UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-38248
RumbleOn, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 46-3951329 | |||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
901 W. Walnut Hill Lane Irving TX | ||||
| (Address of principal executive offices) | (Zip Code) | |||
| (214) 771-9952 | ||||
(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 | ||
| 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☒☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☐☒ No ☒
The number of shares of Class B Common Stock, $0.001 par value, outstanding on November 7, 2017July 30, 2021 was 11,928,5413,350,177 shares. In addition, 1,000,00050,000 shares of Class A Common Stock, $0.001 par value, were outstanding on November 7, 2017.July 30, 2021.
RUMBLEON, INC.
QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172021
Table of Contents to Report on Form 10-Q
| PART I - FINANCIAL INFORMATION | ||
| Item 1. Financial Statements | 1 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of | |
| Item 3. | Quantitative and Qualitative Disclosure About Market | |
| Item 4. | Controls and | |
| PART II - OTHER INFORMATION | ||
| Item | ||
| Item | ||
| Item | ||
| Item | ||
i
PART I - FINANCIAL INFORMATION
Item 1.
RumbleOn, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| As of June 30, 2021 | As of December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 24,972,223 | $ | 1,466,831 | ||||
| Restricted cash | 3,049,056 | 2,049,056 | ||||||
| Accounts receivable, net | 26,955,051 | 9,407,960 | ||||||
| Inventory | 19,675,990 | 21,360,441 | ||||||
| Prepaid expense and other current assets | 4,058,905 | 3,446,225 | ||||||
| Total current assets | 78,711,225 | 37,730,513 | ||||||
| Property and equipment, net | 6,295,683 | 6,521,446 | ||||||
| Right-of-use assets | 5,007,605 | 5,689,637 | ||||||
| Goodwill | 26,886,563 | 26,886,563 | ||||||
| Deferred finance charge | 10,950,000 | — | ||||||
| Other assets | 221,712 | 151,076 | ||||||
| Total assets | $ | 128,072,788 | $ | 76,979,235 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 12,821,750 | $ | 12,707,448 | ||||
| Accrued interest payable | 1,606,954 | 1,485,854 | ||||||
| Current portion of convertible debt | 415,113 | 562,502 | ||||||
| Current portion of long-term debt | 27,251,151 | 20,688,651 | ||||||
| Total current liabilities | 42,094,968 | 35,444,455 | ||||||
| Long-term liabilities: | ||||||||
| Note payable | 4,691,181 | 4,691,181 | ||||||
| Warrant liability | 13,174,216 | — | ||||||
| Convertible debt, net | 28,079,484 | 27,166,019 | ||||||
| Derivative liabilities | 48,800 | 16,694 | ||||||
| Operating lease liabilities and other long-term liabilities | 4,022,292 | 5,090,221 | ||||||
| Total long-term liabilities | 50,015,973 | 36,964,115 | ||||||
| Total liabilities | 92,110,941 | 72,408,570 | ||||||
| Commitments and contingencies (Notes 6, 7, 8, 11, 16) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020 | — | — | ||||||
| Common A stock, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020 | 50 | 50 | ||||||
| Common B stock, $0.001 par value, 4,950,000 shares authorized, 3,343,062 and 2,191,633 shares issued and outstanding as of June 30, 2021 and December 31, 2020 | 3,343 | 2,192 | ||||||
| Additional paid-in capital | 148,180,750 | 108,949,204 | ||||||
| Accumulated deficit | (112,222,296 | ) | (104,380,781 | ) | ||||
| Total stockholders’ equity | 35,961,847 | 4,570,665 | ||||||
| Total liabilities and stockholders’ equity | $ | 128,072,788 | $ | 76,979,235 | ||||
| ASSETS | Balance at | |
September 30, 2017 | December 31, 2016 | |
| Current assets: | ||
| Cash | $656,220 | $1,350,580 |
| Accounts Receivable | 320,575 | - |
| Vehicle Inventory | 1,244,658 | - |
| Prepaid expense | 123,513 | 1,667 |
| Other | 174,419 | - |
| Total current assets | 2,519,385 | 1,352,247 |
| Property and Equipment - Net of Accumulated Depreciation | 2,166,326 | - |
| Goodwill | 3,240,000 | - |
Intangible Assets, net | 121,765 | 45,515 |
| Total assets | $8,047,476 | $1,397,762 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable and accrued liabilities | $ 1,902,543 | $ 219,101 |
| Accrued interest payable | 17,998 | - |
| Current portion of long term debt | 1,510,274 | - |
| Other current liabilities | - | - |
| Total current liabilities | 3,430,815 | 219,101 |
| Long term liabilities: | ||
| Notes payable | 1,414,937 | 1,282 |
| Accrued interest payable - related party | 21,736 | 5,508 |
| Deferred tax liability | - | 78,430 |
| Total long-term liabilities | 1,436,673 | 85,220 |
| Total liabilities | 4,867,488 | 304,321 |
| Commitments and Contingencies | ||
| Stockholders' equity: | ||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2017 and December 31, 2016 | - | - |
| Common A stock, $0.001 par value, 1,000,000 shares authorized, 1,000,000 shares issued and outstanding as of September 30, 2017 and none outstanding at December 31, 2016 | 1,000 | - |
| Common B stock, $0.001 par value, 99,000,000 shares authorized, 9,018,541 and 6,400,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016 | 9,019 | 6,400 |
| Additional paid in capital | 8,749,566 | 1,534,015 |
| Subscriptions receivable | (1,000) | (1,000) |
| Accumulated deficit | (5,578,597) | (445,974) |
| Total stockholders' equity | 3,179,988 | 1,093,441 |
| Total liabilities and stockholders' equity | $8,047,476 | $1,397,762 |
See Notes to the Condensed Consolidated Financial Statements.
RumbleOn, Inc.
Three-months ended September 30, | Nine-months ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Revenue: Used vehicle sales: | ||||
| Consumer | $1,626,864 | $ - | $1,626,864 | $ - |
| Dealer | 1,745,948 | - | 1,745,948 | - |
| Auction | 171,560 | - | 253,500 | - |
| Other sales and revenue | 134,573 | - | 134,573 | - |
| Subscription and other fees | 27,197 | - | 100,668 | - |
| Total Revenue | 3,706,142 | - | 3,861,553 | - |
| Cost of Revenue | 3,478,124 | - | 3,627,455 | - |
| Selling, general and administrative | 2,326,043 | 36,706 | 4,690,216 | 58,135 |
| Depreciation and amortization | 129,277 | 475 | 302,697 | 1,425 |
| Total expenses | 5,933,444 | 37,181 | 8,620,368 | 59,560 |
| Operating loss | (2,227,302) | (37,181) | (4,758,815) | (59,560) |
| Interest expense | 90,201 | 2,878 | 373,808 | 7,431 |
| Net loss before provision for income taxes | (2,317,503) | (40,059) | (5,132,623) | (66,991) |
| Benefit for income taxes | - | - | - | - |
| Net loss | $(2,317,503) | $(40,059) | $(5,132,623) | $ (66,991) |
| Weighted average number of common shares outstanding – basic and fully diluted | 10,018,541 | 5,500,000 | 9,105,429 | 5,500,000 |
| Net loss per share – basic and fully diluted | $(0.23) | $(0.01) | $(0.56) | $(0.01) |
Condensed Consolidated Statements of Operations
(Unaudited)
| Three-Months Ended June 30, | Six-Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| Pre-owned vehicle sales: | ||||||||||||||||
| Powersports | $ | 27,978,693 | $ | 8,382,952 | $ | 38,833,577 | $ | 31,812,355 | ||||||||
| Automotive | 127,286,568 | 68,294,841 | 211,357,422 | 181,927,108 | ||||||||||||
| Transportation and vehicle logistics | 13,080,362 | 7,663,500 | 22,418,633 | 14,751,091 | ||||||||||||
| Total revenue | 168,345,623 | 84,341,293 | 272,609,632 | 228,490,554 | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Powersports | 21,021,492 | 7,528,810 | 28,897,883 | 28,085,447 | ||||||||||||
| Automotive | 117,117,721 | 62,493,015 | 194,977,530 | 170,572,680 | ||||||||||||
| Transportation | 10,695,165 | 5,862,734 | 18,044,506 | 10,950,792 | ||||||||||||
| Cost of revenue before impairment loss | 148,834,378 | 75,884,559 | 241,919,919 | 209,608,919 | ||||||||||||
| Impairment loss on automotive inventory | — | — | — | 11,738,413 | ||||||||||||
| Total cost of revenue | 148,834,378 | 75,884,559 | 241,919,919 | 221,347,332 | ||||||||||||
| Gross profit | 19,511,245 | 8,456,734 | 30,689,713 | 7,143,222 | ||||||||||||
| Selling, general and administrative | 18,113,151 | 11,174,287 | 31,514,495 | 29,230,714 | ||||||||||||
| Insurance recovery | — | (5,615,268 | ) | — | (5,615,268 | ) | ||||||||||
| Depreciation and amortization | 631,828 | 508,323 | 1,231,066 | 1,031,317 | ||||||||||||
| Operating income (loss) | 766,266 | 2,389,392 | (2,055,848 | ) | (17,503,541 | ) | ||||||||||
| Interest expense | (1,920,525 | ) | (1,482,408 | ) | (3,529,345 | ) | (3,699,166 | ) | ||||||||
| Change in derivative and warrant liabilities | (2,235,670 | ) | 137,488 | (2,256,322 | ) | 20,673 | ||||||||||
| Gain on early extinguishment of debt | — | — | — | 188,164 | ||||||||||||
| Loss before provision for income taxes | (3,389,929 | ) | 1,044,472 | (7,841,515 | ) | (20,993,870 | ) | |||||||||
| Benefit for income taxes | — | — | — | — | ||||||||||||
| Net income (loss) | $ | (3,389,929 | ) | $ | 1,044,472 | $ | (7,841,515 | ) | $ | (20,993,870 | ) | |||||
| Weighted average number of common shares outstanding - basic and fully diluted | 3,242,616 | 2,214,241 | 2,775,665 | 2,130,332 | ||||||||||||
| Net income (loss) per share - basic and fully diluted | $ | (1.05 | ) | $ | 0.47 | $ | (2.83 | ) | $ | (9.85 | ) | |||||
See Notes to the Condensed Consolidated Financial Statements.
RumbleOn, Inc.
Preferred Shares | Common A Shares | Common B Shares | ||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid in Capital | Subscriptions Receivable | Accumulated Deficit | Total Stockholders' Equity | |
| Balance, December 31, 2016 | - | $- | - | $- | 6,400,000 | $6,400 | $1,534,015 | $(1,000) | $(445,974) | $1,093,441 |
| Exchange of common stock | - | - | 1,000,000 | 1,000 | (1,000,000) | (1,000) | - | - | - | - |
| Issuance of common stock in connection with acquisition | - | - | - | - | 1,523,809 | 1,524 | 2,665,142 | - | - | 2,666,666 |
| Issuance of stock in private placements | - | - | 657,500 | 658 | 2,629,342 | - | 2,630,000 | |||
| Issuance of common stock in connection with loan agreement | - | - | - | - | 1,161,920 | 1,162 | 1,348,878 | - | - | 1,350,040 |
| Issuance of common stock in connection with conversion of a Note Payable-related party, net of debt discount | - | - | - | - | 275,312 | 275 | 284,639 | - | - | 284,914 |
| Stock-based compensation | - | - | - | - | - | - | 287,550 | - | - | 287,550 |
| Net loss | - | - | - | - | - | - | - | - | (5,132,623) | (5,132,623) |
| Balance, September 30, 2017 | - | $- | 1,000,000 | $1,000 | 9,018,541 | $9,019 | $8,749,566 | $(1,000) | $(5,578,597) | $3,179,988 |
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
| Class A Common Shares | Class B Common Shares | Additional Paid in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, as of March 31, 2021 | 50,000 | $ | 50 | 2,286,404 | $ | 2,286 | $ | 110,683,126 | $ | (108,832,367 | ) | $ | 1,853,095 | |||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 7,660 | 8 | (8 | ) | — | — | ||||||||||||||||||||
| Issuance of common stock, net of issuance cost | — | — | 1,048,998 | 1,049 | 36,796,357 | — | 36,797,406 | |||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 701,275 | — | 701,275 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (3,389,929 | ) | (3,389,929 | ) | |||||||||||||||||||
| Balance as of June 30, 2021 | 50,000 | $ | 50 | 3,343,062 | $ | 3,343 | $ | 148,180,750 | $ | (112,222,296 | ) | $ | 35,961,847 | |||||||||||||||
| Class A Common Shares | Class B Common Shares | Additional Paid in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, as of December 31, 2020 | 50,000 | $ | 50 | 2,191,633 | $ | 2,192 | $ | 108,949,204 | $ | (104,380,781 | ) | $ | 4,570,665 | |||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 102,431 | 102 | (102 | ) | — | — | ||||||||||||||||||||
| Issuance of common stock, net of issuance cost | — | — | 1,048,998 | 1,049 | 36,796,357 | — | 36,797,406 | |||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 2,435,291 | — | 2,435,291 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (7,841,515 | ) | (7,841,515 | ) | |||||||||||||||||||
| Balance as of June 30, 2021 | 50,000 | $ | 50 | 3,343,062 | $ | 3,343 | $ | 148,180,750 | $ | (112,222,296 | ) | $ | 35,961,847 | |||||||||||||||
| Class A Common Shares | Class B Common Shares | Additional Paid in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, as of March 31, 2020 | 50,000 | $ | 50 | 2,151,166 | $ | 2,151 | $ | 106,817,379 | $ | (101,420,148 | ) | $ | 5,399,432 | |||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 21,610 | 22 | (22 | ) | — | — | ||||||||||||||||||||
| Convertible note exchange | — | — | — | — | — | — | — | |||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 716,391 | — | 716,391 | |||||||||||||||||||||
| Adjustment for fractional shares in reverse stock split | — | — | 7,131 | 7 | (7 | ) | — | — | ||||||||||||||||||||
| Net income | — | — | — | — | — | 1,044,472 | 1,044,472 | |||||||||||||||||||||
| Balance as of June 30, 2020 | 50,000 | 50 | 2,179,907 | 2,180 | 107,533,741 | (100,375,676 | ) | 7,160,295 | ||||||||||||||||||||
| Class A Common Shares | Class B Common Shares | Additional Paid in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| 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 | — | — | 26,095 | 26 | (26 | ) | — | — | ||||||||||||||||||||
| Convertible note exchange | — | — | — | — | 2,923,755 | — | 2,923,755 | |||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 1,562,761 | — | 1,562,761 | |||||||||||||||||||||
| Adjustment for fractional shares in reverse stock split | — | — | 7,131 | 7 | (7 | ) | — | — | ||||||||||||||||||||
| Net loss | — | — | — | — | — | (20,993,870 | ) | (20,993,870 | ) | |||||||||||||||||||
| Balance as of June 30, 2020 | 50,000 | 50 | 2,179,907 | 2,180 | 107,533,741 | (100,375,676 | ) | 7,160,295 | ||||||||||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
RumbleOn, Inc.
