UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-38248
RumbleOn, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
46-3951329
(I.R.S. Employer
Identification No.)
4521 Sharon Road, Suite 370,
Charlotte, North Carolina 28211
(Address of principal executive offices)
(704) 448-5240
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐ (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2017, the aggregate market value of shares of common stock held by non-affiliates of the registrant was approximately $18.0 million.
The number of shares of Class B Common Stock, $0.001 par value, outstanding on February 23, 2018 was 11,928,541 shares. In addition, 1,000,000
shares of Class A Common Stock, $0.001 par value, were outstanding on February 23, 2018.
RUMBLEON, INC.
Table of Contents to Annual Report on Form 10-K
for the Year Ended December 31, 2017
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
PART IV
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Item 1.
Business.
Overview
PART I
RumbleOn, Inc., a Nevada corporation, operates a capital light disruptive e-commerce platform facilitating the
ability of both consumers and dealers to Buy-Sell-Trade-Finance pre-owned vehicles in one online location. Our goal is to
transform the way pre-owned vehicles are bought and sold by providing users with the most efficient, timely and transparent
transaction experience. Our initial focus is the market for vin specific pre-owned vehicles with an initial emphasis on
motorcycles and other powersports.
In this Annual Report on Form 10-K (this “Form 10-K”), we refer to RumbleOn, Inc., formerly Smart Server, Inc.,
as “RumbleOn,” “RMBL,” the “Company,” “we,” “us,” and “our,” and similar words.
Serving both consumers and dealers, through our online marketplace platform, we make cash offers for the purchase
of pre-owned vehicles. In addition, we offer a large inventory of pre-owned vehicles for sale along with third-party financing
and associated products. Our operations are designed to be scalable by working through an infrastructure and capital light
model that is achievable by virtue of a synergistic relationship with our regional partners, consisting of dealers and auctions.
We utilize regional partners in the acquisition of pre-owned vehicles as well as to provide inspection, reconditioning and
distribution services. Correspondingly, we earn fees and transaction income, while our regional partners earn incremental
revenue and enhance profitability through increased sales and fees from inspection, reconditioning and distribution programs.
Our business model is driven by a technology platform we acquired in February 2017, through our acquisition of
substantially all of the assets of NextGen Dealer Solutions, LLC (“NextGen”). The acquired system provides integrated
vehicle appraisal, inventory management, customer relationship and lead management, equity mining, and other key services
necessary to drive the online marketplace. Over the past 16 years, the developers of the software have designed and built, for
large multi-national clients, a number of dealer and, what we believe to be, high quality applications solutions.
Our business combines a comprehensive online buying and selling experience with a vertically-integrated supply
chain solution that allows us to buy and sell high quality vehicles to and from consumers and dealers transparently and
efficiently at a value-oriented price. Using our website or mobile application, consumers and dealers can complete all phases
of a pre-owned vehicle transaction. Our online buying and selling experience allows consumers to:
● Sell us a vehicle. We address the lack of liquidity available in the market for a cash sale of a vehicle by
consumers and dealers through our cash offer to buy program. Dealers and consumers can sell us a vehicle
independent of a purchase. Using our free and simple appraisal tool, consumers and dealers can receive a
haggle-free, guaranteed 3-day firm cash offer for their pre-owned vehicle within minutes and, if accepted,
receive prompt payment. Our cash offer to buy is based on the use of extensive pre-owned retail and wholesale
vehicle market data. When a consumer accepts our offer, we ship their vehicles to our closest regional partner
where the vehicle is inspected, reconditioned and prepared for pending sale. We believe buying pre-owned
vehicles directly from consumers is the primary driver of our source of supply for sale and a key to our ability
to offer competitive pricing to buyers. By being one of the few online sources for consumers to receive cash for
their vehicle, we have a significant opportunity to buy product at a lower cost since dealer and auction markup
is eliminated from these consumer purchases. In addition, we believe our willingness to provide cash offers and
purchase a customer’s vehicle sight unseen, whether or not the customer is buying a vehicle from us, provides a
competitive sourcing advantage for vehicles.
● Purchase a pre-owned vehicle. Our 100% online marketplace approach to retail consumer and dealer
distribution addresses the many issues currently facing the consumer and dealer distribution marketplace for
pre-owned vehicles, a marketplace we believe is primed for a disruptive change. We believe the issues facing
the marketplace include: (i) heavy use of inefficient listing sites, (ii) a highly fragmented dealer network; (iii) a
limited selection of high quality pre-owned vehicles for sale; (iv) negative consumer perception of the current
buying experience; and (v) a massive consumer shift to online retail. We offer consumers and dealers a large
selection of pre-owned vehicles at a value-oriented price that can be purchased in a seamless transaction in
minutes. In addition to a transparent buying experience, our no haggle pricing, coupled with an inspected,
reconditioned and certified vehicle, backed by a fender-to-fender warranty and a 3-day money back guarantee,
addresses consumer dissatisfaction with the current buying processes in the marketplace. As of December 31,
2017, including vehicles of our dealer partners, we have 751 pre-owned vehicles listed for sale on our website,
where consumers can select and purchase a vehicle, including arranging financing, directly from their desktop
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or mobile device. Selling pre-owned vehicles to consumers and dealers is the key driver of our business.
● Finance a purchase. Customers can pay for their vehicle using cash or we will provide a range of finance
options from unrelated third parties such as banks or credit unions. Customers fill out a short online application
form, and, if approved, apply the financing to their purchase.
