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 September 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, Texas | ||||
| (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 | ||
| Class B Common Stock, $0.001 par value | ||||
| RMBL | ||||
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, 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,common stock, $0.001 par value, outstanding on November 7, 201712, 2021 was 11,928,54114,882,022 shares. In addition, 1,000,00050,000 shares of Class A Common Stock,common stock, $0.001 par value, were outstanding on November 7, 2017.12, 2021.
RUMBLEON, INC.
QUARTERLY PERIOD ENDED SEPTEMBER 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 1A. Risk Factors | 44 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of | |
| Item 3. | Defaults Upon Senior | |
| Item 4. | Mine Safety | |
| Item 5. Other Information | ||
| Item 6. Exhibits | ||
| SIGNATURES |
i
PART I - FINANCIAL INFORMATION
Item 1.
RumbleOn, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
September 30, | December 31, | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 68,268 | $ | 1,467 | ||||
| Restricted cash | 3,049 | 2,049 | ||||||
| Accounts receivable, net | 42,117 | 9,408 | ||||||
| Inventory | 171,455 | 21,360 | ||||||
| Prepaid expense and other current assets | 4,745 | 3,446 | ||||||
| Total current assets | 289,634 | 37,730 | ||||||
| Property and equipment, net | 58,929 | 6,521 | ||||||
| Right-of-use assets | 92,944 | 5,690 | ||||||
| Goodwill | 263,107 | 26,887 | ||||||
| Intangible assets, net | 303,560 | 46 | ||||||
| Other assets | 3,678 | 105 | ||||||
| Total assets | $ | 1,011,852 | $ | 76,979 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 73,384 | $ | 14,193 | ||||
| Floor plan notes payable | 87,175 | 17,812 | ||||||
| Current portion of convertible debt | 279 | 563 | ||||||
| Current portion of long-term debt | 6,151 | 2,877 | ||||||
| Total current liabilities | 166,989 | 35,445 | ||||||
| Long-term liabilities: | ||||||||
| Senior secured debt | 252,777 | — | ||||||
| Convertible debt, net | 28,648 | 27,166 | ||||||
| Derivative liabilities | 41 | 17 | ||||||
| Notes payable | 567 | 4,691 | ||||||
| Long-term portion of operating lease liabilities | 85,965 | 4,370 | ||||||
| Long-term portion of financing lease liabilities | 40,591 | — | ||||||
| Deferred tax liabilities | 19,579 | — | ||||||
| Other long-term liabilities | 7,765 | 720 | ||||||
| Total long-term liabilities | 435,933 | 36,964 | ||||||
| Total liabilities | 602,922 | 72,409 | ||||||
| Commitments and contingencies (Notes 9, 10, 13, 18) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 and 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020 | — | — | ||||||
| Class A common stock, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 0.05 | 0.05 | ||||||
| Class B common stock, $0.001 par value, 100,000,000 shares authorized, 14,881,522 and 2,191,633 shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 15 | 2 | ||||||
| Additional paid-in capital | 548,000 | 108,949 | ||||||
| Accumulated deficit | (134,766 | ) | (104,381 | ) | ||||
| Class B common stock in treasury, at cost 123,089 and 0 shares as of September 30, 2021 and December 31, 2020 | (4,319 | ) | — | |||||
| Total stockholders’ equity | 408,930 | 4,570 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,011,852 | $ | 76,979 | ||||
| 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.
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share amounts)
(unaudited)
| Three-Months Ended September 30 | Nine-Months Ended September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| Vehicles Sales | ||||||||||||||||
| Powersports | $ | 83,292 | $ | 7,303 | $ | 121,307 | $ | 38,642 | ||||||||
| Automotive | 105,298 | 99,315 | 316,655 | 281,242 | ||||||||||||
| Finance and insurance, net | 6,180 | 199 | 6,998 | 672 | ||||||||||||
| Parts, service and accessories | 16,075 | — | 16,075 | — | ||||||||||||
| Transportation and vehicle logistics | 10,369 | 10,440 | 32,788 | 25,192 | ||||||||||||
| Total revenue | 221,214 | 117,257 | 493,823 | 345,748 | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Powersports | 68,295 | 5,606 | 97,193 | 33,692 | ||||||||||||
| Automotive | 98,773 | 86,473 | 293,751 | 257,046 | ||||||||||||
| Parts, service and accessories | 8,845 | — | 8,845 | — | ||||||||||||
| Transportation and vehicle logistics | 7,914 | 8,374 | 25,958 | 19,325 | ||||||||||||
| Cost of revenue before impairment loss | 183,827 | 100,453 | 425,747 | 310,063 | ||||||||||||
| Impairment loss on automotive inventory | — | — | — | 11,738 | ||||||||||||
| Total cost of revenue | 183,827 | 100,453 | 425,747 | 321,801 | ||||||||||||
| Gross profit | 37,387 | 16,804 | 68,076 | 23,947 | ||||||||||||
| Selling, general and administrative | 37,564 | 13,279 | 69,077 | 42,510 | ||||||||||||
| Stock-based compensation and other issuances | 23,943 | — | 23,943 | — | ||||||||||||
| Insurance recovery | (3,135 | ) | — | (3,135 | ) | (5,615 | ) | |||||||||
| Depreciation and amortization | 1,717 | 536 | 2,948 | 1,567 | ||||||||||||
| Operating income (loss) | (22,702 | ) | 2,989 | (24,757 | ) | (14,515 | ) | |||||||||
| Interest expense | (4,577 | ) | (1,488 | ) | (8,107 | ) | (5,187 | ) | ||||||||
| Forgiveness of PPP loan | 572 | — | 572 | — | ||||||||||||
| Change in derivative liability | (6,518 | ) | (14 | ) | (8,774 | ) | 7 | |||||||||
| Gain on early extinguishment of debt | — | — | — | 188 | ||||||||||||
| Income (Loss) before benefit for income taxes | (33,225 | ) | 1,487 | (41,066 | ) | (19,507 | ) | |||||||||
| Benefit for income taxes | 10,681 | — | 10,681 | — | ||||||||||||
| Net income (loss) | $ | (22,544 | ) | $ | 1,487 | $ | (30,385 | ) | $ | (19,507 | ) | |||||
| Weighted average number of common shares outstanding - basic and fully diluted | 6,939,708 | 2,234,838 | 4,178,932 | 2,165,167 | ||||||||||||
| Net income (loss) per share - basic and fully diluted | $ | (3.25 | ) | $ | 0.67 | $ | (7.27 | ) | $ | (9.01 | ) | |||||
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) |
See Notes to the Condensed Consolidated Financial Statements.
RumbleOn, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(dollars in thousands)
(unaudited)
Class A | Class B Common Shares | Additional Paid in | Accumulated | Class B Common Shares in Treasury | Total | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Shares | Amount | Equity | ||||||||||||||||||||||||||||
| Balance, as of December 31, 2020 | 50,000 | $ | 0.05 | 2,191,633 | $ | 2 | $ | 108,949 | $ | (104,381 | ) | — | $ | — | $ | 4,570 | ||||||||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 94,771 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 1,734 | — | — | — | 1,734 | |||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (4,451 | ) | — | — | (4,451 | ) | |||||||||||||||||||||||||
| Balance as of March 31, 2021 | 50,000 | 0.05 | 2,286,404 | 2 | 110,683 | (108,832 | ) | — | — | 1,853 | ||||||||||||||||||||||||||
| Issuance of common stock, net of issuance cost | — | — | 1,048,998 | 1 | 36,796 | — | — | — | 36,797 | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 7,660 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 702 | — | — | — | 702 | |||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (3,390 | ) | — | — | (3,390 | ) | |||||||||||||||||||||||||
| Balance as of June 30, 2021 | 50,000 | 0.05 | 3,343,062 | 3 | 148,181 | (112,222 | ) | — | — | 35,962 | ||||||||||||||||||||||||||
| Issuance of common stock, net of issuance cost | — | — | 5,053,029 | 5 | 154,438 | — | — | — | 154,443 | |||||||||||||||||||||||||||
| Issuance of common stock in acquisition | — | — | 5,833,333 | 6 | 200,952 | — | — | — | 200,958 | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 775,187 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||||||||||
| Issuance of warrant | — | — | — | — | 19,700 | — | — | — | 19,700 | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 24,730 | — | — | — | 24,730 | |||||||||||||||||||||||||||
| Treasury stock purchases | — | — | (123,089 | ) | — | — | — | 123,089 | (4,319 | ) | (4,319 | ) | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (22,544 | ) | — | — | (22,544 | ) | |||||||||||||||||||||||||
| Balance as of September 30, 2021 | 50,000 | $ | 0.05 | 14,881,522 | $ | 15 | $ | 548,000 | $ | (134,766 | ) | 123,089 | $ | (4,319 | ) | $ | 408,930 | |||||||||||||||||||
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 |
RumbleOn, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(dollars in thousands)
(unaudited)
| Class A Common Shares | Class B Common Shares | Additional Paid in | Accumulated | Class B Common Shares in Treasury | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Shares | Amount | Equity | ||||||||||||||||||||||||||||
| Balance, as of December 31, 2019 | 50,000 | $ | 0.05 | 1,111,681 | $ | 1 | $ | 92,268 | $ | (79,382 | ) | — | $ | — | $ | 12,887 | ||||||||||||||||||||
| Issuance of common stock, net of issuance cost | — | — | 1,035,000 | 1 | 10,779 | — | — | — | 10,780 | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 4,485 | — | — | — | — | — | ||||||||||||||||||||||||||||
| Convertible note exchange | — | — | — | — | 2,924 | — | — | — | 2,924 | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 846 | — | — | — | 846 | |||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (22,038 | ) | — | — | (22,038 | ) | |||||||||||||||||||||||||
| Balance as of March 31, 2020 | 50,000 | 0.05 | 2,151,166 | 2 | 106,817 | (101,420 | ) | — | — | 5,399 | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 21,610 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 717 | — | — | — | 717 | |||||||||||||||||||||||||||
| Adjust for fractional shares in reverse stock split | — | — | 7,131 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 1,044 | 1,044 | |||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | 50,000 | 0.05 | 2,179,907 | 2 | 107,534 | (100,376 | ) | — | — | 7,160 | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | — | — | 11,726 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 862 | — | — | — | 862 | |||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 1,487 | — | — | 1,487 | |||||||||||||||||||||||||||
| Balance as of September 30, 2020 | 50,000 | $ | 0.05 | 2,191,633 | $ | 2 | $ | 108,396 | $ | (98,889 | ) | — | — | $ | 9,509 | |||||||||||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
RumbleOn, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
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 |
| Nine Months Ended September 30 | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (30,385 | ) | $ | (19,507 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | 2,948 | 1,568 | ||||||
| Amortization of debt discounts | 2,284 | 1,499 | ||||||
| Forgiveness of PPP loan | (572 | ) | — | |||||
| Share based compensation | 27,165 | 2,425 | ||||||
| Impairment loss on inventory | — | 11,738 | ||||||
| Impairment loss on property and equipment | — | 178 | ||||||
| Loss (gain) from change in value of derivatives | 8,774 | (7 | ) | |||||
| Gain on early extinguishment of debt | — | (188 | ) | |||||
| Deferred taxes | (10,969 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in prepaid expenses and other current assets | 486 | (1,296 | ) | |||||
| (Increase) decrease in inventory | (33,343 | ) | 34,219 | |||||
| (Increase) in accounts receivable | (6,476 | ) | (2,860 | ) | ||||
| (Increase) decrease in other assets | (3,452 | ) | 63 | |||||
| Increase (decrease) in accounts payable and accrued liabilities | 16,306 | (1,634 | ) | |||||
| Increase in other liabilities | 1,406 | — | ||||||
| Decrease in floor plan trade note borrowings | (3,951 | ) | — | |||||
| Net cash (used in) provided by operating activities | (29,779 | ) | 26,198 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash used for acquisition, net of cash received | (365,946 | ) | — | |||||
| Purchase of property and equipment | (7,613 | ) | (175 | ) | ||||
| Technology development | (1,266 | ) | (1,598 | ) | ||||
| Net cash used in investing activities | (374,825 | ) | (1,773 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from senior secured debt | 261,451 | 8,272 | ||||||
| (Repayments of) proceeds from notes payable | (7,974 | ) | 789 | |||||
| Increase (decrease) in borrowings from non-trade floor plans | 27,688 | (47,211 | ) | |||||
| Net proceeds from PPP loan | — | 5,177 | ||||||
| Net proceeds from sale of common stock | 191,240 | 10,780 | ||||||
| Net cash provided by (used in) financing activities | 472,405 | (22,193 | ) | |||||
| NET INCREASE IN CASH | 67,801 | 2,232 | ||||||
| CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD | 3,516 | 6,726 | ||||||
| CASH AND RESTRICTED CASH AT END OF PERIOD | $ | 71,317 | $ | 8,958 | ||||
See Notes to the Condensed Consolidated Financial Statements.
NOTES TO THEUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS DESCRIPTIONAND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Unless the context requires otherwise, references in these financial statements to “RumbleOn,” the “Company,” “we,” “us,” and “our” refer to RumbleOn Inc. (along withand its consolidated subsidiaries, the “Company”)subsidiaries.
Overview
RumbleOn, Inc. was incorporated in October 2013 under the laws of the State of Nevada, as Smart Server, Inc. (“Smart Server”). On February 13, 2017,Nevada. We are the Company changed its namenation’s first Omnichannel marketplace platform in powersports, leveraging proprietary technology to transform the powersports supply chain from Smart Server, Inc.acquisition of supply through distribution of retail and wholesale. RumbleOn provides an unparalleled technology suite, national footprint of physical locations, and full line manufacturer representation to RumbleOn, Inc.
Basis of Presentation
The accompanying 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, including RideNow from the Closing Date. 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 2016audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report.
Use of Estimates
The preparation of financial statementsthese 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. Such estimates include certain assumptions related to goodwill and other intangible assets, long-lived assets, assets held for sale, accruals for chargebacks against revenue recognized from the sale of finance and insurance products, and estimated tax liabilities. 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.
Comprehensive Income (Loss)
During the three and nine-month periods ended September 30, 2021, and 2020, the Company did not have any other comprehensive income and, therefore, the net loss and comprehensive income (loss) were the same for all periods presented.
Recent Pronouncements
Adoption of intangibleNew Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets sales returns, receivables valuation, restructuring-related liabilities, taxes,held. ASU 2016-13 is effective for fiscal years, and contingencies. Actual results could differ materially fromfor interim periods within those estimates.fiscal years, beginning after December 15, 2019, and earlier adoption is permitted beginning in the first quarter of fiscal 2019. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of this amendment is to create a two-tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to implement major FASB standards, including ASU 2016-13. Larger public companies will still have an effective date for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until the earlier of fiscal periods beginning after December 15, 2022. Under the current SEC definitions, the Company meets the definition of an SRC as of the ASU 2019-10 issuance date and is adopting the deferral period for ASU 2016-13.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average numberadopted ASU 2019-12 for its fiscal year beginning January 1, 2021, and it did not have a material effect on its consolidated financial statements.
NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Our revenue consists 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 sharesnew vehicles sales, retail and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
New and Used Powersports Vehicles
RumbleOn sells new and used powersports vehicles. The transaction price for a powersports vehicle sale is determined with the customer at the time of sale. Customers often trade in their own powersports vehicle to apply toward the purchase of a retail new or used powersports vehicle. The “trade-in” powersports vehicle is delivered to a consumer, dealer or auction, a sales contract is signed,
When the Company manages all sales leads, handles all the documentation necessary to completesells a sale, acceptsnew or used powersports vehicle, transfer of control typically occurs at a buyer’s trade and provides financing through third-party providers to the potential buyer, if necessary. Upon a successful sale, the seller pays a fee which is based on the difference between the actual retail sales price of the vehicle sold and the net proceeds agreed to be paid by RumbleOn to the seller when the listing agreement was signed. Revenue from non-refundable online listing fees is recognized once the listing agreement is signed, the vehicle is listed for sale and the listing fee has been received. Revenue for selling fees is recognizedpoint in time upon delivery of the vehicle to the customer, when the sales contract is signed, and the purchase price has either been received or collectability has been established.
Parts and Service
RumbleOn sells parts and vehicle services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties and extended service contracts, and collision-related repairs. The Company also sells parts through wholesale and retail counter channels.
Each repair and maintenance service is a single performance obligation that includes both the parts and labor associated with the vehicle service. Payment for each vehicle service work is typically due upon completion of the service, which is generally completed within a short period from contract cancellations.inception. The reservetransaction price for cancellationsrepair and maintenance services is based on the parts used, the number of labor hours applied, and standardized hourly labor rates. The performance obligation for repair and maintenance service are satisfied over time and create an asset with no alternative use and with an enforceable right to payment for performance completed to date. Revenue is recognized over time based on a direct measurement of labor hours, parts and accessories that are allocated to open service and repair orders at the end of each reporting period. As a practical expedient, the time value of money is not considered since repair and maintenance service contracts have a duration of one year or less. The transaction price for wholesale and retail counter parts sales is determined at the time of sale based on the quantity and price of each product purchased. Payment is typically due at time of sale, or within a short period following the sale. RumbleOn establishes provisions, which are not significant, for estimated parts returns based uponon historical industry experienceinformation and recent trendscurrent trends. Delivery method of wholesale and retail counter parts vary.
RumbleOn generally considers control of wholesale and retail counter parts to transfer when the products are shipped, which typically occurs the same day as or within a few days of sale. RumbleOn also offers customer loyalty points for parts and services for select franchises. RumbleOn satisfies its performance obligations and recognizes revenue when the loyalty points are redeemed. Amounts deferred related to the customer loyalty programs are insignificant.
Finance and Insurance
RumbleOn sells and receives commissions on the following types of finance and insurance products: extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, among others. RumbleOn offers products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries.
Pursuant to the arrangements with these third-party providers, RumbleOn sells the products on a commission basis. For the majority of finance and insurance product sales, RumbleOn’s performance obligation is reflected as a reductionto arrange for the provision of other salesgoods and services by another party. RumbleOn’s performance obligation is satisfied when this arrangement is made, which is when the finance and insurance product is delivered to the end customer, generally at the time of the vehicle sale. As agent, RumbleOn recognizes revenue in the accompanying Consolidated Statementsamount of Operations and a componentany fee or commission to which it expects to be entitled, which is the net amount of accounts payable and accrued liabilitiesconsideration that it retains after paying the third-party provider the consideration received in exchange for the goods or services to be fulfilled by that party.
RumbleOn’s customers are concentrated in the accompanying Consolidated Balance Sheets. Our risk related to contract cancellations is limitedSunbelt region. There are no significant judgements or estimates required in determining the satisfaction of the performance obligations or the transaction price allocated to the performance obligations. As revenue that we receive.
Transportation and Vehicle Logistics
Vehicle logistics and transportation services revenue is generated primarily by entering into freight brokerage agreements with dealers, distributors, or private party individuals to transport vehicles from dealer partners,a point of origin to a designated destination. The Company’s subsidiary, Wholesale Express, provides these services. The transaction price is based on the consideration specified in the customer's contract. A performance obligation is created when the customer under a license arrangement that provides accesstransportation contract submits a bill of lading for the transport of goods from origin to destination. These performance obligations are satisfied as the shipments move from origin to destination. The freight brokerage agreements are fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these transporters are obligated to meet our software solutionperformance obligations and ongoing support. Select and Appraisal Dealers paystandards. Performance obligations are short-term, with transit days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly subscription fee for accessbasis, and remit payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as risks and ongoing support for portionsrewards of transportation of the RumbleOn software solution which includes: (i)vehicle are transferred to the owner during delivery. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. As a vehicle appraisal process; (ii) inventory management system; (iii) customer relationshipresult, revenue is recorded gross.
Disaggregation of Revenue
The significant majority of RumbleOn’s revenue is from contracts with customers. In the following tables, revenue is disaggregated by major lines of goods and lead management program;services and (iv) equity mining. Dealers may also be charged an initial software installationtiming of transfer of goods and training fee. Dealers do notservices. We have determined that these categories depict how the contractual right to take possessionnature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors.
Revenue from contracts with customers consists of the software and may cancelfollowing:
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | ||||||||||||||||
| New vehicles | $ | 42,943 | $ | — | $ | 42,943 | $ | — | ||||||||
| Used vehicles | ||||||||||||||||
| Powersports | 40,349 | 7,303 | 78,364 | 38,642 | ||||||||||||
| Automotive | 105,298 | 99,315 | 316,655 | 281,242 | ||||||||||||
| Total used vehicles | 145,647 | 106,618 | 395,019 | 319,884 | ||||||||||||
| Total new and used vehicles | 188,590 | 106,618 | 437,962 | 319,884 | ||||||||||||
| Parts, service and accessories | 16,075 | — | 16,075 | — | ||||||||||||
| Finance and insurance, net | 6,180 | 199 | 6,998 | 672 | ||||||||||||
| Transportation and vehicle logistics | 10,369 | 10,440 | 32,788 | 25,192 | ||||||||||||
| Total revenue | $ | 221,214 | $ | 117,257 | $ | 493,823 | $ | 345,748 | ||||||||
| Timing of revenue recognition | ||||||||||||||||
| Goods and services transferred at a point in time | $ | 210,920 | $ | 117,257 | $ | 483,529 | $ | 345,748 | ||||||||
| Good and services transferred over time | 10,294 | — | 10,294 | — | ||||||||||||
| Total revenue | $ | 221,214 | $ | 117,257 | $ | 493,823 | $ | 345,748 | ||||||||
NOTE 3 – RIDENOW TRANSACTION
On the license for these products and services by providing a 30-day notice. Installation and training do not have valueClosing Date, RumbleOn completed its business combination with RideNow (the “RideNow Transaction”). Pursuant to the user withoutPlan of Merger and Equity Purchase Agreement, as amended (the “RideNow Agreement”), on the licenseClosing Date, there were both mergers and ongoing supporttransfers of ownership interest comprising in aggregate the RideNow Transaction. For the mergers, five newly-created RumbleOn subsidiaries were merged with and maintenance. Becauseinto five RideNow entities (“Merged RideNow Entities”) with the dealer partner hasMerged RideNow Entities continuing as the rightsurviving corporations and with the Company obtaining ownership of these entities through these mergers and the transfers noted below. Merged RideNow Entities owned powersports retail locations representing approximately 30% of RideNow retail locations. For the transfers of ownership interest, the Company acquired all the outstanding equity interests of 21 entities comprising the remaining 70% of the RideNow’s retail locations (“Acquired RideNow Entities,” and together with the Merged RideNow Entities, the “RideNow Entities”) that directly or indirectly operate the remaining RideNow powersports retail locations.
Pursuant to cancel the license with 30 days’ notice, revenueRideNow Agreement, on the Closing Date, the RideNow equity holders received cash in the aggregate amount of $400,400 and 5,833,333 shares of RumbleOn’s Class B common stock. The cash consideration for installationthe RideNow Transaction was funded from (i) the Company’s underwritten public offering of 5,053,029 shares of Class B common stock, which resulted in net proceeds of approximately $154,438 (the “August 2021 Offering”), and training is recognized when complete, acceptance has occurred,(ii) net proceeds of approximately $261,451 pursuant to the Oaktree Credit Facility entered into on the Closing Date (as further described in Note 9, the “Oaktree Credit Agreement”). The remaining funds received from these financing transactions were used for working capital purposes.
The following table summarizes the consideration paid in cash and collectability of a determinable amount is probable. Revenue recognition of monthly subscription fees commences upon completion of installation, acceptance has occurred, and collectability of a determinable amount is probable.
| Cash, net of cash acquired | $ | 365,946 | ||
| Fair value of Class B common stock issued | 200,958 | |||
| Total estimated purchase price consideration1 | $ | 566,904 |
| 1 | The purchase price consideration is subject to a net working capital and debt adjustments. These adjustments are currently under review by management. The amount of these adjustments could not be reasonably estimated as of September 30, 2021, and therefore, no adjustment amount has been reflected in the current estimated purchase price consideration reflected above. |
The Company accounts for acquisitions by allocatingfollowing amounts represent the preliminary determination of the fair value of the consideration transferred to the fair value of theidentifiable assets acquired and liabilities assumed on the date of the acquisition and any remaining differencefrom RideNow. RideNow is recorded as goodwill. Adjustments may be made to the preliminary purchase price allocation when facts and circumstances that existed on the date of the acquisition surface during the allocation period subsequent to the preliminary purchase price allocation, not to exceed one year from the date of acquisition. Contingent consideration is recorded at fair value based on the facts and circumstances on the date of the acquisition and any subsequent changesincluded in the fair value are recorded through earnings eachPowersports reporting period.
| Estimated fair value of assets: | ||||
| Contracts in transit | $ | 10,878 | ||
| Accounts receivable | 15,356 | |||
| Inventory | 116,752 | |||
| Prepaid expenses | 1,785 | |||
| Right-of-use assets | 92,715 | |||
| Property & equipment | 45,801 | |||
| Franchise rights | 282,000 | |||
| Other intangible assets, net | 22,129 | |||
| Other Assets | 119 | |||
| Total assets acquired | 587,535 | |||
| Estimated fair value of liabilities assumed: | ||||
| Accounts payable, accrued expenses and other current liabilities | 41,616 | |||
| Notes payable - floor plan | 45,626 | |||
| Lease liabilities | 126,302 | |||
| Deferred tax liability | 30,548 | |||
| Notes payable | 6,549 | |||
| Other long-term liabilities | 6,210 | |||
| Total liabilities assumed | 256,851 | |||
| Total net assets acquired | 330,684 | |||
| Goodwill | 236,220 | |||
| Total consideration | $ | 566,904 | ||
The results of operations of NextGen sinceRideNow from the acquisition dateClosing Date are included in the accompanying Condensed Consolidated Financial Statements. Acquisition related costs of $1,558 and $3,515 were incurred during the three and nine-months ended September 30, 2021, respectively, and are included in Selling, General and Administrative expenses in the Condensed Consolidated Statements of Operations. In addition, the Company elected to accelerate the vesting of restricted stock units (“RSUs”) and grant other stock awards in connection with the RideNow Transaction. The total value of these awards is $23,943 and is reported as stock-based compensation and other issuances in the Condensed Consolidated Statement of Operations.
Supplemental Pro Forma Information
The following supplemental pro forma information presents the financial results as if the acquisition of NextGenRideNow Transaction was madecompleted as of January 1, 20172020 for both the three and nine-month periodsnine-months ended September 30, 20172021 and on January 1, 2016September 30, 2020. Pro forma net income for both the three and nine-month periodsnine-months ended September 30, 2016.2021, includes the tax benefit of $10,681 reported in the Condensed Consolidated Statements of Operations.
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Pro forma total revenue | $ | 384,724 | $ | 337,001 | $ | 1,148,597 | $ | 1,015,260 | ||||||||
| Pro forma net income | $ | (6,045 | ) | $ | 9,703 | $ | 50,524 | $ | 11,102 | |||||||
| Net income per share-basic | $ | (0.45 | ) | $ | 0.81 | $ | 3.91 | $ | 0.93 | |||||||
| Weighted average number of shares-basic | 13,305,416 | 11,960,127 | 12,915,495 | 11,886,326 | ||||||||||||
| Net income per share-fully diluted | $ | (0.45 | ) | $ | 0.81 | $ | 3.86 | $ | 0.93 | |||||||
| Weighted average number of shares-fully diluted | 13,305,416 | 11,960,127 | 13,083,502 | 11,886,326 | ||||||||||||
Pro forma adjustments for the nine-month periodthree and nine-months ended September 30, 2017 and 20162021, primarily include adjustments to reflect additional depreciation and amortization of $29,866 and $48,788, respectively, related to technology development and identifiable intangible assets recorded as partinclude:
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Stock compensation and other administrative costs | $ | 179 | $ | 275 | $ | 745 | $ | 758 | ||||||||
| Depreciation and amortization | $ | 1,229 | $ | 1,844 | $ | 4,918 | $ | 5,532 | ||||||||
| Interest expense and amortization of debt discount | $ | 5,563 | $ | 8,319 | $ | 22,345 | $ | 25,185 | ||||||||
| Income tax provision | $ | (5,575 | ) | $ | 3,234 | $ | 13,281 | $ | 3,701 | |||||||
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the acquisition,following as of September 30, 2021 and interest expenseDecember 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Contracts in transit | $ | 9,218 | $ | — | ||||
| Trade receivables | 24,701 | 8,859 | ||||||
| Factory receivables1 | 3,637 | — | ||||||
| Finance receivables2 | 4,972 | 2,118 | ||||||
| 42,528 | 10,977 | |||||||
| Less: allowance for doubtful accounts | 411 | 1,569 | ||||||
| $ | 42,117 | $ | 9,408 | |||||
| 1 | Factory receivables represent amounts due primarily from manufacturer for holdbacks, rebates, co-op advertising, warranty and supplier returns. |
| 2 | Finance receivables originated in connection with the Company’s vehicle sales are held for sale and are subsequently sold. |
NOTE 5 – INVENTORY
Inventory consists of the following as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| New Vehicles | $ | 53,975 | $ | — | ||||
| Pre-owned vehicles: | ||||||||
| Powersport vehicles | 67,843 | 1,870 | ||||||
| Automobiles and trucks | 27,185 | 19,490 | ||||||
| Parts, accessories and other | 22,452 | — | ||||||
| $ | 171,455 | $ | 21,360 | |||||
Floor plan notes payable as of September 30, 2021 and December 31, 2020 were as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| Floor plan notes payable - trade | $ | 21,350 | $ | — | ||||
| Floor plan notes payable - non-trade | 65,825 | 17,812 | ||||||
| Floor plan notes payable | $ | 87,175 | $ | 17,812 | ||||
Floor plan notes payable-trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventory with corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Floor plan payable-non-trade represents amounts borrowed to finance the purchase of specific new and used vehicle inventories with non-trade lenders. Changes in floor plan notes payable-trade are reported as operating cash flows and changes in floor plan payable-non-trade are reported as financing cash flows in the accompanying Combined Statements of Cash Flows.