Condensed Consolidated Statements of Cash Flows
Nine-months ended September 30, | ||
2017 | 2016 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Net loss | $(5,132,623) | $(66,991) |
| Adjustments to reconcile net income | ||
| to net cash used in operating activities: | ||
| Depreciation and amortization | 302,697 | 1,425 |
| Amortization of debt discount | 91,877 | - |
| Interest expense on conversion of debt | 196,076 | - |
| Share based compensation expense | 287,550 | - |
| Changes in operating assets and liabilities: | ||
| Increase in prepaid expenses | (121,846) | (4,167) |
| Increase in inventory | (1,244,658) | |
| Increase in accounts receivable | (320,575) | - |
| Increase in other current assets | (174,419) | - |
| Increase in accounts payable and accrued liabilities | 1,683,442 | 18,095 |
| Increase in accrued interest payable - related party | 43,351 | (10,478) |
| Net cash used in operating activities | (4,389,128) | (62,116) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Cash used for acquisitions | (750,000) | - |
| Technology development | (435,097) | - |
| Purchase of property and equipment | (600,175) | - |
| Net cash used in investing activities | (1,785,272) | - |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Proceeds from note payable | 2,167,000 | 214,358 |
| Repayments for note payable - related party | - | (158,000) |
| Proceeds from sale of common stock | 3,313,040 | 7,000 |
| Net cash provided by financing activities | 5,480,040 | 63,358 |
| NET CHANGE IN CASH | (694,360) | 1,242 |
| CASH AT BEGINNING OF PERIOD | 1,350,580 | 3,713 |
| CASH AT END OF PERIOD | $656,220 | $4,955 |
(Unaudited)
| Six-Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (7,841,515 | ) | $ | (20,993,870 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,231,066 | 1,031,317 | ||||||
| Amortization of debt discounts | 1,150,076 | 1,051,898 | ||||||
| Share based compensation | 2,435,291 | 1,562,761 | ||||||
| Impairment loss on inventory | — | 11,738,413 | ||||||
| Impairment loss on property and equipment | — | 177,626 | ||||||
| Loss (gain) from change in value of derivatives | 2,256,322 | (27,500 | ) | |||||
| Gain on early extinguishment of debt | — | (188,164 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in prepaid expenses and other current assets | (612,680 | ) | 79,154 | |||||
| Increase in inventory | 1,684,451 | 14,154,657 | ||||||
| (Increase) in accounts receivable | (17,547,091 | ) | (6,313,321 | ) | ||||
| (Increase) decrease in other assets | (80,550 | ) | 167,186 | |||||
| Decrease in accounts payable and accrued liabilities | (44,429 | ) | (2,732,098 | ) | ||||
| Decrease in other liabilities | (217,250 | ) | — | |||||
| Increase in accrued interest payable | 121,100 | 869,800 | ||||||
| Net cash (used in) provided by operating activities | (17,465,209 | ) | 577,859 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (100,000 | ) | (174,786 | ) | ||||
| Technology development | (905,305 | ) | (614,113 | ) | ||||
| Net cash used in investing activities | (1,005,305 | ) | (788,899 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | 2,500,000 | 8,272,375 | ||||||
| Payments on notes payable | - | (1,521,825 | ) | |||||
| Net proceeds (payments) from lines of credit | 3,678,500 | (20,627,794 | ) | |||||
| Proceeds from PPP loans | - | 5,176,845 | ||||||
| Net Proceeds from sale of common stock | 36,797,406 | 10,780,080 | ||||||
| Net cash provided by financing activities | 42,975,906 | 2,079,681 | ||||||
| NET CHANGE IN CASH | 24,505,392 | 1,868,641 | ||||||
| CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD | 3,515,887 | 6,726,282 | ||||||
| CASH AND RESTRICTED CASH AT END OF PERIOD | $ | 28,021,279 | $ | 8,594,923 | ||||
See Notes to the Condensed Consolidated Financial Statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 ––DESCRIPTION OF BUSINESS DESCRIPTIONAND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Overview
RumbleOn, Inc. (along with its consolidated subsidiaries, the “Company”) was incorporated in October 2013 under the laws of the State of Nevada, as Smart Server, Inc. (“Smart Server”). On February 13, 2017,Nevada. Unless the Company changed its name from Smart Server, Inc.context requires otherwise, references in this report to “RumbleOn,” the “Company,” “we,” “us,” and “our” refer to RumbleOn Inc.and its consolidated subsidiaries.
We are a technology development activities in 2014, it had no operationsdriven, motor vehicle company and nominal assets, meeting the definition of a “shell company” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and regulations thereunder.
We operate an infrastructure-light platform that facilitates the ability of bothall participants in the supply chain, including RumbleOn, other dealers and consumers and dealers to Buy-Sell-Trade-FinanceBuy-Sell-Trade-Finance-Transport pre-owned recreation vehicles in one online location. The Company’svehicles. Our goal is forto transform the platform to be widely recognized as the leading online solution for the sale, acquisition,way VIN-specific pre-owned vehicles are bought and distribution of recreation vehiclessold by providing users with the most comprehensive, efficient, timely and transparent transaction experiences. In August 2020, we launched the next generation of RumbleOn.com, bringing traditional brick and mortar powersports dealers across the country online. Then, in March 2021, we announced a definitive agreement to combine our e-commerce platform with the RideNow powersports group, the nation’s largest powersports retailer, as discussed further below. The combination of RumbleOn and RideNow will become the first omnichannel platform in powersports. This channel is a full-service platform that will revolutionize the customer experience. The Company’s initial focus isThis omnichannel platform will offer the market for 601ccconsumer the fastest, easiest, and larger on road motorcycles, particularly those concentratedmost transparent transaction online or in store experience while providing customers the “Harley-Davidson” brand. The Company will look to extend to other brandsmost comprehensive offering that includes: Buy, Sell or Trade without Leaving Your Home; Virtual Inventory Listings Online and additional vehicle typesIn Store; Physical Retail and products as the platform matures.Service Locations; Proprietary Supply Aggregation; Apparel, Parts, Service and Accessories; Vehicle Transportation and Logistics; Online Cash Offers; and Proprietary Secondary Online Financing.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statementsfinancial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States generally accepted accounting principlesof America (“U.S. GAAP”) for interim financial information and in accordance with the instructions toon Form 10-Q and Rule 10-01 of Regulation S-X promulgated bypursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”(“SEC”). The Condensed Consolidated financial statements include the accounts of RumbleOn Inc. and therefore do notits subsidiaries, which are all wholly owned. 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 of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company’s Condensed Consolidated Financial Statements reflect all adjustments, (consisting only of normal recurring adjustments) management believes areexcept as otherwise noted, necessary for the fair presentation of the Company’s financial condition,position and results of operations and cash flows for the periods presented. Certain prior period amounts have been reclassified to conform to the current year’s presentation. Amounts and percentages may not total due to rounding.The information at December 31, 2016 in the Company’s Condensed Consolidated Balance Sheets included in this quarterly reportyear-end condensed balance sheet data was derived from the audited financial statements. These Condensed Consolidated Balance Sheets included in the Company’s 2016 Annual Report on Form 10-K filed with the SEC on February 14, 2017. The Company’s 2016 Annual Report on Form 10-K, together with the information incorporated by reference into such report, is referred to in this quarterly report as the “2016 Annual Report.” This quarterly reportfinancial statements should be read in conjunction with the 2016Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report.
Liquidity
We have incurred losses and negative cash flow from operations since inception through June 30, 2021. 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. See “Note 7 — Notes Payable and Lines of Credit,” “Note 8 - Convertible Notes,” and “Note 9 — Stockholders 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 focused on preserving liquidity. Our primary liquidity sources are available cash and cash equivalents, amounts available under lines of credit, monetization of our retail loan portfolio, rationalizing costs and expenses, and proceeds from our April 8, 2021 equity offering of 1,048,998 shares of Class B common stock that generated net proceeds of $36,797,406; refer to Note 9 — Stockholders’ Equity. Management believes that current working capital, results of operations, and existing financing arrangements are sufficient to fund operations for at least the next twelve months.
Use of Estimates
The preparation of these unaudited 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 affecthave a material impact on the reported amountscarrying value of certain assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities inand the financial statementsreported amounts of revenue and accompanying notes. Estimatesexpenses during the reporting period, which management considers to be critical accounting estimates. The judgments, assumptions and estimates used by management are used for,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 Covid-19 pandemic and the continuing adverse impacts to global economic conditions, as well as the Company’s operations, may impact future estimates including, but not limited to inventory valuation, depreciable lives, carryingvaluations, fair value measurements, asset impairment charges and discount rate assumptions.
Recent Pronouncements
Adoption of intangible assets, sales returns, receivables valuation, restructuring-related liabilities, taxes, and contingencies. Actual results could differ materially from those estimates.
In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“FASB”ASU 2016-13”) Accounting Standards Codification (“ASC”) Topic 260, Earnings per share. Basic earnings per common share (“EPS”) calculations are determined, which amends the guidance on the impairment of financial instruments by dividing net income (loss) by the weighted average numberrequiring measurement and recognition of shares of common stock outstanding during the period. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common sharesexpected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years, and dilutive common share equivalents outstanding. Duringfor interim periods when common stock equivalents, if any, are anti-dilutive they are not consideredwithin those fiscal years, beginning after December 15, 2019, and earlier adoption is permitted beginning in the computation.
In December 2019, the Plan was approved byFASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Company's stockholders atAccounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the 2017 Annual Meeting of Stockholders.general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company estimates the fair value of awards granted under the Plan on the date of grant. The fair value of an RSU is based on the average of the highadopted ASU 2019-12 for its fiscal year beginning January 1, 2021 and low market prices of the Company’s Class B Common Stock on the date of grant and is recognized as an expense on a straight-line basis over its vesting period; to date, the Company has only issued RSUs that vest over a three-year period utilizing the following vesting schedule: (i) 20% on the first anniversary of the grant date; (ii) 30% on the second anniversary of the grant date; and (iii) 50% on the third anniversary of the grant date. During the nine-month period ended September 30, 2017, the Company granted 560,000 RSUs under the Plan to members of the Board of Directors, officers and employees. Compensation expense associated with RSU grants for the three and nine-month periods ended September 30, 2017 was $157,763 and $287,550, respectively and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
NOTE 2 –ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the Company.following as of June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Trade | $ | 18,940,112 | $ | 8,859,237 | ||||
| Finance receivables held for sale | 8,641,945 | 2,117,809 | ||||||
| 27,582,057 | 10,977,046 | |||||||
| Less: allowance for doubtful accounts | 627,006 | 1,569,086 | ||||||
| $ | 26,955,051 | $ | 9,407,960 | |||||
NOTE 3 – ACQUISITIONSINVENTORY
Inventory consists of the assets of NextGen in exchange for $750,000 in cash, plus 1,523,809 unregistered shares of Class B Common Stock of the Company, which were issued at a negotiated fair value of $1.75 per share and a subordinated secured promissory note issued by the Company in favor of NextGen in the amount of $1,333,334 (the “NextGen Note”). The NextGen Note matures on the third anniversary of the closing date (the “Maturity Date”).
| June 30, 2021 | December 31, 2020 | |||||||
| Pre-owned vehicles: | ||||||||
| Powersport vehicles | $ | 3,981,570 | $ | 1,869,830 | ||||
| Automobiles and trucks | 15,920,275 | 19,592,896 | ||||||
| 19,901,845 | 21,462,726 | |||||||
| Less: Reserve | 225,855 | 102,285 | ||||||
| $ | 19,675,990 | $ | 21,360,441 | |||||
Three-Months Ended September 30, | Nine-Months Ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
| Pro forma revenue | $3,706,142 | $45,606 | $3,868,079 | $100,006 |
| Pro forma net loss | $(2,317,503) | $(567,401) | $(5,237,814) | $(1,625,690) |
| Loss per share - basic and fully diluted | $(0.23) | $(0.08) | $(0.58) | $(0.23) |
| Weighted-average common shares and common stock equivalents outstanding basic and fully diluted | 10,018,541 | 7,023,809 | 9,105,429 | 7,023,809 |
NOTE 4 – PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net of accumulated depreciation and amortization as of SeptemberJune 30, 20172021 and December 31, 2016:2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Vehicles | $ | 340,603 | $ | 240,603 | ||||
| Furniture and equipment | 191,047 | 191,047 | ||||||
| Technology development and software | 11,913,606 | 11,008,303 | ||||||
| Leasehold improvements | 321,082 | 321,082 | ||||||
| Total property and equipment | 12,766,338 | 11,761,035 | ||||||
| Less: accumulated depreciation and amortization | (6,470,655 | ) | (5,239,589 | ) | ||||
| Total | $ | 6,295,683 | $ | 6,521,446 | ||||
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. | ||
On June 30, 2017,2021, capitalized technology development costs were $1,835,097, which includes $1,400,000 of$11,705,595 and capitalized software acquired in the NextGen transaction. For additional information, see Note 3 - “Acquisitions.”costs were 208,011. Total technology development costs incurred for the nine-month periodthree and six months ended SeptemberJune 30, 2017 were $713,766,2021 was $939,354 and $1,698,344, respectively, of which $435,097$510,341 and $905,303, respectively was capitalized and $278,669$429,013 and $793,041, respectively, was charged to expense in the accompanying Condensed Consolidated Statements of Operations. TheDepreciation expense for the three and six-month periods ended June 30, 2021, was $631,828 and 1,231,066, respectively, which included the amortization of capitalized technology development costs of $570,875 and 1,117,557, respectively. Total technology development costs incurred for the three and nine-month periodssix-months ended SeptemberJune 30, 20172020 was $89,429$554,551 and $219,374, respectively. There were no technology development costs incurred$1,465,761, respectively, of which $323,737 and no amortization$614,113, respectively was capitalized and $230,814 and $851,648, respectively, was charged to expense in the accompanying Condensed Consolidated Statements of capitalized development costs for the same periods in 2016.Operations. Depreciation expense on vehicles, furniture and equipment for the three and nine-monthsix-month periods ended SeptemberJune 30, 20172020 was $28,598$508,322 and $49,573,$1,031,317, respectively, which included the amortization of capitalized technology development costs of $451,634 and $889,576, respectively. Depreciation on furniture
NOTE 5 –INTANGIBLE ASSETS AND GOODWILL
The following is a summary of the changes in the carrying amount of goodwill and equipmentother indefinite-lived assets as of December 31, 2020 and the six-month periods ended June 30, 2021. 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 three and nine-month periods ended September 30, 2016 was $475 and $1,425, respectively.
| Goodwill | Indefinite Lived Intangible Assets | |||||||
| Balance at March 31, 2021 | $ | 26,886,563 | $ | 45,515 | ||||
| Acquisitions | — | — | ||||||
| Impairment | — | — | ||||||
| Balance at June 30, 2021 | $ | 26,886,563 | $ | 45,515 | ||||
| ||||||||||||||||||||||||||||||||||||||||||||||
The $45,515 of indefinite lived intangible asset is included in other assets in the Company’s Condensed Consolidated balance sheets.
