
|
$10,466,429
|
$30,286,586
|
$37,095,888
|
|
Gross Profit
per vehicle
|
$3,410
|
$961
|
$1,970
|
$1,005
|
|
Gross
Margin
|
13.6%
|
4.9%
|
9.5%
|
5.3%
|
_______________________
(1) Excludes the Impairment Loss resulting from the Nashville
Tornado and other insignificant indirect costs.
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 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, vehicles sold
increases the base of available customers for referrals and repeat
sales. Third, vehicles sold is an indicator of our ability to
successfully scale our logistics, fulfillment, and customer service
operations. The uncertainty and
continuously evolving aspects of COVID-19 may continue to impact
the number of units sold in future periods.
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. The uncertainty and
continuously evolving aspects of COVID-19 may continue to impact
the average days to sale in future periods.
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. Subject to the impact of COVID-19 on our results, as
discussed elsewhere in this MD&A, 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 and dealers who may wish to trade-in
or to sell us their vehicle independent of a retail or wholesale
sale. Factors primarily affecting pre-owned vehicle sales include
the number of retail pre-owned vehicles sold and the average
selling price of these vehicles. The uncertainty and
continuously evolving aspects of COVID-19 may continue to impact
our revenue in future periods.
24
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.
Gross
margin percent is gross profit as a percentage of pre-owned vehicle
sales. Factors affecting gross profit and margin 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.
The
uncertainty and continuously evolving aspects of COVID-19 may
continue to impact our gross profit in future
periods.
Key Operations Metrics – Powersports
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Key Operation Metrics:
|
|
|
|
|
|
Vehicles sold
|
747
|
3,623
|
4,423
|
10,903
|
|
|
|
|
|
|
|
Total Powersports Revenue
|
$7,303,131
|
$27,144,202
|
$38,641,607
|
$84,379,049
|
|
Gross
Profit
|
$1,696,765
|
$2,903,332
|
$5,293,613
|
$10,237,356
|
|
Gross Profit
per vehicle
|
$2,271
|
$801
|
$1,197
|
$939
|
|
Gross
Margin
|
23.2%
|
10.7%
|
13.7%
|
12.1%
|
|
Average
selling price
|
$9,777
|
$7,492
|
$8,737
|
$7,739
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
Vehicles
sold
|
30
|
209
|
455
|
790
|
|
|
|
|
|
|
|
Total Consumer Revenue
|
$310,941
|
$2,172,152
|
$4,426,588
|
$7,097,274
|
|
Gross
Profit
|
$76,306
|
$628,809
|
$936,125
|
$1,860,730
|
|
Gross Profit
per vehicle
|
$2,544
|
$3,009
|
$2,057
|
$2,355
|
|
Gross
Margin
|
24.5%
|
28.9%
|
21.1%
|
26.2%
|
|
Average
selling price
|
$10,365
|
$10,393
|
$9,729
|
$8,984
|
|
|
|
|
|
|
|
Dealer:
|
|
|
|
|
|
Vehicles
sold
|
717
|
3,414
|
3,968
|
10,113
|
|
|
|
|
|
|
|
Total Dealer Revenue
|
$6,992,190
|
$24,972,050
|
$34,215,019
|
$77,281,775
|
|
Gross
Profit
|
$1,620,459
|
$2,274,523
|
$4,357,488
|
$8,376,626
|
|
Gross Profit
per vehicle
|
$2,260
|
$666
|
$1,098
|
$828
|
|
Gross
Margin
|
23.2%
|
9.1%
|
12.7%
|
10.8%
|
|
Average
selling price
|
$9,752
|
$7,315
|
$8,623
|
$7,642
|
25
Key Operations Metrics – Automotive(1)
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019(2)
|
|
Key Operation Metrics:
|
|
|
|
|
|
Vehicles sold
|
3,516
|
7,271
|
10,954
|
26,022
|
|
|
|
|
|
|
|
Total Automotive Revenue
|
$99,315,335
|
$187,108,303
|
$281,242,442
|
$611,871,819
|
|
Gross
Profit
|
$12,842,181
|
$7,563,096
|
$24,992,973
|
$26,858,532
|
|
Gross Profit
per vehicle
|
$3,652
|
$1,040
|
$2,282
|
$1,032
|
|
Gross
Margin
|
12.9%
|
4.0%
|
8.9%
|
4.4%
|
|
Average
selling price
|
$28,247
|
$25,734
|
$25,675
|
$23,514
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
Vehicles
sold
|
218
|
603
|
1,161
|
2,115
|
|
|
|
|
|
|
|
Total Consumer Revenue
|
$7,102,578
|
$17,039,127
|
$33,164,969
|
$56,591,480
|
|
Gross
Profit
|
$512,037
|
$2,103,975
|
$3,761,009
|
$6,680,456
|
|
Gross Profit
per vehicle
|
$2,349
|
$3,489
|
$3,239
|
$3,159
|
|
Gross
Margin
|
7.2%
|
12.3%
|
11.3%
|
11.8%
|
|
Average
selling price
|
$32,581
|
$28,257
|
$28,566
|
$26,757
|
|
|
|
|
|
|
|
Dealer:
|
|
|
|
|
|
Vehicles
sold
|
3,298
|
6,668
|
9,793
|
23,907
|
|
|
|
|
|
|
|
Total Dealer Revenue
|
$92,212,757
|
$170,069,176
|
$248,077,474
|
$555,280,339
|
|
Gross
Profit
|
$12,330,144
|
$5,459,121
|
$21,231,964
|
$20,178,076
|
|
Gross Profit
per vehicle
|
$3,739
|
$819
|
$2,168
|
$844
|
|
Gross
Margin
|
13.4%
|
3.2%
|
8.6%
|
3.6%
|
|
Average
selling price
|
$27,960
|
$25,505
|
$25,332
|
$23,227
|
______________________
(1) Excludes the impairment loss resulting from the Nashville
Tornado.
(2) Inclusive only from the Autosport Acquisition
Date.
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 business, 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 profitability. The revenue information
below is before the elimination of intercompany freight services
from Wholesale Express and should be read in conjunction with our
unaudited Condensed Consolidated Financial Statements and Notes
included in Part I, Item 1 of this Quarterly Report on Form
10-Q.
|
|
Three-Months Ended September 30,
|
Nine-Months Ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Revenue
|
$11,414,932
|
$8,191,939
|
$28,656,719
|
$25,197,581
|
|
|
|
|
|
|
|
Vehicles
Delivered
|
21,238
|
20,008
|
61,314
|
62,015
|
|
|
|
|
|
|
|
Gross
Profit
|
$2,066,538
|
$1,705,961
|
$5,866,838
|
$4,894,565
|
|
|
|
|
|
|
|
Gross
Profit Per Vehicle Delivered
|
$97
|
$85
|
$96
|
$79
|
|
|
|
|
|
|
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 also provides transportation services to
Wholesale.
26
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
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. Gross margin percent is
gross profit as a percentage of pre-owned vehicle
delivered.
RESULTS OF OPERATIONS
The
following tables provide our results of operations for the
three-month and nine-month periods ended September 30, 2020 and
2019 for powersports, automotive and vehicle logistics and
transportation services segments, including key financial
information relating to these segments. Our powersports and
automotive segments consists of the distribution of powersports and
automotive vehicles and our vehicle logistics and transportation
services segment provides nationwide automotive transportation
services primarily between dealerships and auctions. Each of these
segments are further described below. This financial information
should be read in conjunction with our unaudited Condensed
Consolidated Financial Statements and Notes included in Part I,
Item 1 of this Quarterly Report on Form 10-Q. 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 the Three-Months Ended
September 30,
|
For the Nine-Months Ended
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Revenue:
|
|
|
|
|
|
Pre-owned
Vehicle Sales:
|
|
|
|
|
|
Powersports
|
$7,303,131
|
$27,144,202
|
$38,641,607
|
$84,379,049
|
|
Automotive(1)
|
99,315,335
|
187,108,303
|
281,242,442
|
611,871,819
|
|
Total revenue from
vehicle sales
|
106,618,466
|
214,252,505
|
319,884,049
|
696,250,868
|
|
Transportation
and vehicle logistics
|
10,440,367
|
6,058,546
|
25,191,459
|
17,417,846
|
|
Other
|
198,571
|
9,272
|
672,450
|
9,272
|
|
Total
Revenue
|
117,257,404
|
220,320,323
|
345,747,958
|
713,677,986
|
|
|
|
|
|
|
|
Cost
of Revenue:
|
|
|
|
|
|
Powersports
|
5,606,366
|
24,280,599
|
33,691,814
|
74,367,614
|
|
Automotive (1)
|
86,473,154
|
179,672,614
|
257,045,834
|
585,163,984
|
|
Transportation
and vehicle
logistics
|
8,373,829
|
4,352,585
|
19,324,621
|
12,523,281
|
|
Total
cost of revenue before impairment loss
|
100,453,349
|
208,305,798
|
310,062,269
|
672,054,879
|
|
Impairment Loss on
automotive inventory
|
-
|
-
|
11,738,413
|
-
|
|
Total
Cost of Revenue
|
100,453,349
|
208,305,798
|
321,800,682
|
672,054,879
|
|
|
|
|
|
|
|
Gross
Profit
|
16,804,055
|
12,014,525
|
23,947,276
|
41,623,107
|
|
Selling,
General and Administrative
|
13,279,151
|
19,010,939
|
42,509,865
|
64,458,520
|
|
Insurance
recovery
|
-
|
-
|
(5,615,268)
|
-
|
|
Depreciation and
Amortization
|
536,381
|
473,670
|
1,567,697
|
1,283,333
|
|
Operating
income (loss)
|
2,988,523
|
(7,470,084)
|
(14,515,018)
|
(24,118,746)
|
|
Interest
expense
|
(1,488,090)
|
(2,031,697)
|
(5,187,256)
|
(5,351,689)
|
|
Change
in derivative liability
|
(13,518)
|
630,000
|
7,155
|
820,000
|
|
Gain (loss) on
early extinguishment of debt
|
-
|
-
|
188,164
|
(1,499,250)
|
|
Net
income (loss) before provision for income taxes
|
1,486,915
|
(8,871,781)
|
(19,506,955)
|
(30,149,685)
|
|
Benefit for income
taxes
|
-
|
-
|
-
|
-
|
|
Net income
(loss)
|
$1,486,915
|
$(8,871,781)
|
$(19,506,955)
|
$(30,149,685)
|
_______________________
(1) Inclusive only from the Autosport Acquisition
Date.