New inventory costs are generally reduced by manufacturer holdbacks, incentives, floor plan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floor plan payables are reflective of the gross cost of the vehicle. The vehicle floor plan payables, as shown in the above table, will generally also be higher than the inventory cost due to the NextGen Notetiming of $27,353the sale of a vehicle and $42,833, respectively.payment of the related liability. Vehicle floor plan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floor plan facilities are primarily collateralized by vehicle inventories and related receivables.
New vehicle floor plan facilities generally utilize LIBOR or ADB (Average Daily Balance)-based interest rates, which generally ranged between 5.0% and 7.0% as of September 30, 2021. Used vehicle floor plan facilities generally utilize prime, LIBOR or ADB-based interest rates, which ranged between 4.75% and 8.0% as of September 30, 2021. The aggregate capacity to finance our inventory under the new and used vehicle floor plan facilities was $217,717 as of September 30, 2021.
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 46 – PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net of accumulated depreciation and amortization as of September 30, 20172021, and December 31, 2016:2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Buildings and improvements | $ | 40,908 | $ | — | ||||
| Leasehold Improvements | 6,689 | 321 | ||||||
| Equipment | 4,832 | — | ||||||
| Furniture and fixtures | 297 | 191 | ||||||
| Technology development | 12,274 | 11,008 | ||||||
| Vehicles | 1,418 | 241 | ||||||
| Total property and equipment | 66,418 | 11,761 | ||||||
| Less: accumulated depreciation and amortization | 7,489 | 5,240 | ||||||
| Total | $ | 58,929 | $ | 6,521 | ||||
Amortization and depreciation on Property and Equipment is determined on a straight-line basis over the estimated useful lives ranging from three to five years.
As of September 30, 2017,2021, capitalized technology development costs were $1,835,097, which includes $1,400,000 of$12,066 and capitalized software acquired in the NextGen transaction. For additional information, see Note 3 - “Acquisitions.”costs were $208. Total technology development costs incurred for the nine-month periodthree and nine-months ended September 30, 2017 were $713,766,2021 was $1,008 and $2,706, respectively, of which $435,097$360 and $1,266, respectively was capitalized and $278,669$648 and $1,441, respectively, was charged to expense in the accompanying Condensed Consolidated Statements of Operations. TheDepreciation expense for the three and nine-months ended September 30, 2021 was $689 and $1,920, respectively, which included the amortization of capitalized technology development costs of $592 and $1,710, respectively. Total technology development costs incurred for the three and nine-monthnine-months ended-months ended September 30, 2020 was $1,164 and $2,635, respectively, of which $984 and $1,598, respectively, was capitalized and $180 and $1,037 respectively, was charged to expense in the accompanying Condensed Consolidated Statements of Operations. Depreciation expense for the three and nine-months ended-month periods ended September 30, 20172020 was $89,429$536 and $219,374, respectively. There were no$1,568, respectively, which included the amortization of capitalized technology development costs incurredof $477 and no amortization of capitalized development costs for the same periods in 2016. Depreciation expense on vehicles, furniture and equipment for the three and nine-month periods ended September 30, 2017 was $28,598 and $49,573,$1,367, respectively. Depreciation on furniture and equipment for the three and nine-month periods ended September 30, 2016 was $475 and $1,425, respectively.
NOTE 57 – INTANGIBLE ASSETS NETAND GOODWILL
The following is a summary of the following atcarrying amounts of goodwill, franchise rights and other intangible assets as of September 30, 20172021 and December 31, 2016:2020.
| September 30, 2021 | December 31, 2020 | |||||||
| Goodwill | $ | 263,107 | $ | 26,887 | ||||
| Other Intangible Assets | ||||||||
| Franchise rights - indefinite life | $ | 282,000 | $ | — | ||||
| Other intangibles | 22,175 | 46 | ||||||
| 304,175 | 46 | |||||||
| Less accumulated amortization | 615 | — | ||||||
| Intangible assets, net | $ | 303,560 | $ | 46 | ||||
The Company evaluates intangible assets for the three and nine-month periods endedimpairment at least annually, or when triggering events occur. No triggering events were noted as of September 30, 2017 was $11,250 and $33,750, respectively. The estimated future amortization expenses related to identifiable intangible assets is as follows:2021.
| Remainder through December 31, 2017 | $11,250 |
| 2018 | 45,000 |
| 2019 | 20,000 |
$76,250 |
NOTE 68 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table summarizes accounts payable and other accrued liabilities as of September 30, 20172021 and December 31, 2016:2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Accounts Payable | $ | 8,165 | $ | 8,168 | ||||
| Accrued Interest | 2,977 | 1,486 | ||||||
| Operating lease liability-current portion | 7,435 | 1,630 | ||||||
| Financing lease liability-current portion | 345 | — | ||||||
| Accrued Payroll | 22,674 | 1,080 | ||||||
| Customer deposits | 5,449 | — | ||||||
| State and local taxes | 6,591 | 856 | ||||||
| Professional fees | 6,969 | 112 | ||||||
| Other accrued expenses | 12,779 | 861 | ||||||
| Total | $ | 73,384 | $ | 14,193 | ||||
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 79 – NOTES PAYABLE
Notes payable consisted of the following as of September 30, 20172021 and December 31, 2016:2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Term Loan Credit Agreement dated August 31, 2021. Amortization payments are required quarterly commencing in the quarter ending December 31, 2021. The Initial Loan Term Facility matures on August 31, 2026. The interest rate as of September 30, 2021 was 9.25%. | $ | 252,777 | $ | — | ||||
| Term Loan Credit Agreement-NextGen dated February 8, 2017. Interest payable semi-annually at 6.5% through February 9, 2019 and 8.5% through February 10, 2020 and 10.0% thereafter through maturity, which was January 31, 2021. | — | 833 | ||||||
| Notes payable-private placement dated March 31, 2017. Interest payable semi-annually at 8.5% through September 30, 2020 and 10.0% thereafter through maturity, which was June 30, 2021 | — | 669 | ||||||
| Line of Credit- RumbleOn Finance. Line of credit secured by the loans and other assets of RumbleOn Finance, LLC. Interest rate as of September 30, 2021 was 7.25%. Principal and interest is payable on demand. | — | 889 | ||||||
Unsecured note payable to P&D Motorcycles in the original amount of $1,724 with interest rate of 4% through maturity which is July 1, 2022. | 1,073 | — | ||||||
Unsecured notes payable to RideNow Management, LLLP, a related party through equal ownership by two directors; monthly principal payments ranging from $7 to $13; interest accruing at rates ranging from LIBOR+.6% to LIBOR+1.3%. | 1,033 | — | ||||||
| Notes payable-PPP Loans dated May 1, 2020. Payments of principal and interest at 1% 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. | 4,612 | 5,177 | ||||||
| Total notes payable and lines of credit | 259,495 | 7,568 | ||||||
| Less: Current portion | 6,151 | 2,877 | ||||||
| Long-term debt, net of current portion | $ | 253,344 | $ | 4,691 | ||||
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 |
Term Loan Credit Agreement
On July 13, 2016,the Closing Date, the Company entered into the Oaktree Credit Agreement among the Company, as borrower, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent (the “Administrative Agent”). The Oaktree Credit Agreement provides for secured credit facilities in the form of a $280,000 principal amount of initial term loans (the “Initial Term Loan Facility”) and a $120,000 in aggregate principal amount of delayed draw term loans (the “Delayed Draw Term Loans Facility,” and together with the Initial Term Loan Facility, the “Oaktree Credit Facility”). The proceeds from the Initial Term Loan Facility, together with cash on hand, and the proceeds from the August 2021 Offering were used to (i) consummate the RideNow Transaction and (ii) pay fees, expenses and other items related to the consummation of the RideNow Transaction, the August 2021 Offering and to provide for working capital. The proceeds from the Delayed Draw Term Loans Facility, if drawn, will be used to finance acquisitions permitted by the Oaktree Credit Agreement and similar investments or “earn-outs” entered into in connection with acquisitions and to pay fees and expenses relating thereto. Loans under the Delayed Draw Term Loans Facility are subject to customary conditions precedent for facilities of this type including the need to meet certain financial tests and become available six (6) months after the Closing Date and are unavailable to be drawn after the eighteen (18) month anniversary of the Closing Date. The Oaktree Credit Facility also provides for incremental draws for up to an unsecured convertible noteadditional $100,000 in accordance with the terms set forth in the Oaktree Credit Agreement, which may be used for acquisitions or working capital.
The loan is reported on the balance sheet as senior secured debt and was recorded net of debt discount of $27,223. The debt discount includes the warrant for $10,950 that was previously recorded as a deferred finance charge. See Note 11-Stockholders’ Equity for a more detailed discussion of the warrant. The debt discount also includes fees incurrent in from our investment bankers and other debt issuance expenses. Borrowings under the Oaktree Credit Facility bear interest at a rate per annum equal, at the Company’s option, to either (a) LIBOR (with a floor of 1.00%), plus an applicable margin of 8.25% or (b) a fluctuating adjusted base rate in effect from time to time, plus an applicable margin of 7.25%. At the Company’s option, one percent (1.00%) of such interest may be payable in kind. The interest rate as of September 30, 2021 was 9.25%. Interest expense for the three and nine-months ended September 2021 was $2,666, which included debt amortization of $509.
The Oaktree Credit Agreement contains affirmative and negative covenants customary for facilities of its type which, among other things, generally limit (with certain exceptions including those for permitted acquisitions and floor plan financing): mergers, amalgamations or consolidations; the incurrence of additional indebtedness (including guarantees); the incurrence of additional liens; the sale, license, lease, transfer or other disposition of assets; certain investments; transactions with affiliates; payments of certain indebtedness; and other activities customarily restricted in such agreements. Beginning in the first full calendar quarter after the Closing Date, the Credit Agreement requires that (i) Consolidated Total Net Leverage Ratio not be greater than 4.25 to 1.00; (ii) Consolidated Senior Secured Net Leverage Ratio not be greater than 3.75 to 1.00, and (iii) its Liquidity not be less than $25,000 (each term as defined in the Oaktree Credit Agreement).
On the last business day of each calendar quarter, beginning with the first full fiscal quarter ending after the Closing Date (or with regard to the Delayed Draw Term Loans Facility, beginning with the first full fiscal quarter ending after the applicable funding dates), the Company is required to make amortization payments in an aggregate principal amount equal to 0.25% of the aggregate principal amount of the Initial Term Loan Facility (or with regard to the Delayed Draw Term Loans Facility funded on the applicable funding date). Borrowings under the Oaktree Credit Facility mature five (5) years after the Closing Date.
The Company is permitted to make voluntary prepayments of the loans and is obligated to make mandatory prepayments with regard to excess cash flow and out of the proceeds of certain asset sales and other recovery events and debt and certain equity issuances. Optional prepayments, mandatory prepayments out of the proceeds of debt and certain equity issuances, or an acceleration of the loans following an event of default will subject the Company to payment of certain fees, as defined in the Oaktree Credit Agreement, if such acceleration occurs on or before the thirty-six (36) month anniversary of the Closing Date.
Obligations under the Oaktree Credit Agreement are secured by a first-priority lien on substantially all of the assets of the Company and its wholly owned subsidiaries (the “BHLP Note”“Subsidiary Guarantors”) although certain assets of the Company and Subsidiary Guarantors are subject to a first-priority lien in favor of floor plan lenders, and such liens and priority are subject to certain other exceptions. The Subsidiary Guarantors also guarantee the obligations of the Company under the Oaktree Credit Agreement.
The Oaktree Credit Agreement contains customary events of default for facilities of this type. If an event of default under the Oaktree Credit Agreement occurs and is continuing, the commitments to make available the Delayed Draw Term Loan Facility may be terminated and the principal amount outstanding under the Oaktree Credit Agreement, together with all accrued and unpaid interest and other amounts owed thereunder, may be declared immediately due and payable.
Oaktree Warrant
In connection with providing the debt financing for the RideNow Transaction, and pursuant to the Commitment Letter executed on March 15, 2021, the Company issued warrants to purchase $40,000 shares of Class B common stock to Oaktree Capital Management, L.P. and its lender affiliates (the “Oaktree Warrants”). In connection with the August 2021 Offering, the exercise price of the Warrants was set at $33.00 per share and the aggregate number of shares of Class B common stock underlying the Oaktree Warrants was set at 1,212,121. The Oaktree Warrants are immediately exercisable on the Closing Date and expire eighteen (18) months after the Closing.
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 in proceeds (the “ROF Facility”) with Berrard Holdings, an entity ownedCL Rider Finance, L.P. (“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 initial 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 infor the principal amount of 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 nine-months ended September 30, 2021 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.$71, 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.$1,333. Halcyon was affiliated with Kartik Kakarala, a former director of the Company. 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.maturity date. The Company’s obligations under the NextGen Note are secured by substantially all the assets of NextGen Pro LLC (“NetGen 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-month periodsnine-months ended September 30, 20172021 was $21,370$0 and $54,849,$7, respectively. Interest expenses on the NextGen Note for the three and nine-months ended September 30, 2020, was $21 and $66, respectively.
Private Placement
On March 31, 2017, the Company completed funding of the second tranche of the 2016 Private Placement (as defined below).Placement. The investors were issued 1,161,92058,096 shares of Class B Common Stockcommon stock of the Company and promissory notes (the “Private Placement Notes”) in the amount of $667,000,$667, 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.$1,350. The Private Placement Notes maturematured on MarchJanuary 31, 2020.2021. Interest accruesaccrued 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 March 31, 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 Stockcommon stock and promissory notes issued in the 2016 Private Placement, the Company recorded a debt discount on the promissory notes of $667,000$667 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 $0 and $18, respectively for the three and nine-month periodsnine months ended September 30, 20172021. Interest expense for the three and nine-months ended September 30, 2020 was $94,885$17 and $184,943,$125, respectively, which included debt discount amortization of $41,979$0 and $81,603, respectively$76, respectively. On January 31, 2021, a payment of $371 was made on the Private Placement Note and the remaining balance of $297 was extended through June 30, 2021. The Private Placement 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 new notes (the “New Investor Notes”), pursuant to that certain Note Exchange Agreement, dated January 14, 2020 (the “Investor Note Exchange Agreement”), by and between the Company and each investor thereto, including Halcyon, such New Investor Note for an aggregate principal amount of $833 (after taking account of a $500 pay down of the previously outstanding Halcyon note), Blue Flame Capital, LLC (“Blue Flame”), an entity affiliated with Denmar Dixon, a director of the Company, such New Investor Note for an aggregate principal amount of $99, and Mr. Dixon, individually, such New Investor Note for an aggregate principal amount of $273. The Halcyon and Blue Flame outstanding principal plus accrued interest were paid in full on January 31, 2021. The remaining outstanding principal plus accrued interest of the New Investor Notes was paid in full on July 1, 2021.