| Remainder through December 31, 2017 | $11,250 |
| 2018 | 45,000 |
| 2019 | 20,000 |
$76,250 |
NOTE 6 – ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
The following table summarizes accounts payable and other accrued liabilities as of SeptemberJune 30, 20172021 and December 31, 2016:2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Accounts payable | $ | 8,845,385 | $ | 8,167,957 | ||||
| Operating lease liability-current portion | 1,750,127 | 1,630,002 | ||||||
| Accrued payroll | 1,259,875 | 1,079,771 | ||||||
| State and local taxes | 104,888 | 856,341 | ||||||
| Other accrued expenses | 861,475 | 973,377 | ||||||
| Total | $ | 12,821,750 | $ | 12,707,448 | ||||
September 30, 2017 | December 31, 2016 | |
| Accounts payable | $1,539,572 | $219,101 |
| Sales taxes | 296 | - |
| Accrued compensation and benefits | 354,790 | - |
| Other | 7,885 | - |
| Total accounts payable and accrued liabilities | $1,902,543 | $219,101 |
NOTE 7 – NOTES PAYABLE AND LINES OF CREDIT
Notes payable and lines of credit consisted of the following as of SeptemberJune 30, 20172021 and December 31, 2016:2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Notes payable-NextGen dated February 8, 2017. Interest is payable semi-annually at 6.5% through February 9, 2019 and 8.5% through February 10, 2020 and 10.0% thereafter through maturity, which is January 31, 2021. | $ | — | $ | 833,334 | ||||
| Notes payable-private placement dated March 31, 2017. Interest is payable semi-annually at 8.5% through March 31, 2020 and 10.0% thereafter through maturity which is June 30, 2021. | 297,411 | 669,175 | ||||||
| Notes payable-Bridge loan dated March 12, 2021. Facility provides up to $2,500,000 of available credit secured by certain intellectual assets. Interest rate at 12.0% annually payable at maturity which is the earlier of September 21, 2021, or upon the issuance of debt or equity above a certain threshold. | 2,500,000 | — | ||||||
| Line of credit-NextGear floor plan dated October 30, 2018. Secured by vehicle inventory and other assets. Interest rate on June 30, 2021, was 10.25%. Principal and interest is payable on demand. | 21,857,234 | 17,811,626 | ||||||
| Line of Credit-RumbleOn Finance. Line of credit secured by the loans and other assets of RumbleOn Finance, LLC. Interest rate on June 30, 2021, was 7.25%. Principal and interest is payable on demand. | 2,110,842 | 888,852 | ||||||
| Notes payable-PPP Loans dated May 1, 2020. Payments of principal and interest were deferred until September 1, 2021, at which time the Company will make equal payments of principal and interest through maturity, which is April 1, 2025. | 5,176,845 | 5,176,845 | ||||||
| Total notes payable and lines of credit | $ | 31,942,332 | $ | 25,379,832 | ||||
| Less: Current portion | 27,251,151 | 20,688,651 | ||||||
| Long-term portion | $ | 4,691,181 | $ | 4,691,181 | ||||
September 30, 2017 | December 31, 2016 | |
| Notes payable-NextGen dated February 8, 2017. Interest is payable semi-annually at 6.5% through February 9, 2019 and 8.5% through maturity which is February 8, 2020. | $1,333,334 | $- |
| Notes payable-private placement dated March 31, 2017. Interest is payable at maturity and accrues at 6.5% through March 31, 2019 and 8.5% through maturity which is March 31, 2020. | 667,000 | - |
| Convertible note payable-related party dated July 13, 2016. Interest rate of 6.0% which is accrued and paid at maturity. Note matures on July 26, 2026. Note is convertible into common stock, in whole at any time before maturity at the option of the holder at $.75 per share. | - | 197,358 |
| Senior Secured Promissory Notes dated September 5, 2017. Interest rate of 5.0% through December 31, 2017 and a rate of 10% through maturity which is accrued and paid at maturity. Note matures on September 5, 2018. | 1,650,000 | |
| Less: Debt discount | (725,123) | (196,076) |
$ 2,925,211 | $ 1,282 | |
| Current portion (net of $139,726 of debt discount) | 1,510,274 | - |
| Long-term portion | $ 1,414,937 | $ 1,282 |
Line of Credit-Floor Plan-NextGear
On October 30, 2018, we entered into a floor plan vehicle financing credit lines (collectively the “NextGear Credit Line”) with NextGear. As of June 30, 2021, the NextGear Credit Line provides that NextGear may advance up to $25,000,000 in financing to both Wholesale and AutoSport. Advances, if not demanded earlier, are due and payable for each vehicle financed as and when such vehicle is sold, or otherwise disposed of. The Company maintain $3,000,000 on deposit as restricted cash. Advances under the NextGear Credit Line bear interest at a per annum rate of 6.25% plus 4% on June 30, 2021. Interest expense on the NextGear Credit Line for the three and six-month periods ended June 30, 2021 was $524,880 and $828,801, respectively. Interest expense on the NextGear Credit Line for the three and six-month ended June 30, 2020, was $513,301 and $1,211,159, respectively.
Line of Credit-Floor Plan-Ally
On July 13, 2016,February 16, 2018, the Company, through its wholly-owned subsidiary RMBL MO, entered into an unsecured convertible noteInventory Financing and Security Agreement (the “BHLP Note”“Ally Facility”) with Berrard Holdings, an entityAlly Bank . The Ally Facility terminated in accordance with its terms in February 2020. Interest expense on the Credit Facility for the three and six-months ended June 30, 2020, was $(2,428) and $77,266, respectively.
Line of Credit- RumbleOn Finance Facility
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 $2,500,000 in proceeds (the “ROF Facility”) with CL Rider Finance, L.P. (the “CL Rider”). In connection with the ROF facility, RumbleOn Finance pledged its assets to CL Rider to secure the ROF Facility and controlled byexecuted a current officer and director, Mr. Berrard,promissory note in favor of the CL Rider pursuant to which the Company was required to repay $191,858 on or before July 13, 2026 plusROF Facility will accrue interest at 6%an interest rate not lower than 7% per annum. The BHLP Note was also convertible into common stock, in whole, at any time before maturity at the option of the holder at the greater of $0.06 per share or 50% of the price per share of the next qualified financing whichROF Facility is defined as $500,000 or greater. Effective August 31, 2016, the principal amount of the BHLP Note was amended to include an additional $5,500 loaned to the Company,payable on demand by CL Rider. Interest expense on the same terms. On November 28, 2016, the Company completed its qualified financing at $1.50 per share which established the conversion price per shareROF Facility for the BHLP Note of $0.75 per share, resulting inthree and six-month periods ended June 30, 2021 was $41,258 and $70,686, respectively. Interest expenses on the principal amount ofROF Facility for the BHLP Note being convertible into 263,144 shares of Class B Common Stock. As such, November 28, 2016 became the “commitment date” for determining the value of the BHLP Note conversion feature. Because there had been no trading in the Company’s common stock since July 2014, other than the purchase by Berrard Holdings of 99.5% of the outstanding shares in a single transaction, the Company used the Monte Carlo simulation to determine the intrinsic value of the conversion feature of the BHLP Note, which resulted in a value in excess of the principal amount of the BHLP Note. Thus, the Company recorded a note discount of $197,358 with the corresponding amount as an addition to paid in capital. This note discountthree and six-months ended June 30, 2020, was amortized to interest expense until the scheduled maturity of the BHLP Note in July 2026 or until it was converted using the effective interest method. On March 31, 2017, the Company issued 275,312 shares of Class B Common Stock upon full conversion of the BHLP Note, having an aggregate principal amount, including accrued interest, of $206,484$0 and a conversion price of $0.75 per share. In connection with the conversion of the BHLP Note, the remaining debt discount of $196,076 was charged to interest expense in the Condensed Consolidated Statements of Operations and the related deferred tax liability was credited to additional paid in capital in the Condensed Consolidated Balance Sheets.$0, respectively.
Notes Payable
NextGen
On February 8, 2017, in connection with the acquisition of NextGen, the Company issued a subordinated secured promissory note in favor of NextGen (which note was subsequently assigned to Halcyon in February 2018) in the amount of $1,333,334. Interest accrues and will be paid semi-annually (i) at a rate of 6.5% annually from the closing date through the second anniversary of such date anddate; (ii) at a rate of 8.5% annually from the second anniversary of the closing date through February 10, 2020; and (iii) 10.0% thereafter through the Maturity Date. Upon the occurrence of any event of default, the outstanding balance under the NextGen Note shall become immediately due and payable upon election of the holder. The Company’s obligations under the NextGen Note are secured by substantially all the assets of NextGen Pro, pursuant to an Unconditional Guaranty Agreement (the “Guaranty Agreement”), by and among NextGen and NextGen Pro, and a related Security Agreement between the parties, each dated as of February 8, 2017. UnderAs discussed below, the termsnote was exchanged for a new note in January 2020 which extended the maturity date of the Guaranty Agreement, NextGen Pro has agreed to guarantee the performance of all the Company’s obligations under the NextGen Note.note until January 31, 2021. Interest expense on the NextGen NotesNote for the three and nine-monthsix-month periods ended SeptemberJune 30, 20172021 was $21,370$0 and $54,849,$7,534, respectively. Interest expenses on the NextGen Note for the three and six-months ended June 30, 2020, was $22,387 and $45,119, respectively.
Private Placement
On March 31, 2017, the Company completed funding of the second tranche of the 2016 Private Placement (as defined below). The investors were issued 1,161,92058,096 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 MarchJanuary 31, 2020.2021. Interest accrues at a rate of 6.5% annually from the closing date through the second anniversary of such date anddate; at a rate of 8.5% annually from the second anniversary of the closing date through June 30, 2020; and at a rate of 10% thereafter 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.Maturity Date. 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 inpaid-in capital. The debt discount iswas fully amortized to interest expense untilat the scheduled maturity of the Private Placement Notes in March 2020January 2021 using the effective interest method. The effective interest rate at SeptemberJune 30, 20172021 was 26.0%. Interest expense on the Private Placement Notes was $7,415 and $17,906, respectively for the three and nine-month periodssix months ended SeptemberJune 30, 20172021. Interest expense for the three and six-months ended June 30, 2020 was $94,885$16,684 and $184,943,$108,576, respectively, which included debt discount amortization of $41,979$0 and $81,603, respectively$75,601, respectively. On January 31, 2021, a payment of $371,000 was made on the Private Placement Note and the remaining balance of $297,411 was extended through June 30, 2021. The Notes were paid in full on July 1, 2021.
Exchange of Notes Payable
Certain of the Company’s investors extended the maturity of currently outstanding promissory notes, and exchanged such notes for the threenew notes (the “New Investor Notes”), pursuant to that certain Note Exchange Agreement, dated January 14, 2020 (the “Investor Note Exchange Agreement”), by and nine-month periods ended September 30, 2017.
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 Company fromPaycheck Protection Program (the “PPP”) established under the Notes, net of original issuance discount, was $1,500,000. The Notes are secured by an interest in all the Company’s Collateral, as such term is definedCARES Act, in the Notes.
Pursuant to the Company of $5,000,000 or more, then the noteholders may require the Company to prepay the Notes on thirty (30) days prior written notice to the Company.
In July 2021, we applied to obtain forgiveness of the PPP Loans, however, the Company can provide no assurance that it will be able to obtain forgiveness of the PPP Loans in whole or in part.
Bridge Loan
In connection with the RideNow Transaction (as defined below) (See “Note 19 – Proposed Acquisition”) on March 12, 2021, the Company and its subsidiary, NextGen Pro, LLC (“NextGen Pro”), executed a secured promissory note with BRF Finance Co., LLC (“BRF Finance”), an affiliate of B. Riley Securities, Inc., pursuant to which BRF Finance has loaned the Company $2,500,000 (the “Bridge Loan”). The Bridge Loan matures on the earlier of September 30, 20172021 or upon the issuance of debt or equity above a threshold. The Bridge Loan is secured by certain intellectual property assets held by NextGen Pro. Interest will accrue on the Bridge Loan until maturity (by acceleration or otherwise) at a rate of 12.0% annually. Interest expense on the Bridge Loan for the three and six-months ended June 30, 2021 was $15,925 which included $10,274$77,113 and $93,780, respectively.
NOTE 8 – CONVERTIBLE NOTES
As of originalJune 30, 2021, the outstanding convertible promissory notes net of debt discount and issue discount amortization. costs are summarized as follows:
| Principal Amount | Debt Discount | Carrying Amount | ||||||||||
| Convertible senior notes | $ | 38,750,000 | $ | 10,670,516 | $ | 28,079,484 | ||||||
| Convertible notes-Autosport: | ||||||||||||
| $1,536,000 unsecured note | 640,000 | 224,887 | 415,113 | |||||||||
| 39,390,000 | 10,895,403 | 28,494,597 | ||||||||||
| Less: Current portion | 640,000 | 224,887 | 415,113 | |||||||||
| Long-term portion | $ | 38,750,000 | $ | 10,670,516 | $ | 28,079,484 | ||||||
Convertible Senior Notes
On October 23, 2017,May 9, 2019, the Company completedentered into a public offeringpurchase agreement (the “Purchase Agreement”) with JMP Securities LLC (“JMP Securities”) to issue and used approximately
The New Notes were issued on January 14, 2020 pursuant to $1,350,000 in the aggregate upon the request of the Company at any time on or after January 31, 2017an Indenture (the “New Indenture”), by and before November 1, 2020. On March 31, 2017, the Company completed the second tranche of the 2016 Private Placement. For additional information, see Note 7 - “Notes Payable.”
The initial conversion rate of the Company, so as to strengthen the mutuality of the interests between such persons and the stockholders of the Company. The Plan will allow the Company to grant a variety of stock-based and cash-based awards to Eligible Individuals. Twelve percent (12%) of the Company’s issued and outstandingNew Notes is 25 shares of Class B Common Stock from timeper $1,000 principal amount of New Notes, which is equal to timean initial conversion price of $40.00 per share. The conversion rate is subject to adjustment in certain events as set forth in the New Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the New Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its New Notes in connection with such make-whole fundamental change. Before July 1, 2024, the New Notes will be convertible only under circumstances as described in the New Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental change adjustment will result in a conversion rate greater than 62.0 shares per $1,000 in principal amount.
The New Indenture contains a “blocker provision” which provides that no holder (other than the depository 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 reservednot 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.
As of June 30, 2021, 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 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 $11,454 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 June 30, 2020. The derivative liability is remeasured at each reporting date with an increase in value of $11,454 and $32,106 being recorded in change in derivative liability in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2021, respectively. The value of the derivative liability as of June 30, 2021 was $48,800.
The interest expense recognized with respect to the Convertible Notes for the three and six-month periods ended June 30, 2021 and 2020 was as follows:
| Three-Months Ended June 30, | Six-Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Contractual interest expense | $ | 653,906 | $ | 653,906 | $ | 1,307,812 | $ | 1,258,359 | ||||||||
| Amortization of debt discount | $ | 544,958 | $ | 225,013 | $ | 1,067,005 | $ | 888,136 | ||||||||
| Total interest expense | $ | 1,198,864 | $ | 878,919 | $ | 2,374,817 | $ | 2,146,495 | ||||||||
Convertible Notes-Autosport USA
On February 3, 2019, in connection with the Autosport Acquisition, the Company issued a: (i) $500,000 Promissory Note and (ii) $1,536,000 Convertible Note in favor of the Seller. In connection with the Autosport Acquisition, the Buyer also assumed additional debt of $257,933 pursuant to a Second Convertible Note. 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 three months ended March 31, 2020. Interest expense on the Convertible Note for the three and six-month periods ended June 30, 2020 was $0 and included $7,477, respectively and included debt amortization of $0 and $6,382, respectively.