27
The
following tables provide our results of operations for the
three-month and nine-month periods ended September 30, 2020 and
2019, including key financial information relating to our business
and operations. This financial information should be read in
conjunction with our unaudited Condensed Consolidated Financial
Statements and Notes included in Part I, Item 1 of this Quarterly
Report on Form 10-Q. 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 the Three-Months ended September 30, 2020
|
|
|||||
|
|
Powersports
|
Automotive(1)
|
Vehicle Logistics and Transportation Services
|
Other
|
Elimination(1)
|
Total
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Pre-owned
vehicle sales:
|
|
|
|
|
|
|
|
|
Powersports
|
$7,303,131
|
$-
|
$-
|
$-
|
$-
|
$7,303,131
|
$27,144,202
|
|
Automotive
|
-
|
99,315,335
|
-
|
-
|
-
|
99,315,335
|
187,108,303
|
|
Transportation
and vehicle logistics
|
-
|
-
|
11,414,932
|
-
|
(974,565)
|
10,440,367
|
6,058,546
|
|
Other
|
-
|
-
|
-
|
198,571
|
-
|
198,571
|
9,272
|
|
Total
revenue
|
7,303,131
|
99,315,335
|
11,414,932
|
198,571
|
(974,565)
|
117,257,404
|
220,320,323
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue:
|
|
|
|
|
|
|
|
|
Powersports
|
5,606,366
|
-
|
-
|
-
|
-
|
5,606,366
|
24,280,599
|
|
Automotive
|
-
|
86,473,154
|
-
|
-
|
-
|
86,473,154
|
179,672,614
|
|
Transportation
|
-
|
-
|
9,348,394
|
-
|
(974,565)
|
8,373,829
|
4,352,585
|
|
Total cost of
revenue
|
5,606,366
|
86,473,154
|
9,348,394
|
-
|
(974,565)
|
100,453,849
|
208,305,798
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$1,696,765
|
$12,842,181
|
$2,066,538
|
$198,571
|
$-
|
$16,804,055
|
$12,014,525
|
_______________________
(1) Intercompany freight services from Wholesale Express are
eliminated in the condensed consolidated financial
statements.
|
|
For the Nine-Months ended September 30, 2020
|
|
|||||
|
|
Powersports
|
Automotive(1)
|
Vehicle Logistics and Transportation Services
|
Other
|
Elimination(1)
|
Total
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Pre-owned
vehicle sales:
|
|
|
|
|
|
|
|
|
Powersports
|
$38,641,607
|
$-
|
$-
|
$-
|
$-
|
$38,641,607
|
$84,379,049
|
|
Automotive
|
|
281,242,442
|
-
|
-
|
-
|
281,242,442
|
611,871,819
|
|
Transportation
and vehicle logistics
|
-
|
-
|
28,656,719
|
-
|
(3,465,260)
|
25,191,459
|
17,417,846
|
|
Other
|
-
|
-
|
-
|
672,450
|
-
|
672,450
|
9,272
|
|
Total
revenue
|
38,641,607
|
281,242,442
|
28,656,719
|
672,450
|
(3,465,260)
|
345,747,958
|
713,677,986
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue:
|
|
|
|
|
|
|
|
|
Powersports
|
33,691,814
|
-
|
-
|
-
|
-
|
33,691,814
|
74,367,614
|
|
Automotive
|
-
|
257,045,834
|
-
|
-
|
-
|
257,045,834
|
585,163,984
|
|
Transportation
|
-
|
-
|
22,789,881
|
-
|
(3,465,260)
|
19,324,621
|
12,523,281
|
|
Cost of
revenue before impairment loss
|
33,691,814
|
257,045,834
|
22,789,881
|
-
|
(3,465,260)
|
310,062,269
|
672,054,879
|
|
Impairment
loss
|
-
|
11,738,413
|
-
|
-
|
-
|
11,738,413
|
-
|
|
Total cost of
revenue
|
33,691,814
|
268,784,247
|
22,789,881
|
-
|
(3,465,260)
|
321,800,682
|
672,054,879
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$4,949,793
|
$12,458,195
|
$5,866,838
|
$672,450
|
$-
|
$23,947,276
|
$41,623,107
|
_______________________
(1) Intercompany freight services from Wholesale Express are
eliminated in the condensed consolidated financial
statements.
28
Powersports
The
following table provides the results of operations for the
three-month and nine-month periods ended September 30, 2020 and
2019 for our powersports business segment, including key financial
information relating to the powersports business. This financial
information should be read in conjunction with our unaudited
Condensed Consolidated Financial Statements and Notes included in
Part I, Item 1 of this Quarterly Report on Form 10-Q.
|
|
For the Three-Months Ended
September 30,
|
For the Nine-Months Ended
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Powersports
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle
revenue:
|
|
|
|
|
|
Consumer
|
$310,941
|
$2,172,152
|
$4,426,588
|
$7,097,274
|
|
Dealer
|
6,992,190
|
24,972,050
|
34,215,019
|
77,281,775
|
|
Total vehicle
revenue
|
$7,303,131
|
$27,144,202
|
$38,641,607
|
$84,379,049
|
|
|
|
|
|
|
|
Vehicle gross
profit:
|
|
|
|
|
|
Consumer
|
$76,306
|
$628,809
|
$936,125
|
$1,860,730
|
|
Dealer
|
1,620,459
|
2,274,523
|
4,357,488
|
8,376,626
|
|
Other
|
-
|
(39,729)
|
(343,820)
|
(225,921)
|
|
Total vehicle
gross profit
|
$1,696,765
|
$2,863,603
|
$4,949,793
|
$10,011,435
|
|
|
|
|
|
|
|
Vehicles
sold:
|
|
|
|
|
|
Consumer
|
30
|
209
|
455
|
790
|
|
Dealer
|
717
|
3,414
|
3,968
|
10,113
|
|
Total vehicles
sold
|
747
|
3,623
|
4,423
|
10,903
|
|
|
|
|
|
|
|
Gross profit
per vehicle:
|
|
|
|
|
|
Consumer
|
$2,544
|
$3,009
|
$2,057
|
$2,355
|
|
Dealer
|
$2,260
|
$666
|
$1,098
|
$828
|
|
Total
|
$2,271
|
$790
|
$1,119
|
$918
|
|
|
|
|
|
|
|
Gross margin
per vehicle:
|
|
|
|
|
|
Consumer
|
24.5%
|
28.9%
|
21.1%
|
26.2%
|
|
Dealer
|
23.2%
|
9.1%
|
12.7%
|
10.8%
|
|
Total
|
23.2%
|
10.5%
|
12.8%
|
11.9%
|
|
|
|
|
|
|
|
Average
vehicle selling price:
|
|
|
|
|
|
Consumer
|
$10,365
|
$10.393
|
$9,729
|
$8,984
|
|
Dealer
|
$9,752
|
$7,315
|
$8,623
|
$7,642
|
|
Total
|
$9,777
|
$7,492
|
$8,737
|
$7,739
|
Powersports Vehicle Revenue
Three-Months Ended September 30, 2020 Versus 2019.
Total
powersports vehicle revenue decreased by $19,841,071 to $7,303,131
for the three-months ended September 30, 2020 compared to
$27,144,202 for the same period of 2019. The decline in powersports
revenue was primarily due to the decrease in the number of
pre-owned vehicles sold to 747 for the three-months ended
September 30, 2020 compared to 3,623 for the same period of 2019,
which was partially offset by an increase in the average selling
price per vehicle to $9,777 for the three-months ended
September 30, 2020 from $7,492 for the same period of 2019.
The decrease in vehicles sold and increase in average selling price
per unit for the three-month period ended September 30, 2020 as
compared to the same period in 2019 resulted from: (i) the
adverse impact of the COVID-19 pandemic on commercial activity
resulting in lower levels of inventory available for purchase
causing lower unit sales but higher average selling prices and
gross margins due to the supply and demand imbalance; (ii) our
continued disciplined approach to sales volume and margin growth as
we took prescriptive steps to accelerate profitability; and
(iii) a reduction
in per vehicle advertising expenditures. We believe this
supply and demand imbalance will continue throughout the
historically seasonally low volume fourth quarter, particularly
given the recent spikes in COVID-19 cases. As the impact of
COVID-19 abates over time, we anticipate that unit purchasing
levels and sales will return to or exceed levels experienced in the
first quarter of 2020 as we increase penetration in existing
markets and add new dealers, however we can provide no assurance as
to when and how quickly COVID-19 impacts will continue to abate or
if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
29
Total
powersports vehicle revenue from the sale to consumers decreased by
$1,861,211 to $310,941 for the three-months ended
September 30, 2020 compared to $2,172,152 for the same period of 2019. The
decline in powersports revenue was primarily due to the decrease in
the number of pre-owned vehicles sold to 30 for the three-months ended September 30,
2020 compared to 209 for the
same period of 2019. The decrease in vehicles sold for the
three-month period ended September 30, 2020 as compared to the same
period in 2019 resulted from: (i) the adverse impact of the
COVID-19 pandemic on commercial activity resulting in lower levels
of inventory available for purchase causing lower unit sales due to
the supply and demand imbalance; (ii) our continued
disciplined approach to sales volume and margin growth as we took
prescriptive steps to accelerate profitability; and (iii) a reduction
in per vehicle advertising expenditures. We believe this
supply and demand imbalance will continue throughout the
historically seasonally low volume fourth quarter, particularly
given the recent spikes in COVID-19 cases. As the impact of
COVID-19 abates over time, we anticipate that unit purchasing
levels and sales will return to or exceed levels experienced in the
first quarter of 2020 as we increase penetration in existing
markets and add new dealers, however we can provide no assurance as
to when and how quickly COVID-19 impacts will continue to abate or
if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
Total
powersports vehicle revenue from the sale to dealers decreased by
$17,979,860 to $6,992,190 for the three-months ended
September 30, 2020 compared to $24,972,050 for the same period of 2019. The
decline in powersports revenue was primarily due to the decrease in
the number of pre-owned vehicles sold to 717 for the three-months ended September
30, 2020 compared to 3,414 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $9,752 for the three-months ended September
30, 2020 from $7,315 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the three-month period ended
September 30, 2020 as compared to the same period in 2019 resulted
from: (i) the adverse impact of the COVID-19 pandemic on
commercial activity resulting in lower levels of inventory
available for purchase causing lower unit sales but higher average
selling prices and gross margins due to the supply and demand
imbalance; (ii) our continued disciplined approach to sales
volume and margin growth as we took prescriptive steps to
accelerate profitability; and (iii) a reduction
in per vehicle advertising expenditures. We believe this
supply and demand imbalance will continue throughout the
historically seasonally low volume fourth quarter, particularly
given the recent spikes in COVID-19 cases. As the impact of
COVID-19 abates over time, we anticipate that unit purchasing
levels and sales will return to or exceed levels experienced in the
first quarter of 2020 as we increase penetration in existing
markets and add new dealers, however we can provide no assurance as
to when and how quickly COVID-19 impacts will continue to abate or
if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
Nine-months ended September 30, 2020 Versus 2019.