● Protect a purchase. Customers have the option to protect their vehicle with unrelated third-party branded
Extended Protection Plans (“EPPs”) and vehicle appearance protection products as part of our online checkout
process. EPPs include extended service plans which are designed to cover unexpected expenses associated with
mechanical breakdowns and guaranteed asset protection, which is intended to cover the unpaid balance on a
vehicle loan in the event of a total loss of the vehicle or unrecovered theft. Vehicle appearance protection
includes products aimed at maintaining vehicle appearance.
To enable a seamless consumer and dealer experience, we are building a vertically-integrated pre-owned vehicle
supply chain marketplace, supported by proprietary software systems and data which include the following attributes:
● Vehicle sourcing and acquisition. We acquire virtually all of our pre-owned vehicle inventory directly from
consumers and dealers. Using pre-owned retail and wholesale vehicle market data obtained from a variety of
internal and external data sources, we evaluate a significant number of vehicles daily to determine their fit with
consumer demand, internal profitability targets and our existing inventory mix. The supply of pre-owned
vehicles is influenced by a variety of factors, including: the total number of vehicles in operation; the rate of
new vehicle sales, which in turn generate pre-owned vehicles; and the number of pre-owned vehicles sold or
remarketed through our consumer and dealer channels. Based on the large number of vehicles remarketed each
year, consumer acceptance of our cash offer to buy, and the large size of the United States market relative to our
needs, we believe that sources of pre-owned vehicles will continue to be sufficient to meet our current and
future needs.
●
Inspection, reconditioning and logistics. After acquiring a vehicle, we transport it to one of our closest regional
partners who are paid to perform an inspection and to recondition the vehicle to meet “RumbleOn Certified”
standards. High quality photographs are then taken, the vehicle is listed for sale on Rumbleon.com and the
regional partner stores the vehicle pending delivery to the buyer. This process is supported by a custom pre-
owned vehicle inventory management system, which tracks vehicles through each stage of the inspection,
reconditioning and logistic process. The ability to leverage and provide a high margin source of incremental
revenue to the existing network of regional partners in return for providing inspection, reconditioning, logistics
and distribution support reduces our need for any significant investment in retail or reconditioning facilities.
Corporate History
RumbleOn, Inc. was originally incorporated in the State of Nevada in October 2013 as a development stage
company under the name Smart Server, Inc. In July 2016, Berrard Holdings Limited Partnership (“Berrard Holdings”)
acquired 5,475,000 shares of common stock of the Company from the prior owner of such shares pursuant to an Amended
and Restated Stock Purchase Agreement, dated July 13, 2016. The shares acquired by Berrard Holdings represented 99.5% of
the Company’s issued and outstanding shares of common stock. Steven Berrard, a director and our Chief Financial Officer,
has voting and dispositive control over Berrard Holdings. The aggregate purchase price of the shares was $148,141. In
addition, at the closing, Berrard Holdings loaned the Company, and the Company executed a promissory note, in the
principal amount of $191,858 payable to Berrard Holdings. Effective August 31, 2017, the note was amended to increase the
principal amount by $5,500 to $197,358 in aggregate amount payable to Berrard Holdings.
In October 2016, Berrard Holdings sold an aggregate of 3,312,500 shares of the Company’s common stock to
Marshall Chesrown, our Chairman of the Board and Chief Executive Officer, and certain other purchasers. The 2,412,500
shares acquired by Mr. Chesrown represented 43.9% of the Company’s issued and outstanding shares of common stock. The
remaining shares owned by Berrard Holdings after giving effect to the transaction represented 39.3% of the Company’s
issued and outstanding shares of common stock.
On November 28, 2016, the Company completed a private placement with certain purchasers, with respect to the
sale of an aggregate of 900,000 shares of common stock of the Company at a purchase price of $1.50 per share for total
consideration of $1,350,000 (the “2016 Private Placement”). In connection with the 2016 Private Placement, the Company
also entered into loan agreements, pursuant to which the purchasers would loan to the Company their pro rata share of up to
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$1,350,000 in the aggregate upon the request of the Company at any time on or after January 31, 2017 and before November
1, 2020.
On January 8, 2017, the Company entered into an Asset Purchase Agreement (the “NextGen Agreement”) with
NextGen, Halcyon Consulting, LLC (“Halcyon”), and members of Halcyon signatory thereto (“Halcyon Members,” and
together with Halcyon, the “Halcyon Parties”) pursuant to which NextGen agreed to sell to the Company substantially all of
the assets of NextGen in exchange for a payment of approximately $750,000 in cash, the issuance to NextGen of 1,523,809
unregistered shares of Company common stock (the “Purchaser Shares”), the issuance of a subordinated secured promissory
note issued by the Company in favor of NextGen in the amount of $1,333,333 (the “Acquisition Note”) and the assumption
by the Company of certain specified post-closing liabilities of NextGen under the contracts being assigned to the Company as
part of the transaction (the “NextGen Acquisition”). On February 8, 2017, the Company assigned to NextGen Pro, LLC, a
Delaware limited liability company and a wholly-owned subsidiary of the Company (“NextGen Pro”), the right to acquire
NextGen’s assets and liabilities (but not any other rights or obligations under the NextGen Agreement).
On January 9, 2017, the Company’s Board of Directors (the “Board”) and stockholders holding 6,375,000 of the
Company’s issued and outstanding shares of common stock approved an amendment to the Company’s Articles of
Incorporation (the “Certificate of Amendment”) to change the name Smart Server, Inc. to RumbleOn, Inc. and to create an
additional class of Company common stock. The Certificate of Amendment became effective on February 13, 2017 (the
“Effective Date”), after the notice and accompanying Information Statement describing the amendment was furnished to non-
consenting stockholders of the Company in accordance with Nevada and Federal securities law.