The $500,000 Promissory Note had a term of fifteen months and accrued interest at a simple rate of 5.0% per annum. Interest under the Promissory Note was 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. Any interest and principal due under the Promissory Note was 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 Market for the twenty (20) consecutive trading days preceding the conversion date. The Buyer elected not to convert any principal or interest and the loan has been repaid in full in 2020. Interest expense for the Promissory Note for the three and six-month periods ended June 30, 2020 was $7,227 and $18,056, respectively, and included debt discount amortization of $1,495 and $6,092, respectively.
The $1,536,000 Convertible Note matures on January 31, 2022 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. Interest expense on the Convertible Note for the three and six-month periods ended June 30, 2021 was $57,688 and included $109,171, respectively, and included debt discount amortization of $46,279 and $83,071, respectively. Interest expense on the Convertible Note for the three and six-month periods ended June 30, 2020 was $42,300 and $93,860, respectively, and included debt discount amortization of $13,740 and $33,433, respectively.
NOTE 9 – STOCKHOLDER EQUITY
Share-Based Compensation
On June 30, 2017, the Company’s shareholders approved a Stock Incentive Plan (as amended, the “Plan”) allowing for the issuance of restricted stock units (“RSUs”), stock options (“Options”), Performance Units, and other equity awards (collectively “Awards”) for our employees, consultants, directors, independent contractors, and certain prospective employees who have committed to become an employee (each an “Eligible Individual”). As of June 30, 2021, the number of shares authorized for issuance under the Plan. AsPlan was 700,000 shares of September 30, 2017, 9,018,541 shares are issued and outstanding, resulting in upClass B Common Stock. In contemplation of the RideNow Transaction, on March 9, 2021, the Board of Directors (the “Board”) approved, subject to 1,082,225 shares available for issuance under the Plan. As of September 30, 2017, the Company has granted 560,000 RSUs understockholder approval, an amendment to the Plan to certain officersincrease the authorized shares to 2,700,000 shares of Class B Common Stock and employeesto extend the term of the Company. The aggregate fair value of the RSUs was $2,103,500. The RSUsPlan for an additional ten years. To date, most RSU and Option awards are service/time based vested and typically vest over a three-year period as follows:with (i) 20%20.0% vesting during the first twelve months after grant date, (ii) 30.0% during the subsequent twelve months of the initial vesting, and (iii) the final 50.0% during the following twelve months. Going forward, service/time based RSUs or options will vest in equal quarterly installments over three years, provided that for the initial grant of RSUs or Options to an Eligible Individual, the first year vesting will vest in full on the first anniversary of the grant date; (ii) 30%date of grant. Performance-based awards and market condition-based awards granted to date have vesting schedules that are typically dependent on achieving a particular objective within thirty (30) months.
The Company estimates the second anniversary of the grant date; and (iii) 50% on the third anniversary of the grant date. The fair value of awards granted under the Plan on the date of grant. In the case of time or service based RSU awards, the fair value is the price of the Class B Common Stock on the date of the award. Performance Awards use the share prices of the Class B Common Stock but the Company, both at grant and each subsequent quarter, considers whether to apply a discount to the fair value in situations where the Company believes there is amortized overrisk that the period fromrelevant performance metrics may not be met. Options are calculated using the grant date throughBlack-Scholes option valuation model while market-condition based awards are estimated using a Monte Carlo simulation model as these awards are tied to a market condition. Both the vesting dates. Compensation expense recognized for these grants forBlack-Scholes and Monte-Carlo simulations utilize multiple input variables to determine the three and nine-month periods ended September 30, 2017 was $157,763 and $287,550, respectively. The Company has approximately $1,605,600 in unrecognized stock-based compensation, with an average remaining vesting period of three years.
| Three-Months Ended June 30, | Six-Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Restricted Stock Units | $ | 694,722 | $ | 701,000 | $ | 2,420,504 | $ | 1,532,179 | ||||||||
| Options | 6,553 | 15,291 | 14,787 | 30,582 | ||||||||||||
| Total stock-based compensation | $ | 701,275 | $ | 716,391 | $ | 2,435,291 | $ | 1,562,761 | ||||||||
As of June 30, 2021, the total unrecognized compensation expense related to outstanding equity awards was approximately $2,357,183, which the Company expects to recognize over a weighted-average period of approximately 10.6 months. Total unrecognized equity-based compensation expense will be adjusted for actual forfeitures.
January 2020 Public Offering
On January 14, 2020, pursuant to an underwritten public offering, the Company issued and outstanding900,000 shares of common stock approvedClass 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 amendmentadditional 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 used the net proceeds of the 2020 Public Offering for working capital and general corporate purposes, which included further technology development, increased spending on marketing and advertising and capital expenditures necessary to grow the business.
Reverse Stock Split
On May 18, 2020, the Company filed a Certificate of Change to the Company’s Articles of Incorporation (the “Certificate of Amendment”), to change the name of the Company to RumbleOn, Inc. and to create an additional class of common stock of the Company, which was effective on February 13, 2017 (the “Effective Date”).
April 2021 Public Offering
On April 8, 2021, the Company entered into an aggregateunderwriting agreement (the “Underwriting Agreement”) with B. Riley Securities, Inc., as representative to the several underwriters named on Schedule A to the Underwriting Agreement (the “Underwriters”), relating to the Company’s public offering (the “Offering”) of 1,000,000 shares of Class A Common Stock to Messrs. Chesrown and Berrard in exchange for an aggregate of 1,000,0001,048,998 shares of Class B Common Stock held by them. Also on the Effective Date, the Company amended its bylaws to reflect the name change to RumbleOn, Inc.(the “Firm Shares”) and to reflect the Company’s primary place of business as Charlotte, North Carolina.
The Underwriters agreed to purchase the Firm Shares at a price of $4.00$38.00 per share. The Firm Shares were offered, issued, and sold pursuant to a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement filed with the SEC on Form S-3 (File No. 333-234340) under the Securities Act, and an effective registration statement filed with the SEC on Form S-3MEF (File. No. 333-255139) under the Securities Act.
On April 13, 2021, the Company issued the Firm Shares and closed the Offering at a public price of $38.00 per share for aggregatenet proceeds to the Company of $2,480,000 in$36,797,406 after deducting the private placement (the “2017 Private Placement”). Officersunderwriting discount and directorsoffering fees and expenses payable by the Company.
The Underwriting Agreement included customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of the Company acquired 175,000 sharesand the Underwriters, including for liabilities under the Securities Act, other obligations of Class B Common Stockthe parties and termination provisions. The representations, warranties and covenants contained in the 2017 Private Placement. In May 2017,Underwriting Agreement were made only for purposes of such agreement and as of specific dates, were solely for the Company completed the sale of an additional 37,500 shares of Class B Common Stock in the 2017 Private Placement. Proceeds from the 2017 Private Placement were used to complete the launchbenefit of the Company’s website, www.rumbleon.com, acquire vehicle inventory, continue developmentparties to the agreement and were subject to limitations agreed upon by the contracting parties.
The Company intends to use the net proceeds of the Company’s platform, andOffering for working capital and general corporate purposes.
NOTE 910 – SELLING, GENERAL AND ADMINISTRATIVE
The following table summarizes the detail of selling, general and administrative expense for the three-months ended June 30, 2021 and 2020:
| Three-Months Ended June 30, | Six-Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Compensation and related costs | $ | 8,332,880 | $ | 5,146,791 | $ | 14,314,343 | $ | 13,326,891 | ||||||||
| Advertising and marketing | 1,961,543 | 541,921 | 3,557,847 | 3,490,077 | ||||||||||||
| Professional fees | 1,098,045 | 1,075,831 | 2,765,141 | 1,918,534 | ||||||||||||
| Technology development and software | 424,063 | 235,013 | 827,538 | 857,159 | ||||||||||||
| General and administrative | 6,296,620 | 4,174,731 | 10,049,626 | 9,638,053 | ||||||||||||
| $ | 18,113,151 | $ | 11,174,287 | $ | 31,514,495 | $ | 29,230,714 | |||||||||
NOTE 11 – LOSS CONTINGENCIES AND INSURANCE RECOVERIES
On March 3, 2020, a severe tornado struck the greater Nashville area (the “Nashville Tornado”) 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 loss was comprised of three components: (1) inventory loss, assessed by the insurance carrier at approximately $13,000,000; (2) building and nine-month periodspersonal property loss, primarily impacting our leased facilities, assessed by the insurance carrier at $2,783,000; 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 advanced $5,615,268 in July 2020 and $3,134,732 in July 2021. Therefore, the total payments received thus far against the final settlement are $8,750,000. 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 interim payments on the building and personal property loss of $2,625,787. 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 Nashville Tornado, the Company concluded that the utility of the inventory damaged by the storm was 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 three-and six months ended SeptemberJune 30, 20172020, the Company recorded an impairment loss on inventory of $11,738,413 comprised of $4,453,775 for vehicles that were a total loss and 2016:$7,284,638 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the June 30, 2020 Condensed Consolidated statements of operations. Additionally, $177,626 of the net book value of the property and equipment destroyed by the Nashville Tornado was expensed.
Three-months ended September 30, | Nine-months ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
| Selling, general and administrative: | ||||
| Compensation and related costs | $1,028,819 | $- | $1,951,911 | $- |
| Advertising and marketing | 752,017 | - | 1,060,195 | - |
| Professional fees | 192,041 | 34,044 | 724,486 | 49,017 |
| Technology development | 91,967 | - | 278,668 | - |
| General and administrative | 261,199 | 2,662 | 674,956 | 9,118 |
$2,326,043 | $36,706 | $4,690,216 | $58,135 | |
NOTE 1012 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing activity for the nine-month periodssix-months ended SeptemberJune 30, 20172021 and 2016.2020:
| Six-Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for interest | $ | 2,258,169 | $ | 1,818,671 | ||||
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 June 30:
| June 30, 2021 | June 30, 2020 | |||||||
| Cash and cash equivalents | $ | 24,972,223 | $ | 3,061,091 | ||||
| Restricted cash (1) | 3,049,056 | 5,533,832 | ||||||
| Total cash, cash equivalents, and restricted cash | $ | 28,021,279 | $ | 8,594,923 | ||||
Nine-Months Ended September 30, | ||
2017 | 2016 | |
| Cash paid for interest | $42,502 | $- |
| Note payable issued on acquisition | $1,333,334 | $- |
| Conversion of notes payable-related party | $206,484 | $- |
| Issuance of shares for acquisition | $2,666,666 | $- |
| (1) | Amounts included in restricted cash represent the deposits required under the Company’s lines of credit. |
NOTE 1113 – INCOME TAXES
CARES Act
In projectingJune 2020, the Company’sCoronavirus 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 expense for the year ended December 31, 2017, management has concluded it is not likely to recognize the benefit of itspayable and deferred tax asset, net of deferred tax liabilities, and as a result a full valuation allowance will be required. As such, no income tax benefit has beenpositions of the Company.
No current provision for Federal income taxes was recorded for the three and nine-monthsix-months ended June 30, 2021 and 2020 due to the Company’s operating losses. The Company has provided a full 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 ended September 30, 2017 or 2016.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 12 —14 – LOSS PER SHARE
The Company computes basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common stockholders is computedcalculated by dividing the net loss attributable to common stockholders by the weighted averageweighed-average number of shares of common sharesstock outstanding during the period. The computation of diluted net loss per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the three-month and nine-month periods ended September 30, 2017 did not include 560,000period. For purposes of restrictedthis calculation, 328,101 of RSUs, 2,751 of stock unitsoptions, 16,530 of warrants to purchase shares of Class B Common Stock and 982,107 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 their inclusion would bethe effect is antidilutive. There were no restricted stock units
The Company applies the two-class method of calculating earnings per share, but as the rights of the Series B Non-Voting Convertible Preferred Stock and Class A and Class B Common Stock are identical, except in respect of voting, basic and diluted earnings per share are the same for all classes. Weighted average number of shares outstanding of Class A Common Stock, Class B Common Stock, and Series B Preferred for the three and nine-month periodssix months ended Septemberat June 30, 2016.2021 were 50,000, 3,242,616, and 0, and 50,000, 2,775,665 and 0, respectively.
NOTE 1315 – RELATED PARTY TRANSACTIONS
As of December 31, 2015, the Company had loans of $141,000 and accrued interest of $13,002 due to an entity that is owned and controlled by a family member of an officer and director of the Company. Interest expense on these loans for the three and nine-month period ended September 30, 2016 was $2,878 and $7,431, respectively. All convertible notes and related party notes outstanding as of July 13, 2016 were paid in full in July 2016.
See “Note 7 – Notes Payable and included in accrued interest under long-term liabilities in the Condensed Consolidated Balance Sheets.
NOTE 1416 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
We determine whether an arrangement is a lease at inception and whether such leases are operating or financing leases. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. We use these options in determining our right-of-use assets and lease liabilities. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determine the present value of the lease payments.
Operating lease expense is recognized on a straight-line basis over the lease term. Total operating lease expenses for the three and six-months ended June 30, 2021 were $626,944 and $1,179,645, respectively. Total operating lease expenses for the three and six-months ended June 30, 2020 were $336,874 and $863,919, respectively. The current portion of the Company’s operating lease liabilities as of June 30, 2021 is $1,750,126 and is included in accounts payable and accrued liabilities. The long-term portion of the Company’s operating lease liabilities as of June 30, 2021 is $3,519,475 and is included in other liabilities.
The weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
| June 30, 2021 | ||||
| Weighted-average remaining lease term | 3.1 years | |||
| Weighted-average discount rate | 6.0 | % | ||
Supplemental cash flow information related to operating leases for the three-months ended June 30, 2021 was as follows:
| June 30, 2021 | ||||
| Cash payments for operating leases | $ | 978,605 | ||
The following table summarizes the future minimum payments for operating leases at June 30, 2021 due in each year ending December 31,
| 2021 | $ | 1,012,344 | ||
| 2022 | 1,971,141 | |||
| 2023 | 1,224,208 | |||
| 2024 | 835,309 | |||
| 2025 | 553,334 | |||
| Thereafter | 285,500 | |||
| Total lease payments | 5,881,836 | |||
| Less imputed interest | (612,235 | ) | ||
| Present value of lease liabilities | $ | 5,269,601 |
Legal Matters
From time to time, the Company is subject toinvolved in various claims and legal proceedings and claims whichactions that arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur,the results of litigation and claims cannot be predicted with certainty, as of June 30, 2021 and December 31, 2020, the Company believesdoes not believe that the final dispositionultimate resolution of such mattersany legal actions, either individually or in the aggregate, will nothave 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 17 – CONCENTRATIONS
The Company is dependent on third-party providers of wholesale vehicle auctions. The Company is dependent on their ability to provide services on a timely basis and at favorable pricing terms. The loss of these principal providers or a significant reduction in service availability could have a material adverse effect on the Company’sCompany. The Company believes that its relationships with these providers are satisfactory.