Bridge Loan
On March 12, 2021, in anticipation of the RideNow Transaction, the Company and its subsidiary, 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 loaned the Company $2,500 (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 plus accrued interest at 12% was paid in full on the Closing Date. Interest expense on the Bridge Loan for the three and nine-month periodsnine-months ended September 30, 2017.2021, was $53 and $147, respectively.
PPP Loans
On September 5, 2017,May 1, 2020, the Company, executed Senior Secured Promissory Notesand 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 “Notes”“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 favorthe aggregate amount of several investors, including certain executive officers and directors$5,177 (the “Loan Proceeds”). Pursuant to the terms of the Company,SBA Loan Documents, the Borrowers can apply for and receive forgiveness for all, or a portion of the loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loans. In July, 2021, we applied to obtain forgiveness of the PPP Loans and received approval for the forgiveness totaling $564 in September, 2021. The balance of the PPP loans of $4,612 is still under review by the SBA and the Company can provide no assurance that it will obtain forgiveness of this remaining balance in whole or in part. As of September 30, 2021, payments on this remaining loan balance commenced September 1, 2021 and the loans mature on April 25, 2025.
Interest expense on the PPP Notes for the three and nine-months ended September 30, 2021 was $13 and $39, respectively. Interest expense on the PPP Notes for the three and nine-months ended September 30, 2020 was $12 and $19 respectively.
NOTE 10 – CONVERTIBLE NOTES
As of September 30, 2021, the outstanding convertible promissory notes net of debt discount and issue costs are summarized as follows:
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Principal Amount | Debt Discount | Carrying Amount | Principal Amount | Debt Discount | Carrying Amount | |||||||||||||||||||
| Convertible senior notes | $ | 38,750 | $ | 10,102 | $ | 28,648 | $ | 38,750 | $ | 11,737 | $ | 27,013 | ||||||||||||
$1,536 unsecured note | 448 | 169 | 279 | 1,024 | 308 | 716 | ||||||||||||||||||
| Total convertible notes | 39,198 | 10,271 | 28,927 | 39,774 | 12,045 | 27,729 | ||||||||||||||||||
| Less: Current portion | 448 | 169 | 279 | 768 | 205 | 563 | ||||||||||||||||||
| Convertible debt, net of current portion | $ | 38,750 | $ | 10,102 | $ | 28,648 | $ | 39,006 | $ | 11,840 | $ | 27,166 | ||||||||||||
Convertible Senior Notes
On May 9, 2019, the Company entered into a purchase agreement (the “Old Notes Purchase Agreement”) with JMP Securities LLC (“JMP Securities”) to issue and sell $30,000 in aggregate principal amount of $1,650,000 (“Principal Amount”its 6.75% Convertible Senior Notes due 2024 (the “Old Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) (the “2019 Note Offering”). On January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by a Joinder Agreement (together, the “New Note Purchase Agreement”), with the investors in the 2019 Note Offering, pursuant to which the Company agreed to complete (i) a note exchange pursuant to which $30,000 of the Old Notes would be cancelled in exchange for a new series of 6.75% Convertible Senior Notes due 2025 (the “New Notes,” and together with the Old Notes, the “Public Notes”) and (ii) the issuance of additional New Notes in a private placement (the “2020 Note Offering”). On January 14, 2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering after deducting for payment of accrued interest on the Old Notes and offering-related expenses were approximately $8,272.
The New Notes were issued pursuant to an Indenture (the “New Indenture”), by and between the Company and the Trustee. The New Notes bear interest at 6.75% per annum, payable semiannually on January 1 and July 1, beginning on July 1, 2020. The New Notes may bear additional interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the New Indenture or if the New Notes are not freely tradable as required by the New Indenture. The New Notes mature on January 1, 2025, unless earlier converted, redeemed, or repurchased pursuant to their terms.
The initial conversion rate of the New Notes is 25 shares of Class B common stock per $1 principal amount of New Notes, which is equal to an initial conversion price of $40.00 per share. The conversion rate is subject to adjustment in certain events as set forth in the New Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the New Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its New Notes in connection with such make-whole fundamental change. Before July 1, 2024, the New Notes will be convertible only under circumstances as described in the New Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental change adjustment will result in a conversion rate greater than 62.0 shares per $1 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 not redeemable by the Company before 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% 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% of the principal and accrued and unpaid interest, if any, on all the New Notes then outstanding to be due and payable.
As of September 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 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 equal to difference between the fair value of the Old Notes liability immediately prior to extinguishment and the carrying amount of the liability component of the Old Notes, including any unamortized debt issuance costs. The remaining consideration of $2,593 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 includesrequired bifurcation of the liability and equity components. The Company determined the carrying amount of the liability component was $25,280 and represents the present value of the New Notes cash flows using an aggregate original issueimplied discount rate of $150,000. The18.7%, 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 fromrecorded $13,529, in total debt discount related to the New Notes netwhich included $60 of originaldebt issuance discount, was $1,500,000.costs. The Notes are secured by an interest in allCompany allocates transaction costs related to the Company’s Collateral, as such term is defined in the Notes.
The interest expense recognized with respect to the Convertible Notes was as follows:
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Contractual interest expense | $ | 654 | $ | 654 | $ | 1,308 | $ | 1,912 | ||||||||
| Amortization of debt discount | 569 | 479 | 2,290 | 1,367 | ||||||||||||
| Total interest expense | $ | 1,223 | $ | 1,133 | $ | 3,598 | $ | 3,279 | ||||||||
Convertible Notes-Autosport USA
On February 3, 2019, in connection with the Autosport Acquisition, the Company issued a (i) $500 Promissory Note and (ii) a $1,536 Convertible Note in favor of the seller. The $500 Promissory Note was repaid in full in 2020. The $1,536 Convertible Note matures on January 31, 2022 and accrues interest at a rate of 6.5% per annum. 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 2,449 shares of the Company’s Class B common stock. Interest expense on the NotesConvertible Note for the three and nine-month periodsnine-months ended September 30, 20172021 was $15,925$51 which included $10,274$37 of original issuedebt discount amortization. On October 23, 2017, the Company completed a public offering and used approximately $1,661,075 amortization as compared to interest expense of the net proceeds$52 which included $20 of the offeringdebt discount amortization for the repaymentsame periods of the Notes in the aggregate principal amount of $1,650,000, plus accrued interest, which resulted in the termination of the Notes. For additional information, see Note 15 “Subsequent Events.”
NOTE 11 – 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 RSUs, stock options (“Options”), Performance Units, and other equity awards (collectively “Awards”). As of September 30, 2021, the number of shares authorized for issuance under the Plan was approved by the Company’s stockholders at the 2017 Annual Meeting of Stockholders. The purposes of the Plan are to attract, retain, reward and motivate talented, motivated and loyal employees and other service providers (“Eligible Individuals”) by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success 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 outstanding2,700,000 shares of Class B Common Stock from common stock. To date, most RSU and Option awards are service/time to time are reserved for issuance under the Plan. Asbased vested over a period of September 30, 2017, 9,018,541 shares are issued and outstanding, resulting in up to 1,082,225 shares available for issuance under the Plan. As of September 30, 2017, thethree years. The Company has also granted 560,000 RSUsperformance-based awards and market condition-based awards with vesting schedules that are typically dependent on achieving a particular objective within thirty-six months.
The Company estimates the fair value of awards granted under the Plan to certain officers and employeeson the date of grant. In the case of time or service based RSU awards, the fair value is the price of the Company. The aggregateClass 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 risk that the relevant performance metrics may not be met. Options are calculated using the Black-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 Black-Scholes and Monte-Carlo simulations utilize multiple input variables to determine the probability of the RSUs was $2,103,500. The RSUs vestCompany’s Class B stock price being at certain prices over a three-year period as follows: (i) 20% oncertain time periods, resulting in an implied value to the first anniversaryholder.
In connection with the closing of the grant date; (ii) 30% onRideNow Transaction, the second anniversaryCompany accelerated all the outstanding RSU awards for all participants and waived certain market-based share price hurdles for all market-based awards. This waiver was accounted for as a modification of the grant date; and (iii) 50% on the third anniversary of the grant date.awards. The fair value of the grant is amortized overawards was remeasured as of effective date of the period fromwaiver, and the grant date throughchange in fair value was fully expensed given the vesting dates. Compensation expense recognized forconcurrent delivery of such shares. In addition, in connection with the execution of the executive employment agreements entered into with each Messrs. Chesrown, Coulter, Levy, and Tkach, (the “Executive Employment Agreements”), Messrs. Coulter and Tkach were granted service-based RSUs and market based awards were granted to each of Messrs. Chesrown, Coulter, Tkach, and Levy. The cost of the acceleration of these grantsRSU awards and other stock issuances of $23,943 has been reported in the Condensed Consolidated Statement of Operations for the three and nine-month periodsnine-months ended September 30, 2017 was $157,763 and $287,550, respectively. The Company has approximately $1,605,600 in unrecognized2021 as stock-based compensation with an average remaining vesting periodand other issuances.
On September 30, 2021, the Audit Committee approved the issuance of three years.
We generally expense the grant-date fair value of all awards on a straight-line basis over the vesting period. However, the acceleration of awards as described above resulted in the awards being expensed in the three-months ended September 30, 2021. The following table reflects the stock-based compensation for the three and nine-months ended September 30, 2021 and September 30, 2020.
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Restricted Stock Units | $ | 24,722 | $ | 847 | $ | 27,142 | $ | 2,379 | ||||||||
| Options | 8 | 15 | 23 | 46 | ||||||||||||
| Total stock-based compensation | $ | 24,730 | $ | 862 | $ | 27,165 | $ | 2,425 | ||||||||
As of September 30, 2021, there are 2,551 Options and 524,578 RSUs outstanding. The total unrecognized compensation expense related to outstanding equity awards was approximately $2,955, which the Company expects to recognize over a weighted-average period of approximately 35 months.
January 2020 Offering
On January 14, 2020, the Company closed its public offering of 1,035,000 shares of Class B common stock approvedat a price to the public of $11.40 per share (“2020 Public Offering”), which included the full exercise of the underwriter’s option to purchase an amendmentadditional 135,000 shares from RumbleOn. The Company raised approximately $10,780 in net proceeds for working capital and general corporate purposes.
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 Offering
On April 8, 2021, the Company closed its public 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 oncommon stock at a price to the Effective Date,public of $38.00 per share (the “April 2021 Offering”). The Company raised approximately $36,797 in net proceeds for working capital and general corporate purposes.
August 2021 Offering
On August 31, 2021, the Company amendedclosed its bylaws to reflect the name change to RumbleOn, Inc. and to reflect the Company’s primary placeAugust 2021 Offering of business as Charlotte, North Carolina.
Warrant
At inception of the Commitment Letter, the Company accounted for the Oaktree Warrant as a liability with the initial offset as a deferred financing charge as the Oaktree Warrant was issued in lieu of a commitment fee connected to the debt financing of the RideNow Transaction. The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability was subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of change in derivative liability in the Condensed Consolidated Statements of Operations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 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 changes in the fair value between March 12, 2021 and March 31, 2021. For the three months ended June 30, 2017,2021, the Company filedfair value of the warrant liability was increased $2,224 to $13,174. On August 31, 2021, the fair value of the warrant liability was increased $6,526 to $19,700. Upon closing of the RideNow Transaction, the Oaktree Under ASC 815-40, warrants were considered equity linked contracts indexed to RumbleOn’s stock and therefore met the equity classification guidance. As a Registration Statement on Form S-1 (the “Registration Statement”) withresult, the SEC covering$19,700 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge was reclassified as part of the resaledebt discount related to the Oaktree Credit Agreement. The recognition of 8,993,541 shares of Class B Common Stock issued in the NextGen acquisitionwarrant liability and deferred financing charge and the 2017 Private Placement and other shares previously held by our stockholders, including our officers and directors. The SEC declared the Registration Statement effective on July 7, 2017. In connection with the filingreclassification of the Registration Statement, our officerswarrant liability to additional paid-in-capital and directors and certain stockholders entered into a lock-up agreement restricting, through December 31, 2017, the resalereclassification of an aggregate of 6,848,800 shares of our common stock held by them and subjectthe deferred financing charge to the Registration Statement.debt discount are non-cash items.
NOTE 912 – SELLING, GENERAL AND ADMINISTRATIVE
The following table summarizes the detail of selling, general and administrative expense for the three and nine-month periodsnine-months ended September 30, 20172021 and 2016:September 30, 2020:
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Compensation and related costs | $ | 12,669 | $ | 7,169 | $ | 26,983 | $ | 20,496 | ||||||||
| Advertising and marketing | 4,241 | 840 | 7,799 | 4,330 | ||||||||||||
| Technology development and software | 686 | 180 | 1,513 | 1,037 | ||||||||||||
| Facilities cost | 3,576 | 751 | 4,774 | 1,718 | ||||||||||||
| General and administrative | 16,392 | 4,339 | 28,008 | 14,929 | ||||||||||||
| $ | 37,564 | $ | 13,279 | $ | 69,077 | $ | 42,510 | |||||||||
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 13 – 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 property and equipment and other 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; (2) building and personal property loss, primarily impacting our leased facilities, assessed by the insurance carrier at $2,783; and (3) loss of business income, for which the company has coverage in the amount of $6,000.
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 applicable policy limits applicable to the loss; however, the insurer has paid $5,615 in July 2020 and $3,135 in July 2021. Therefore, the total payments received thus far against the final settlement are $8,750. The insurer has agreed to pay $2,778 on the building and personal property loss, reflecting limits of $2,783, net of a $5 deductible. The insurer has made an interim payment on the building and personal property loss of $2,270 to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation, however, the insurer has advanced $250 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 nine-months ended September 30, 2020, the Company recorded an impairment loss on inventory of $11,738 comprised of $4,454 for vehicles that were a total loss and $7,285 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the September 30, 2020 Condensed Consolidated statements of operations. Additionally, $178 of the net book value of the property and equipment destroyed by the Nashville Tornado was expensed.
NOTE 1014 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing activity for the nine-month periodsnine-months ended September 30, 20172021 and 2016.2020:
| Nine-Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for interest | $ | 3,553 | $ | 3,615 | ||||
The following table provides a reconciliation of cash and restricted cash reported within the accompanying Condensed Consolidated balance sheets that sum to the total of the same amounts shown in the accompanying Condensed Consolidated statements of cash flows as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Cash | $ | 68,268 | $ | 1,467 | ||||
| Restricted cash (1) | 3,049 | 2,049 | ||||||
Total cash, and restricted cash | $ | 71,317 | $ | 3,516 | ||||
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 debt financings. |
NOTE 1115 – INCOME TAXES
In projectingMarch 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 expensepayable and deferred income tax positions of the Company.
As of December 31, 2020, the Company provided a full valuation allowance on the net deferred tax assets of $23,744. On a quarterly basis, management assesses the recovery of its deferred tax assets by considering whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result of the RideNow Transaction, management anticipates that the Company will have taxable income in 2022 and future years, and undertook an in-depth IRS Code Section 382 Ownership Change Analysis to determine what limitations exist on the utilization of Federal and state net operating loss carryforwards. Based on this analysis, management has concluded that a valuation allowance of $12,000 should be provided as of September 30, 2021.