Total
powersports vehicle revenue decreased by $45,737,442 to $38,641,607 for the nine-months ended
September 30, 2020 compared to $84,379,049 for the same period of
2019. The decline in powersports revenue was primarily due to the
decrease in the number of pre-owned vehicles sold to 4,423 for the nine-months ended September
30, 2020 compared to 10,903 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $8,737 for the nine-months ended September
30, 2020 from $7,739 for the same period of 2019. The decrease in
vehicles sold and increase in average selling price per unit for
the nine-month period ended September 30, 2020 as compared to the
same period in 2019 resulted from: (i) the adverse impact of
the COVID-19 pandemic on commercial activity resulting in lower
levels of inventory available for purchase causing lower unit sales
but higher average selling prices and gross margins due to the
supply and demand imbalance; (ii) our continued disciplined
approach to sales volume and margin growth as we took prescriptive
steps to accelerate profitability; and (iii) a reduction
in per vehicle advertising expenditures. We believe this
supply and demand imbalance will continue throughout the
historically seasonally low volume fourth quarter, particularly
given the recent spikes in COVID-19 cases. As the impact of
COVID-19 abates over time, we anticipate that unit purchasing
levels and sales will return to or exceed levels experienced in the
first quarter of 2020 as we increase penetration in existing
markets and add new dealers, however we can provide no assurance as
to when and how quickly COVID-19 impacts will continue to abate or
if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
Total
powersports vehicle revenue from the sale to consumers decreased by
$2,670,686 to $4,426,588 for the nine-months ended
September 30, 2020 compared to $7,097,274 for the same period of 2019. The
decline in powersports revenue was primarily due to the decrease in
the number of pre-owned vehicles sold to 455 for the nine-months ended September 30,
2020 compared to 790 for the
same period of 2019, which was partially offset by an increase in
the average selling price per vehicle to $9,729 for the nine-months ended September
30, 2020 from $8,984 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the nine-month period ended
September 30, 2020 as compared to the same period in 2019 resulted
from: (i) the adverse impact of the COVID-19 pandemic on
commercial activity resulting in lower levels of inventory
available for purchase causing lower unit sales but higher average
selling prices and gross margins due to the supply and demand
imbalance; (ii) our continued disciplined approach to sales
volume and margin growth as we took prescriptive steps to
accelerate profitability; and (iii) a reduction
in per vehicle advertising expenditures. We believe this
supply and demand imbalance will continue throughout the
historically seasonally low volume fourth quarter, particularly
given the recent spikes in COVID-19 cases. As the impact of
COVID-19 abates over time, we anticipate that unit purchasing
levels and sales will return to or exceed levels experienced in the
first quarter of 2020 as we increase penetration in existing
markets and add new dealers, however we can provide no assurance as
to when and how quickly COVID-19 impacts will continue to abate or
if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
30
Total
powersports vehicle revenue from the sale to dealers decreased by
$43,066,756 to $34,215,019 for the nine-months ended
September 30, 2020 compared to $77,281,775 for the same period of 2019. The
decline in powersports revenue was primarily due to the decrease in
the number of pre-owned vehicles sold to 3,968 for the nine-months ended September
30, 2020 compared to 10,113 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $8,623 for the nine-months ended September
30, 2020 from $7,642 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the nine-month period ended
September 30, 2020 as compared to the same period in 2019 resulted
from: (i) the adverse impact of the COVID-19 pandemic on
commercial activity resulting in lower levels of inventory
available for purchase causing lower unit sales but higher average
selling prices and gross margins due to the supply and demand
imbalance; and (ii) our continued disciplined approach to
sales volume and margin growth as we took prescriptive steps to
accelerate profitability; and (iii) a reduction
in per vehicle advertising expenditures. We believe this
supply and demand imbalance will continue throughout the
historically seasonally low volume fourth quarter, particularly
given the recent spikes in COVID-19 cases. As the impact of
COVID-19 abates over time, we anticipate that unit purchasing
levels and sales will return to or exceed levels experienced in the
first quarter of 2020 as we increase penetration in existing
markets and add new dealers, however we can provide no assurance as
to when and how quickly COVID-19 impacts will continue to abate or
if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
Powersports Cost of Revenue
Three-Months Ended September 30, 2020 Versus 2019.
Powersport cost of vehicle revenue
decreased by $18,674,233
to $5,606,366 for the three-month period ended
September 30, 2020 as compared to $24,280,599 for the same period
in 2019. For the three-month period ended September 30, 2020, the
cost of vehicle revenue consisted of: (i) the acquisition cost
of vehicles sold to consumers and dealers of $5,341,835
from the sale of
747 pre-owned vehicles at an average
acquisition cost of $7,151; and (ii) aggregate
reconditioning and transportation costs of $264,531. For the three-month period ended
September 30, 2019, the cost of vehicle revenue consisted of: (i)
the acquisition cost of vehicles sold to consumers and dealers of
$23,233,169 from the sale of 3,623 pre-owned vehicles at an average
acquisition cost of $6,413; (ii) aggregate reconditioning and
transportation cost of $1,007,701; and (iii) other cost of sales of
$39,729. The decrease in cost of revenue for the three-month
period ended September 30, 2020 as compared to the same period in
2019 was a result of the purchase and sale of fewer powersport
units primarily due to: (i) the adverse impact of the COVID-19
pandemic on commercial activity resulting in lower levels of
inventory available for purchase causing lower unit sales but
higher average acquisition
cost per unit due to the supply and demand imbalance;
(ii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; and
(iii) a reduction in per vehicle advertising
expenditures.
Powersport cost of
vehicle revenue from sale to consumers decreased by $1,308,708 to $234,635 for the three-month period ended
September 30, 2020 as compared to $1,543,343 for the same period in
2019. For the three-month period ended September 30, 2020, the cost
of vehicle revenue consisted of: (i) the acquisition cost of
vehicles sold to consumers of $203,485 from the sale of 30 pre-owned vehicles at an average
acquisition cost of $6,783; and
(ii) aggregate reconditioning and transportation costs of $31,150.
For the three-month period ended September 30, 2019, the cost of
vehicle revenue consisted of: (i) the acquisition cost of vehicles
sold to consumers of $1,477,944
from the sale of 209 pre-owned
vehicles at an average acquisition cost of $7,072; and (ii) aggregate reconditioning
and transportation costs of $75,713. The decrease in cost of revenue for
the three-month period ended September 30, 2020 as compared to the
same period in 2019 was a result of the purchase and sale of fewer
powersport units due to: (i) the adverse impact of the
COVID-19 pandemic on commercial activity resulting in lower levels
of inventory available for purchase causing lower unit sales due to
the supply and demand imbalance; (ii) our continued disciplined
approach to sales volume as we took prescriptive steps to
accelerate profitability; and (iii) a reduction in per vehicle
advertising expenditures.
Powersport cost of
vehicle revenue from sale to dealers decreased by $17,325,795 to $5,371,732 for the three-month period ended
September 30, 2020 as compared to $22,697,527 for the same period
in 2019. For the three-month period ended September 30, 2020, the
cost of vehicle revenue consisted of: (i) the acquisition cost of
vehicles sold to dealers of $5,138,350 from the sale of 717 pre-owned vehicles at an average
acquisition cost of $7,166; and
(ii) aggregate reconditioning and transportation costs of
$233,382. For the three-month
period ended September 30, 2019, the cost of vehicle revenue
consisted of: (i) the acquisition cost of vehicles sold to dealers
of $21,755,225 from the sale of
3,414 pre-owned vehicles at an
average acquisition cost of $6,372; and (ii) aggregate reconditioning
and transportation costs of $931,988. The decrease in cost of revenue
for the three-month period ended September 30, 2020 as compared to
the same period in 2019 was a result of the purchase and sale of
fewer powersport units due to: (i) the adverse impact of the
COVID-19 pandemic on commercial activity resulting in lower levels
of inventory available for purchase causing lower unit sales but
higher average acquisition
cost per unit due to the supply and demand imbalance; (ii)
our continued disciplined approach to sales volume as we took
prescriptive steps to accelerate profitability; and (iii) a
reduction in per vehicle advertising expenditures.
31
Nine-months ended September 30, 2020 Versus 2019.
Powersport cost of vehicle revenue
decreased by $40,675,800
to $33,691,814 for the nine-month period ended
September 30, 2020 as compared to $74,367,614 for
the same period in
2019. For the nine-month period ended September 30, 2020,
the cost of vehicle revenue consisted of: (i) the acquisition cost of
vehicles sold to consumers and dealers of $31,598,611 from the sale of 4,423 pre-owned vehicles at an average
acquisition cost of $7,144; (ii) aggregate reconditioning
and transportation costs of $1,749,382; and (iii) other cost of
sales of $343,820
not
attributed to a specific vehicle sold during the nine-months ended
September 30, 2020.
For the nine-month period ended September 30, 2019, cost of vehicle
revenue consisted of: (i) the acquisition cost of vehicles sold to
consumers and dealers of $71,255,609 from the sale of 10,903
pre-owned vehicles at an average acquisition cost of $6,535; (ii)
aggregate reconditioning and transportation costs of $2,886,083;
and (iii) other cost of sales of $225,921. The decrease in
cost of revenue for the nine-month period ended September 30, 2020
as compared to the same period in 2019 was a result of the purchase
and sale of fewer powersport units due to: (i) the adverse
impact of the COVID-19 pandemic on commercial activity resulting in
lower levels of inventory available for purchase causing lower unit
sales but higher average acquisition cost per unit due to
the supply and demand imbalance; (ii) our continued
disciplined approach to sales volume as we took prescriptive steps
to accelerate profitability; and (iii) a reduction in per
vehicle advertising expenditures.
Powersport cost of
vehicle revenue from the sale to consumers decreased by
$1,746,081 to $3,490,463 for the nine-month period ended
September 30, 2020 as compared to $5,236,544 the same period in
2019. For the nine-month period ended September 30, 2020, the cost
of vehicle revenue consisted of:(i) the acquisition cost of
vehicles sold to consumers of $3,168,601 from the sale of 455 pre-owned vehicles at an average
acquisition cost of $6,964; and
(ii) aggregate reconditioning and transportation costs of
$321,862. For the nine-month
period ended September 30, 2019, cost of vehicle revenue consisted
of: (i) the acquisition cost of vehicles sold to consumers of
$5,012,808 from the sale of
790 pre-owned vehicles at an
average acquisition cost of $6,345; and (ii) aggregate reconditioning
and transportation costs of $338,231. The decrease in cost of revenue
for the nine-month period ended September 30, 2020 as compared to
the same period in 2019 was a result of the purchase and sale of
fewer powersport units due to: (i) the adverse impact of the
COVID-19 pandemic on commercial activity resulting in lower levels
of inventory available for purchase causing lower unit sales but
higher average acquisition
cost per unit due to the supply and demand imbalance; (ii)
our continued disciplined approach to sales volume as we took
prescriptive steps to accelerate profitability; and (iii) a
reduction in per vehicle advertising expenditures.
Powersport cost of
vehicle revenue from the sale to dealers decreased by $39,047,618 to $29,857,531 for the nine-month period ended
September 30, 2020 as compared to $68,905,149 for the same period
in 2019. For the nine-month period ended September 30, 2020, the
cost of vehicle revenue consisted of: (i) the acquisition cost of
vehicles sold to dealers of $28,430,010 from the sale of 3,968 pre-owned vehicles at an average
acquisition cost of $7,165; and
(ii) aggregate reconditioning and transportation costs of
$1,427,521. For the nine-month
period ended September 30, 2019, cost of vehicle revenue consisted
of: (i) the acquisition cost of vehicles sold to dealers of
$66,242,800 from the sale of
10,113 pre-owned vehicles at an
average acquisition cost of $6,550; and (ii) aggregate reconditioning
and transportation costs of $2,547,853. The decrease in cost of revenue
for the nine-month period ended September 30, 2020 as compared to
the same period in 2019 was a result of the purchase and sale of
fewer powersport units due to: (i) the adverse impact of the
COVID-19 pandemic on commercial activity resulting in lower levels
of inventory available for purchase causing lower unit sales but
higher average acquisition
cost per unit due to the supply and demand imbalance; (ii)
our continued disciplined approach to sales volume as we took
prescriptive steps to accelerate profitability; and (iii) a
reduction in per vehicle advertising expenditures.