NOTE 18 - SEGMENT REPORTING
Business segments are defined as components of an enterprise about which discrete financial position, resultsinformation 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 operations or cash flows.business. We have determined that we have 3 reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics and transportation. Our powersports and automotive segments consist of the distribution of pre-owned vehicles. The powersports segment consists of the distribution principally of motorcycles and other powersports vehicles, while the automotive segment distributes cars and trucks. Our vehicle logistics and transportation service segment provides nationwide automotive transportation services between dealerships and auctions. Our vehicle logistics and transportation service reportable segment has been determined to represent one operating segment and reporting unit.
The following table summarizes revenue, operating income (loss), depreciation and amortization and interest expense which are the measure by which management allocates resources to its segments to each of our reportable segments.
| Powersports | Automotive | Vehicle Logistics and Transportation | Eliminations(1) | Total | ||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||
| Total assets | $ | 99,476,249 | $ | 41,996,779 | $ | 14,173,060 | $ | (27,573,300 | ) | $ | 128,072,788 | |||||||||
| Revenue | $ | 27,978,693 | $ | 127,286,568 | $ | 14,517,592 | $ | (1,437,230 | ) | $ | 168,345,623 | |||||||||
| Operating income (loss) | $ | (2,905,012 | ) | $ | 2,757,082 | $ | 914,196 | $ | — | $ | 766,266 | |||||||||
| Depreciation and amortization | $ | 598,374 | $ | 26,725 | $ | 6,729 | $ | — | $ | 631,828 | ||||||||||
| Interest expense | $ | (1,330,967 | ) | $ | (587,751 | ) | $ | (1,807 | ) | $ | — | $ | (1,920,525 | ) | ||||||
| Change in derivative liability | $ | (2,235,670 | ) | $ | — | $ | — | $ | — | $ | (2,235,670 | ) | ||||||||
| Three Months Ended June 30, 2020 | ||||||||||||||||||||
| Total assets | $ | 44,036,796 | $ | 64,873,563 | $ | 10,295,397 | $ | (26,704,369 | ) | $ | 92,501,387 | |||||||||
| Revenue | $ | 8,382,952 | $ | 68,294,841 | $ | 8,251,605 | $ | (588,105 | ) | $ | 84,341,293 | |||||||||
| Operating income (loss) | $ | (4,393,325 | ) | $ | 6,058,005 | $ | 724,712 | $ | — | $ | 2,389,392 | |||||||||
| Depreciation and amortization | $ | 481,675 | $ | 24,796 | $ | 1,851 | $ | — | $ | 508,322 | ||||||||||
| Interest expense | $ | (998,106 | ) | $ | (484,302 | ) | $ | — | $ | — | $ | (1,482,408 | ) | |||||||
| Change in derivative liability | $ | 137,488 | $ | — | $ | — | $ | — | $ | 137,488 | ||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||
| Total assets | $ | 99,476,249 | $ | 41,996,779 | $ | 14,173,060 | $ | (27,573,300 | ) | $ | 128,072,788 | |||||||||
| Revenue | $ | 38,833,577 | $ | 211,357,422 | $ | 24,547,943 | $ | (2,129,310 | ) | $ | 272,609,632 | |||||||||
| Operating income (loss) | $ | (8,081,523 | ) | $ | 4,399,400 | $ | 1,626,275 | — | $ | (2,055,848 | ) | |||||||||
| Depreciation and amortization | $ | 1,170,888 | $ | 53,449 | $ | 6,729 | — | $ | 1,231,066 | |||||||||||
| Interest expense | $ | (2,577,289 | ) | $ | (948,278 | ) | $ | (3,778 | ) | — | $ | (3,529,345 | ) | |||||||
| Change in derivative liability | $ | (2,256,322 | ) | — | — | — | $ | (2,256,322 | ) | |||||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||
| Total assets | $ | 44,036,796 | $ | 64,873,563 | $ | 10,295,397 | $ | (26,704,369 | ) | $ | 92,501,387 | |||||||||
| Revenue | $ | 31,812,355 | $ | 181,927,108 | $ | 17,241,786 | $ | (2,490,695 | ) | $ | 228,490,554 | |||||||||
| Operating income (loss) | $ | (11,817,241 | ) | $ | (7,068,095 | ) | $ | 1,381,795 | — | $ | (17,503,541 | ) | ||||||||
| Depreciation and amortization | $ | 944,211 | $ | 83,403 | $ | 3,703 | — | $ | 1,031,317 | |||||||||||
| Interest expense | $ | (2,574,895 | ) | $ | (1,123,975 | ) | $ | (296 | ) | — | $ | (3,699,166 | ) | |||||||
| Change in derivative liability | $ | 20,673 | — | — | — | $ | 20,673 | |||||||||||||
| Gain on early extinguishment of debt | $ | 188,164 | — | — | — | $ | 188,164 | |||||||||||||
| (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. |
NOTE 19 – PROPOSED ACQUISITION
RideNow Definitive Agreement
On March 12, 2021, the Company announced a definitive agreement to combine with the RideNow dealership group, the nation’s largest powersports retailer, to create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform (the “RideNow Transaction”). Under the terms of the definitive agreement, the Company will combine with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4 million of cash and approximately 5.8 million shares of our Class B Common Stock. The Company will finance the cash consideration through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. The Company has entered into a commitment letter with Oaktree Capital Management, L.P. (“Oaktree”) to provide for the debt financing, subject to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity financing, manufacturer approval, other federal and state regulatory approvals, and other customary closing conditions as described in the definitive agreement. The Company expects to close the RideNow Transaction during the third quarter of 2021.
Warrant
In connection with the Commitment Letter, in lieu of a commitment fee, the Company has agreed to issue to Oaktree a warrant to purchase a number of shares of Class B Common Stock at an exercise price per share to be determined either at Closing or at termination of the Commitment Letter (the “Warrant”). If issued at Closing, the Warrant will be for that number of shares equal to $40,000,000 divided by the lowest price per share at which equity is issued in connection with financing the RideNow Transaction, whose price shall also be the exercise price. If issued in connection with a termination of the Commitment Letter, the Warrant will be issued to purchase that number of shares equal to five (5%) of the Company’s fully diluted market capitalization at the close of business on the day after a termination of the Commitment Letter is publicly announced divided by the weighted average price of the Company’s Class B Common Stock for the five days immediately preceding such date, which price shall also be the exercise price. The Warrant is immediately exercisable upon the Closing or five days after the termination of the Commitment Letter and expires eighteen (18) months after the Closing or termination of the Commitment Letter.
The Company has accounted for the Warrant agreement as a liability with the initial offset as a deferred financing charge as the Warrant was issued in lieu of a commitment fee connected to the proposed financing of the RideNow Transaction. If the Transaction and related financing is closed, the deferred financing charge will be reclassified as a debt discount to the Credit Facility. The initial warrant liability and deferred financing charge recognized was $10,950,000 The agreement to issue the Warrant is an equity linked contract considered not indexed to its own stock and does not meet the equity classification guidance. The warrant liability is subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of change in derivative liability in the Condensed Consolidated Statement of Operations. For the three months ended June 30, 2021, the fair value of the warrant liability was increased $2,224,216 to $13,174,216. The Company will continue to adjust the liability for changes in fair value of the Warrant until the earlier of the exercise or expiration of the Warrant or until it meets equity classification. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 3 inputs. There was no gain or loss recorded related to the Warrant liability during the three-months ended March 31, 2021 as there was no significant change in the fair value between March 12, 2021 to March 31, 2021. The recognition of the warrant liability and deferred financing charge are non-cash items.
NOTE 1520 – SUBSEQUENT EVENTS
Sale of loan finance portfolio
On October 23, 2017,July 2, 2021, the Company’s wholly-owned consumer finance subsidiary sold to a third-party its right, title and interest in a portfolio of consumer loans for $6,814,390, which represented 98% of the unpaid balances of all loans so sold. Pursuant to the sale, all servicing rights were to be transferred to the buyer.
Amendments to the Oaktree Warrant
On July 15, 2021, the Company completed an underwritten public offeringand Oaktree amended the Oaktree Warrant to clarify that the share price at which the Company sold shares in the April 2021 Public Offering may be used in determining the initial price per share at which the Warrant may be exercised.
Amendments to the RideNow Agreement
On July 20, 2021 the Company entered into a Second Amendment to RideNow Agreement that extended the outside date for completing the Transaction to September 12, 2021. Such right of 2,910,000termination was previously July 30, 2021. The Amendment also modified the allocation of equity compensation to Sellers employees post-closing.
Special Meeting of Shareholders
On July 30, 2021, the Company held its Special Meeting of Stockholders (“Special Meeting”) at which the Company’s stockholders approved the following matters: (i) the issuance of shares of RumbleOn Class B common stock at a public offering price of $5.50 per share for net proceeds to the Company of approximately $14,500,000 after deducting the underwriting discount and offering fees and expenses payable by the Company (the “Offering”). The Company also granted the underwriters a 30-day option, which expires on November 19, 2017, to purchase up to an additional 436,500 shares of Class B common stock to cover over-allotments.
Amendment to Articles of Incorporation
On March 9, 2021, the Board of Directors approved, subject to stockholder approval, an amendment to the Offering.
Receipt of Insurance Proceeds
In connection with the Credit Line bears interest on a per annum basis from the date of the request of such advance (or date of the financed receivable, as applicable), based upon a 360-day year, and such interest shall be compounded daily until such outstanding advances are paid in full at a rate of interest set forth in schedules published by the Lender. As of November 2, 2017, the effective rate of interest is
Item 2.
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 on Form 10-Q contains forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. The words “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions identify some of the forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. The factors discussed elsewhere in this Form 10-Q and in subsequent Quarterly Reports on Form 10-Q, Annual Reportsfiled on Form 10-K, as well as our Condensed Consolidatedfinancial statements and Current Reports onthe accompanying notes included in Item 1 of this Form 8-K could also cause actual results to differ materially from those indicated by10-Q.
Overview and Outlook
We are a technology driven, motor vehicle company and e-commerce platform provider disrupting the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.vehicle supply chain using innovative technology that aggregates, processes and distributes inventory in a faster and more cost-efficient manner for consumers and dealers.
We operate a capital light disruptive e-commercean infrastructure-light platform facilitatingthat facilitates the ability of bothall participants in the supply chain, including RumbleOn, other dealers and consumers and dealers to Buy-Sell-Trade-FinanceBuy-Sell-Trade-Finance-Transport pre-owned motorcycle and other power sport and recreation vehicles (“power/recreation vehicles”) in one online location.vehicles. Our goal is to transform the way motorcycles and other power/recreationVIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and transparent transaction experience. Our initial focusexperiences.
In March 2021, we announced a definitive agreement to combine our e-commerce platform with the RideNow powersports group, the nation’s largest powersports retailer, to become the first omnichannel platform in powersports. This omnichannel platform will offer the consumer the fastest, easiest, and most transparent transaction online or in store while providing customers the most comprehensive offering in the powersports industry and will include:
| ● | Buy, Sell or Trade without Leaving Your Home |
| ● | Virtual Inventory Listings Online and In Store |
| ● | Physical Retail and Service Locations |
| ● | Proprietary Supply Aggregation |
| ● | Apparel, Parts, Service and Accessories |
| ● | Vehicle Transportation and Logistics |
| ● | Online Cash Offers |
| ● | Proprietary Secondary Online Financing |
The combination of RumbleOn and RideNow, which we expect to close in the third quarter of 2021, is well positioned to capitalize on the trending changes in consumer behavior that have been accelerated by the events of the last 18 months. These changes include:
Shift in Demographics (1)
| ● | New demographic groups are coming to powersports - increasing diversity, from gender to ethnicity to age |
| ● | Number of female motorcycle owners nearly doubled from 2000 to 2020 and the average age of female riders declined 10 years |
| ● | Powersports give Millennials and Gen Z the “experience culture” they crave |
| ● | Largest powersports manufacturer stated 70% of retail sales were to new customers |
| ● | These generations prefer entry point provided by pre-owned |
| ● | Growth in first-time riders drives lifetime enthusiast |
Transition to Outdoor Lifestyle (1)
| ● | Outdoor sports equipment surged |
| ● | Escaping the indoors |
| ● | Social yet socially distant |
| ● | Interactive exercise |
Digital Adoption Accelerated (1)
| ● | E-commerce grew from 15% in 2019 to over 44% in 2020 |
| ● | Today 2/3 of new car shoppers are comfortable completing the entire process online |
We believe today’s consumer is experienced focused; RumbleOn’s acquisition platform for pre-owned vehicles enables the combined business to capture incremental market for 601cc and larger on-road motorcycles. We will lookshare as new riders continue to extend to additional power/recreation vehicle types and products asenter the platform matures, including ATVs, personal watercraft, snowmobiles, side-by-sides, boats, and both towable and motor coach RVs.category.
| (1) | Source: NPD, National Marine Manufacturers Association, U.S. Department of Commerce, Cox Automotive, Boston Consulting Group, McKinsey & Company. |
For additional information relating to the RideNow Transaction see “Note 19 - Proposed Transaction” in the accompanying Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
The Covid-19 pandemic effect on commercial activity and the significant damage sustained to our wholesale automotive business from the Nashville Tornado in early March 2020 had a significant impact on the growth in revenue for our powersports, automotive and transportation businesses for the year ended December 31, 2020, and through the first quarter of 2021. We experienced a significant decrease in demand in early March through mid-April of 2020 and a sequential month-over-month growth in revenue through July 2020. However, during the six-month period ended December 31, 2020, our average days to sale increased, average selling prices increased and gross profit per vehicle rose as dealers saw high industry-wide market prices and margins. These trends, exacerbated by significantly lower new vehicle production due to plant slowdowns, computer chip shortages and logistic/transportation impacts continued through June 30, 2021 and we expect it to continue through the third quarter of 2021 (collectively, the reduction in inventory, increase in average selling prices, increase in gross margin per vehicle, supply chain shortages, and related items, hereinafter referred to as “Demand/Supply Imbalances”) . The effect of these higher market prices and our level of available liquidity required that we adjust purchasing levels to align with market conditions, resulting in lower levels of inventory, and therefore resulting sales through our online platform,equity offering in April 2021. As the impact of Covid-19 and the supply chain shortages abate over time, we make cash offers foranticipate that inventory purchasing levels and revenue will return to or exceed levels experienced pre-pandemic as we increase penetration in existing markets and add new dealers. Additionally, we expect the purchaseindustry-wide gross margin per vehicle to return to more historical levels. We must note, however, that we can provide no assurance as to how quickly the adverse impacts of their vehiclesCovid-19 and intendthe Demand/Supply Imbalances impacts on trends in the markets will abate or if spikes in Covid-19 infections will further negatively impact the economy generally or our business.
Reportable Segments and Key Operations Metrics
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 provide them the flexibility to trade, list, or auction their vehicle through our websiteallocate resources and mobile applications. In addition, we offer a large inventory of used vehicles for sale along with third-party financing and associated products.in assessing operating performance. Our operations are designed to be scalableorganized by working through an infrastructuremanagement into operating segments by line of business. We have determined that we have three reportable segments as defined under GAAP for segment reporting: (1) powersports, (2) automotive, and capital light model that is achievable by virtue(3) vehicle logistics and transportation. The powersports segment consists of a synergistic relationship with dealer partners. We utilize dealer partners in the acquisitiondistribution of motorcycles as well as to provide inspection, reconditioning and distribution services. Correspondingly, we earn fees and transaction income, and dealer partners will earn incremental revenue and enhance profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs.