The components of the income tax provision from continuing operations for the three and nine-months ended September 30, 2021 and September 30, 2020 are as follows:
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Current | ||||||||||||||||
| Federal | $ | — | $ | — | $ | — | $ | — | ||||||||
| State | 288 | — | 288 | — | ||||||||||||
| Total current income tax benefit | 288 | — | 288 | — | ||||||||||||
| Deferred | ||||||||||||||||
| Federal | (10,756 | ) | — | (10,756 | ) | — | ||||||||||
| State | (213 | ) | — | (213 | ) | — | ||||||||||
| Total deferred income tax benefit | (10,969 | ) | — | (10,969 | ) | — | ||||||||||
| Income tax benefit | $ | (10,681 | ) | $ | — | $ | (10,681 | ) | $ | — | ||||||
A reconciliation of the statutory U.S. Federal income tax rate to the Company’s effective income tax rate for the nine-months ended September 30, 2021 and the year ended December 31, 2017, management has concluded it2020 is not likely to recognizeset forth below.
| September 30, 2021 | December 31, 2020 | |||||||
| U.S. Federal statutory rate | 21.0 | % | 21.0 | % | ||||
| State and local, net of Federal benefit | 3.3 | % | 5.0 | % | ||||
| Permanent & other differences | (16.3 | )% | (1.4 | )% | ||||
| Valuation allowance | 18.0 | % | (24.6 | )% | ||||
| Effective tax rate | 26.0 | % | — | % | ||||
Deferred income taxes reflected on the benefitbalance sheet as of its deferredSeptember 30, 2021 and December 31, 2020, reflect the net tax asset, neteffect of deferred tax liabilities, and as a result a full valuation allowance will be required. As such, no income tax benefit has beentemporary differences between amounts recorded for the threefinancial reporting purposes and nine-month periods ended September 30, 2017 or 2016.amounts used for tax purposes. These differences are summarized below.
| September 30, 2021 | December 31, 2020 | |||||||
| Deferred tax assets | ||||||||
| Net operating loss carryforward | $ | 26,449 | $ | 21,495 | ||||
| Business interest carryforward | 2,586 | 1,651 | ||||||
| Stock-based compensation | 11 | 518 | ||||||
| Accounts receivable allowance | 118 | 362 | ||||||
| Lease liabilities | 22,987 | 1,569 | ||||||
| Inventory reserve | 5 | 27 | ||||||
| Basis difference in goodwill | 965 | 352 | ||||||
| Accrued liabilities | 116 | 123 | ||||||
| Property and equipment | — | 373 | ||||||
| Total deferred tax assets | 53,237 | 26,470 | ||||||
| Deferred tax liabilities | ||||||||
| Basis difference in property and equipment | 6,609 | — | ||||||
| Franchise rights | 28,048 | — | ||||||
| Other intangible assets | 2,200 | — | ||||||
| Right-of-use assets | 22,790 | 1,478 | ||||||
| Debt issuance costs amortization | 1,169 | 1,248 | ||||||
| Total deferred tax liabilities | 60,816 | 2,726 | ||||||
| Net deferred tax asset (liability) before valuation allowance | (7,579 | ) | 23,744 | |||||
| Valuation allowance | (12,000 | ) | (23,744 | ) | ||||
| Net deferred income tax liabilities | $ | (19,579 | ) | $ | — | |||
NOTE 12 —16 – LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing net lossincome (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average common shares and common share equivalents outstanding during the period. The computationdiluted earnings per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, 524,578 of RSUs, 2,551 of stock options, 1,212,121 of Oaktree Warrants to purchase shares of Class B common stock, 16,531 of other warrants 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 the effect is antidilutive.
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 the three-month and nine-month periods ended September 30, 2017 did not include 560,000all classes. Weighted average number of restricted stock units to purchase shares outstanding of Class A common stock, Class B Common Stock as their inclusion would be antidilutive. There were no restrictedcommon stock, units outstandingand Series B Preferred for the three and nine-month periodsnine months ended September 30, 2016.2021 were 50,000, 6,889,708 and 0 and 50,000, 4,128,932 and 0, respectively.
NOTE 1317 – RELATED PARTY TRANSACTIONS
Promissory Notes
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.
August 2021 Offering
On August 31, 2021, we completed the Condensed Consolidated Balance Sheets.
RideNow Leases
In connection with the RideNow Transaction, the Company entered into related party leases for 24 properties consisting of dealerships and offices. Each related party lease is with a wholly owned subsidiary of the Company as the tenant and an entity controlled by William Coulter and/or Mark Tkach, each a director and executive officer of the Company, as the landlord. The initial aggregate principal amountbase rent payment for all 24 leases is approximately $1,229 per month, and each lease commenced a new 20-year term on September 1, 2021, with each lease containing annual 2% increases on base rent. The Company is still in the process of $1,650,000finalizing its purchase price allocation and related fair values of assets and liabilities, including the RideNow leases.
RideNow Reinsurance Products
Each of the operating entities owned by the Company that own retail powersport stores which sell motorcycles and various off-road vehicles also sell extended service contracts, prepaid maintenance, “GAP insurance,” theft protection and tire and wheel products on their vehicles. These products sold to customers of these stores are offered by RPM One (“Principal Amount”RPM”), which includesis an aggregate original issue discountafter-market third-party provider of $150,000. Asthese products commonly used in the industry. Affiliate reinsurance companies controlled by and owned primarily by William Coulter and/or Mark Tkach participate in the underwriting profits of September 30, 2017,these RPM products. The sales representatives employed by these operating companies are incentivized to offer the products sold by RPM. The total amount generated by these affiliate companies attributable to the ownership interests of Mr. Coulter and Mr. Tkach was approximately $7,000 in 2019 and approximately $8,400 in 2020. The Audit Committee of the Board of Directors (the “Board”) of the Company had (the “Audit Committee”) is in the process of reviewing the terms and rates of these entities.
Notes of $1,214,144 and accrued interest of $4,144 duePayable to certain executive officers andRideNow Management, LLLP
The Company has notes payable to RideNow Management, LLLP, a entity owned equally by two directors of the Company. Interest expense on the Notes due to certain executive officers and directors for the three and nine-month periods ended September 30, 2017 was $11,678, which included $7,534 of original issue discount amortization. On October 23, 2017, the Company completed a public offering and used $1,661,075 of the net proceeds of the offering for the repayment of the Notes in the aggregate principal amount of $1,650,000, plus accrued interest, which resulted in the termination of the Notes. For additional information, see Note 7 - “Notes Payable” and Note 15 “Subsequent Events.”$1,033.
NOTE 1418 – 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 capitalized financing and right-of-use assets and lease liabilities. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. To determine the discount rate to use in determining the present value of the lease payments, we use the rate implicit in the lease if determinable, otherwise we use our incremental borrowing rate.
The following table reflects the balance sheet presentation of our lease assets and liabilities:
Leases | Classification | September 30, 2021 | December 31, 2020 | |||||||
| Assets: | ||||||||||
| Operating | Right of use assets | $ | 92,944 | $ | 5,690 | |||||
| Finance | Property and equipment, net | 40,738 | — | |||||||
Total right-of-use assets | $ | 133,682 | $ | 5,690 | ||||||
| Liabilities: | ||||||||||
| Current | ||||||||||
| Operating | Accounts payable and accrued liabilities | $ | 7,435 | $ | 1,630 | |||||
| Finance | Accounts payable and accrued liabilities | 345 | — | |||||||
| Non-Current | ||||||||||
| Operating | Long-term portion of operating lease liabilities | 85,965 | 4,370 | |||||||
| Finance | Long-term portion of financing lease liabilities | 40,591 | — | |||||||
| Total lease liabilities | $ | 134,336 | $ | 6,000 | ||||||
Operating lease expense is recognized on a straight-line basis over the lease term. Total operating lease expenses for the three and nine-months ended September 30, 2021 and 2020 are provided in the table below.
The weighted-average remaining lease term and discount rate for the Company’s operating and financing leases are as follows:
| September 30, 2021 | ||||
| Weighted average lease term-operating leases | 9.0 years | |||
| Weighted average lease term-finance leases | 20.0 years | |||
| Weighted average discount rate-operating leases | 9.5 | % | ||
| Weighted average discount rate-finance leases | 15.0 | % | ||
The following table provides information related to the lease costs of finance and operating leases for three and nine-month periods ended September 30, 2021 and September 30, 2020:
| Three-Months Ended September 30, | Nine-Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease cost | $ | 2,364 | $ | 763 | $ | 3,544 | $ | 1,627 | ||||||||
| Finance lease costs: | ||||||||||||||||
| Amortization of ROU assets | 170 | — | 170 | — | ||||||||||||
| Interest on lease liabilities | 511 | — | 511 | — | ||||||||||||
| Total lease cost | $ | 3,045 | $ | 763 | $ | 4,225 | $ | 1,627 | ||||||||
Supplemental cash flow information related to operating leases for the nine-months ended September 30, 2021, is set forth below:
| September 30, 2021 | ||||
| Cash payments for operating leases | $ | 487 | ||
The following table summarizes the future minimum payments for operating and financing leases as of September 30, 2021, due in each year ending December 31,
Leases | Operating Leases | Financing Leases | ||||||
| 2021 | $ | 4,434 | $ | 1,452 | ||||
| 2022 | 17,710 | 5,848 | ||||||
| 2023 | 16,868 | 5,965 | ||||||
| 2024 | 16,090 | 6,085 | ||||||
| 2025 | 14,023 | 6,206 | ||||||
| Thereafter | 181,073 | 115,277 | ||||||
| Total lease payments | 250,198 | 140,833 | ||||||
| Less imputed interest | (156,798 | ) | (99,897 | ) | ||||
| Present value of lease liabilities | $ | 93,400 | $ | 40,936 | ||||
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 September 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 not have a material adverse effect on the Company’sits 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 cash flows.to establish its own proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
NOTE 19 – SEGMENT REPORTING
Business segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Our operations are organized by management into operating segments by line of business. We have determined that we have 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 segment consists of the sale of new and used powersports vehicles principally through retail and, to a lesser extent, through wholesale distribution channels. Our automotive segment consist of the distribution of pre-owned cars and trucks through wholesale distribution channels. Our vehicle logistics and transportation service segment provide 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 financial measures by which management allocates resources to its segments in each of our reportable segments and other key metrics.
| Powersports | Automotive | Vehicle Logistics and Transportation | Eliminations(1) | Total | ||||||||||||||||
| Three-Months Ended September 30, 2021 | ||||||||||||||||||||
| Total assets | $ | 1,189,868 | $ | 443,084 | $ | 14,210 | $ | (635,310 | ) | $ | 1,011,852 | |||||||||
| Revenue | 105,547 | 105,298 | 11,597 | (1,228 | ) | 221,214 | ||||||||||||||
| Operating income (loss) | (27,524 | ) | 3,835 | 987 | — | (22,702 | ) | |||||||||||||
| Depreciation and amortization | 1,684 | 23 | 10 | — | 1,717 | |||||||||||||||
| Interest expense | (4,073 | ) | (503 | ) | (1 | ) | — | (4,577 | ) | |||||||||||
| Change in derivative liability | (6,518 | ) | — | — | — | (6,518 | ) | |||||||||||||
| Three-Months Ended September 30, 2020 | ||||||||||||||||||||
| Total assets | 48,784 | 41,284 | 10,518 | (26,871 | ) | 73,715 | ||||||||||||||
| Revenue | 7,502 | 99,315 | 11,415 | (975 | ) | 117,257 | ||||||||||||||
| Operating income (loss) | (4,028 | ) | 6,246 | 771 | — | 2,989 | ||||||||||||||
| Depreciation and amortization | 506 | 28 | 2 | — | 536 | |||||||||||||||
| Interest expense | (1,196 | ) | (292 | ) | — | — | (1,488 | ) | ||||||||||||
| Change in derivative liability | (14 | ) | — | — | — | (14 | ) | |||||||||||||
| Nine-Months Ended September 30, 2021 | ||||||||||||||||||||
| Total assets | 1,189,868 | 443,084 | 14,210 | (635,310 | ) | 1,011,852 | ||||||||||||||
| Revenue | 144,380 | 316,655 | 36,145 | (3,357 | ) | 493,823 | ||||||||||||||
| Operating income (loss) | (35,604 | ) | 8,234 | 2,613 | — | (24,757 | ) | |||||||||||||
| Depreciation and amortization | 2,855 | 76 | 17 | — | 2,948 | |||||||||||||||
| Interest expense | (6,651 | ) | (1,451 | ) | (5 | ) | — | (8,107 | ) | |||||||||||
| Change in derivative liability | (8,774 | ) | — | — | — | (8,774 | ) | |||||||||||||
| Nine-Months Ended September 30, 2020 | ||||||||||||||||||||
| Total assets | 48,784 | 41,284 | 10,518 | (26,871 | ) | 73,715 | ||||||||||||||
| Revenue | 39,314 | 281,242 | 28,657 | (3,465 | ) | 345,748 | ||||||||||||||
| Operating income (loss) | (15,733 | ) | (935 | ) | 2,153 | — | (14,515 | ) | ||||||||||||
| Depreciation and amortization | 1,450 | 111 | 6 | — | 1,567 | |||||||||||||||
| Interest expense | (3,581 | ) | (1,605 | ) | (1 | ) | — | (5,187 | ) | |||||||||||
| Change in derivative liability | 7 | — | — | — | 7 | |||||||||||||||
| Gain on early extinguishment of debt | 188 | — | — | — | 188 | |||||||||||||||
| (1) | Intercompany investment balances related to the acquisitions of RideNow, Wholesale and Wholesale Express, LLC (“Wholesale Express”) and receivables and other balances related to 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 1520 – SUBSEQUENT EVENTS
On October 23, 2017,November 8, 2021, the Company completed an underwritten public offeringentered into a Membership Interest Purchase Agreement (the “Freedom Agreement”) with the Sellers (as defined in the Freedom Agreement), Freedom Powersports Real Estate LLC (“FPS-RE”), and Trinity Private Equity Group, LLC, as the representative of 2,910,000the Sellers.
The Agreement provides that the Company will acquire 100% of the equity in the Acquired Companies (as defined in the Freedom Agreement) in exchange for proceeds, net of approximately $27,780 in mortgage debt at FPS-RE to be assumed or refinanced by RumbleOn, of approximately $100,000 (the “Net Proceeds”) through a combination of cash (the “Cash Consideration”) and up to 30% of the Net Proceeds in shares of the Company’s Class B common stock (the “Share Consideration”) to be valued at a public offering pricethe 10-day VWAP (as defined in the Agreement) before closing. Ten percent (10%) of $5.50 per share
Each of the Company (the “Offering”).and the Sellers has provided customary representations, warranties, and covenants in the Agreement. The completion of the transaction is subject to various closing conditions, including the receipt of all manufacturer consents to the transaction.