Immediately before approving the Certificate of Amendment, the Company had authorized 100,000,000 shares of
common stock, $0.001 par value (the “Authorized Common Stock”), including 6,400,000 issued and outstanding shares of
common stock (the “Outstanding Common Stock,” and together with the Authorized Common Stock, the “Common Stock”).
Pursuant to the Certificate of Amendment, the Company designated 1,000,000 shares of Authorized Common Stock as Class
A Common Stock (the “Class A Common Stock”), which Class A Common Stock ranks pari passu with all of the rights and
privileges of the Common Stock, except that holders of Class A Common Stock are entitled to 10 votes per share of Class A
Common Stock issued and outstanding and (ii) all other shares of Common Stock, including all shares of Outstanding
Common Stock were deemed Class B Common Stock (the “Class B Common Stock”), which Class B Common Stock are
identical to the Class A Common Stock in all respects, except that holders of Class B Common Stock will be entitled to one
vote per share of Class B Common Stock issued and outstanding.
On January 9, 2017, the Company’s Board and stockholders holding 6,375,000 of the Company’s issued and
outstanding shares of common stock approved the issuance to (i) Mr. Chesrown of 875,000 shares of Class A Common Stock
in exchange for an equal number of shares of Class B Common Stock held by Mr. Chesrown, and (ii) Mr. Berrard of 125,000
shares of Class A Common Stock in exchange for an equal number of shares of Class B Common Stock held by Mr. Berrard.
Also, on February 8, 2017 (the “Closing Date”), RumbleOn and NextGen Pro completed the NextGen Acquisition in
exchange for approximately $750,000 in cash, the Purchaser Shares, the Acquisition Note, and the other consideration
described above. The Acquisition Note matures on the third anniversary of the Closing Date (the “Maturity Date”). Interest
accrues and will be paid semi-annually (i) at a rate of 6.5% annually from the Closing Date through the second anniversary of
such date and (ii) at a rate of 8.5% annually from the second anniversary of the Closing Date through the Maturity Date. The
Company’s obligations under the Acquisition Note are secured by substantially all the assets of the NextGen Pro pursuant to
an Unconditional Guaranty Agreement (the “Guaranty Agreement”), by and among NextGen and NextGen Pro, and a related
Security Agreement between the parties, each dated as of the Closing Date. Under the terms of the Guaranty Agreement,
NextGen Pro has agreed to guarantee the performance of all of the Company’s obligations under the Acquisition Note.
On March 31, 2017, we completed funding of the second tranche of the 2016 Private Placement. The purchasers
were issued 1,161,920 shares of Class B Common Stock and notes in the aggregate principal amount of $667,000, (the
“Private Placement Notes”), in consideration of cancellation of loan agreements having an aggregate principal amount
committed by the purchasers of $1,350,000.
Also on March 31, 2017, we completed the sale of 620,000 shares of Class B Common Stock, at a price of $4.00 per
share for aggregate proceeds of $2,480,000 in a private placement offering, (the “2017 Private Placement.”) We sold an
additional 37,500 shares of Class B Common Stock in connection with the 2017 Private Placement on April 30, 2017. Our
officers and directors acquired 175,000 shares of Class B Common Stock in the 2017 Private Placement. Proceeds from the
2017 Private Placement were used to complete the launch of our website, acquire vehicle inventory, continue development of
our platform, and for working capital purposes.
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On October 23, 2017, the Company completed an underwritten public offering (the “2017 Public Offering”) of
2,910,000 shares of the Company’s Class B Common Stock at a price of $5.50 per share for net proceeds to the Company of
approximately $14.5 million. In connection with the 2017 Public Offering, on October 19, 2017, the Class B Common Stock
uplisted from the OTCQB and began trading on The NASDAQ Capital Market under the symbol “RMBL.”
Our Strategy
RumbleOn’s strategy is to provide a 100% online supply chain marketplace solution for the retail distribution of pre-
owned vehicles to consumers and dealers, while providing regional partners access to software solutions and services
allowing them to earn incremental revenue and enhance profitability through increased sales leads, and fees earned from
inspection, reconditioning and distribution programs. The recognition of the need for the RumbleOn solutions is the result of
our management team gaining a clear understanding of the key drivers of complete supply chain solutions to create a
different and disruptive way to both acquire and distribute pre-owned vehicles online from their deep experience in the
automotive sector with disruptive businesses such as: AutoNation™, Auto America™, and Vroom™. We believe that there
is a significant opportunity to disrupt the pre-owned marketplace in powersports and recreational vehicles as it suffers from
many of the same negative consumer sentiments and dealer practices that existed in the automotive sector prior to the advent
of and the significant influx of new entrants with improved business models. In addition, the powersports and recreation
vehicle segment lacks the significant competition that exists in the automotive sector due to its fragmented dealer network,
relative size and the niche nature of its products. Management believes consumers prefer to transact through a well-designed
simple online/mobile solution, with a broad selection of pre-owned vehicles at highly competitive prices. RumbleOn
applications provide a cash offer financing options and logistics/delivery solutions designed to provide an exceptional
consumer experience. We intend to replicate and improve upon the positive attributes of the various “Sell us your car” and
other related programs that have proven successful in automotive retail for entities such as AutoNation™, CarMax™,
Carvana™, Vroom™ and others.