We regularly review a number of key operating metrics, to evaluate our business,segments, measure our progress, and make strategicoperating decisions. Our key operating metrics reflect what we believe will be the keyprimary drivers of our growth,business, including increasing brand awareness, maximizing the opportunity to source the purchase of low cost used vehicles from consumers and dealers, whileand enhancing the selection and timing of vehicles we make available for sale to our customers. Our key operating metrics also demonstrate ourenhance management’s ability to translate these driversthis information into sales through multiple sales channels. The Key Operations Metrics tables below for the Powersports and Automotive segments for the three and six-months ended June 30, 2020 do not include expenditures of $343,820 and $796,365, respectively, that represent costs that are not attributed to monetize these retail sales through a variety of product offerings.
Key Operation Metrics - Powersports and Automotive Segments
Vehicles Sold
Three-Months Ended September 30, | Nine- Months Ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
| Units sold: | ||||
| Consumer | 106 | - | 106 | - |
| Dealer | 165 | - | 175 | - |
| Auction | 42 | - | 42 | - |
313 | - | 323 | - | |
| Number of Dealers | 3 | - | 3 | - |
| Average monthly unique users | 71,180 | - | 42,670 | - |
| Inventory units available on website | 588 | - | 588 | - |
| Average days to sale | 39 | - | 38 | - |
| Total average gross margin per unit$ | $ 760 | $- | $736 | $- |
We define unitsvehicles sold as the number of usedpre-owned vehicles sold to consumers, dealersthrough both wholesale and at auctionsretail channels in each period, net of returns under our three-day return policy. We view units sold as a key measure of our growth for several reasons. First, unitsreturns. Vehicles sold is the primary driver of our revenue and, indirectly, gross profit, since unit sales enable multipleprofit. Vehicles sold also enables complementary revenue streams, including financing, vehicle service contracts and trade-ins. Second, growth in unitssuch as financing. Vehicles sold increases theour base of available customers for referralsand improves brand awareness and repeat sales. Third, growth in unitsVehicles sold is an indicator of our abilityalso provides the opportunity to successfully scale our logistics, fulfillment, and customer service operations.
Average Selling Price
Average selling price represents the acquisition of motorcycles as well as to provide inspection, reconditioning and distribution services. Correspondingly, we earn fees and transaction income, and dealer partners will earn incrementalaggregate revenue and enhance profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs. We choose Select or Appraisal Dealers based on their geographic location and abilities as a dealer. As Select and Appraisal Dealers are added throughout the U.S. the cost and time associated with distribution programs will be significantly reduced as the pickup and delivery of motorcycles will become more localized thus lower shipping costs and reduce the average days to sale for vehicles.
Revenue
Revenue is derived from two primary sources: (1) our online marketplace, which is our largest sourceprimarily comprised of revenue and includes: (i) the sale of usedpre-owned vehicle sales. We sell pre-owned vehicles through multiple consumer dealers and auction sales channels; (ii) online listing and sales fees; (iii) retail merchandise sales; (iv) vehicle financing; and (v) vehicle service contracts; and (2) subscription and other fees.
Gross Profit
Gross profit generated on our volume of website traffic, our inventory selection, the effectiveness of our branding and marketing efforts, the quality of our customer sales experience, our volume of referrals and repeat customers, the competitiveness of our pricing, competition and general economic conditions. On a quarterly basis, the number of used vehicles we sell is also affected by seasonality, with demand for used vehicles reaching the high point in the first half of each year, commensurate with the timing of tax refunds, and diminishing through the rest of the year, with the lowest relative level of usedpre-owned vehicle sales expected to occur in the fourth calendar quarter.
Key Operation Metrics - Vehicle Logistics and Administrative ExpenseTransportation Services Segment
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 must meet our performance obligations and administrative (“SG&A”) expenses include costsstandards. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and expensesremit 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 compensationfulfilling the service. In the normal course of operations, Wholesale Express also provides transportation services to Wholesale.
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 parties. Vehicles delivered are the primary driver of revenue and benefits, advertising to consumers and dealers, development and operating our product procurement and distribution system, managing ourin turn profitability in the vehicle logistics system, establishing our dealer partner arrangements, and other corporate overhead expenses, including expenses associated with technology development, legal, accounting, finance, and business development. Selling, general and administrative expenses will increase substantially as we continue to execute and aggressively expand our business through increased marketing spending and the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and management controls as well as our reporting systems and procedures. SG&A expenses exclude the costs of inspecting, reconditioning 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 vehicles, which are included ina vehicle from a point of origin to a designated destination minus our cost of sales.
Key Operations Metrics – Powersports
| Three-Months Ended June 30, | Six-Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Key Operation Metrics: | ||||||||||||||||
| Total vehicles sold | 2,411 | 859 | 3,417 | 3,676 | ||||||||||||
| Revenue per vehicle | $ | 11,605 | $ | 9,759 | $ | 11,365 | $ | 8,654 | ||||||||
| Revenue | $ | 27,978,693 | $ | 8,382,952 | $ | 38,833,577 | $ | 31,812,355 | ||||||||
| Powersports revenue as a percentage of Company revenue | 16.5 | % | 9.9 | % | 14.1 | % | 13.8 | % | ||||||||
| Gross Profit | $ | 6,957,201 | $ | 854,142 | $ | 9,935,694 | $ | 4,070,728 | ||||||||
| Gross Profit per vehicle | $ | 2,886 | $ | 994 | $ | 2,908 | $ | 1,107 | ||||||||
| Gross Margin | 24.9 | % | 10.2 | % | 25.6 | % | 12.8 | % | ||||||||
| Consumer(1): | ||||||||||||||||
| Vehicles sold | — | 145 | — | 425 | ||||||||||||
| Revenue per vehicle | $ | — | $ | 10,060 | $ | — | $ | 9,684 | ||||||||
| Consumer Revenue | $ | — | $ | 1,458,767 | $ | — | $ | 4,115,647 | ||||||||
| Gross Profit | $ | — | $ | 213,407 | $ | — | $ | 859,819 | ||||||||
| Gross Profit per vehicle | $ | — | $ | 1,472 | $ | — | $ | 2,023 | ||||||||
| Gross Margin | — | % | 14.6 | % | — | % | 20.9 | % | ||||||||
| Dealer: | ||||||||||||||||
| Vehicles sold | 2,411 | 714 | 3,417 | 3,251 | ||||||||||||
| Revenue per vehicle | $ | 11,605 | $ | 9,698 | $ | 11,365 | $ | 8,519 | ||||||||
| Dealer Revenue | $ | 27,978,693 | $ | 6,924,185 | $ | 38,833,577 | $ | 27,696,708 | ||||||||
| Gross Profit | $ | 6,957,201 | $ | 640,735 | $ | 9,935,694 | $ | 3,210,909 | ||||||||
| Gross Profit per vehicle | $ | 2,886 | $ | 897 | $ | 2,908 | $ | 988 | ||||||||
| Gross Margin | 24.9 | % | 9.3 | % | 25.6 | % | 11.6 | % | ||||||||
| (1) | We suspended the sale of powersports vehicles direct to consumers 2nd half of 2020; there can be no assurances that we do not resume such sales. |
Key Operations Metrics – Automotive(1)
| Three-Months Ended June 30, | Six-Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Key Operation Metrics: | ||||||||||||||||
| Total vehicles sold | 3,300 | 2,835 | 5794 | 7438 | ||||||||||||
| Revenue per vehicle | $ | 38,572 | $ | 24,090 | $ | 36,479 | $ | 24,459 | ||||||||
| Revenue | $ | 127,286,568 | $ | 68,294,841 | $ | 211,357,422 | $ | 181,927,108 | ||||||||
| Automotive revenue as a percentage of Company revenue | 75.0 | % | 80.4 | % | 76.9 | % | 78.8 | % | ||||||||
| Gross Profit | $ | 10,168,847 | $ | 5,801,826 | $ | 16,379,892 | $ | 12,150,793 | ||||||||
| Gross Profit per vehicle | $ | 3,081 | $ | 2,046 | $ | 2,827 | $ | 1,634 | ||||||||
| Gross Margin | 8.0 | % | 8.5 | % | 7.7 | % | 6.7 | % | ||||||||
| Consumer: | ||||||||||||||||
| Vehicles sold | 181 | 297 | 387 | 943 | ||||||||||||
| Revenue per vehicle | $ | 48,794 | $ | 28,544 | $ | 48,884 | $ | 27,638 | ||||||||
| Consumer Revenue | $ | 8,831,667 | $ | 8,477,654 | $ | 18,918,082 | $ | 26,062,391 | ||||||||
| Gross Profit | $ | 1,203,577 | $ | 1,138,835 | $ | 2,218,319 | $ | 3,247,556 | ||||||||
| Gross Profit per vehicle | $ | 6,650 | $ | 3,834 | $ | 5,732 | $ | 3,444 | ||||||||
| Gross Margin | 13.6 | % | 13.4 | % | 11.7 | % | 12.5 | % | ||||||||
| Dealer: | ||||||||||||||||
| Vehicles sold | 3,119 | 2,538 | $ | 5,407 | $ | 6,495 | ||||||||||
| Average selling price | $ | 37,978 | $ | 23,569 | $ | 35,591 | $ | 23,998 | ||||||||
| Dealer Revenue | $ | 118,454,901 | $ | 59,817,187 | $ | 192,439,340 | $ | 155,864,717 | ||||||||
| Gross Profit | $ | 8,965,270 | $ | 4,662,991 | $ | 14,161,573 | $ | 8,903,237 | ||||||||
| Gross Profit per vehicle | $ | 2,874 | $ | 1,837 | $ | 2,619 | $ | 1,371 | ||||||||
| Gross Margin | 7.6 | % | 7.8 | % | 7.4 | % | 5.7 | % | ||||||||
| (1) | For the six-months ended June 30, 2020, excludes the impairment loss resulting from the Nashville Tornado. |
Key Operation Metrics - Vehicle Logistics and growth of the business.Transportation Services Segment
| Three-Months Ended June 30, | Six-Months Ended | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Vehicles Delivered | 23,502 | 19,191 | 42,409 | 40,076 | ||||||||||||
| Revenue (1) | $ | 14,517,592 | $ | 8,251,605 | $ | 24,547,943 | $ | 17,241,786 | ||||||||
| Logistics/Transportation revenue as a percentage of total Company revenue | 8.6 | % | 9.7 | % | 8.9 | % | 7.5 | % | ||||||||
| Gross Profit | $ | 2,385,197 | $ | 1,800,766 | $ | 4,374,127 | $ | 3,800,299 | ||||||||
| Gross Profit Per Vehicle Delivered | $ | 101 | $ | 94 | $ | 103 | $ | 95 | ||||||||
| (1) | Intercompany freight services provided to Wholesale of $1,437,230 and $588,105 and $2,129,310 and $2,490,695, respectively, for the three and six-months ended June 30, 2021 and 2020 are eliminated in the Condensed Consolidatedfinancial statements. |
RESULTS OF OPERATIONS
The following table providestables provide our results of operations for the three and nine-month periodssix-months ended SeptemberJune 30, 20172021 and September 30, 2016, respectively.2020. This financial information and the disclosure that follows should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notesNotes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.10-Q and our discussion of Key Operating Metrics appearing above in this MD&A.
| For the Three-Months Ended June 30, 2021 | ||||||||||||||||||||||||
| Powersports | Automotive | Total Vehicle Sales(1) | Vehicle Logistics and Transportation Services | Elimination(2) | Total | |||||||||||||||||||
| Revenue | $ | 27,978,693 | $ | 127,286,568 | $ | 155,265,261 | $ | 14,517,592 | $ | (1,437,230 | ) | $ | 168,345,623 | |||||||||||
| Cost of revenue | 21,021,492 | 117,117,721 | 138,139,213 | 12,132,395 | (1,437,230 | ) | 148,834,378 | |||||||||||||||||
| Gross profit | $ | 6,957,201 | $ | 10,168,847 | $ | 17,126,048 | $ | 2,385,197 | $ | — | $ | 19,511,245 | ||||||||||||
For the three-months ended September 30, | For the nine-months ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Revenue: Used Vehicle Sales: | ||||
| Consumer | $1,626,864 | $ - | $1,626,864 | $- |
| Dealer | 1,745,948 | - | 1,745,948 | - |
| Auction | 171,560 | - | 253,500 | - |
| Other sales and revenue | 134,573 | - | 134,573 | - |
| Subscription and other fees | 27,197 | - | 100,668 | - |
| Total Revenue | 3,706,142 | - | 3,861,553 | - |
| Cost of revenue | 3,478,124 | - | 3,627,455 | - |
| Selling, General and administrative | 2,326,043 | 36,706 | 4,690,216 | 58,135 |
| Depreciation and amortization | 129,277 | 475 | 302,697 | 1,425 |
| Total Expenses | 5,933,444 | 37,181 | 8,620,368 | 59,560 |
| Operating loss | (2,227,302) | (37,181) | (4,758,815) | (59,560) |
| Interest expense | 90,201 | 2,878 | 373,808 | 7,431 |
| Net loss before provision for income taxes | $(2,317,503) | $(40,059) | $(5,132,623) | $(66,991) |
| Benefit for income taxes | - | - | - | - |
| Net loss | $(2,317,503) | $(40,059) | $(5,132,623) | $(66,991) |
| (1) | Total vehicle sales represent powersports and automotive vehicle sales. |
| (2) | Intercompany freight services from Wholesale Express are eliminated in the Condensed Consolidatedfinancial statements. |
| For the Three-Months Ended June 30, 2020 | ||||||||||||||||||||||||
| Powersports | Automotive | Total Vehicle Sales(1) | Vehicle Logistics and Transportation Services | Elimination(2) | Total | |||||||||||||||||||
| Revenue | $ | 8,382,952 | $ | 68,294,841 | $ | 76,677,793 | $ | 8,251,605 | $ | (588,105 | ) | $ | 84,341,293 | |||||||||||
| Cost of revenue | 7,528,810 | 62,493,015 | 70,021,825 | 6,450,839 | (588,105 | ) | 75,884,559 | |||||||||||||||||
| Gross profit | $ | 854,142 | $ | 5,801,826 | $ | 6,655,968 | $ | 1,800,766 | $ | — | $ | 8,456,734 | ||||||||||||
| (1) | Total vehicle sales represent powersports and automotive vehicle sales. |
| (2) | Intercompany freight services from Wholesale Express are eliminated in the Condensed Consolidatedfinancial statements. |
| For the Six-Months Ended June 30, 2021 | ||||||||||||||||||||||||
| Powersports | Automotive | Total Vehicle Sales(1) | Vehicle Logistics and Transportation Services | Elimination(1)(2) | Total | |||||||||||||||||||
| Revenue | $ | 38,833,577 | $ | 211,357,422 | $ | 250,190,999 | $ | 24,547,943 | $ | (2,129,310 | ) | $ | 272,609,632 | |||||||||||
| Cost of revenue | 28,897,883 | 194,977,530 | 223,875,413 | 20,173,816 | (2,129,310 | ) | 241,919,919 | |||||||||||||||||
| Gross profit | $ | 9,935,694 | $ | 16,379,892 | $ | 26,315,586 | $ | 4,374,127 | $ | — | $ | 30,689,713 | ||||||||||||
| (1) | Total vehicle sales represent powersports and automotive vehicle sales. |
| (2) | Intercompany freight services from Wholesale Express are eliminated in the Condensed Consolidatedfinancial statements. |
| For the Six-Months Ended June 30, 2020 | ||||||||||||||||||||||||
| Powersports | Automotive | Total Vehicle Sales(1) | Vehicle Logistics and Transportation Services | Elimination(2) | Total | |||||||||||||||||||
| Revenue | $ | 31,812,355 | $ | 181,927,108 | $ | 213,739,463 | $ | 17,241,786 | $ | (2,490,695 | ) | $ | 228,490,554 | |||||||||||
| Cost of revenue (3) | 28,085,447 | 182,311,093 | 210,396,540 | 13,441,487 | (2,490,695 | ) | 221,347,332 | |||||||||||||||||
| Gross profit | $ | 3,726,908 | $ | (383,985 | ) | $ | 3,342,923 | $ | 3,800,299 | $ | — | $ | 7,143,222 | |||||||||||
| (1) | Total vehicle sales represent Powersports and Automotive vehicle sales. |
| (2) | Intercompany Transportation and Logistics Services are eliminated in the condensed consolidated financial statements. |
| (3) | Automotive cost of revenue includes $11,738,413 of impairment loss on automotive inventory |
Powersports Segment
Three-Months Ended June 30, 2021 Versus 2020
Powersports Vehicle Revenue
Total powersports vehicle revenue increased by $19,595,741 to $27,978,693 for the Three and Nine-month periodsthree-months ended SeptemberJune 30, 2017 and September 30, 2016
Powersports Gross Profit
Powersports gross profit on vehicle revenue increased $6,103,059 to $6,957,201 for the three-months ended June 30, 2021 compared to $854,142 for the same period of 2020. The increase in gross profit was primarily due to the increase in the total vehicles sold in 2021 compared to 2020 and the increase in the average gross profit per vehicle sold to $2,886 for the three-months ended June 30, 2021 compared to $994 for the same period in 2020. The increase in average gross profit per vehicle was caused by the higher average selling prices for vehicle sales in 2021 versus 2020 as a result of the Demand/Supply Imbalances. The higher sales prices were offset by an increase in the overall average acquisition cost per vehicle sold in 2021 compared to 2020 to $8,669 for the three-months ended June 30, 2021 compared to $8,166 for the same period in 2020. Recon and Transport costs per vehicle sold in 2021 was approximately $50, down over 90% versus the corresponding period in 2020 as the Company optimized its transportation process for purchased inventory and suspended sales to consumers.