Both the Company also grantedand the underwriters a 30-day option, which expiresSellers’ Representative have the right to terminate the Freedom Agreement if the closing of the transaction does not occur on November 19, 2017,or before January 31, 2022, subject to purchaserights of the parties to extend the termination date for up to an additional 436,500 sharesthree (3) consecutive periods of Class B common stock to cover over-allotments.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Unless differences among reportable segments are material to an understanding of our business taken as a whole, we present the discussion in this MD&A on a consolidated basis. Terms not statements of historical fact may be deemeddefined in this MD&A have the meanings ascribed to be forward-looking statements. The words “believes,” “anticipates,” “plans,” “expects,” “intends”them in the Condensed Consolidated Financial Statements included in this Form 10-Q. All dollars are reported in thousands, except per share amounts and similar expressions identify someper unit amounts.
Organization
RumbleOn was incorporated in October 2013 under the laws of the forward-looking statements. Forward-looking statements are not guaranteesState of performanceNevada as SmartServer, Inc. In 2016, following the acquisition of SmartServer by RumbleOn founders Marshall Chesrown and Steven Berrard, we changed our name to RumbleOn, Inc. Since that time, we have grown our business through organic development and strategic acquisitions into the first and only true omnichannel powersports retailer. Headquartered in the Dallas Metroplex, RumbleOn is revolutionizing the customer experience for outdoor enthusiasts across the country and making powersport vehicles accessible to more people, in more places than ever before.
Overview
RumbleOn is the nation’s first technology-based omnichannel marketplace in powersports, leveraging proprietary technology to transform the powersports supply chain from acquisition of supply through distribution of retail and wholesale. RumbleOn provides an unparalleled technology suite and ecommerce experience, national footprint of physical locations, and full line manufacturer representation to transform the entire customer experience. Our goal is to integrate the best of both the physical and the digital, and make the transition between the two seamless.
We buy and sell new and used vehicles through multiple company-owned websites and affiliate channels, as well as via our proprietary cash offer tool and network of more than 40 company-owned retail distribution locations, primarily located in the Sunbelt. Deepening our presence in existing markets and expanding into new markets through strategic acquisitions helps perpetuate our flywheel. Our cash offer technology brings in high quality inventory, which attracts more riders and drives volume in used unit sales. This flywheel enables us to quickly and effectively gain market share. As a result of our growth to date, RumbleOn enjoys a leading, first-mover position in the highly fragmented $100 billion+ powersports market.
RumbleOn’s powersports business offers motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and all other powersports products, parts, apparel, and accessories. Facilitating our platform, RumbleOn’s retail distribution locations represent all major manufacturers (“OEMs”), including the OEMs and their representative brands, including those listed below.
| RumbleOn’s OEMs and Representative Brands | ||
| BMW Motorrad USA | Polaris | |
| Bombardier Recreational Products | Scarab | |
| Can-Am | Sea-Doo | |
| Ducati | Ski-Doo | |
| Harley-Davidson | Slingshot | |
| Honda | Speed UTV | |
| Indian | SSR Motorsports | |
| Kawasaki | Suzuki | |
| Kayo Sports | Timbersled | |
| KTM | Triumph | |
| Manitou | Yamaha | |
RumbleOn leverages technology and data to streamline operations, improve profitability, and drive lifetime engagement by offering a best-in-class customer experience with unmatched omnichannel capabilities. Our omnichannel platform offers consumers the fastest, easiest, and most transparent transactions available in powersports. RumbleOn customers have access to the most comprehensive powersports vehicle offering, including the ability to buy, sell, trade, and finance online, in store at any of our bricks-and-mortar locations, or futureboth. RumbleOn offers financing solutions for consumers; trusted physical retail and service locations; online or in-store instant cash offers, and access to pre-owned inventory; apparel, parts, service, and accessories; vehicle transportation and logistics; and virtual inventory listings from third-party partner dealers through our dealer platform. In addition to our powersports operations, we also operate in complementary businesses including the brokerage of vehicle transportation and the wholesale automotive business.
Going forward we plan to accelerate our growth via strategic acquisitions of well-run dealerships, continued expansion of our fulfillment center network, and the development of value-added ancillary product and service offerings (both physical and online) that provide our customers the opportunity to engage with our brands wherever and however they like.
Outlook
The onset of the Covid-19 pandemic in 2020 and associated impacts on economic activity had adverse effects on our results of operations and involve risks, uncertaintiesfinancial condition during the nine months ended September 30, 2021 and assumptions.September 30, 2020. The factors discussed elsewhererebound of our business began during the six-month period ended December 31, 2020 with our gross profit per vehicle rising as dealers saw higher industry-wide market prices and margins. These trends, exacerbated by significantly lower new vehicle production due to manufacturing slowdowns, computer chip shortages, and logistic/transportation impacts continued through September 30, 2021 and we expect these conditions to continue through the fourth quarter of 2021 (collectively, the reduced production, increase in gross margin per vehicle, supply chain mechanics, and related items, referred to in this Form 10-Q as “Demand/Supply Imbalances”). The effect of these Demand/Supply Imbalances required that we adjust our inventory management to align with market conditions, resulting in lower levels of inventory and lower unit sales during the period. As the impact of Covid-19 and Demand/Supply Imbalances abate over time, we anticipate that inventory purchasing levels and revenue will increase as we increase penetration in subsequent Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K,existing markets and Current Reports on Form 8-K could also cause actual resultsadd new dealers. Additionally, we expect industry-wide increased gross margin per vehicle to differ materially from those indicated by the Company’s forward-looking statements. The Company undertakesreturn to historical levels. We must note, however, that we can provide no obligation to publicly update or revise any forward-looking statements, except as required by law.
KEY OPERATING METRICS
We acquire a significant percentage of our used vehicle inventory directly from consumers and dealers through our Sell Us Your Vehicle Program. We also, to a lesser extent, acquire vehicles from auctions and directly from used vehicle suppliers, including franchise and independent dealers and finance and leasing companies. Using used retail and wholesale vehicle market data obtained from a variety of internal and external sources, we evaluate a significant number of vehicles daily to determine their fit with consumer demand, internal profitability targets and our existing inventory mix. The supply of used vehicles is influenced by a variety of factors, including: the total number of vehicles in operation; the rate of new vehicle sales, which in turn generate used vehicle trade-ins; and the number of used vehicles sold or remarketed through retail channels, wholesale transactions and at auctions. Based on the large number of vehicles remarketed each year, consumer acceptance of our online vehicle appraisal process, our experience and success in acquiring vehicles from auctions and other sources and the large size of the United States market relative to our needs, we believe that sources of used vehicles will continue to be sufficient to meet our current and future needs.
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 | $- |
Powersports and Automotive Segments
Revenue
Revenue is driven bycomprised of vehicle sales, of used vehicles which, in many cases generates finance and insurance products bundled with retail vehicle sales (“F&I”), and parts, service, contracts revenue.and accessories/merchandise (“PSA”). We believe gross margin per unit is a key measure of our growthsell both new and long-term profitability.
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 used vehicle sales expected to occur in the fourth calendar quarter.
Vehicles Sold
We define vehicles sold as the number of vehicles sold through both wholesale and retail channels in each period, net of returns. Vehicles sold is the primary driver of our revenue and, indirectly, gross profit. Vehicles sold also enables complementary revenue streams, such as financing. Vehicles sold increases our base of customers and improves brand awareness and repeat sales. Vehicles sold also provides the opportunity to successfully scale our logistics, fulfillment, and customer service operations.
Total Gross Profit per Unit
Total gross profit per unit is the aggregate gross profit of the Company in a given period, divided by units sold in that period including gross profit generated from the sale of the new and used vehicles, income related to the origination loans originated to finance the vehicle, commissions on sales of variable service contracts, revenue from guaranteed asset protection waiver coverage, gross profit on the sale of parts, accessories and merchandise, and gross profit generated from wholesale sales of vehicles.
Vehicle Logistics and Transportation 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 freight brokerage agreements are fulfilled by independent third-party transporters who must meet our performance obligations and standards. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling 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 in turn profitability in the vehicle logistics and transportation services segment.
Total Gross Profit Per Unit
Total gross profit per vehicle transported represents the difference between the price received from non-affiliated customers and Administrative Expense
Results of Operations
| RumbleOn Metrics (on a GAAP Basis) | |||||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||||
| Sept 2021 | Sept 2020 | Sept 2021 | Sept 2020 | ||||||||||||||
| Powersports | Revenue | New retail vehicles | $ | 42,943 | $ | 0 | $ | 42,943 | $ | 0 | |||||||
| Used vehicles | |||||||||||||||||
| Retail | 19,926 | 311 | 19,926 | $ | 4,243 | ||||||||||||
| Wholesale | 20,423 | 6,992 | 58,438 | 34,399 | |||||||||||||
| Total used vehicle revenue | 40,349 | 7,303 | 78,364 | 38,642 | |||||||||||||
| Finance and insurance, net | 6,180 | 199 | 6,998 | 672 | |||||||||||||
| Parts and service and other | 16,075 | 0 | 16,075 | 0 | |||||||||||||
| Total Revenue | $ | 105,547 | $ | 7,502 | $ | 144,380 | $ | 39,314 | |||||||||
Gross Profit | New retail vehicles | $ | 8,146 | $ | 0 | $ | 8,146 | $ | 0 | ||||||||
| Used vehicles | |||||||||||||||||
| Retail | 3,139 | 76 | 3,139 | 407 | |||||||||||||
| Wholesale | 3,712 | 1,620 | 12,829 | 4,541 | |||||||||||||
| Total used vehicle gross profit | 6,851 | 1,696 | 15,968 | 4,948 | |||||||||||||
| Finance and insurance, net | 6,180 | 199 | 6,998 | 672 | |||||||||||||
| Parts and service and other | 7,230 | 0 | 7,230 | 0 | |||||||||||||
| Total gross profit | $ | 28,407 | $ | 1,895 | $ | 38,342 | $ | 5,620 | |||||||||
| Vehicle Sales | New retail vehicles | 2,485 | 0 | 2,485 | 0 | ||||||||||||
| Used vehicles | |||||||||||||||||
| Retail | 1,336 | 30 | 1,336 | 455 | |||||||||||||
| Wholesale | 1,669 | 717 | 5,086 | 3,968 | |||||||||||||
| Total used vehicles | 3,005 | 747 | 6,422 | 4,423 | |||||||||||||
| Total vehicles sold | 5,490 | 747 | 8,907 | 4,423 | |||||||||||||
Revenue per vehicle | New retail vehicles | $ | 17,281 | $ | 0 | $ | 17,281 | $ | 0 | ||||||||
| Used vehicles | |||||||||||||||||
| Retail | $ | 14,915 | $ | 10,365 | $ | 14,915 | $ | 9,325 | |||||||||
| Wholesale | $ | 12,239 | $ | 9,752 | $ | 11,491 | $ | 8,669 | |||||||||
| Used vehicle | $ | 13,429 | $ | 9,777 | $ | 12,203 | $ | 8,737 | |||||||||
| Finance and insurance, net | $ | 1,617 | $ | 6,619 | $ | 1,831 | $ | 1,478 | |||||||||
| Parts and service and other | $ | 4,207 | $ | 0 | $ | 4,207 | $ | 0 | |||||||||
| Total Revenue per vehicle | $ | 27,623 | $ | 250,057 | $ | 37,786 | $ | 86,405 | |||||||||
Gross Profit per vehicle | New retail vehicles | $ | 3,278 | $ | N/A | $ | 3,278 | $ | N/A | ||||||||
| Used vehicle | $ | 2,280 | $ | 2,271 | $ | 2,487 | $ | 1,119 | |||||||||
| Finance and insurance | $ | 1,617 | $ | 6,619 | $ | 1,831 | $ | 1,478 | |||||||||
| Parts and service | $ | 1,892 | $ | 0 | $ | 1,892 | $ | 0 | |||||||||
| Total Gross Profit2 | $ | 5,542 | $ | 63,178 | $ | 8,142 | $ | 12,353 | |||||||||
| Automotive | Revenue | $ | 105,298 | $ | 99,315 | $ | 316,655 | $ | 281,242 | ||||||||
| Gross Profit3 | $ | 6,525 | $ | 12,842 | $ | 22,905 | $ | 12,459 | |||||||||
| Vehicles sold | 3,028 | 3,516 | 8,822 | 10,954 | |||||||||||||
| Revenue per vehicle | $ | 34,775 | $ | 28,247 | $ | 35,894 | $ | 25,675 | |||||||||
| Gross Profit per vehicle | $ | 2,155 | $ | 3,652 | $ | 2,596 | $ | 1,137 | |||||||||
| Transportation | Revenue | $ | 11,597 | $ | 11,415 | $ | 36,145 | $ | 28,657 | ||||||||
| Gross Profit | $ | 2,455 | $ | 2,067 | $ | 6,829 | $ | 5,867 | |||||||||
| Vehicles transported | 20,284 | 21,238 | 62,693 | 61,456 | |||||||||||||
| Revenue per vehicle transported | $ | 572 | $ | 537 | $ | 577 | $ | 466 | |||||||||
| Gross Profit per vehicle transported | $ | 121 | $ | 97 | $ | 109 | $ | 95 | |||||||||
| Total Company | Financial Overview | Revenue | |||||||||||||||
| Powersports | $ | 89,472 | $ | 7,502 | $ | 128,305 | $ | 39,314 | |||||||||
| Automotive | 105,298 | 99,315 | 316,655 | 281,242 | |||||||||||||
| Transportation and logistics | 11,597 | 11,415 | 36,145 | 28,657 | |||||||||||||
| Parts and service and other | 16,075 | 0 | 16,075 | 0 | |||||||||||||
| Total revenue | $ | 222,442 | $ | 118,232 | $ | 497,180 | $ | 349,213 | |||||||||
| Gross Profit | |||||||||||||||||
| Powersports | $ | 21,176 | $ | 1,895 | $ | 31,112 | $ | 5,621 | |||||||||
| Automotive | $ | 6,525 | $ | 12,842 | $ | 22,905 | $ | 12,459 | |||||||||
| Transportation and logistics | $ | 2,455 | $ | 2,067 | $ | 6,829 | $ | 5,867 | |||||||||
| Parts and service and other | $ | 7,230 | 0 | $ | 7,230 | 0 | |||||||||||
| Total Gross Profit | $ | 37,387 | $ | 16,804 | $ | 68,076 | $ | 23,947 | |||||||||
| Effects of the Nashville Tornado | — | 7,879 | — | (1,215 | ) | ||||||||||||
| Gross Profit as reported in the Consolidated Statements of Operations3 | 337,387 | 16,804 | 68,076 | 23,947 | |||||||||||||
| Total SG&A | $ | 37,564 | $ | 13,279 | $ | 69,077 | $ | 42,510 | |||||||||
| Net Income (Loss) before Income Tax | $ | (33,227 | ) | $ | 1,487 | $ | (41,066 | ) | $ | (19,507 | ) | ||||||
| Adjusted EBITDA | $ | 3,616 | $ | 4,720 | $ | 6,679 | $ | (3,142 | ) | ||||||||
| Unit Metrics | Vehicles Sold | ||||||||||||||||
| Retail | 3,821 | 30 | 3,821 | 455 | |||||||||||||
| Wholesale | 4,697 | 4,233 | 13,908 | 14,922 | |||||||||||||
| Total Vehicles Sold | 8,518 | 4,263 | 17,729 | 15,377 | |||||||||||||
| Revenue per Unit Sold | |||||||||||||||||
| Retail | $ | 18,071 | $ | 16,984 | $ | 18,285 | $ | 10,803 | |||||||||
| Wholesale | $ | 26,768 | $ | 25,114 | $ | 26,970 | $ | 21,191 | |||||||||
| Other | $ | 3,249 | $ | 2,678 | $ | 2,946 | $ | 1,864 | |||||||||
| Total Revenue | $ | 26,116 | $ | 27,734 | $ | 28,044 | $ | 22,747 | |||||||||
| Gross Profit per Unit | |||||||||||||||||
| Retail | $ | 4,571 | $ | 9,163 | $ | 4,785 | $ | 2,373 | |||||||||
| Wholesale3 | $ | 2,179 | $ | 1,555 | $ | 2,569 | $ | 1,221 | |||||||||
| Other | $ | 1,137 | $ | 485 | $ | 3,679 | $ | 382 | |||||||||
| Total Gross Profit | $ | 4,389 | $ | 2,094 | $ | 3,840 | $ | 1,636 | |||||||||
| (1) | Per unit values calculated as revenue or gross profit, as applicable, divided by its respective units sold, except the other and total categories, which are divided by total used units sold. |
| (2) | Total Gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, used vehicle, and finance, and insurance gross profit by total retail vehicle unit sales. |
| (3) | Automotive gross profit included an inventory reserve adjustment on $7,879 related to the Nashville Tornado. |
Results of operationsOperations
POWERSPORTS
Revenue
Three-Months Ended September 30, 2021 Compared to September 30, 2020. Total powersports revenue, including F&I and PSA, increased by $98,045 to $105,547 for the three and nine-month periodsthree-months ended September 30, 2017 and September 30, 2016, respectively. This financial information should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
For the three-months ended September 30, | For the nine-months ended September 30, | |||
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) |
Nine-Months Ended September 30, 2021 Compared to September 30, 2020. Total powersports revenue, including F&I and PSA, increased by $105,066 to $144,380 for the three and nine-month periodsnine-months ended September 30, 20172021 compared to $39,314 for the same period of 2020. The Acquisition Effect specific to new vehicles, F&I, and PSA revenue accounted for approximately $65,000 of the increase, with the balance attributable to a 1,999 increase in the number of used vehicles sold coupled with a 39.7% increase in the revenue per used unit sold from $8,737 to $12,203. The total number of vehicles sold increased by 4,484 to 8,907 for the nine-months ended September 30, 2021. Exclusive of F&I and PSA, revenue per new unit was $11,324 and $11,227, respectively. The$17,281. In addition to the Acquisition Effect, the Demand/Supply Imbalances contributed to the increase in the number of used vehicles sold as well as the increase in the average selling price of used units sold will fluctuate fromsuch units.