RumbleOn’s regional partner strategy is focused on creating a synergistic relationship wherein regional partners
have the ability to leverage the RumbleOn online marketplace and partner services offerings to drive increased revenue
through the purchase or sale of pre-owned vehicles via the online marketplace platform and the ability to earn fees from
inspection, reconditioning and distribution programs. Regional partners have the ability to show the complete RumbleOn
vehicle inventory on their website and have access to preferred pricing on the acquisition of vehicles. We intend to add
additional regional partners to our network and we are currently in discussions with a number of other potential partners
regarding joining the network. We believe that our operations, designed to be both capital and infrastructure light, will
leverage the regional partner network to provide inspection, reconditioning and distribution, thus minimizing the number of
warehouse locations, reconditioning centers and logistics facilities we operate. We plan to primarily operate a centralized
headquarter, call center, and limited number of strategically located warehouses as needed.
RumbleOn’s initial focus was on pre-owned Harley-Davidson motorcycles as it provided a targeted, identifiable
segment to establish the functionality of the platform and the RumbleOn brand. Harley-Davidson is a highly regarded and
dominant brand (representing approximately 50% market share of new 601cc+ on-road motorcycles according to both
Harley-Davidson public filings and the Motorcycle Industry Council) in the motorcycle market, with a base of over three
million pre-owned motorcycles registered for use in the United States. According to Harley-Davidson, as disclosed in their
2017 investor meeting presentation, and management estimates, each year approximately 400,000 pre-owned Harley-
Davidsons are sold, with Harley-Davidson dealers selling approximately 125,000 units, 250,000 units sold in private
consumer and independent dealer transactions, and 25,000 sold via other means. As our business has evolved we have
expanded into other powersports and recreational vehicle with a strong emphasis on the “metric” brands of motorcycles
(Honda, Yamaha, Kawasaki, Suzuki, etc.) which essentially doubles the available market and is a natural extension as these
vehicles are often sold or traded for Harley-Davidson vehicles. The metric market and dealer profile closely mirror that of the
Harley-Davidson market although it is more highly fragmented and the average pre-owned vehicle selling price is less than a
pre-owned Harley Davidson. In addition, many of the metric dealers also retail other powersport vehicles including ATVs,
UTVs, snowmobiles and personal watercraft providing RumbleOn an opportunity for product extensions by leveraging
existing regional partner relationships.
Our Growth Strategy
We intend to transform the way pre-owned vehicles are bought and sold and thereby significantly grow our business
and gain market share by targeting the large number of private consumer transactions driven by listing only sites such as
Craigslist. Management believes a significant number of pre-owned vehicle transactions are completed on a peer to peer
basis. We believe these transactions are highly inefficient and consumers view the process as cumbersome. Our online
consumer direct sourcing strategy, wherein we make a cash offer to a consumer or dealer utilizing our website or mobile
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application allows us to deliver value pricing on our vehicles for sale. We believe our large-scale inventory of pre-owned
vehicles for sale, coupled with our 100% online marketplace platform, transparent selling process, certified and reconditioned
pre-owned vehicles and ability to offer financing and ancillary products provides a unique customer experience as compared
to current alternatives when purchasing a pre-owned vehicle. We believe we can aggressively drive RumbleOn brand
recognition and awareness at a relatively low expense by utilizing digital, social media and guerrilla marketing techniques, as
there are few national competitors and consumers are very brand focused and loyal. For example, approximately 15 key
motorcycle events, such as Daytona Bike Week and the Sturgis Bike Rally, attract millions of attendees annually, many of
whom are motorcycle and other powersport and recreational vehicle enthusiasts. We intend to have a significant presence at
these type of events, with onsite advertising and sales facilities to build brand awareness. In addition, we anticipate engaging
with or sponsoring powersport groups, providing us a targeted audience to which to market RumbleOn and showcase the ease
with which they can buy, sell, or trade a vehicle online. Once powersports and recreational vehicle enthusiasts have sampled
our website, we believe the unique experience will be compelling and drive organic growth. Over time, management believes
we will build a proprietary database of customers and their interests, which will facilitate customer retention and cross sell
activities.
Our Market
We currently operate in the powersports and recreational vehicle market with significant scale and breadth of
products. The Motorcycle Industry Council estimates that in 2014, 9.2 million people owned 10.1 million motorcycles in the
United States. 87% of these were on-highway models, our initial targeted segment. According to the Powersports Business
2016 Market Data Book, or the 2016 Market Data book, pre-owned motorcycle registrations were 1.1 million units in 2015
with new unit sales of approximately 573,000 or approximately $7 billion in new vehicle sales. The owner demographic is
favorable to the market outlook as millennials and baby boomers are maturing into the median ranges. The owner group is
characterized by brand loyal riding enthusiasts. According to the Motorcycle Industry Council, in 2014 the median owner age
was 47 years with a median income of $62,200 which is approximately 10% above the United States’ average. The dealer
market is fragmented with an estimated 10,000 outlets authorized to sell powersports and recreation vehicles that include new
and pre-owned motorcycles, scooter, and all-terrain vehicles.
The ATV, UTV/side-by-side, snowmobile and personal watercraft vehicle, or PWC, markets, are a logical next
extension for our platform, as there is significant overlap in the motorcycle dealer base with dealers of these products.
According to data from Power Product Marketing and the 2016 Market Data Book, there were approximately 630,000 sales
of ATV/UTV/Side-by-sides in 2015. There are approximately 1.2 million snowmobiles registered in the United States
(another 600,000 in Canada) and in 2016, approximately 95,000 snowmobiles were sold in the United States and Canada.
Lastly, according the National Marine Manufacturers Association and the Personal Watercraft Industry Association, in 2015
there were more than 54,000 new PWCs sold in the United States and there are currently approximately 1.2 million PWCs
registered in the United States.