Automotive
The
following table provides the results of operations for the
three-month and nine-month periods ended September 30, 2020 and
2019 for the automotive segment, including key financial
information relating to the automotive business. We entered the
automotive distribution business in connection with the
acquisitions of Wholesale and Autosport. This financial information
should be read in conjunction with our unaudited Condensed
Consolidated Financial Statements and Notes included in Part I,
Item 1 of this Quarterly Report on Form 10-Q. 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.
32
|
|
For the Three-Months Ended
September 30,
|
For the Nine-Months Ended
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019(1)
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle
revenue:
|
|
|
|
|
|
Consumer
|
$7,102,578
|
$17,039,127
|
$33,164,968
|
$56,591,480
|
|
Dealer
|
92,212,757
|
170,069,176
|
248,077,474
|
555,280,339
|
|
Total vehicle
revenue
|
$99,315,335
|
$187,108,303
|
$281,242,442
|
$611,871,819
|
|
|
|
-
|
|
-
|
|
Vehicle Gross Profit(2):
|
|
|
|
|
|
Consumer
|
$512,037
|
$2,103,975
|
$3,761,009
|
$6,680,456
|
|
Dealer
|
12,330,144
|
5,459,121
|
21,231,964
|
20,178,079
|
|
Other
|
-
|
(127,407)
|
(796,365)
|
(150,700)
|
|
Total vehicle
gross profit
|
$12,842,181
|
$7,435,689
|
$24,196,608
|
$26,707,835
|
|
|
|
|
|
|
|
Vehicles
sold:
|
|
|
|
|
|
Consumer
|
218
|
603
|
1,161
|
2,115
|
|
Dealer
|
3,298
|
6,668
|
9,793
|
23,907
|
|
Total vehicles
sold
|
3,516
|
7,271
|
10,954
|
26,022
|
|
|
|
|
|
|
|
Gross profit
per vehicle:
|
|
|
|
|
|
Consumer
|
$2,349
|
$3,489
|
$3,239
|
$3,159
|
|
Dealer
|
$3,739
|
$819
|
$2,168
|
$844
|
|
Total
|
$3,652
|
$1,023
|
$2,209
|
$1,026
|
|
|
|
|
|
|
|
Gross margin
per vehicle:
|
|
|
|
|
|
Consumer
|
7.2%
|
12.3%
|
11.3%
|
11.8%
|
|
Dealer
|
13.4%
|
3.2%
|
8.6%
|
3.6%
|
|
Total
|
12.9%
|
4.0%
|
8.6%
|
4.4%
|
|
|
|
|
|
|
|
Average
vehicle selling price:
|
|
|
|
|
|
Consumer
|
$32,581
|
$28,257
|
$28,566
|
$26,757
|
|
Dealer
|
$27,960
|
$25,505
|
$25,332
|
$23,227
|
|
Total
|
$28,247
|
$25,734
|
$25,675
|
$23,514
|
_________________________
(1) Inclusive only from the Autosport Acquisition
Date.
(2) Excluding the Impairment Loss resulting from the Nashville
Tornado.
Automotive Revenue
Three-Months Ended September 30, 2020 Versus 2019.
Total
automotive revenue decreased by $87,792,968 to $99,315,335 for the three-months ended
September 30, 2020 compared to $187,108,303 for the same period of 2019.
The decline in automotive revenue was primarily due to the decrease
in the number of vehicles sold to 3,516 for the three-months ended September
30, 2020 compared to 7,271 for the same period of 2019, which was
partially offset by an increase in the average selling price per
vehicle to $28,247 for the
nine-months ended September 30, 2020 from $25,734 for the same
period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the three-months ended September
30, 2020 as compared to the same period in 2019 resulted from:
(i) the adverse impact of the COVID-19 pandemic on commercial
activity resulting in lower levels of inventory available for
purchase causing lower unit sales but higher average selling prices
and gross margins due to the supply and demand imbalance;
(ii) a reduction in unit sales resulting from the significant
damage to the Company's operating facilities and inventory held for
sale in Nashville as a result of the March 2020 tornado;
(iii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; (iv) a
reduction in per vehicle advertising expenditures; and
(v) a
shift in inventory mix available for sale resulting in higher
average sales prices. We believe this supply and demand
imbalance will continue throughout the historically seasonally low
volume fourth quarter, particularly given the recent spikes in
COVID-19 cases. As the impact of COVID-19 abates over time, we
anticipate that unit purchasing levels and sales will return to or
exceed levels experienced in the first quarter of 2020 as we
increase penetration in existing markets and add new dealers,
however we can provide no assurance as to when and how quickly
COVID-19 impacts will continue to abate or if spikes in COVID-19
infections will further negatively impact the economy generally or
our business.
33
Total
automotive revenue from the sale to consumers decreased by
$9,936,549 to $7,102,578 for the three-months ended
September 30, 2020 compared to $17,039,127 for the same period of
2019. The decline in consumer revenue was primarily due to the
decrease in the number of vehicles sold to 218 for the three-months ended September
30, 2020 compared to 603 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $32,581 for the three-months ended September
30, 2020 from $28,257 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the three-months ended September
30, 2020 as compared to the same period in 2019 resulted from:
(i) the adverse impact of the COVID-19 pandemic on commercial
activity resulting in lower levels of inventory available for
purchase causing lower unit sales but higher average selling prices
and gross margins due to the supply and demand imbalance;
(ii) a reduction in unit sales resulting from the significant
damage to the Company's operating facilities and inventory held for
sale in Nashville as a result of the March 2020 tornado;
(iii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; (iv) a
reduction in per vehicle advertising expenditures; and (v) a
shift in inventory mix available for sale resulting in higher
average sales prices. We believe this supply and demand imbalance
will continue throughout the historically seasonally low volume
fourth quarter, particularly given the recent spikes in COVID-19
cases. As the impact of COVID-19 abates over time, we anticipate
that unit purchasing levels and sales will return to or exceed
levels experienced in the first quarter of 2020 as we increase
penetration in existing markets and add new dealers, however we can
provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will
further negatively impact the economy generally or our
business.
Total
automotive revenue from the sale to dealers decreased by
$77,856,419 to $92,212,757 for the three-months ended
September 30, 2020 compared to $170,069,176 for the same period of 2019.
The decline in dealer revenue was primarily due to the decrease in
the number of vehicles sold to 3,298 for the three-months ended September
30, 2020 compared to 6,668 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $27,960 for the three-months ended September
30, 2020 from $25,505 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the three-months ended September
30, 2020 as compared to the same period in 2019 resulted from:
(i) the adverse impact of the COVID-19 pandemic on commercial
activity resulting in lower levels of inventory available for
purchase causing lower unit sales but higher average selling prices
and gross margins due to the supply and demand imbalance;
(ii) a reduction in unit sales resulting from the significant
damage to the Company's operating facilities and inventory held for
sale in Nashville as a result of the March 2020 tornado;
(iii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; (iv) a
reduction in per vehicle advertising expenditures; and (v) a
shift in inventory mix available for sale resulting in higher
average sales prices. We believe this supply and demand imbalance
will continue throughout the historically seasonally low volume
fourth quarter, particularly given the recent spikes in COVID-19
cases. As the impact of COVID-19 abates over time, we anticipate
that unit purchasing levels and sales will return to or exceed
levels experienced in the first quarter of 2020 as we increase
penetration in existing markets and add new dealers, however we can
provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will
further negatively impact the economy generally or our
business.
Nine-months ended September 30, 2020 Versus 2019.
Total
automotive revenue decreased by $330,629,377 to $281,242,442 for the nine-months ended
September 30, 2020 compared to $611,871,819 for the same period of 2019. The
decline in automotive revenue was primarily due to the decrease in
the number of vehicles sold to 10,954 for the nine-months ended September
30, 2020 compared to 26,022 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $25,675 for the three-months ended September
30, 2020 from $23,514 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the nine-months ended September
30, 2020 as compared to the same period in 2019 resulted from:
(i) the adverse impact of the COVID-19 pandemic on commercial
activity resulting in lower levels of inventory available for
purchase causing lower unit sales but higher average selling prices
and gross margins due to the supply and demand imbalance;
(ii) a reduction in unit sales resulting from the significant
damage to the Company's operating facilities and inventory held for
sale in Nashville as a result of the March 2020 tornado;
(iii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; (iv) a
reduction in per vehicle advertising expenditure; and (v) a
shift in inventory mix available for sale resulting in higher
average sales prices. We believe this supply and demand imbalance
will continue throughout the historically seasonally low volume
fourth quarter, particularly given the recent spikes in COVID-19
cases. As the impact of COVID-19 abates over time, we anticipate
that unit purchasing levels and sales will return to or exceed
levels experienced in the first quarter of 2020 as we increase
penetration in existing markets and add new dealers, however we can
provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will
further negatively impact the economy generally or our
business.
Total
automotive revenue from the sale to consumers decreased by
$23,426,512 to $33,164,968 for the nine-months ended
September 30, 2020 compared to $56,591,480 for the same period of 2019. The
decline in consumer revenue was primarily due to the decrease in
the number of vehicles sold to 1,161 for the nine-months ended September
30, 2020 compared to 2,115 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $28,566 for the nine-months ended September
30, 2020 from $26,757 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the nine-months ended September
30, 2020 as compared to the same period in 2019 resulted from:
(i) the adverse impact of the COVID-19 pandemic on commercial
activity resulting in lower levels of inventory available for
purchase causing lower unit sales but higher average selling prices
and gross margins due to the supply and demand imbalance;
(ii) a reduction in unit sales resulting from the significant
damage to the Company's operating facilities and inventory held for
sale in Nashville as a result of the March 2020 tornado;
(iii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; (iv) a
reduction in per vehicle advertising expenditure; and (v) a
shift in inventory mix available for sale resulting in higher
average sales prices. We believe this supply and demand imbalance
will continue throughout the historically seasonally low volume
fourth quarter, particularly given the recent spikes in COVID-19
cases. As the impact of COVID-19 abates over time, we anticipate
that unit purchasing levels and sales will return to or exceed
levels experienced in the first quarter of 2020 as we increase
penetration in existing markets and add new dealers, however we can
provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will
further negatively impact the economy generally or our
business.
34
Total
automotive revenue from the sale to dealers decreased by
$307,202,866 to $248,077,473 for the nine-months ended
September 30, 2020 compared to $555,280,339 for the same period of 2019.