Six-Months Ended June 30, 2021 Versus 2020
Powersports Vehicle Revenue
Total vehicle revenue increased by $3,706,142 and $3,861,553, respectively as$7,021,222 to $38,833,577 for the six-months ended June 30, 2021 compared to $31,812,355 for the same periods in 2016. period of 2020. The increase in revenue was primarily due to an increase in the average selling price per vehicle sold to $11,365 for the six-months ended June 30, 2021 from $8,654 for the same period of 2020. This increase in average selling price was offset by a decrease in the total number of usedpre-owned vehicles sold to consumers, dealers and at auctions.3,417 for the six-months ended June 30, 2021 as compared to 3,676 for the same period of 2020, The increase in average selling prices resulted from (i) Demand/Supply Imbalance; (iii) our continued disciplined approach to revenue volume; and (iii) suspending the sale of powersports vehicles direct to consumers mid-year 2020.
Powersports Gross Profit
Powersports gross profit on vehicle revenue increased $6,208,786 to $9,935,694 for the six-months ended June 30, 2021 compared to $3,726,908 for the same period of 2020. The increase in gross profit was primarily due to the increase in the average gross margin per vehicle sold to $2,908 for the three-months ended June 30, 2021 compared to $1,107 for the same period in 2020 resulting from the Demand/Supply Imbalances. In addition, the gross profit was impacted by the decrease in the total number of pre-owned vehicles sold for the three-months ended June 30, 2021 to 3,417 compared to 3,575 for the same period in 2020. The higher sales prices were also impacted by an increase in the overall acquisition cost per vehicle and an inventory write-down in 2020 of $340,268. Recon and Transport costs per vehicle sold in 2021 was approximately $76, down over 80% compared to the corresponding period in 2020 as the Company optimized its transportation process for purchased inventory and suspended sales to consumers.
Automotive
Three-Months Ended June 30, 2021 Versus 2020
Automotive Revenue
Total automotive vehicle revenue increased by $58,991,726 to $127,286,567 for the three-months ended June 30, 2021 compared to $68,294,841 for the same period of 2020. The increase in automotive revenue was primarily due to an increase in sales to dealers as sales to consumers increased by only $354,013. Unit sales to dealers were up 22.9%, and the average revenue per transaction was up by 60.1% to $38,572. Sales to consumers benefited from a 70.9% increase in the average selling price offset by a reduction in unit sales of nearly 40% from 297 to 181 vehicles. Both unit sales and average revenue per transaction in 2021 benefited from the Demand/Supply Imbalances throughout all vehicle distribution channels, while 2020 was materially impacted by the Nashville Tornado and the effect of shelter-in place orders and other responses to Covid-19.
Automotive Gross Profit
Automotive vehicle gross profit increased by $4,367,021 to $10,168,847 for the three-months ended June 30, 2021 compared to $5,801,826 for the same period in 2020. The increase in gross profit in the three-months period ended June 30, 2021 was driven by both an increase in the launchnumber of vehicles sold from 2,835 in the corresponding prior year period to 3,300, coupled with a 16.4% increase in the average gross profit per vehicle from $2,046 in the three-months period ended June 30, 2021 to $3,081 in the three-months period ended June 30, 2020. On a per vehicle basis, year over year aggregate Recon and Transportation increased by only 5%, despite per unit transportation having risen $110 per vehicle. Gross profit per vehicle in the automotive retail and wholesale sectors have benefited from the Demand/Supply Imbalances during the last 12 months, including the three-months ended June 30, 2021.
Six-Months Ended June 30, 2021 Versus 2020
Automotive Revenue
Total automotive vehicle revenue increased by $29,430,314 to $211,357,422 for the six-months ended June 30, 2021 compared to $181,927,108 for the same period of 2020 despite a 22.1% decrease in the total number of automotive units sold to 5,794. The increase in automotive revenue was primarily due to an increase in sales to dealers as sales to consumers decreased by $7,144,309 while sales to dealers increased by $36,574,623, coupled with average selling price in 2021 that was $12,020 higher per automotive vehicle. Both unit sales and average revenue per transaction in 2021 benefited from the Demand/Supply Imbalances throughout all vehicle distribution channels, while the corresponding period in 2020 was materially impacted by the Nashville Tornado and the effect of shelter-in-place orders and other responses to Covid-19.
Automotive Gross Profit
Before the impairment loss on inventory of $11,738,413, automotive vehicle gross profit increased by $5,025,464 to $16,379,892 for the six-months ended June 30, 2021 compared to $11,354,428 for the same period in 2020. Both unit sales and average revenue per transaction in 2021 benefited from the Demand/Supply Imbalances throughout all vehicle distribution channels, while 2020 was materially impacted by the Nashville Tornado and the effect of shelter-in-place orders and other responses to Covid-19.
Vehicle Logistics and Transportation Services Segment
Three-Months Ended June 30, 2021 Versus June 30, 2020
Vehicle Logistics and Transportation Services Revenue
Total revenue increased by $6,265,987 to $14,517,592 for the three-months ended June 30, 2021 compared to $8,251,605 for the same period in 2020. The increase in total revenue for the three-month period ended June 30, 2021 resulted from the transport of 23,502 vehicles at an average revenue per vehicle delivered of $618 compared to revenue from the transport of 19,191 vehicles at an average revenue per vehicle delivered of $430 for the same period of 2020. The changing Demand/Supply Imbalances throughout 2020 and 2021 across all vehicle distribution channels were the primary drivers of the RumbleOn website, expanded inventory selection, enhanced social media, aggressive event marketing efforts,increase in average revenue per vehicle and number of vehicles transported.
In the normal course of operations, the Company utilizes transportation services of Wholesale Express. For the three-months ended June 30, 2020 and 2021 intercompany freight services provided by Express to the Company were $1,437,230 and $588,105, respectively, and were eliminated in the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q
Vehicle Logistics and Transport Services Gross Profit
Total gross profit for the three-months ended June 30, 2021 increased brand awareness$584,431 to $2,385,197, or $101 per unit transported, as compared to $1,800,766, or $94 per unit, transported for the same period in 2020. The increased gross profit was attributed to an increase in the number of vehicles delivered as well as the increase in the gross profit per vehicle delivered.
Six-Months Ended June 30, 2021 Versus 2020
Vehicle Logistics and customer referrals. We anticipate thatTransportation Services Revenue
Total revenue increased by $7,306,157 to $24,547,943 for the six-months ended June 30, 2021 compared to $17,241,786 for the same period in 2020. The increase in total revenue for the six-month period ended June 30, 2021 resulted from the transport of 42,409 vehicles at an average revenue per vehicle delivered of $579 compared to revenue from the transport of 40,076 vehicles at an average revenue per vehicle delivered of $430 for the same period of 2020. The increase in vehicles transported and increase in average revenue per vehicle delivered was a result of the Demand/Supply Imbalances throughout 2020 and 2021 across all vehicle distribution channels.
In the normal course of operations, the Company utilizes transportation services of Wholesale Express. For the six-months ended for the same period in 2020 intercompany freight services provided by Express to the Company were $2,129,310 and $2,490,695, respectively, and was eliminated in the Condensed Consolidated financial statements.
Vehicle Logistics and Transport Services Gross Profit
Total gross profit for the three-months ended June 30, 2021 increased $573,828 to $4,374,127 or $103 per unit sales will continuetransported as compared to grow$3,800,299 or $95 per unit for the same period in 2020. The increased gross profit was attributed to an increase in the number of vehicles delivered as we expand our units of available inventory, while continuing to
Selling, General and scale our addressable markets of consumersAdministrative
| For the Three-Months Ended June 30, | For the Six-Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Selling general and administrative: | ||||||||||||||||
| Compensation and related costs | $ | 8332,880 | $ | 5,146,791 | $ | 14,314,343 | $ | 13,326,891 | ||||||||
| Advertising and marketing | 1,961,543 | 541,921 | 3,557,847 | 3,490,077 | ||||||||||||
| Professional fees | 1,098,045 | 1,075,831 | 2,765,141 | 1,918,534 | ||||||||||||
| Technology development and software | 424,063 | 235,013 | 827,538 | 857,159 | ||||||||||||
| General and administrative | 6,296,620 | 4,174,730 | 10,049,626 | 9,638,053 | ||||||||||||
| $ | 18,113,151 | $ | 11,174,286 | $ | 31,514,495 | $ | 29,230,714 | |||||||||
Selling, general and dealers through brand buildingadministrative expenses increased by $6,938,865 and direct response marketing.
Depreciation and nine-monthAmortization
Depreciation and amortization increased by $123,506 and $199,750, respectively, for the three-month and six-month periods ended SeptemberJune 30, 2017 was $11,324 and $11,227, respectively. The average selling price of used units sold will fluctuate from period to period as a result of changes in the sales mix to consumers, dealers and at auctions in any given period. There were no sales of used vehicles to consumers, dealers or auctions for the three and nine-month periods ended September 30, 2016.
For the three-months ended September 30, | For the nine-months ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
| Selling, General and Administrative: | ||||
| Compensation and related costs | $ 1,028,819 | $ - | $ 1,951,911 | $ - |
| Advertising and Marketing | 752,017 | - | 1,060,195 | - |
| Professional Fees | 192,041 | 34,044 | 724,486 | 49,017 |
| Technology Development | 91,967 | - | 278,668 | - |
| General and Administrative | 261,199 | 2,662 | 674,956 | 9,118 |
| Total Selling, General and Administrative | $2,326,043 | $36,706 | $4,690,216 | $58,135 |
Interest Expense
Interest expense increased by $438,117 for the three-month period ended June 30, 2021 compared to $1,482,408 for the same period of 2020. Interest expense for the six-month period ended June 30, 2021 decreased by $169,821 compared to $3,699,166 for the same period in 2020. Interest expense consists of contract interest on the: (i) BHLP Note; (ii) NextGen Note; (iii) Private Placement Notes; and (iv) Senior Secured Promissory Notes. Interest expense for the three and nine-month periods ended September 30, 2017 increased by $87,323 and $366,377, respectively, as compared to the same periods in 2016.plus debt discount amortization. The increase resulted from: (i) interest on a higher level of debt outstanding; (ii) the conversion of the BHLP Note; (iii) the amortization of the beneficial conversion feature on the Private Placement Notes; and (iv) the amortization of the original issue discount on the Senior Secured Promissory Notes. The conversion of the BHLP Note resulted in a $196,076 charge to interest expense for the remaining balance of the beneficial conversion feature, net of deferred taxes and is included in interest expense for the nine-month periodthree months ended SeptemberJune 30, 2017. Interest expense on2021 is primarily due to an increase in the Private Placement Notes for the three and nine-month periods ended September 30, 2017 was $94,855 and $183,943, respectively which included $41,979 and $81,603 of debt discount amortization for the threeconvertible notes of $352,484, and nine-month periods ended September 30, 2017, respectively. Interestan increase in the interest expense on lines of credit of $132,378 offset by a reduction in interest expense on the NextGennotes payable of $46,745. The decrease in interest expense for the six-month period ended June 30, 2021 is due to a reduction in interest expense on lines of credit of $295,158 and a reduction in interest expense on notes payable of $27,569, offset by an increase of $152,906 in debt discount amortization.
Loss Contingencies and Insurance Recoveries
On March 3, 2020, the Nashville Tornado caused 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 loss was comprised of three components: (1) inventory loss, assessed by the insurance carrier at approximately $13,000,000; (2) building and personal property loss, primarily impacting our leased facilities, assessed by the insurance carrier at $2,783,000; 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 advanced $5,615,268 in July 2020 and $3,134,732 in July 2021. Therefore, the total payments received thus far against the final settlement are $8,750,000. 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 payments on the building and personal property loss of $2,625,787. 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 Nashville Tornado the Company concluded that the utility of the inventory damaged by the storm was 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 three-months ended March 31, 2020, the Company recorded an impairment loss on inventory of $11,738,413 comprised of $4,453,775 for vehicles that were a total loss and $7,284,638 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the March 31, 2020 Condensed Consolidated statements of operations. Additionally, $177,626 of the net book value of the property and equipment destroyed by the Nashville Tornado was expensed.
Derivative Liability
In connection with our various financings, we undertake an analysis of each financial instrument to determine the appropriate accounting treatment, including which, if any require bifurcation into liability and equity components. We have determined that each of the New Notes and the Warrant have a liability component that needs to be remeasured each reporting period with the change in value recorded in the Statements of Operations.