As we look to further extend the platform, the two largest adjacent segments are represented by the recreational
boating and recreational vehicle (motor vehicle or trailer equipped with living space and amenities found in a home)
industries. According to the National Marine Manufacturers Association, there were approximately 15.7 million recreational
boats in the United States in 2014, and there were approximately 940,000 sales of pre-owned boats in 2014. Correspondingly,
the Recreational Vehicle Industry Association estimates that currently more than 8.9 million households own an RV and in
2017 there will be over 470,000 shipments of RVs from manufacturers to dealers.
Competition
The United States pre-owned powersports and recreational vehicle marketplace is highly fragmented, and we face
competition from franchised dealers, who sell both new and pre-owned vehicles; independent dealers; online and mobile
sales platforms; and private parties. We believe that the principal competitive factors in our industry are delivering an
outstanding consumer experience, competitive sourcing of vehicles, breadth and depth of product selection, and value
pricing. Our competitors vary in size and breadth of their product offerings. We believe that our principal competitive
advantages in pre-owned vehicle retailing includes our ability to provide a high degree of customer satisfaction with the
buying experience by virtue of our low, no-haggle prices and our 100% online marketplace platform including our website
and mobile application and our ability to make a cash offer to purchase a vehicle with our customer-friendly sales process
and our breadth of selection of the most popular makes and models available on our website. In addition, we believe our
willingness to make a cash offer to purchase a customer’s vehicle, whether or not the customer is buying a vehicle from us,
provides a competitive sourcing advantage for retail vehicles allowing us to offer value-oriented pricing. We believe the
principal competitive factors for our ancillary products and services include an ability to offer a full suite of products at
competitive prices delivered in an efficient manner to the customer. We will compete with a variety of entities in offering
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these products including banks, finance companies, insurance and warranty providers and extended vehicle service contract
providers. We believe our competitive strengths in this category will include our ability to deliver products in an efficient
manner to customers utilizing our technology and our ability to partner with key participants in each category to offer a full
suite of products at competitive prices. Lastly, additional competitors may enter the businesses in which we will operate.
Seasonality
Historically, the industry has been seasonal with traffic and sales strongest in the spring and summer quarters. Sales
and traffic are typically slowest in the fall quarter but increase in February and March, coinciding with tax refund season.
Intellectual Property and Proprietary Rights
Our brand image is a critical element of our business strategy. As of December 31, 2017, we have a trademark
registration for “RumbleOn” and various applications pending with the U.S. Patent and Trademark Office.
Government Regulation
Various aspects of our business are or may be subject, directly or indirectly, to U.S. federal and state laws and
regulations. Failure to comply with such laws or regulations may result in the suspension or termination of our ability to do
business in affected jurisdictions or the imposition of significant civil and criminal penalties, including fines or the award of
significant damages against us and our dealers in class action or other civil litigation.
State Motor Vehicle Sales, Advertising and Brokering Laws
The advertising and sale of new or pre-owned motor vehicles is highly regulated by the states in which we do
business. Although we do not anticipate selling new vehicles, state regulatory authorities or third parties could take the
position that some of the regulations applicable to dealers or to the manner in which powersports and recreational vehicles are
advertised and sold generally are directly applicable to our business. If our products and services are determined to not
comply with relevant regulatory requirements, we could be subject to significant civil and criminal penalties, including fines,
or the award of significant damages in class action or other civil litigation as well as orders interfering with our ability to
continue providing our products and services in certain states. In addition, even absent such a determination, to the extent
dealers are uncertain about the applicability of such laws and regulations to our business, we may lose, or have difficulty
increasing the number of dealers in our network, which would affect our future growth.
Several states have laws and regulations that strictly regulate or prohibit the brokering of motor recreational vehicles
or the making of so-called “bird-dog” payments by dealers to third parties in connection with the sale of motor vehicles
through persons other than licensed salespersons. If our products or services are determined to fall within the scope of such
laws or regulations, we may be forced to implement new measures, which could be costly, to reduce our exposure to those
obligations, including the discontinuation of certain products or services in affected jurisdictions. Additionally, such a
determination could subject us to significant civil or criminal penalties, including fines, or the award of significant damages
in class action or other civil litigation.
In addition to generally applicable consumer protection laws, many states in which we may do business either have
or may implement laws and regulations that specifically regulate the advertising for sale of new or pre-owned powersports
and recreational vehicles. These state advertising laws and regulations may not be uniform from state to state, sometimes
imposing inconsistent requirements on the advertiser of a new or pre-owned recreational vehicle. If the content displayed on
the websites we operate is determined or alleged to be inaccurate or misleading, we could be subject to significant civil and
criminal penalties, including fines, or the award of significant damages in class action or other civil litigation. Moreover, such
allegations, even if unfounded or decided in our favor, could be extremely costly to defend, could require us to pay
significant sums in settlements, and could interfere with our ability to continue providing our products and services in certain
states.
Federal Advertising Regulations
The Federal Trade Commission (“FTC”), has authority to take actions to remedy or prevent advertising practices
that it considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the
future that any aspect of our business constitutes an unfair or deceptive advertising practice, responding to such allegations
could require us to pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our
products and services, any or all of which could result in substantial adverse publicity, loss of participating dealers, lost
revenue, increased expenses, and decreased profitability.
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Federal Antitrust Laws
The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition
in the marketplace. Some of the information that we may obtain from dealers may be sensitive and, if disclosed
inappropriately, could potentially be pre-owned by dealers to impede competition or otherwise diminish independent pricing
activity. A governmental or private civil action alleging the improper exchange of information, or unlawful participation in
price maintenance or other unlawful or anticompetitive activity, even if unfounded, could be costly to defend and adversely
impact our ability to maintain and grow our dealer network.