The decline in dealer revenue was primarily due to the decrease in
the number of vehicles sold to 9,793 for the nine-months ended September
30, 2020 compared to 23,907 for
the same period of 2019, which was partially offset by an increase
in the average selling price per vehicle to $25,332 for the nine-months ended September
30, 2020 from $23,227 for the
same period of 2019. The decrease in vehicles sold and increase in
average selling price per unit for the nine-months ended September
30, 2020 as compared to the same period in 2019 resulted from:
(i) the adverse impact of the COVID-19 pandemic on commercial
activity resulting in lower levels of inventory available for
purchase causing lower unit sales but higher average selling prices
and gross margins due to the supply and demand imbalance;
(ii) a reduction in unit sales resulting from the significant
damage to the Company's operating facilities and inventory held for
sale in Nashville as a result of the March 2020 tornado;
(iii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; (iv) a
reduction in per vehicle advertising expenditures; and (v) a
shift in inventory mix available for sale resulting in higher
average sales prices. We believe this supply and demand imbalance
will continue throughout the historically seasonally low volume
fourth quarter, particularly given the recent spikes in COVID-19
cases. As the impact of COVID-19 abates over time, we anticipate
that unit purchasing levels and sales will return to or exceed
levels experienced in the first quarter of 2020 as we increase
penetration in existing markets and add new dealers, however we can
provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will
further negatively impact the economy generally or our
business.
Automotive Cost of Revenue
Three-Months Ended September 30, 2020 Versus 2019.
Total
automotive cost of vehicle revenue decreased by $93,199,460 to $86,473,154 for the three-months ended
September 30, 2020 compared to $179,672,614 for the same period of 2019. The
decrease was primarily due to a decrease in vehicles sold for the
three-month period ended September 30, 2020 compared to the same
period of 2019 and consisted of:(i) the adverse impact of the
COVID-19 pandemic on commercial activity resulting in lower levels
of inventory available for purchase causing lower unit sales higher
average acquisition
cost per unit due to the supply and demand imbalance;
(ii) a reduction in vehicle sales resulting from the
significant damage to the Company's operating facilities and
inventory held for sale in Nashville as a result of the March 2020
tornado; (iii) our continued disciplined approach to sales
volume as we took prescriptive steps to accelerate profitability;
and (iv) a reduction in per vehicle advertising expenditures. Total
cost of vehicle revenue for units sold to consumers and dealers for
the three-month period ended September 30, 2020 consisted of:
(i) the acquisition cost of vehicles sold to consumers and
dealers of $84,321,881 from the
sale of 3,516 pre-owned
vehicles at an average acquisition cost of $23,982; and (ii) aggregate reconditioning and
transportation costs of $2,151,273. Total cost of vehicle revenue
for units sold to consumers and dealers for the three-month period
ended September 30, 2019 consisted of: (i) the acquisition
cost of vehicles sold to consumers and dealers of $176,436,888 from
the sale of 7,271 pre-owned
vehicles at an average acquisition cost of $24,266; (ii) aggregate reconditioning and
transportation costs of $3,108,319; and (iii) other costs of
sales of $127,407.
The cost of
vehicle revenue from sales to consumers decreased by $8,344,611 to $6,590,541 for the three-month period ended
September 30, 2020 compared to $14,935,152 for the same period of 2019. The
decrease was primarily due to a decrease in vehicles sold which was
partially offset by an increase in the average acquisition cost per
vehicle for the three-month period ended September 30, 2020
compared to the same period of 2019. The decrease in vehicles sold
was a result of: (i) the adverse impact of the COVID-19
pandemic on commercial activity resulting in lower levels of
inventory available for purchase causing lower unit sales but
higher average acquisition
cost per unit due to the supply and demand imbalance;
(ii) a reduction in vehicle sales resulting from the
significant damage to the Company's operating facilities and
inventory held for sale in Nashville as a result of the March 2020
tornado; (iii) our continued disciplined approach to sales
volume as we took prescriptive steps to accelerate profitability;
and (iv) a reduction in per vehicle advertising expenditures.
Total cost of vehicle revenue for units sold to consumers for the
three-months ended September 30, 2020 consisted of: (i) the
acquisition cost of vehicles sold to consumers of $6,375,632 from the sale of 218 pre-owned vehicles at an average
acquisition cost of $29,246;
and (ii) aggregate reconditioning and transportation costs of
$214,909. Total cost of vehicle
revenue for units sold to consumers for the three-months ended
September 30, 2019 consisted of: (i) the acquisition cost of
vehicles sold to consumers of $14,587,006 from the sale of
603 pre-owned vehicles to
consumers at an average acquisition cost of $24,191; and (ii)
aggregate reconditioning and transportation costs of
$348,146.
The
cost of vehicle revenue from sales to dealers decreased by
$84,727,442 to $79,882,613 for the three-month period ended
September 30, 2020 compared to $164,610,055 for the same period of
2019. The decrease was primarily due to a decrease in vehicles sold
and a decrease in the average acquisition cost price per vehicle
for the three-month period ended September 30, 2020 compared to the
same period of 2019. The decrease in vehicles sold was a result of:
(i) the adverse impact of the COVID-19 pandemic on commercial
activity resulting in lower levels of inventory available for
purchase causing lower unit sales due to the supply and demand
imbalance; (ii) a reduction in vehicle sales resulting from
the significant damage to the Company's operating facilities and
inventory held for sale in Nashville as a result of the March 2020
tornado; (iii) our continued disciplined approach to sales
volume as we took prescriptive steps to accelerate profitability;
and (iv) a reduction in per vehicle advertising expenditures.
Total cost of vehicle revenue for units sold to dealers for the
three-months ended September 30, 2020 consisted of: (i) the
acquisition cost of vehicles sold to dealers of $77,946,249 from the sale of 3,298 pre-owned vehicles at an average
acquisition cost of $23,634;
and (ii) aggregate reconditioning and transportation costs of
$1,936,364. Total cost of
vehicle revenue for units sold to dealers for the three-months
ended September 30, 2019 consisted of: (i) the acquisition
cost of vehicles sold to dealers of $161,849,882 from the sale of
6,668 pre-owned vehicles at an
average acquisition cost of $24,273; and (ii) aggregate
reconditioning and transportation costs of $2,760,173.
35
Nine-months ended September 30, 2020 Versus 2019.
Total
automotive cost of vehicle revenue before impairment loss decreased
by $328,118,150 to
$257,045,834 for the
nine-months ended September 30, 2020 compared to
$585,163,984 for the same
period of 2019. The decrease was primarily due to a decrease in
vehicles sold for the nine-month period ended September 30, 2020
compared to the same period of 2019. The decrease in vehicles sold
was a result of: (i) the adverse impact of the COVID-19
pandemic on commercial activity resulting in lower levels of
inventory available for purchase causing lower unit sales due to
the supply and demand imbalance; (ii) a
reduction in vehicle sales resulting from the significant damage to
the Company's operating facilities and inventory held for sale in
Nashville as a result of the March 2020 tornado;
(iii) our continued disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; and
(iv) a reduction in per vehicle advertising expenditures.
Total cost of vehicle revenue for units sold for the nine-month
period ended September 30, 2020 consisted of: (i) the
acquisition cost of vehicles sold to consumers and dealers of
$250,145,201 from the sale of
10,954 pre-owned vehicles at an
average acquisition cost of $22,836; (ii) aggregate reconditioning and
transportation costs of $6,104,268; and (iii) other cost of
sales of $796,365 not
attributed to a specific vehicle sold during the nine-months ended
September 30, 2020, which primarily consisted of the write down of
$878,542 of vehicle inventory
to the lower of cost or net realizable value resulting from the
negative impact on our sales channels from COVID-19, which resulted
in reduced commercial activity. Total cost of vehicle revenue for
units sold for the nine-months ended September 30, 2019 consisted
of: (i) the acquisition cost of vehicles sold of $574,527,904
from the sale of 26,022 pre-owned vehicles at an average
acquisition cost of $22,079; (ii) aggregate reconditioning and
transportation costs of $10,485,381; and (iii) other costs
of sales of $150,697.
The
cost of vehicle revenue from sales to consumers decreased by
$20,507,064 to $29,403,960 for the nine-month period ended
September 30, 2020 compared to $49,911,024 for the same period of 2019. The
decrease was primarily due to a decrease in vehicles sold which was
partially offset by an increase in the average acquisition cost per
vehicle for the nine-month period ended September 30, 2020 compared
to the same period of 2019. The decrease in vehicles sold was a
result of: (i) the adverse impact of the COVID-19 pandemic on
commercial activity resulting in lower levels of inventory
available for purchase causing lower unit sales due to the supply
and demand imbalance; (ii) a reduction in vehicle sales
resulting from the significant damage to the Company's operating
facilities and inventory held for sale in Nashville as a result of
the March 2020 tornado; (iii) our continued disciplined
approach to sales volume as we took prescriptive steps to
accelerate profitability; and (iv) a reduction in per vehicle
advertising expenditures. Total cost of vehicle revenue for units
sold to consumers for the nine-months ended September 30, 2020
consisted of: (i) the acquisition cost of vehicles sold to
consumers of $28,492,634 from
the sale of 1,161 pre-owned
vehicles at an average acquisition cost of $24,541; and (ii) aggregate reconditioning and
transportation costs of $911,326. Total cost of vehicle revenue
for units sold to consumers for the nine-months ended September 30,
2019 consisted of: (i) the acquisition cost of vehicles sold
to consumers of $48,856,097 from the sale of 2,115 pre-owned
vehicles at an average acquisition cost of $23,100; and (ii) aggregate reconditioning and
transportation costs of $1,054,927.
The
cost of vehicle revenue from sales to dealers decreased by
$308,256,754 to $226,845,509 for the nine-month period ended
September 30, 2020 compared to $535,102,263 for the same period of 2019.
The decrease was primarily due to a decrease in vehicles sold which
was partially offset by an increase in the average acquisition cost
per vehicle for the nine-month period ended September 30, 2020
compared to the same period of 2019. The decrease in vehicles sold
was a result of: (i) the adverse impact of the COVID-19
pandemic on commercial activity resulting in lower levels of
inventory available for purchase causing lower unit sales due to
the supply and demand imbalance (ii) a net realizable
value adjustments to reflect: (1) impairment loss on inventory for
vehicles that were a total loss and for loss in value of vehicles
partially damaged and subject to repair; and (2) the write down of
vehicle inventory to the lower of cost or net realizable value
resulting from the negative impact on our sales channels from
COVID-19; (iii) a reduction in vehicle sales resulting from
the significant damage to the Company's operating facilities and
inventory held for sale in Nashville as a result of the March 2020
tornado; (iv) our continued disciplined approach to sales volume as
we took prescriptive steps to accelerate profitability; and (v) a
reduction in per vehicle advertising expenditures. Total cost of
vehicle revenue sold to dealers for the nine-months ended September
30, 2020 consisted of: (i) the acquisition cost of vehicles sold to
dealers of $221,652,567 from
the sale of 9,793 pre-owned
vehicles at an average acquisition cost of $22,634; and (ii) aggregate reconditioning
and transportation costs of $5,192,942. Total cost of vehicle revenue
sold to dealers for the nine-months ended September 30, 2019
consisted of: (i) the acquisition cost of vehicles sold to dealers
of $525,671,807 from the sale
of 23,907 pre-owned vehicles at
an average acquisition cost of $21,988; and (ii) aggregate reconditioning
and transportation costs of $9,430,456.