Gross Profit
Three-Months Ended September 30, 2021 Compared to September 30, 2020. Powersports vehicles gross profit, including F&I and PSA, increased by $26,512 to $28,407 for the three-months ended September 30, 2021 compared to $1,895 for the same period of 2020. The increase in gross profit was primarily due to period as a result of changes4,743 unit increase in the sales mixtotal vehicles sold in 2021 compared to consumers, dealers2020 and at auctionsthe Acquisition Effect specific to new vehicles, F&I, and PSA which accounted for $21,357 of the increase and supplemented a 0.4% increase in any given period. There were no salesgross profit per used vehicle. Total used vehicle gross profit, exclusive of F&I and PSA, increased by $5,155 based on a 2,258 increase in the number of used vehicles sold.
Nine-Months Ended September 30, 2021 Compared to consumers, dealers or auctions forSeptember 30, 2020. Powersports gross profit, including F&I and PSA, increased by $32,722 to $38,342 during the three and nine-month periodsnine-months ended September 30, 2016.
AUTOMOTIVE
Revenue
Three-Months Ended September 30, 2021 Compared to September 30, 2020. Total automotive vehicle revenue increased by $5,983 to $105,298 for the three-months ended September 30, 20172021 compared to $99,315 for the same period in 2020. The increase in automotive revenue was primarily due to a 23.1% increase in revenue per vehicle which partially offset a decrease of 488 vehicles sold.
Nine-Months Ended September 30, 2021 Compared to September 30, 2020. Total automotive vehicle revenue increased by $134,573$35,413 to $316,655 for the nine-months ended September 30, 2021 compared to $281,242 for the same period of 2020. The 12.6% increase in revenue occurred despite a 19.5% decrease in the total number of automotive units sold from 10,954 to 8,822. The revenue per vehicle for the nine-months ended September 30 2021 was $35,894 as compared to the same periods in 2016.
Gross Profit
Three-Months Ended September 30, 2021 Compared to September 30, 2020. Automotive vehicle gross profit, excluding the benefit of the 2020 impairment accounting relative to the Nashville Tornado, decreased by $6,317 to $6,525 for the three and nine-month periodsthree-months ended September 30, 2017 increased by $27,197 and $100,668, respectively as compared to the same periods in 2016. There were no subscription or other fee revenue 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 |
Nine-Months Ended September 30, 2021 Compared to September 30, 2020. Automotive vehicle gross profit, excluding the benefit of the 2020 impairment accounting relating to the Nashville Tornado, profit increased by $10,446 to $22,905 for the three and nine-month periodsnine-months ended September 30, 2017 were $236,400 and $713,7662021. The increase was attributable to the continued impact of the Demand/Supply imbalances. On a comparable basis, the gross profit per vehicle sold has increased from $1,137 to $2,596.
VEHICLE LOGISTICS AND TRANSPORTATION SERVICES
Revenue
Three-Months Ended September 30, 2021 Compared to September 30, 2020. Total revenue, inclusive of intercompany freight services provided to Wholesale of $1,228, which $144,433 and $435,097, respectively were capitalized. Foris eliminated in the three and nine-month periodsCondensed Consolidated Financial Statements, increased by $182 to $11,597 for the three-months ended September 30, 2017, a third-party contractor billed $221,400 and $678,766 respectively, of the total technology development costs. The amortization of capitalized technology development costs for the three and nine-month periods ended September 30, 2017 was $89,429 and $219,374, respectively. There were no technology development costs incurred and no amortization of capitalized development costs for the same periods in 2016. Technology development costs are accounted for pursuant to ASC 350, Intangibles — Goodwill and Other. Technology development costs include internally developed software and website applications that are used by the Company for its own internal use and to provide services to its customers, which include consumers, dealer partners and ancillary service providers. Under the terms of these customer arrangements the Company retains the revenue generating technology and hosts the applications on its servers and mobile applications. The customer does not have a contractual right to take possession of the software during the term of the arrangement and is not permitted to run the software itself or contract with another party unrelated to the entity to host the software. Technology development costs consist principally of (i) development activities including payroll and related expenses billed by a third-party contractor involved in application, content, production, maintenance, operation, and platform development for new and existing products and services, (ii) technology infrastructure expenses, and (iii) costs of Company employees devoted to the development and maintenance of software products. Technology and content costs for design, maintenance and post-implementation stages of internal-use software and general website development are expensed as incurred. For costs incurred to develop new website functionality as well as new software products and significant upgrades to existing internally used platforms or modules, capitalization begins during the application development stage and ends when the software is available for general use. Capitalized technology development is amortized on a straight-line basis over periods ranging from 3 to 7 years. The Company will perform periodic assessment of the useful lives assigned to capitalized software applications. Additionally, the Company from time-to-time may abandon additional development activities relating to specific software projects or applications and charge accumulated costs to technology development expense in the period such determination is made. We expect our technology development expenses to increase as we continue to upgrade and enhance our technology infrastructure, invest in our products, expand the functionality of our platform and provide new product offerings. We also expect technology development expenses to continue to be affected by variations in the amount of capitalized internally developed technology.
Nine-Months Ended September 30, 2021 Compared to September 30, 2020. Total revenue, inclusive of intercompany freight services provided to Wholesale of $3,357, which is eliminated in the purchase of vehicles, furniture and equipment of $106,587 and $600,175, respectively. ForCondensed Consolidated Financial Statements, increased by $7,488 to $36,145 for the three and nine-month periodsnine-months ended September 30, 2017 amortization of: (i) capitalized technology development was $89,429 and $219,374, respectively; (ii) amortization of identifiable intangible was $11,250 and $33,750, respectively; and (iii) depreciation and amortization on vehicle, furniture and equipment was $28,598 and $49,573, respectively. Depreciation and amortization on furniture and equipment2021 compared to $28,657 for the same periodsperiod in 2016 was $475 and $1,425, respectively.
Gross Profit
Three-Months Ended September 30, 2021 Compared to September 30, 2020. Total gross profit for the three-months ended September 30, 2021 increased $388 to $2,455, or $121 per vehicle transported, as compared to $2,067, or $97 per vehicle transported for the same period in 2020. The increased gross profit was attributed to an increase in revenue per vehicles transported as well as higher gross profit per vehicle transported.
Nine-Months Ended September 30, 2021 Compared to September 30, 2020. Total gross profit for the nine-months ended September 30, 2021 increased $962 to $6,829, or $109 per vehicle transported, as compared to $5,867 or $95 per vehicle transported for the same period in 2020. The increased gross profit was attributed to an increase in the number of vehicles transported, higher revenue per vehicle transported and gross profit per vehicle transported.
Selling, General and Administrative
| Three-Months Ended September 30 | Nine-Months Ended September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Selling general and administrative: | ||||||||||||||||
| Compensation and related costs | $ | 12,669 | $ | 7,169 | $ | 26,983 | $ | 20,496 | ||||||||
| Advertising and marketing | 4,241 | 840 | 7,799 | 4,330 | ||||||||||||
| Technology development and software | 686 | 180 | 1,513 | 1,037 | ||||||||||||
| Facilities | 3,576 | 751 | 4,774 | 1,718 | ||||||||||||
| General and administrative | 16,392 | 4,339 | 28,008 | 14,929 | ||||||||||||
| $ | 37,564 | $ | 13,279 | $ | 69,077 | $ | 42,510 | |||||||||
Selling, general and administrative expenses increased by $24,285 and $26,567, respectively, for the three and nine-months ended September 30, 2021 compared to the same periods in 2020. In each case other than technology development and software, the increases were the result of the Acquisition Effect, with over 1,800 additional employees, marketing initiatives at the store level, general and administrative costs associated with a larger team, and lease/facility expense related to 40+ new locations from the RideNow acquisition. In the case of technology and development, in the third quarter of 2021 we began some strategic technology projects focused on inventory management, infrastructure, and integration efforts. Notwithstanding the preceding, both the Nashville Tornado and the nationwide economic slowdown of Covid-19 late in the first quarter of 2020 lasting until the spring of 2021, resulted in artificially lower costs incurred in 2020.
Depreciation and Amortization
Depreciation and amortization increased by $1,181 and $1,381, respectively, for the three and nine-months ended September 30, 2021, compared to the same periods of 2020. Of the increase in both periods, $170 is to the amortization of right-of-use assets resulting from the RideNow Acquisition, and $614 of it is associated to various non-compete agreements entered into by Messrs. Tkach, Coulter and other shareholders or employees whom entered into non-compete agreements related to RideNow Transaction with an aggregate value of approximately $20,000, which amount will be amortized over an average life of thirty-six months.
Interest Expense
Interest expense increased by $3,089 and $2,920, respectively, for the three and nine-months ended September 30, 2021 compared to the same periods of 2020. In each such period, the primary driver of such increase is an increase of $125 of floor plan interest and the interest expense of $2,666 for the Oaktree Credit Facility, which included debt amortization of $509.
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; (2) building and personal property loss, primarily impacting our leased facilities, assessed by the insurance carrier at $2,783; and (3) loss of business income, for which the company has coverage in the amount of $6,000.
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 in July 2020 and $3,134 in July 2021. Therefore, the total payments received thus far against the final settlement are $8,750. The insurer has agreed to pay $2,778 on the Private Placementbuilding and personal property loss, reflecting limits of $2,783 net of a $5 deductible. The insurer has made interim payments on the building and personal property loss of $2,626. The loss of business income claim is ongoing and remains in the process of negotiation, however, the insurer has advanced $250 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 nine-months ended September 30, 2020, the Company recorded an impairment loss on inventory of $11,738 comprised of $4,454 for vehicles that were a total loss and $7,285 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the September 30, 2020, Condensed Consolidated Statements of Operations. Additionally, $178 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 $21 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-months ended September 30, 2021 was $6,518 and $8,774, respectively, and is included in change in derivative liability in the Condensed Consolidated Statement of Operations. The value of the derivative liability as of September 30, 2021 and December 31,2020 was $41 and $17, respectively.
Oaktree Warrant
At inception of the Commitment Letter, the Company accounted for the Oaktree Warrant as a liability with the initial offset as a deferred financing charge as the Oaktree Warrant was issued in lieu of a commitment fee connected to the debt financing of the RideNow Transaction. The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability was subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of change in derivative liability in the Condensed Consolidated Statements of Operations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 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 changes in the fair value between March 12, 2021 and March 31, 2021. For the three months ended June 30, 2021, the fair value of the warrant liability was increased $2,224 to $13,174. On August 31, 2021, the fair value of the warrant liability was increased $6,526 to $19,700. Upon closing of the RideNow Transaction, the Oaktree Warrants were considered equity linked contracts indexed to RumbleOn’s stock and therefore met the equity classification guidance. As a result, the $19,700 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge was reclassified as part of the debt discount related to the Term Loan Credit Agreement. The recognition of the warrant liability and deferred financing charge are non-cash items.