In addition, governmental or private civil actions related to the antitrust laws could result in orders suspending or
terminating our ability to do business or otherwise altering or limiting certain of our business practices, including the manner
in which we handle or disclose pricing information, or the imposition of significant civil or criminal penalties, including fines
or the award of significant damages against us in class action or other civil litigation.
The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the
regulatory framework governing our operations is subject to continuous change. The enactment of new laws and regulations
or the interpretation of existing laws and regulations in an unfavorable way may affect the operation of our business, directly
or indirectly, which could result in substantial regulatory compliance costs, civil or criminal penalties, including fines,
adverse publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability. Further,
investigations by government agencies, including the FTC, into allegedly anticompetitive, unfair, deceptive or other business
practices by us, could cause us to incur additional expenses and, if adversely concluded, could result in substantial civil or
criminal penalties and significant legal liability.
Employees
As of December 31, 2017, we had approximately 40 employees all of which are full-time.
Available Information
Our Internet website is www.rumbleon.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the
Exchange Act are available, free of charge, under the Investor Relations tab of our website as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. You may also read and copy any materials we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet
website located at www.sec.gov that contains the information we file or furnish electronically with the SEC.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. Investors should carefully consider the risks described
below and all of the other information set forth in this Annual Report on Form 10-K, including our financial statements and
related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before
deciding to invest in our common stock. If any of the events or developments described below occur, our business, financial
condition, or results of operations could be materially or adversely affected. As a result, the market price of our common
stock could decline, and investors could lose all or part of their investment.
Risks Related to Our Business
We have a limited operating history and we cannot assure you we will achieve or maintain profitability.
Our business model is unproven, and we have a limited operating history. We are only in the initial development
stage of our business. We expect to make significant investments in the further development and expansion of our business
and these investments may not result in the successful development, operation, or growth of our business on a timely basis or
at all. We may not generate sufficient revenue and we may incur significant losses in the future for a number of reasons,
including a lack of demand for our products and services, increasing competition, weakness in the powersports, and
recreational vehicle industries generally, as well as other risks described in these Risk Factors, and we may encounter
unforeseen expenses, difficulties, complications and delays, and other unknown factors relating to the development and
operation of our business. Accordingly, we may not be able to successfully develop and operate our business, generate
revenue, or achieve or maintain profitability.
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Our annual and quarterly operating results may fluctuate significantly or may fall below the expectations of investors or
securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to annual and quarterly fluctuations, and they will be affected by
numerous factors, including:
●
●
a change in consumer discretionary spending;
a shift in the mix and type of vehicles we sell which could result in lower sales price and lower gross profit;
● weather, which may impact the ability or desire for potential end customers to consider whether they wish to
own a powersports and recreational vehicle;
●
the timing and cost of, and level of investment in, development activities relating to our software development
and services, which may change from time to time;
● our ability to attract, hire and retain qualified personnel;
●
●
●
expenditures that we will or may incur to acquire or develop additional product and service offerings;
future accounting pronouncements or changes in our accounting policies; and
the changing and volatile U.S., European and global economic environments.
If our annual or quarterly operating results fall below the expectations of investors or securities analysts, the price of
our Class B Common Stock could decline substantially. Furthermore, any annual or quarterly fluctuations in our operating
results may, in turn, cause the price of our stock to fluctuate substantially. We believe that annual and quarterly comparisons
of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future
performance.
The initial development and progress of our business to date may not be indicative of our future growth prospects and, if
we continue to grow rapidly, we may not be able to manage our growth effectively.
We expect that, in the future, as our revenue increases, our rate of growth will decline. In addition, we will not be
able to grow as fast or at all if we do not accomplish the following:
● maintain and grow our regional partner network;
●
●
●
●
●
increase the number of users of our products and services, and in particular the number of unique visitors to our
website and our branded mobile applications;
increase the number of transactions between our users and both RumbleOn and our regional partners;
introduce third party ancillary products and services;
acquire sufficient number of pre-owned vehicles at attractive cost; and
sell sufficient number of pre-owned vehicles at acceptable prices.
We may not successfully accomplish any of these objectives. We plan to continue our investment in future growth.
We expect to continue to expend substantial financial and other resources on:
● marketing and advertising;
● product and service development; including investments in our website, business processes, infrastructure,
inventory, product and service development team and the development of new products and services and new
features for existing products; and
● general administration, including legal, accounting and other compliance expenses related to being a public
company.
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In addition, our anticipated growth may place and may continue to place significant demands on our management
and our operational and financial resources. As we grow, we expect to hire additional personnel. Also, our organizational
structure will become more complex as we add additional staff, and we will need to ensure we adequately develop and
maintain operational, financial and management controls as well as our reporting systems and procedures.
We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or
unforeseen circumstances. If capital is not available on terms acceptable to us or at all, we may not be able to develop and
grow our business as anticipated and our business, operating results and financial condition may be harmed.
We intend to continue to make investments to support the development and growth of our business and, we may
require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen
circumstances. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However,
additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Volatility in the credit
markets may also have an adverse effect on our ability to obtain debt financing. Also, the incurrence of leverage, the debt
service requirements resulting therefrom, and the possibility of a need for financing or any additional financing could have
important and negative consequences, including the following: (a) the Company’s ability to obtain additional financing for
working capital, capital expenditures, or general corporate or other purposes may be impaired in the future; (b) certain future
borrowings may be at variable rates of interest, which will expose the Company to the risk of increased interest rates; (c) the
Company may need to use a portion of the money it earns to pay principal and interest on their credit facilities, which will
reduce the amount of money available to finance operations and other business activities, repay other indebtedness, and pay
distributions; and (d) substantial leverage may limit the Company’s flexibility to adjust to changing economic or market
conditions, reduce their ability to withstand competitive pressures and make them more vulnerable to a downturn in general
economic conditions.