36
Vehicle Logistics and Transportation Services Segment
The
following table provides our results of operations for the
three-month and nine-month periods ended September 30, 2020 and
2019 for our vehicle logistics and transportation services segment,
including key financial information relating to this segment. The
financial information below is before the elimination of
intercompany freight services from Wholesale Express and should be
read in conjunction with our unaudited Condensed Consolidated
Financial Statements and Notes included in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
|
|
For the Three-Months Ended
September 30,
|
For the Nine-Months Ended
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Vehicle Logistics and Transportation Services
|
|
|
|
|
|
Total
revenue
|
$11,414,932
|
$8,191,939
|
$28,656,719
|
25,197,581
|
|
Cost of
revenue
|
9,348,393
|
6,485,978
|
22,789,881
|
20,303,016
|
|
Gross
profit
|
$2,066,539
|
$1,705,961
|
$5,866,838
|
$4,894,565
|
|
Vehicles
delivered
|
21,238
|
20,008
|
61,314
|
62,015
|
|
Revenue per
delivery
|
$537
|
$409
|
$467
|
$406
|
|
Gross profit per
delivery
|
$97
|
$85
|
$96
|
$79
|
|
Gross margin per
delivery
|
18.1%
|
20.8%
|
20.5%
|
19.4%
|
Vehicle Logistics and Transportation Services Revenue
Three-Months Ended September 30, 2020 Versus 2019.
Total
revenue increased by $3,222,993 to
$11,414,932 for the three-months ended September 30, 2020
compared to $8,191,939 for the same period of 2019. The increase in
total revenue for the three-month period ended September 30, 2020
resulted from the increase in average revenue per vehicle delivered
of $537 compared to
$409 for the same period of
2019. The increase in average revenue per vehicle delivered was a
result of: (i) our more disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; and (ii) an
increase in commercial activity during the three-months ended
September 30, 2020 as compared to the same period of 2019 resulting
in a greater demand for transportation services, as sales channels,
marketing activities and supply chains progressed towards
normalized activity levels. The greater demand resulted in a
significant increase in the market rates charged per unit
delivered; and (iii) increased emphasis on sales through
implementation of sales performance improvement plans. As the
impact of COVID-19 abates over time, we anticipate that vehicles
transported and revenue will return to or exceed levels experienced
in the first quarter of 2020 as we increase penetration in existing
markets and add new dealers, distributors, or private party
individuals, however we can provide no assurance as to when and how
quickly COVID-19 impacts will continue to abate or if spikes in
COVID-19 infections will further negatively impact the economy
generally or our business.
In the
normal course of operations, the Company utilizes transportation
services of Wholesale Express. For the three-months ended September
30, 2020 and 2019 intercompany freight services provided by Express
to the Company were $974,565
and $2,133,393, respectively and was eliminated in the condensed
consolidated financial statements.
Nine-months ended September 30, 2020 Versus 2019.
Total
revenue increased by $3,459,138 to
$28,656,719 for the nine-months ended September 30, 2020
compared to $25,197,581 for the same period of 2019. The
increase in total revenue for the nine-month period ended September
30, 2020 resulted from the increase in average revenue per vehicle
delivered of $467 compared to
$406 for the same period of
2019. The increase in average revenue per vehicle delivered was a
result of: (i) our more disciplined approach to sales volume as we
took prescriptive steps to accelerate profitability; (ii) the
increase in commercial activity during the three-months ended
September 30, 2020 as compared to the same period of 2019 resulting
in a greater demand for a transportation services, as sales
channels, marketing activities and supply chains progressed towards
normalized activity levels. The greater demand resulted in a
significant increase in the market rates charged per unit
delivered; and (iii) increased emphasis on sales through
implementation of sales performance improvement plans. As the
impact of COVID-19 abates over time, we anticipate that vehicles
transported and revenue will return to or exceed levels experienced
in the first quarter of 2020 as we increase penetration in existing
markets and add dealers, distributors, or private party
individuals, however we can provide no assurance as to when and how
quickly COVID-19 impacts will continue to abate or if spikes in
COVID-19 infections will further negatively impact the economy
generally or our business.
In the
normal course of operations, the Company utilizes transportation
services of Wholesale Express. For the nine-months ended September
30, 2020 and 2019 intercompany freight services provided by Express
to the Company were $3,465,260
and $7,779,735, respectively and was eliminated in the condensed
consolidated financial statements.
37
Vehicle Logistics and Transportation Services Cost of
Revenue
Three-Months Ended September 30, 2020 Versus 2019.
Total
cost of revenue increased by $2,862,416 to $9,348,393 for the
three-months ended September 30, 2020 compared to
$6,485,978 for the same
period of 2019. The increase in total cost of revenue for the
three-month period ended September 30, 2020 resulted from the
increase in average cost per vehicle delivered to $440 compared to $324 for the same period
of 2019. The increase in average cost per vehicle delivered was a
result of the increase in commercial activity during the
three-months ended September 30, 2020 as compared to the same
period of 2019 which gave rise to greater demand for a
transportation services, as sales channels, marketing activities
and supply chains progressed towards normalized activity levels.
The greater demand resulted in a significant increase in the market
rates charged by transporters to deliver a vehicle.
Included in cost of
revenue for the three-months ended September 30, 2020 and 2019 was
freight services purchases by the Company from Wholesale Express of
$974,565 and $2,133,393,
respectively that was eliminated in the condensed consolidated
financial statements.
Nine-months ended September 30, 2020 Versus 2019.
Total
cost of revenue increased by $2,486,865 to $22,789,881 for the
nine-months ended September 30, 2020 compared to $20,303,016 for the same period of 2019. The
increase in total cost of revenue for the three-month period ended
September 30, 2020 resulted from the increase in average cost per
vehicle delivered of $371
compared to $327 for the same period of 2019. The increase in
average cost per vehicle delivered was a result of the increase in
commercial activity during the three-months ended September 30,
2020 as compared to the same period of 2019 which gave rise to
greater demand for a transportation services, as sales channels,
marketing activities and supply chains progressed towards
normalized activity levels. The greater demand resulted in a
significant increase in the market rates charged by transporters to
deliver a vehicle.
Included in cost of
revenue for the three-months ended September 30, 2020 and 2019 was
freight services purchases by the Company from Wholesale Express of
$3,465,260 and $7,779,735,
respectively and was eliminated in the condensed consolidated
financial statements.
Selling, General and Administrative
|
|
For the Three-Months Ended
September 30,
|
For the Nine-Months Ended
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Selling general and administrative:
|
|
|
|
|
|
Compensation
and related costs
|
$7,169,435
|
$8,056,730
|
$20,496,326
|
$24,274,523
|
|
Advertising
and marketing
|
839,752
|
3,288,545
|
4,329,830
|
14,740,227
|
|
Professional
fees
|
533,303
|
440,575
|
2,451,837
|
1,730,792
|
|
Technology
development
|
180,061
|
720,423
|
1,037,219
|
1,751,716
|
|
General and
administrative
|
4,556,600
|
6,504,666
|
14,194,653
|
21,961,262
|
|
|
$13,279,151
|
$19,010,939
|
$42,509,865
|
$64,458,520
|
Selling, general
and administrative expenses decreased by $5,731,788 and $21,948,655, respectively, for the
three-month and nine-month periods ended September 30, 2020, as
compared to the same periods of 2019. The decrease was a result of:
(i) our continued disciplined approach to sales volume as we took
prescriptive steps to accelerate profitability, which resulted in
the sale of fewer vehicles and a corresponding reduction in related
selling expenses, sales related compensation, and marketing spend
for the three-month and nine-month periods ended September 30,
2020; (ii) a reduction in automotive vehicle sales resulting from
the significant damage to the Company's operating facilities and
inventory held for sale in Nashville as a result of the March 3,
2020 tornado; and (iii) a reduction in staffing levels and adjusted
purchasing levels to align with demand and market conditions and a
deferral of discretionary growth expenditures such as travel,
facilities, information technology investments due to the adverse
impact of COVID-19 on commercial activity.
Compensation and
related costs decreased by $887,295 and $3,778,197, respectively, for the
three-month and nine-month periods ended September 30, 2020, as
compared to the same periods of 2019. The decrease is primarily due
to a reduction in headcount associated with our response to the
impact of COVID-19 on our business. In early April 2020 we
significantly reduced our staffing in an effort to position our
business to be lean and flexible in this period of lower demand and
higher uncertainty with the goal of preparing the Company for a
strong recovery when the outbreak is contained. The company had
159 employees at September 30,
2020 as compared to 329
employees on September 30, 2019. As the impact of COVID-19 abates
over time, we anticipate that unit volume levels and sales will
return to or exceed levels experienced in the first quarter of
2020. At that time, we will take a measured approach to increasing
our headcount, which will result in an increase in sales related
and marketing compensation in absolute dollar terms but a decrease
in these expenses as a percentage of total revenue. However, we can
provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will
further negatively impact the economy generally or our
business.
38
Advertising and
marketing decreased by $2,448,793 and $10,410,397, respectively, for the
three-month and nine-month periods ended September 30, 2020, as
compared to the same periods of 2019. The decrease was a result of:
(i) the adverse impact of the COVID-19 pandemic resulting in
significantly reduced commercial activity, including a decrease in
unit purchases and sales of vehicles; (ii) a reduction in unit
sales resulting from the significant damage to the Company's
operating facilities and inventory held for sale in Nashville as a
result of the March 3, 2020 tornado; and (iii) our continued
disciplined approach to sales volume as we took prescriptive steps
to accelerate profitability; (iv) a reduction in per vehicle
advertising expenditures. As the impact of COVID-19 abates over
time, we anticipate that unit volume levels and sales will return
to or exceed levels experienced in the first quarter of 2020. At
that time, we will take a measured approach to increasing our
marketing spend, which will result in an increase in marketing
expenses in absolute dollar terms but a decrease in marketing
expense as a percentage of total revenue. However, we can provide
no assurance as to when and how quickly COVID-19 impacts will
continue to abate or if spikes in COVID-19 infections will further
negatively impact the economy generally or our
business.
Professional fees
increased by $92,728 and
$721,045, respectively, for the
three-month and nine-month periods ended September 30, 2020, as
compared to the same periods of 2019. The increase was primarily a
result of professional fees and costs incurred in connection with
our insurance claims and other matters attributed to the Nashville
Tornado, and legal, accounting and other professional fees and
expenses incurred in connection with the activities associated with
the expansion of the business. Fees and expenses were incurred for:
(i) equity financings; (ii) debt financings; (iii) general
corporate matters; (iv) the preparation of quarterly and annual
financial statements; and (v) the preparation and filing of
regulatory reports required of the Company for public reporting
purposes. For additional information, see Note 4 - "Acquisitions,"
Note 8 - "Notes Payable and Lines of Credit," Note 9 - "Convertible
Notes," and Note 11 - "Stockholders' Equity," in the accompanying
Notes to the Condensed Consolidated Financial
Statements.