New Notes
In connection with the issuance of the New Notes, a derivative liability was recorded at issuance with an interest make-whole provision of $20,673 based on a lattice model using a stock price of $14.60, and estimated volatility of 55.0% and risk-free rates over the entire 10-year yield curve.
The change in value of the derivative liability for the three and nine-month periodssix-months ended SeptemberJune 30, 20172021 was $21,370$11,454 and $54,849 respectively. Interest expense on the Senior Secured Promissory Notes for the three$32,105, respectively, and nine-month periods ended September 30, 2017 was $15,925 whichis included $10,274 of original issue discount amortization. For additional information, see Note 7 - “Notes Payable” in the accompanying Notes tochange in derivative liability in the Condensed Consolidated Financial Statements.
Oaktree Warrant
In connection with the execution of the Commitment Letter on March 12, 2021, in lieu of a commitment fee, we agreed to issue to the Oaktree Warrant (see “Note 19 – Proposed Acquisition”). The initial fair value of the Oaktree Warrant was calculated by performing a Monte Carlo simulation on the likelihood of the Warrant alternatives (issuance of the Warrant, Termination Warrant, or no Warrant at all). The calculations utilized a combination of level 1 and level 3 inputs including a $38.94 price for RumbleOn’s Class B Common stock, a term of 0.39 years, a risk free rate of -0.02% and volatility of 115% based on the observed historical RumbleOn stock price and guideline companies. The resulting value was $10,950,000, based on a weighting of the stand-alone value of each of three potential outcomes of the Oaktree Warrant. We revalued the Oaktree Warrant as of each of March 31, 2021 and June 30, 2021, by updating relevant inputs and determined that there was no gain or loss between the March 12, 2021 and March 31, 2021, while the fair value of the Oaktree warrant liability on June 30, 2021 of $13,174,216, when compared with the value as of March 31, 2021 resulted in an expense of $2,224,216 recorded in the Statements of Operations.
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), depreciation and amortization, changes in derivative liability and certain recoveries, charges and expenses, such as an insurance recovery, non-cash stock-based compensation costs, acquisition related costs, litigation expenses, and other non-recurring costs, as these recoveries, charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results, because it excludes, among other things, certain results of decisions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure and capital investments.
The following tables reconcile Adjusted EBITDA to net loss for the periods presented:
Three-Months Ended | Six-Months Ended | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income (loss) | $ | (3,389,929 | ) | $ | 1,044,472 | $ | (7,841,515 | ) | $ | (20,993,870 | ) | |||||
| Add back: | ||||||||||||||||
| Interest expense (including debt extinguishment) | 1,920,525 | 1,482,408 | 3,529,345 | 3,511,002 | ||||||||||||
| Depreciation and amortization | 631,828 | 508,322 | 1,231,068 | 1,031,317 | ||||||||||||
| Change in derivative and warrant liabilities | 2,235,670 | (137,488 | ) | 2,256,322 | (20,673 | ) | ||||||||||
| EBITDA | 1,398,094 | 2,897,714 | (824,780 | ) | (16,472,224 | ) | ||||||||||
| Adjustments: | ||||||||||||||||
| Impairment loss on automotive inventory | — | — | — | 11,738,413 | ||||||||||||
| Insurance recovery | — | (5,615,268 | ) | — | (5,615,268 | ) | ||||||||||
| Non-cash-stock-based compensation | 701,275 | 716,391 | 1,727,491 | 1,562,761 | ||||||||||||
| Acquisition costs associated with the RideNow Agreement | 860,048 | — | 1,956,701 | — | ||||||||||||
| Litigation expenses | 81,389 | 607,387 | 169,648 | 746,847 | ||||||||||||
| Other non-reoccurring costs | — | 51,387 | 32,985 | — | ||||||||||||
| Adjusted EBITDA | $ | 3,040,806 | $ | (1,342,389 | ) | $ | 3,062,045 | $ | (8,039,471 | ) | ||||||
Liquidity and Capital Resources
We have incurred losses and negative cash flow from operations since inception through June 30, 2021 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. See “Note 7 — Notes Payable and Lines of Credit,” “Note 8 — Convertible Notes,” and “Note 9 — Stockholders 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 and cash equivalents, amounts available under lines of credit, proceeds from the Paycheck Protection Program loan, monetization of our retail loan portfolio, rationalizing costs and expenses, and proceeds from our April 8, 2021 equity offering of 1,048,998 Class B common stock that generated net proceeds of $36,700,000;.” Management believes that current working capital, results of operations, and existing financing arrangements are sufficient to fund operations for at least one year from the financial statement issuance date.
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, 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.
We had the following liquidity resources available as of June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Cash and cash equivalents | $ | 24,972,223 | $ | 1,466,831 | ||||
| Restricted cash (1) | 3,049,056 | 2,049,056 | ||||||
| Total cash, cash equivalents, and restricted cash | 28,021,279 | 3,515,887 | ||||||
| Availability under short-term revolving facilities | 3,142,766 | 2,188,374 | ||||||
| Committed liquidity resources available | $ | 31,164,045 | $ | 5,704,261 | ||||
| (1) | Amounts included in restricted cash represent the deposits required under the Company’s short-term revolving facilities. |
On January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by the Joinder Agreement, with the investors in the 2019 Note Offering (as defined below), pursuant to which the Company agreed to complete (i) a note exchange pursuant to which $30,000,000 of the Old Notes (as defined below) would be cancelled in exchange for a new series of 6.75% Convertible Senior Notes due 2025 (the “New Notes”), and (ii) the issuance of additional New Notes in a private placement in reliance on the exemption from registration provided by Rule 506 of Regulation D of the Securities Act as a sale not involving any public offering. On January 14, 2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering, after deducting for the payment of accrued interest and offering-related expenses, but exclusive of Company costs were $8,272,375.
On January 14, 2020, the Company closed a public offering at a public price of $11.40 per share (the “2020 Public Offering”). On January 16, 2020, the Company received notice of the Underwriters’ intent to exercise the over-allotment option in full (the “Over-allotment Exercise”). On January 17, 2020, the Company closed the Over-allotment Exercise. The Over-allotment Exercise increased the aggregate number of shares sold in the 2020 Public Offering to 1,035,000. Including the Over-allotment Exercise, proceeds from the 2020 Public Offering, after deducting the 7.0% underwriter’s commission and $75,000 for underwriter expenses, were $10,780,080.
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, and under the SBA Loan Documents, the SBA Loans had an initial maturity date of April 30, 2022 and an annual interest rate of 1.0%. Payment of principal and interest, to be paid monthly, on the PPP Loans can be prepaid by the Company at any time and was originally deferred through October 30, 2020. On October 7, 2020, the Small Business Administration published guidance of its interpretation of the CARES ACT and of the Paycheck Protection Program Interim Final Rules that indicates, pursuant to the PPP Flexibility Act of 2020, the deferral period for borrow payments of principal, interest and fees on all PPP was extended 10 months after the borrower’s loan forgiveness period. Additionally, the SBA lender agreed to extend the maturity pursuant to the Interim Final Rules. As a result, monthly equal payments of principal and interest will begin September 1, 2021, with the last payment due April 1, 2025.
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.
In connection with the proposed acquisition of RideNow (See “Note 19 — Proposed Acquisition”), on March 12, 2021, the Company and its subsidiary, NextGen Pro, LLC (“NextGen Pro”), executed a secured promissory note with BRF Finance Co., LLC (“BRF Finance”), an affiliate of B. Riley Securities, Inc., pursuant to which BRF Finance has loaned the Company $2,500,000 (the “Bridge Loan”). The Bridge Loan matures on the earlier of September 30, 2021 or upon the issuance of debt or equity above a threshold. The Bridge Loan is secured by certain intellectual property assets held by NextGen Pro as set forth in Exhibit A to the secured promissory note. Interest will accrue on the Bridge Loan until maturity (by acceleration or otherwise) at a rate of 12% annually.
As of June 30, 2021, and December 31, 2020, excluding operating lease liabilities and the derivative liability, the outstanding principal amount of indebtedness was $60,436,929 and $53,108,353, respectively, summarized in the table below. See “Note 7 — Notes Payable and Lines of Credit,” “Note 8 –Convertible Notes,” and “Note 9 – Stockholders Equity” to our Condensed Consolidated financial statements included above.
| Asset-Based Financing: | June 30, 2021 | December 31, 2020 | ||||||
| Inventory | $ | 21,857,234 | $ | 17,811,626 | ||||
| Total asset-based financing | 21,857,234 | 17,811,626 | ||||||
| Secured notes payable | 4,908,253 | 2,391,361 | ||||||
| Unsecured senior convertible notes | 39,390,000 | 39,774,000 | ||||||
| PPP loans | 5,176,845 | 5,176,845 | ||||||
| Total debt | 71,332,332 | 65,153,832 | ||||||
| Less: unamortized discount and debt issuance costs | (10,895,403 | ) | (12,045,479 | ) | ||||
| Total debt, net | $ | 60,436,929 | $ | 53,108,353 | ||||
The following table sets forth a summary of our cash flows for the nine-month periodsix-months ended SeptemberJune 30, 20172021 and 2016:2020:
| Six-Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash (used in) provided by operating activities | $ | (17,465,209 | ) | $ | 577,859 | |||
| Net cash used in investing activities | (1,005,305 | ) | (788,899 | ) | ||||
| Net cash provided by financing activities | 42,975,906 | 2,079,681 | ||||||
| Net increase in cash | $ | 24,505,392 | $ | 1,868,641 | ||||
Nine-months ended September 30, | ||
2017 | 2016 | |
| Net cash used in operating activities | $(4,389,128) | $(62,116) |
| Net cash used in investing activities | (1,785,272) | - |
| Net cash provided by financing activities | 5,480,040 | 63,358 |
| Net change in cash | $(694,360) | $1,242 |
Operating Activities
Our primary sources of operating cash flows result from the sales of used vehicles and ancillary products. Our primary use of cash from operating activities are purchases of inventory, cash used to acquire customers, and personnel-related expenses. For the six-months ended June 30, 2021 net cash used in operating activities increased $4,327,012was $17,465,209, a decrease of $18,043,068 compared to $4,389,128net cash provided by in operating activities of $577,859 for the nine-month periodsix-months ended SeptemberJune 30, 2017, as compared to the same period in 2016.2020. The increase in our net cash used isin operating activities was primarily due to a $5,065,632 increase$13,152,355 decrease in our net loss, offset by a reduction in non-cash adjustments of $8,273,596 and an increase in the net changecash used for other operating assets and liabilities of $138,153 and a $876,775 increase$22,921,827. The change in non-cash expense items. The increase in the net loss for the nine-monthsix-months ended June 30, 2021 compared to the same period ended September 30, 2017of 2020 was a result of: (i) our continued disciplined approach to revenue volume and margin growth in connection with the prescriptive steps implemented in 2020 to accelerate profitability. and the impairment losses recorded in 2020 of the continued expansion and progress made on our business plan, including a significant$11,916,039. The increase in marketingcash used for other operating assets and advertising spendliabilities was primarily due to an increase in connection the launchtrade accounts receivable, $11,022,955, resulting from increased sales volume, and an increase in our finance receivables held for sale of the Company’s website, www.rumbleon.com, acquire vehicle inventory,$6,524,136 as we continue development of the Company’s business and for working capital purposes.
Investing Activities
Our primary use of cash for investing activities is for technology development to expand our operations. Net cash used in investing activities increased $1,785,272$216,406 to $1,005,305 for the nine-month periodsix-months ended SeptemberJune 30, 2017, as2021 compared to $788,899 for the same period in 2016. The increase in cash2020.
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 investment activities was primarily for the purchase of NextGen, $435,097 in costs incurred for technology development and the purchase of $600,175 of vehicles, furniture and equipment.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2017,2021, 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
See “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, 2020. 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, other than the use of estimates for the Oaktree Warrant, as described above.
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 generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are an “emerging growth company”neither historical facts nor assurances of future performance. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 31, 2021, and the risks discussed under the federal securities lawscaption “Risk Factors” included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which was filed with the SEC on May 17, 2021, and will be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Wethis Quarterly Report on Form 10-Q. Given these risks and uncertainties, readers are choosingcautioned not to take advantageplace undue reliance on such forward-looking statements. We undertake no obligation to revise or publicly release the results of the extended transition period for complying with new or revised accounting standards.any revision to these forward-looking statements, except as required by law.
Item 3.
This item is not applicable as we are currently considered a smaller reporting company.
Item 4.
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 SeptemberJune 30, 2017.2021. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2021.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscalthe quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
PART II - OTHER INFORMATION
Item 1.
On July 29, 2021, William Miller (the “Plaintiff”) filed a Complaint against the Company and its Board of Directors (collectively, the “Defendants”). Plaintiff alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a) and 78t(a), and Rule 14a-9 promulgated thereunder, 17 C.F.R. § 240.14a-9, in connection with the RideNow Transaction. The Plaintiff seeks injunctive relief preliminarily and permanently enjoining Defendants from proceeding with, consummating, or closing the RideNow Transaction and any vote on the RideNow Transaction, unless and until Defendants disclose and disseminate additional disclosures to Company shareholders. Plaintiff also seeks rescission and rescissory damages if the RideNow Transaction closes, attorneys’ fees and costs, as well as a declaration that Defendants violated Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder. Defendants have not yet been served with the Complaint. On July 30, 2021, the Company’s shareholders approved the issuance of the shares of Class B Common Stock in connection with the RideNow Transaction and related proposals. The Company believes that the plaintiff’s claims in the foregoing matter are without merit and intends to vigorously defend against them.
Item 1A.
Except for risks relating to the proposed transaction with RideNow, which are beyond our control, including those set forthdiscussed in our Annual Report on 10-K for the year ended December 31, 2016,definitive Proxy Statement as Schedule 14A, which we filed on February 14, 2017, the occurrence of any one of which could have a material adverse effect on our actual results.
Item 5.
Amendment to Articles of Incorporation
On March 9, 2021, the Board of Directors approved, subject to stockholder approval, an amendment to the Company’s Articles of Incorporation to increase the authorized number of shares of Class B Common Stock to 100,000,000 (the “Authorized Stock Amendment”). At the Special Meeting, the Company’s stockholders approved the Authorized Stock Amendment. On August 3, 2021, the Company filed a Certificate of Amendment with the Nevada Secretary of State to effect the Authorized Stock Amendment. A copy of the Certificate of Amendment is attached as Exhibit 3.1 and incorporated herein by reference.
Incentive Plan Amendment
On March 9, 2021, the Board of Directors approved, subject to stockholder approval, an amendment to the Incentive Plan to increase the number of shares of Class B Common Stock issuable under the Incentive Plan from 700,000 to 2,700,000 shares and to extend the Incentive Plan for an additional ten years (the “Incentive Plan Amendment”). At the Special Meeting, the Company’s stockholders approved the Incentive Plan Amendment. A copy of the Incentive Plan Amendment is attached as Exhibit 10.1 and incorporated herein by reference.
Item 6. Exhibits.
| * | Filed herewith. |
| ** | Furnished herewith. |
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.
Date: August 4, 2021 | By: | /s/ Marshall Chesrown |
| Marshall Chesrown | ||
Chief Executive Officer (Principal Executive Officer) | ||
Date: August 4, 2021 | By: | /s/ |
Interim Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
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