If we raise additional funds through further issuances of equity or convertible debt securities, our existing
stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and
privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on
terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to
business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, operating
results, financial condition and prospects could be adversely affected.
The success of our business relies heavily on our marketing and branding efforts, especially with respect to the RumbleOn
website and our branded mobile applications, and these efforts may not be successful.
We believe that an important component of our development and growth will be the business derived from the
RumbleOn website and our branded mobile applications. Because RumbleOn is a consumer brand, we rely heavily on
marketing and advertising to increase the visibility of this brand with potential users of our products and services.
Our business model relies on our ability to scale rapidly and to decrease incremental user acquisition costs as we
grow. Some of our methods of marketing and advertising may not be profitable because they may not result in the acquisition
of a sufficient users visiting our website and mobile applications such that we may recover these costs by attaining
corresponding revenue growth. If we are unable to recover our marketing and advertising costs through increases in user
traffic and in the number of transactions by users of our platform, it could have a material adverse effect on our growth,
results of operations and financial condition.
The failure to develop and maintain our brand could harm our ability to grow unique visitor traffic and to expand our
regional partner network.
Developing and maintaining the RumbleOn brand will depend largely on the success of our efforts to maintain the
trust of our users and dealers and to deliver value to each of our users and dealers. If our potential users perceive that we are
not focused primarily on providing them with a better pre-owned vehicle buying experience, our reputation and the strength
of our brand will be adversely affected.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our
compliance with applicable laws and regulations, the integrity of the data that we provide to users, data privacy and security
issues, and other aspects of our business, irrespective of their validity, could diminish users’ and dealers’ confidence in and
the use of our products and services and adversely affect our brand. There can be no assurance that we will be able to
develop, maintain or enhance our brand, and failure to do so would harm our business growth prospects and operating results.
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We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search
results, our traffic would decline, and our business would be adversely affected.
We depend in part on Internet search engines and social media such as Google™, Bing™, and Facebook™ to drive
traffic to our website. For example, when a user searches the internet for a particular type of powersports or recreational
vehicle, we will rely on a high organic search ranking of our webpages in these search results to refer the user to our website.
However, our ability to maintain high, non-paid search result rankings is not within our control. Our competitors’ Internet
search engine and social media efforts may result in their websites receiving a higher search result page ranking than ours, or
Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. If
Internet search engines or social media companies modify their search algorithms or display technologies in ways that are
detrimental to us, or if our competitors’ efforts are more successful than ours, overall growth in our user base could slow or
our user base could decline. Internet search engine providers could provide recreation vehicle dealer and pricing information
directly in search results, align with our competitors or choose to develop competing services. Any reduction in the number
of users directed to our website through Internet search engines could harm our business and operating results.
A significant disruption in service on our website or of our mobile applications could damage our reputation and result in
a loss of consumers, which could harm our business, brand, operating results, and financial condition.
Our brand, reputation and ability to attract consumers, affinity groups and advertisers depend on the reliable
performance of our technology infrastructure and content delivery. We may experience significant interruptions with our
systems in the future. Interruptions in these systems, whether due to system failures, computer viruses, or physical or
electronic break-ins, could affect the security or availability of our products on our website and mobile application, and
prevent or inhibit the ability of consumers to access our products. Problems with the reliability or security of our systems
could harm our reputation, result in a loss of consumers, dealers and affinity group marketing partners, and result in
additional costs.
We intend to locate our communications, network, and computer hardware used to operate our website and mobile
applications at facilities in various parts of the country to minimize the risk and create an environment where we can remain
online if one of the facilities in which our equipment is housed goes offline. Nevertheless, we will not own or control the
operation of these facilities, and our systems and operations will be vulnerable to damage or interruption from fire, flood,
power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses,
earthquakes, and similar events. The occurrence of any of these events could result in damage to our systems and hardware or
could cause them to fail.
Problems faced by any third-party web hosting providers we may utilize could adversely affect the experience of our
consumers. Any third-party web hosting providers could close their facilities without adequate notice. Any financial
difficulties, up to and including bankruptcy, faced by any third-party web hosting providers or any of the service providers
with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If
our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.
Any errors, defects, disruptions, or other performance or reliability problems with our network operations could
cause interruptions in access to our products as well as delays and additional expense in arranging new facilities and services
and could harm our reputation, business, operating results, and financial condition.
We may be unable to maintain or grow relationships with information data providers or may experience interruptions in
the data feeds they provide, which may limit the information that we are able to provide to our users and regional partners
as well as adversely affect the timeliness of such information and may impair our ability to attract or retain consumers
and our regional partners and to timely invoice all parties.
We expect to receive data from third-party data providers, including our network of dealers, dealer management
system data feed providers, data aggregators and integrators, survey companies, purveyors of registration data and possibly
others. There may be some instances in which we use this information to collect a transaction fee from those dealers and
recognize revenue from the related transactions.
From time to time, we may experience interruptions in one or more data feeds that we receive from third-party data
providers, particularly dealer management system data feed providers, in a manner that affects our ability to timely invoice
the dealers in our network. These interruptions may occur for a number of reasons, including changes to the software used by
these data feed providers and difficulties in renewing our agreements with third-party data feed providers. Additionally, when
an interruption ceases, we may not always be able to collect the appropriate fees and any such shortfall in revenue could be
material to our operating results.