Technology
development expenses decreased $540,362 and $714,497, respectively, for the three-month
and nine-month periods ended September 30, 2020, as compared to the
same periods of 2019. The decrease was a result of the negative impact of
COVID-19 resulting from sheltering-in-place and significantly
reduced commercial activity, resulting in a temporary reduction in
discretionary growth expenditures on information technology
spending. Total technology costs and expenses incurred for
three-month and nine-month periods ended September 30, 2020 were
$1,164,015 and $2,635,286, respectively, of which
$983,954 and $1,598,067, respectively, was capitalized.
Total technology costs and expenses incurred for the three-month
and nine-month periods ended September 30, 2019 were $1,420,405 and $4,371,267, respectively, of which
$699,982 and $2,619,551,
respectively, was capitalized. The amortization of capitalized
technology development costs for the three-month and nine-month
periods ended September 30, 2020 were $477,420 and $1,366,996, respectively, as compared to
$386,519 and $1,018,551, respectively for the same period of 2019.
In response to the impact of COVID-19 on our business in early
April 2020 we temporarily reduced discretionary growth
expenditures, which included information technology investments. As
the impact of COVID-19 abates over time, we anticipate that unit
volume levels and sales will return to or exceed levels experienced
in the first quarter of 2020. At that time, we will take a measured
approach to increasing our technology development expenses 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 decreased by $1,948,066 and $7,766,609, respectively, for the
three-month and nine-month periods ended September 30, 2020, as
compared to the same periods of 2019. The decrease was primarily a
result of the sale of fewer vehicle sales for the three-month and
nine-month periods ended September 30, 2020 as compared to the same
periods of 2019, which resulted in a reduction of $1,985,160 and $6,132,738, respectively, in auction and
floor plan fees for the three-month and nine-month periods ended
September 30, 2020 as compared to the same periods of 2019. The
decrease in vehicle sales was primarily a result of our continued
approach to taking prescriptive steps to accelerate profitability,
the adverse impact of the COVID-19 pandemic resulting in
significantly reduced commercial activity, including a decrease in
unit purchases and sales of vehicles, and the significant damage to
the Company's operating facilities and inventory held for sale in
Nashville as a result of the March 3, 2020 tornado. In addition,
travel and other related business expenses, including office
supplies decreased $395,754 and
$2,280,311, respectively, for the three-month and nine-month
periods ended September 30, 2020 as compared to the same
periods of 2019. Rent and lease expense increased $432,848 and $646,440, respectively for the
three and nine-month periods ended September 30, 2020 as compared
to the same periods of 2019. The increase in rent expense is
primarily attributable to opening two new fulfillment centers. One
was opened in the fourth quarter of 2019 and the other in March
2020. As the impact of COVID-19 abates over time, we anticipate
that unit volume levels and sales will return to or exceed levels
experienced in the first quarter of 2020. At that time, we will
take a measured approach to increasing our general and
administrative spending, which will result in an increase in in
general and administrative expenses in absolute dollar terms but
decrease as a percentage of total revenue. However, we can provide
no assurance as to when and how quickly COVID-19 impacts will
continue to abate or if spikes in COVID-19 infections will further
negatively impact the economy generally or our
business.
39
Depreciation and Amortization
Depreciation and
amortization increased by $62,711 and $284,363, respectively, for the three-month
and nine-month periods ended September 30, 2020, as compared to the
same periods of 2019. 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 three-month
and nine-month periods ended September 30, 2020 included
capitalized technology acquisition and development costs of
$983,954 and $1,598,067, respectively. For the
three-month and nine-month periods ended September 30, 2020,
amortization of capitalized technology development was
$477,420 and $1,366,996, respectively, as compared to
$386,519 and $1,018,551, respectively, for the same periods of
2019. Depreciation and amortization on vehicle, furniture,
equipment and leasehold improvements was $58,961 and $200,701, respectively, as compared to
$87,152 and $264,782, respectively, for the same periods of
2019.
Interest Expense
Interest expense
decreased by $543,607 and $164,433,
respectively for the three and nine-month periods ended
September 30, 2020 as compared to the same periods of 2019.
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) PPP Loans;
(vi) convertible senior notes; and (vii) the notes issued in
connection with the Autosport Acquisition (the "Convertible
Notes-Autosport"). The decrease for the three-month period ended
September 30, 2020 as compared to the same period of 2019 was a
result of a reduction in outstanding indebtedness under the
NextGear and Ally floor plan lines of credit resulting from the
decrease in the number of vehicles sold to 4,263 for the three-months ended September
30, 2020 compared to 10,894 for
the same period of 2019. Interest expense on the Private Placement
Notes for the three-month and nine-month periods ended September
30, 2020 were $16,867 and
$125,443, including
$0 and $75,601 of discount amortization,
respectively, compared to interest expense of $80,899 and $231,235,
respectively, which included $66,608 and $188,831, respectively, of debt discount
amortization for the same periods of 2019. Interest expense on the
NextGen Note for three-month and nine-month periods ended September
30, 2020 were $21,005 and
$66,123, respectively, as
compared to $28,566 and
$81,918, respectively, for the
same periods of 2019. Interest expense on the Line of Credit-Floor
Plans for the three-month and nine-month periods ended September
30, 2020 were $239,785 and
$1,528,210, respectively, as
compared to $711,147 and
$2,231,639, respectively, for the same periods of 2019. For
the three-month and nine-month periods ended September 30, 2020,
interest expense on the PPP Loans was $11,626 and $19,334,
respectively. For the three-month and nine-month periods ended
September 30, 2020, interest expense on convertible senior notes
was $1,132,983 and
$3,279,478, respectively, and
included $479,077 and
$1,367,213, respectively, of
debt discount amortization. For the three-month and nine-month
periods ended September 30, 2020, interest expense on the
Convertible Notes-Autosport USA was $47,140 and $141,000, respectively, and included
$22,442 and $55,876, respectively, of debt discount
amortization as compared to interest expense for the three-month
and nine-month periods ended September 30, 2019 of $67,634 and 163,730, respectively, including
$88,950 and $146,607, respectively of debt discount amortization.
There was no interest expense on the Hercules loan for the
three-month and nine-month periods ended September 30, 2020.
Interest expense on the Hercules Loan for the three-month and
nine-month periods ended September 30, 2019 was $0 and $758,466, respectively and included
$0 and $342,841, respectively
of debt issuance cost amortization. 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. 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 included in the Company's
Form 10-K for the year ended December 31, 2019.
Loss Contingencies and Insurance Recoveries
On
March 3, 2020, a severe tornado struck the greater Nashville area
causing significant damage to the Company's facilities including
contents and inventory held for sale. 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 $3,801,203; 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
however, the insurer has advanced $5,615,268 against the final
settlement. The insurer has agreed to pay $2,778,000 on the
building and personal property loss, reflecting limits of
$2,783,000 net of a $5,000 deductible. The insurer has made an
interim payment on the building and personal property loss of
$2,269,507 to the landlord. 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 recovery of all three loss
components, however no assurance can be given regarding the
amounts, if any, that will be ultimately recovered.
40
As a
result of the damage caused by the tornado the Company has
concluded that the utility of the inventory damaged by the storm is
impaired as a result of physical damage sustained. Whether the
impairment is caused by physical destruction or an adverse change
in the utility of the inventory, entities should assess whether an
inventory impairment or write-off is required in accordance with
ASC 330-10-35-1 through 35-11, which address adjustments of
inventory balances to the lower of cost or market and requires that
when there is evidence that the utility of goods will be less than
cost, the difference is recognized as a loss of the current period.
For the nine-months ended September 30, 2020 the Company recorded
an impairment loss on inventory of $11,738,413 comprised of $4,453,775 for vehicles that are a total
loss and $7,284,638 in loss in
value for vehicle partially damaged and subject to repair. The
impairment loss is reported in cost of revenue in the September 30,
2020 condensed consolidated statements of operations. On July 23,
2020, the insurer made an advance against the final settlement of
the damage claim on inventory of $5,615,268. This recovery has been
recorded as a separate component of income from continuing
operations for the nine-month ended September 30,
2020.
Derivative Liability
In
connection with the issuance of the Old Notes (as defined below), a
derivative liability was recorded at issuance with an interest
make-whole provision of $1,330,000. The derivative liability is
remeasured at each reporting date with any change in value being
recorded in the Statement of Operations; as of December 31, 2019,
the derivative liability was valued at $27,500. On January 14,
2020, the Company completed the 2020 Note Offering (as defined
below), whereby the $30,000,000 of Old Notes were cancelled and
exchanged for $30,000,000 New Notes. Also, in the 2020 Note
Offering, the Company sold an additional $8,750,000 of New Notes
(as defined below), yielding the Company net proceeds of
$8,272,375. Pursuant to ASC 470 the Company accounted for the
exchange as a note extinguishment where the remaining $27,500
liability was written off and the Company recorded a new Make Whole
Derivative Liability of $137,488 as calculated under the Lattice
Model. The lattice model used using a "with-and-without method,"
where the value of the convertible senior notes including the
embedded derivative, is defined as the "with", and the value of the
convertible senior notes excluding the embedded derivative, is
defined as the "without"; the inputs used include a range of prices
around the Company's stock price on the date of valuation ($0.73 on
January 14, 2020 and $0.23 on March 31, 2020), as well as the Note
conversion rate, maturity date, U.S. Treasury risk-free interest
rates over the entire 10-year yield curve, and estimated stock
price volatility (55% on January 14, 2020 and 95% on March 31,
2020). The derivative
liability is remeasured at each reporting date with the change in
value of recorded in the Statements of Operations. The change in
value of the derivative liability for the three-months ended
September 30, 2020 was $13,518. The value of the derivative
liability as of September 30, 2020 is $20,345.
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 income (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, impairment
charges, litigation expenses, severance, new business development
costs, and insurance recoveries 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.
41
The
following tables reconcile Adjusted EBITDA to net income (loss) for
the periods presented:
|
|
Three-Months Ended
September 30,
|
Nine-Months Ended
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Net income (loss)
|
$1,486,915
|
$(8,871,781)
|
$(19,506,955)
|
$(30,149,685)
|
|
Add back:
|
|
|
|
|
|
Interest
expense (including debt extinguishment)
|
1,488,090
|
2,031,697
|
4,999,092
|
6,850,939
|
|
Depreciation
and amortization
|
536,381
|
473,670
|
1,567,697
|
1,283,333
|
|
EBITDA
|
3,511,386
|
(6,366,414)
|
(12,940,166)
|
(22,015,413)
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
Impairment
loss on automotive inventory
|
-
|
-
|
11,738,413
|
-
|
|
Impairment
loss on fixed assets
|
-
|
-
|
177,626
|
-
|
|
Insurance
recovery proceeds
|
-
|
-
|
(5,615,268)
|
-
|
|
Non-cash-stock-based
compensation
|
862,555
|
689,130
|
2,425,316
|
2,335,242
|
|
Acquisition
related costs
|
-
|
-
|
-
|
378,208
|
|
Change in
derivative liability
|
13,518
|
(630,000)
|
(7,155)
|
(820,000)
|
|
Severance
|
-
|
1,079,438
|
-
|
1,079,438
|
|
New business
development
|
-
|
426,885
|
-
|
1,173,928
|
|
Litigation
expenses
|
280,842
|
-
|
1,027,689
|
61,446
|
|
Other
non-reoccurring costs
|
51,387
|
48,676
|
51,387
|
1,441,603
|
|
Adjusted
EBITDA
|
$4,719,688
|
$(4,752,285)
|
$(3,142,158)
|
$(16,365,548)
|
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.