Stock Based Compensation
In connection with the closing of the RideNow Transaction and the execution of the Executive Employment Agreements, the Company accelerated the vesting of and/or waived certain market-based share price hurdles for all then outstanding RSUs for all participants, which resulted in excess of $22,000 of incremental shares based compensation for both the three and nine-month periods endedending on September 30, 2017 was $94,8552021.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and $183,943, respectively which included $41,979should 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 $81,603should 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 liabilities and certain recoveries, charges and expenses, such as an insurance recovery, non-cash stock-based compensation costs, acquisition related costs, PPP loan forgiveness, and other non-recurring costs, as these recoveries, charges and expenses are not considered a part of debt discount amortizationour 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 income (loss) for the three and nine-month periods ended September 30, 2017, respectively. Interest expense on the NextGen Notes for the three and nine-month periods ended September 30, 2017 was $21,370 and $54,849 respectively. Interest expense on the Senior Secured Promissory Notes for the three and nine-month periods ended September 30, 2017 was $15,925 which included $10,274 of original issue discount amortization. For additional information, see Note 7 - “Notes Payable” in the accompanying Notes to the Condensed Consolidated Financial Statements.
| Three-months Ended September 30 | Nine-months Ended September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income (loss) | $ | (22,544 | ) | $ | 1,487 | $ | (30,385 | ) | $ | (19,507 | ) | |||||
| Add back: | ||||||||||||||||
| Interest expense (including debt extinguishment) | 4,577 | 1,488 | 8,107 | 4,999 | ||||||||||||
| Depreciation and amortization | 1,717 | 536 | 2,948 | 1,567 | ||||||||||||
| Income tax benefit | (10,681 | ) | — | (10,681 | ) | — | ||||||||||
| Change in derivative liabilities | 6,518 | 14 | 8,774 | (7 | ) | |||||||||||
| EBITDA | (20,413 | ) | 3,525 | (21,237 | ) | (12,948 | ) | |||||||||
| Adjustments: | ||||||||||||||||
| Impairment loss on automotive inventory | — | — | — | 11,738 | ||||||||||||
| Insurance recovery | — | — | — | 178 | ||||||||||||
| Insurance proceeds | (3,135 | ) | — | (3,135 | ) | (5,615 | ) | |||||||||
| Stock-based compensation1 | 24,730 | 863 | 26,457 | 2,425 | ||||||||||||
| Acquisition costs associated with the RideNow Transaction | 1,558 | — | 3,515 | — | ||||||||||||
| Other non-recurring costs | 1,448 | 332 | 1,651 | 1,080 | ||||||||||||
| PPP loan forgiveness | (572 | ) | — | (572 | ) | — | ||||||||||
| Adjusted EBITDA | $ | 3,616 | $ | 4,720 | $ | 6,679 | $ | (3,142 | ) | |||||||
| (1) | Stock based compensation includes the vesting of all then outstanding RSU awards upon the closing of the RideNow Transaction. |
Liquidity and Capital Resources
Our primary sources of liquidity are available cash, amounts available under our floor plan lines of credit, and monetization of our retail loan portfolio. In addition, the Oaktree Credit Facility provides for up to $120,000 in additional financing beginning six-months after the Closing Date that may be used for acquisitions and up to an additional $100,000 in incremental financing that may be used for acquisitions and working capital purposes, under the terms set forth in such agreement. As previously disclosed, we took certain measures in response to the COVID-19 pandemic that included, rationalizing costs and expenses and adjusting inventory levels to align with sales trends. During the nine-months ended September 30, 2021, we completed two public offerings that provided net proceeds of $191,240 and obtained the Oaktree Credit Facility and initially provided net proceeds of $261,451 that was used to finance a portion of the cash consideration for the RideNow Transaction. Given these activities, and the acquisition of RideNow, we believe we have appropriate liquidity, access to capital and financial resources to support our operations and continue to expand our business.
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 and the resulting Demand/Supply Imbalances.
We had the following liquidity resources available as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Cash | $ | 68,268 | $ | 1,467 | ||||
| Restricted cash (1) | 3,049 | 2,049 | ||||||
| Total cash, cash equivalents, and restricted cash | 71,317 | 3,516 | ||||||
| Availability under short-term revolving facilities | 130,542 | 2,188 | ||||||
| Committed liquidity resources available | $ | 201,859 | $ | 5,704 | ||||
| (1) | Amounts included in restricted cash represent the deposits required under the Company’s short-term revolving facilities. |
As of September 30, 2021 and December 31, 2020, excluding operating lease liabilities and the derivative liability, the outstanding principal amount of indebtedness was $373,492 and $53,109, respectively, summarized in the table below. See “Note 9 — Notes Payable,” “Note 10 –Convertible Notes,” and “Note 11 – Stockholders Equity” to our Condensed Consolidated financial statements included above.
| September 30, 2021 | December 31, 2020 | |||||||
| Asset-Based Financing: | ||||||||
| Inventory | $ | 87,175 | $ | 17,812 | ||||
| Total asset-based financing | 87,175 | 17,812 | ||||||
| Secured notes payable | 280,000 | 2,391 | ||||||
| Unsecured senior convertible notes | 39,198 | 39,774 | ||||||
| PPP and other loans | 6,718 | 5,177 | ||||||
| Total debt | 413,091 | 65,154 | ||||||
| Less: unamortized discount and debt issuance costs | (37,494 | ) | (12,045 | ) | ||||
| Total debt, net | $ | 375,597 | $ | 53,109 | ||||
The following table sets forth a summary of our cash flows for the nine-month periodnine-months ended September 30, 20172021 and 2016:September 30, 2020:
| Nine-months Ended September 30 | ||||||||
| 2021 | 2020 | |||||||
| Net cash (used in) provided by operating activities | $ | (29,779 | ) | $ | 26,198 | |||
| Net cash used in investing activities | (374,825 | ) | (1,773 | ) | ||||
| Net cash provided by financing activities | 472,405 | (22,193 | ) | |||||
| Net increase in cash | $ | 67,801 | $ | 2,232 | ||||
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 and floor plan borrowings for our inventory purchases. Our primary use of cash from operating activities are purchases of inventory, cash used to acquire customers, and personnel-related expenses. For the nine-months ended September 30, 2021, net cash used in operating activities increased $4,327,012was $29,779, an increase of $55,977 in cash used in operating activities compared to $4,389,128net cash provided by operating activities of $26,198 for the nine-month periodnine-months ended September 30, 2017, as2020. This increase was principally due to the increase in inventory of $33,343 in 2021 compared to the same perioda decrease of $34,219 in 2016. The increaseinventory in net cash used is primarily due to a $5,065,632 increase in our net loss offset by an increase in the net change operating assets and liabilities of $138,153 and a $876,775 increase in non-cash expense items. The increase in the net loss for the nine-month period ended September 30, 2017 was a result of the continued expansion and progress made on our business plan, including a significant increase in marketing and advertising spend in connection the launch of the Company’s website, www.rumbleon.com, acquire vehicle inventory, continue development of the Company’s business and for working capital purposes.
Investing Activities
Net cash used in investing activities increased $1,785,272$373,052 to $374,825 for the nine-month periodnine-months ended September 30, 2017, as2021 compared to the same period in 2016. The increase in cash used 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.
Financing Activities
Cash provided by financing activities was $472,405 for the Company completed a public offering andnine-months September 30, 2021, compared to net cash used $1,661,075in financing activities of $22,193. For the nine-months ended September 30, 2021, the increase of $494,598 in cash provided from financing activities was primarily due to the net proceeds of $36,796 received in connection with the April 2021 Offering, and the $261,451 and $154,438 in new senior secured debt and proceeds from the August 2021 Offering, respectively that were obtained to finance the cash consideration for the repayment of the Notes in the aggregate principal amount of $1,650,000, plus accrued interest, which resulted in the termination of the Notes. ForRideNow Transaction, and additional information, see Note 8 - “Stockholders Equity” and Note 15 – “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements.
Off-Balance Sheet Arrangements
As of September 30, 2017, the Company had a total of $656,220 in available cash. Our cash requirements for the next twelve months are significant as we have begun to aggressively invest in the growth of our business and we expect this investment to continue. We plan to invest heavily in inventory, marketing, technology and infrastructure to support the growth of the business. These investments are expected to increase our negative cash flow from operations and operating losses at least in the near term, and there is no guarantee that we will be able to realize the return on our investments. Since inception, we have financed our cash flow requirements through debt and equity financing and on October 23, 2017, the Company completed a public offering of 2,910,000 shares of Class B common stock at a public offering price of $5.50 per share (the "Offering") and received approximately $14,500,000 in proceeds, net of underwriting discounts and commissions and offering expenses. The Companyused $1,661,075 of the net proceeds of the Offering for the repayment of the Senior Secured Promissory Notes in the aggregate principal amount of $1,650,000 plus accrued interestand intend to use the remaining net proceeds of the Offering for working capital and general corporate purposes, which may include purchases of additional inventory held for sale, increased spending on marketing and advertising and capital expenditures necessary to grow the business. Also, on November 2, 2017, we entered into a floor plan line of credit through our subsidiary, RMBL Missouri, LLC, in the amount of $2,000,000. For additional information on the Offering and floor plan line of credit, see Note 15 – “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements.However, our limited operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include an evolving business model, advancement of technology and the management of growth. To address these risks, we must, among other things, continue our development of relevant applications, stay abreast of changes in the marketplace, as well as implement and successfully execute our business and marketing strategy. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
Other matters
On September 30, 2021, the Audit Committee approved the issuance of 154,731 shares of the Company’s Class B common stock as a gift of a death benefit to the estate of Mr. Berrard, or as instructed by the estate of Mr. Berrard. Also, on August 30, 2021, the Audit Committee approved a gift of a death benefit to the estate of Mr. Berrard, or as instructed by the estate of Mr. Berrard, in an amount equal to (1) $1,500, which shall be paid in equal weekly installments beginning October 1, 2021 and ending June 30, 2024 and (2) the cash bonus paid to the Company’s Chief Executive Officer each quarter over the same period ending June 30, 2024, if and when paid to the Chief Executive Officer in accordance with the Company’s Executive Incentive Program. The Company accrued the liability for such amounts during the three-months ended September 30, 2021.
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 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 the 2020 Form 10-K, other than the use of estimates for the Oaktree Warrant, as described above.
Forward-Looking and Cautionary Statements
This 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 our current, reasonable expectations and assumptions, which expectations and assumptions are subject to risks and uncertainties that 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 definitive Proxy Statement on Schedule 14A filed with the SEC on July 1, 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 Form 10-Q. Given these risks and uncertainties, readers are choosingcautioned not to take advantage of the extended transition period for complying with newplace undue reliance on forward-looking statements. We undertake no obligation to publicly update or revised accounting standards.revise any 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
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 Securities Exchange Act of 1934 (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 anywith the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures no matter how well designed(as such term is defined in Rules 13a-15(e) and operated, can provide only reasonable assurance15d-15(e) under the Exchange Act) as of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control Over Financial Reporting
On August 31, 2021, the Company is evaluating itscompleted the RideNow Transaction. In accordance with the general guidance issued by the staff of the SEC, the RideNow Entities will be excluded from the scope of management’s report on internal control over financial reporting; however,reporting for the year ending December 31, 2021. As part of the ongoing integration of the RideNow Entities, we are in the process of incorporating the controls and related procedures of the RideNow Entities. Other than incorporating the RideNow Entities’ controls, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recent fiscalthe quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have performed additional analyses and other procedures to enable management to conclude that our condensed consolidated financial statements included in this report fairly, in all material respects, our financial condition and results of operations as of and for the three and nine-months ended September 30, 2021.
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 (collectively, the “Defendants”). Plaintiff alleged violations of Sections 14(a) and 20(a) of 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 sought 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 disclosed and disseminate additional disclosures to Company shareholders. Plaintiff also sought 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. 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 Plaintiff did not serve Defendants with the Complaint and, on October 13, 2021, the Plaintiff voluntarily dismissed the Complaint without prejudice.
Item 1A.
There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2020, except for the risks relating to the RideNow Transaction, which are discussed in our definitive Proxy Statement on Schedule 14A filed with the SEC on July 1, 2021, and as set forth below.
Risks Related to Covid-19 and Economic Activity
The Covid-19 pandemic and associated impacts on economic activity may have material adverse effects on our business, results of operations, financial condition, and cash flows.
The onset of the Covid-19 pandemic in 2020 and associated impacts on economic activity, including lower new vehicle production due to manufacturing slowdowns, computer chip shortages, and logistic/transportation challenges, had adverse effects on our results of operations and financial condition during the nine months ended September 30, 2021 and September 30, 2020. We expect these conditions to continue through the fourth quarter of 2021. The effect of these Demand/Supply Imbalances required that we adjust our inventory management to align with market conditions, resulting in lower levels of inventory and lower unit sales during the period. The Covid-19 pandemic and associated impacts on economic activity may have material adverse effects on our business, results of operations, financial condition, and cash flows, and we can provide no assurance as to the duration of the adverse impacts of Covid-19 and the Demand/Supply Imbalances on our business, operation, or financial results.
Risks Related to the Combined Company following the RideNow Transaction
RumbleOn may experience difficulties integrating RideNow’s businesses.
Achieving the anticipated benefits of the RideNow Transaction will depend in significant part upon RumbleOn integrating the RideNow Entities’ businesses, operations, processes, and systems in an efficient and effective manner. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration may not be realized. The companies may not be able to accomplish the integration process smoothly, successfully, or on a timely basis. The necessity of coordinating geographically separated organizations, systems of controls, and facilities and addressing possible differences in business backgrounds, corporate cultures, and management philosophies may increase the difficulties of integration. The companies operate numerous systems and controls, including those involving management information, accounting and finance, legal and regulatory compliance, inventory intake and control, sales, billing, employee benefits, and payroll. The integration of operations following the RideNow Transaction requires the dedication of significant management and external resources, which may temporarily distract management’s attention from the day-to-day business of the combined company and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business and results of the combined company. Any inability of management to successfully and timely integrate the companies could have a material adverse effect on the business and results of operations of the combined company.
The RideNow Entities were not subject to Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) regulations and, therefore, they may lack the internal controls of a public company, which could ultimately affect our ability to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.
The RideNow Entities were not previously subject to Sarbanes-Oxley Act regulations and accordingly were not required to establish and maintain an internal control infrastructure meeting the standards promulgated under the Sarbanes-Oxley Act. Our assessment of our internal control over financial reporting as of September 30, 2021 did not include the internal control structure of the RideNow Entities, which were acquired during our quarterly period ended September 30, 2021.
Although our management will continue to review and evaluate the effectiveness of our internal control over financial reporting in light of the RideNow Transaction, we cannot provide any assurance that there will be no significant deficiencies or material weaknesses in the internal control environment of the RideNow Entities. Any significant deficiencies or material weaknesses in the internal control environment of the RideNow Entities may cause significant deficiencies or material weaknesses in our internal control over financial reporting, which could have a material adverse effect on our business and our ability to comply with Section 404 of the Sarbanes-Oxley Act.
If we are unable to maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.
We are in the process of integrating our internal control over financial reporting and our other control environments with those of the RideNow Entities. In the course of integration, we may encounter difficulties and unanticipated issues combining our respective accounting systems due to the complexity of our financial reporting processes. We may also identify errors or misstatements that could require accounting adjustments. If we are unable to integrate and maintain effective internal control over financial reporting of the combined company, timely or at all, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline.
Item 2.
As of September 30, 2021, the Audit Committee approved the issuance of 154,731 shares of the Company’s Class B common stock as a gift of a death benefit to the estate of Steven R. Berrard, the Company’s former Chief Financial Officer and a director, or as instructed by the estate of Mr. Berrard. These shares were issued in lieu of restricted stock units that Mr. Berrard would have received in connection with the consummation of the RideNow Transaction and in recognition of Mr. Berrard’s significant contributions to the RideNow Transaction. These shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
Item 3.
None.
Item 4.
Not Applicable.
| * | Filed herewith. |
| ** | Furnished herewith. |
| + | Management Compensatory Plan |
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: November 15, 2021 | By: | /s/ Marshall Chesrown |
| Marshall Chesrown | ||
Chief Executive Officer | ||
| (Principal Executive Officer) | ||
Date: November 15, 2021 | By: | /s/ |
Interim Chief Financial Officer and Controller | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
47
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