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
marketing, technology and software development
efforts.
The
Company's condensed consolidated financial statements have been
prepared assuming that the Company 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 it will be able to generate sufficient liquidity from
the measures described above, its current circumstances including
uncertainties due to COVID-19 pandemic raise substantial doubt
about the Company's ability to operate as a going concern. The
accompanying condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
We had
the following liquidity resources available as of September 30,
2020 and December 31, 2019:
|
|
September 30,
2020
|
December 31,
2019
|
|
Cash
and cash equivalents
|
$3,412,772
|
$49,660
|
|
Restricted cash
(1)
|
5,545,892
|
6,676,622
|
|
Total
cash, cash equivalents, and restricted cash
|
8,958,664
|
6,726,282
|
|
Availability under
short-term revolving facilities
|
43,049,716
|
35,839,030
|
|
Committed liquidity
resources available
|
$52,008,380
|
$42,565,312
|
_________________________
(1) Amounts included in restricted cash represent the deposits
required under the Company's line of credit-floor
plan.
On May
9, 2019, the Company entered into a purchase agreement with JMP
Securities LLC to issue and sell $30,000,000 in aggregate principal
amount of its 6.75% Convertible Senior Notes due 2024 (the "Old
Notes") in a private placement to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act") (the "2019 Note Offering"). The proceeds for
the 2019 Note Offering after deducting the initial purchaser's
discounts, advisory fees, and related offering expenses, were
approximately $27,385,500.
42
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 8.0% underwriter's
commission and $75,000 for underwriter expenses, were
$10,780,080.
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 (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
September 30, 2020, and December 31, 2019, excluding operating
lease liabilities and the derivative liability, the outstanding
principal amount of indebtedness was $47,256,808 and $82,585,522, respectively,
summarized in the table below. See Note 8 — Notes Payable and
Lines of Credit, Note 9 –Convertible Notes, and Note 11
– Stockholders' Equity to our condensed consolidated
financial statements included above.
|
Asset-Based
Financing:
|
September 30,
2020
|
December 31,
2019
|
|
Inventory
|
$11,950,284
|
$59,160,970
|
|
Convertible
senior notes
|
39,583,334
|
31,333,334
|
|
Senior unsecured
notes
|
8,297,025
|
2,568,843
|
|
Total
debt
|
58,830,644
|
93,063,147
|
|
Less: unamortized
discount and debt issuance costs
|
(12,573,836)
|
(10,477,625)
|
|
Total debt,
net
|
$47,256,808
|
$82,585,522
|
The
following table sets forth a summary of our cash flows for the
nine-months ended September 30, 2020 and 2019:
|
|
Nine-Months Ended
September 30,
|
|
|
|
2020
|
2019
|
|
Net
cash provided by (used in) operating activities
|
$26,197,496
|
$(25,792,934)
|
|
Net
cash used in investing activities
|
(1,772,853)
|
(3,413,931)
|
|
Net cash provided
by financing activities
|
(22,192,261)
|
26,816,119
|
|
Net increase in
cash
|
$2,232,382
|
$(2,390,746)
|
Operating Activities
Our
primary sources of operating cash flows result from the sales of
used vehicles and ancillary products. Our primary uses of cash from
operating activities are purchases of inventory, cash used to
acquire customers, and personnel-related expenses. For the
nine-months ended September 30, 2020, net cash provided by
operating activities was $26,197,496, an increase of $51,990,430 compared to net cash used in
operating activities of $25,792,934 for the nine-months ended
September 30, 2019. The increase in our net cash provided by
operating activities was primarily due to a $22,558,769 decrease in our net loss,
excluding the impairment losses on inventory and fixed assets of
$11,738,413 and $177,626, respectively that were incurred
due to the Nashville tornado, the insurance recovery of $5,615,268
as well as $23,816,393 of
changes in operating assets and liabilities during each period,
primarily vehicle inventory, accounts receivable and accounts
payable. The change in net income was a result of: (i) our
continued disciplined approach to sales volume as we took
prescriptive steps to accelerate profitability, which resulted in
the sale of fewer vehicles and a corresponding reduction in related
selling expenses, sales related compensation, and marketing spend
for the nine-month periods ended September 30, 2020; (ii) a
reduction in automotive vehicle sales resulting from the
significant damage to the Company's operating facilities and
inventory held for sale in Nashville as a result of the March 3,
2020 tornado; and (iii) a reduction in staffing levels, adjusted
purchasing levels to align with demand and market conditions and a
deferral of discretionary growth expenditures such as travel,
facilities, information technology investments due to the adverse
impact of the COVID-19 pandemic on commercial
activity.
Investing Activities
Our
primary use of cash for investing activities is for technology
development and acquisitions to expand our operations. Cash used in
investing activities was $1,772,853 and $3,413,931 during the nine-months ended
September 30, 2020 and 2019, respectively, a decrease of
$1,641,078. The decrease
primarily relates to a reduction in technology spending and no
acquisition activities during the nine-month period ended September
30, 2020 as compared to the same period in 2019. The Company
acquired Autosport in February 2019 which included a cash payment
of $835,000. The decrease in technology spending was a result of a
reduction in staffing levels, adjusted purchasing and a deferral of
discretionary growth expenditures due to the adverse impact of the
COVID-19 pandemic on commercial activity.
43
Financing Activities
Cash
flows from financing activities primarily relate to our short and
long-term debt activity and proceeds from equity issuances which
have been used to provide working capital and for general corporate
purposes, including paying down our short-term revolving
facilities. Cash used in financing activities was $22,192,261 for the nine-months ended
September 30, 2020 as compared to net cash provided by financing
activities of $26,816,119 for
the same period of 2019. The $49,008,380 decrease in cash provided by
financing activities was a result of paying down the floor plan
lines of credit offset by the proceeds from the 2020 Public
Offering.
Off-Balance Sheet Arrangements
As of
September 30, 2020, 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.
Critical Accounting Policies and Estimates
Refer
to Note 1 — Description of Business and Significant
Accounting Policies, included in Part I, Item 1, Financial
Statements, of this Quarterly Report on Form 10-Q for accounting
pronouncements and material changes to our critical accounting
policies since December 31, 2019. There have been no other material
changes to our critical accounting policies and use of estimates
from those described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our most
recent Annual Report on Form 10-K.
Forward-Looking and Cautionary Statements
This
Quarterly Report on Form 10-Q, as well as information included in
oral statements or other written statements made or to be made by
us, contain statements that constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are neither historical facts
nor assurances of future performance. Instead, they are based on
our current beliefs, expectations, and assumptions regarding the
future of our business, future plans and strategies, and other
future conditions. Forward-looking statements can be identified by
words such as "anticipate," "believe," "envision," "estimate,"
"expect," "intend," "may," "plan," "predict," "project," "target,"
"potential," "will," "would," "could," "should," "continue,"
"ongoing," "contemplate," and other similar expressions, although
not all forward-looking statements contain these identifying words.
Examples of forward-looking statements include, among others,
statements we make regarding:
●
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;
44
●
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 relationships with 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;
●
We rely on
third-party financing providers to finance a portion of our
customers' vehicle purchases;
●
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 may continue to have a significant negative impact on
our business, sales, results of operations, financial condition,
and liquidity;
45
●
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;
●
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;
●
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;
●
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;
46
●
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;
●
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.
Item
3.
Quantitative and Qualitative Disclosure About Market
Risk
This
item is not applicable as we are currently considered a smaller
reporting company.
Item
4.
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
September 30, 2020. 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.
47
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 September 30, 2020.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during the quarter ended September 30, 2020 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. We have not
experienced any material impact to our internal control over
financial reporting despite the fact that most of our employees are
working remotely due to the COVID-19 pandemic. We are continually
monitoring and assessing the potential impact of COVID-19 on our
internal control to minimize the impact on their design and
operating effectiveness.
Limitations on Effectiveness of Controls and
Procedures
In
designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the
fact that there are resource constraints and that management is
required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their
costs.
48
PART II – OTHER INFORMATION
Item
1.
Legal Proceedings.
We are
not a party to any material legal proceedings.
Item
1A.
Risk Factors.
Our
business, financial condition, operating results, and cash flows
may be impacted by a number of factors, many of which are beyond
our control, including those set forth in our Annual Report on 10-K
for the year ended December 31, 2019, filed on May 29, 2020, the
occurrence of any one of which could have a material adverse effect
on our actual results.
There
have been no material changes to the Risk Factors previously
disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2019.
Item
2.
Unregistered Sales of Equity Securities and Use of
Proceeds.
On September
16, 2020, the Company issued 2,506 shares of Class B Common Stock
to Joseph Reece in connection with Mr. Reece’s departure from
the Board. These shares were issued 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.
Item
3.
Defaults Upon Senior Securities.
None.
Item
4.
Mine Safety Disclosures.
Not
applicable.
Item
5.
Other Information.
None.
49
Item
6.
Exhibits.
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Exhibit No.
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|
Description
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|
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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 August 26, 2020).
|
|
|
|
Certification of Principal Executive Officer pursuant to Exchange
Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
Certification of Principal Financial Officer pursuant to Exchange
Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
Certifications of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002**
|
|
|
|
Certifications of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002**
|
|
|
101.INS
|
|
XBRL Instance Document*
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema*
|
|
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*
|
_________________________
*
Filed herewith.
**
Furnished herewith.
50
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
RUMBLEON, INC.
|
|
|
|
|
|
|
Date: November 16, 2020
|
By:
|
/s/ Marshall
Chesrown
|
|
|
|
Marshall Chesrown
|
|
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
Date: November 16, 2020
|
By:
|
/s/ Steven R.
Berrard
|
|
|
|
Steven R. Berrard
|
|
|
|
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting
Officer)
|
51
Exhibit 31.1
CERTIFICATION
I,
Marshall Chesrown, certify that:
(1)
I have reviewed
this Quarterly Report on Form 10-Q 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.
|
November 16, 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 Quarterly Report on Form 10-Q 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.
|
November 16, 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 Quarterly Report on Form 10-Q of
RumbleOn, Inc. (the "Company") for the quarter ended September 30,
2020, 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.
|
November 16, 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 Quarterly Report on Form 10-Q of
RumbleOn, Inc. (the "Company") for the quarter ended September 30,
2020, 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.
|
November 16, 2020
|
By:
|
/s/ Steven R.
Berrard
|
|
|
|
Steven R. Berrard
|
|
|
|
Chief Financial Officer
|