10
If we are unable to provide a compelling powersport or recreation vehicle buying experience to our users, the number of
transactions between our users, RumbleOn and dealers will decline, and our revenue and results of operations will suffer
harm.
We cannot assure you that we are able to provide a compelling vehicle buying experience to our users, and our
failure to do so will mean that the number of transactions between our users, RumbleOn and dealers will decline, and we will
be unable to effectively monetize our user traffic. We believe that our ability to provide a compelling powersport and
recreation vehicle buying experience is subject to a number of factors, including:
● our ability to launch new products that are effective and have a high degree of consumer engagement; and
●
compliance of the dealers and regional auctions within our network with applicable laws, regulations and the
rules of our platform.
If key industry participants, including powersports and recreation vehicle dealers and regional auctions, perceive us in a
negative light or our relationships with them suffer harm, our ability to operate and grow our business and our financial
performance may be damaged.
We anticipate that we will derive a significant portion of our revenue from fees paid by existing powersports and
recreation vehicle dealers for dealer services we may provide them. In addition, we intend to utilize a select set of regional
partners to perform services for our benefit, including, among other things, vehicle reconditioning, vehicle storage and
vehicle photography. If our relationships with our network of regional partners suffer harm in a manner that leads to the
departure of these regional partners from our network, then our ability to operate our business, grow revenue, and lower our
costs will be adversely affected.
We cannot assure you that we will maintain strong relationships with the regional partners in our network or that we
will not suffer partner attrition in the future. We may also have disputes with regional partners from time to time, including
relating to the collection of fees from them and other matters. We may need to modify our products, change pricing or take
other actions to address regional partner concerns in the future. If we are unable to create and maintain a compelling value
proposition for regional partners to become and remain in our network, our network will not grow and may begin to decline.
If a significant number of these regional partners decided to leave our network or change their financial or business
relationship with us, then our business, growth, operating results, financial condition and prospects could suffer.
Additionally, if we are unable to attract regional partners to our network, our growth could be impaired.
The growth of our business relies significantly on our ability to increase the number of regional partners in our network
such that we are able to increase the number of transactions between our users and regional partners. Failure to do so
would limit our growth.
Our ability to grow the number of regional partners in our network is an important factor in growing our business.
We are a new participant in the powersport and recreational vehicle industry, our business may be viewed in a negative light
by powersports and recreation vehicle dealerships, and there can be no assurance that we will be able to maintain or grow the
number of regional partners in our network.
Our ability to grow our complementary product offerings may be limited, which could negatively impact our development,
growth, revenue and financial performance.
As we introduce or expand additional offerings for our platform, such as recreation vehicle trade-ins, lead
management, transaction processing, financing, maintenance and insurance, we may incur losses or otherwise fail to enter
these markets successfully. Our expansion into these markets may place us in competitive and regulatory environments with
which we are unfamiliar and involves various risks, including the need to invest significant resources and the possibility that
returns on such investments will not be achieved for several years, if at all. In attempting to establish such new product
offerings, we may incur significant expenses and face various other challenges, such as expanding our sales force and
management personnel to cover these markets and complying with complicated regulations that apply to these markets. In
addition, we may not successfully demonstrate the value of these ancillary products to consumers or dealers, and failure to do
so would compromise our ability to successfully expand into these additional revenue streams.
We rely on third-party financing providers to finance a portion of our customers’ vehicle purchases.
We rely on third-party financing providers to finance a portion of our customers’ vehicle purchases. Accordingly,
our revenue and results of operations are partially dependent on the actions of these third parties. We provide financing to
qualified customers through a number of third-party financing providers. If one or more of these third-party providers cease
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to provide financing to our customers, provide financing to fewer customers or no longer provide financing on competitive
terms, it could have a material adverse effect on our business, sales and results of operations. Additionally, if we were unable
to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could also have a
material adverse effect on our business, sales and results of operations. We rely on third-party providers to supply EPP
products to our customers. Accordingly, our revenue and results of operations will be partially dependent on the actions of
these third-parties. If one or more of these third-party providers cease to provide EPP products, make changes to their
products or no longer provide their products on competitive terms, it could have a material adverse effect on our business,
revenue and results of operations. Additionally, if we were unable to replace the current third-party providers upon the
occurrence of one or more of the foregoing events, it could also have a material adverse effect on our business, revenue and
results of operations.
Our sales of powersports/recreation vehicles may be adversely impacted by increased supply of and/or declining prices for
pre-owned powersports and recreational vehicles and excess supply of new powersports and recreational vehicles.
We believe when prices for pre-owned powersports and recreational vehicles have declined, it can have the effect of
reducing demand among retail purchasers for new powersports and recreational vehicles (at or near manufacturer’s suggested
retail prices). Further, the manufacturers of powersports and recreational vehicles can and do take actions that influence the
markets for new and pre-owned powersports and recreational vehicles. For example, introduction of new models with
significantly different functionality, technology or other customer satisfiers can result in increased supply of pre-owned
powersports and recreational vehicles, and a corresponding decrease in price of pre-owned powersports and recreational
vehicles. Also, while historically manufacturers have taken steps designed to balance production volumes for new
powersports and recreational vehicles with demand, those steps have not always proven effective. In other instances,
manufacturers have chosen to supply new powersports and recreational vehicles to the market in excess of demand at reduced
prices which has the effect of reducing demand for pre-owned powersports and recreational vehicles.
We rely on a number of third parties to perform certain operating and administrative functions for the Company.
We rely on a number of third parties to perform certain operating and administrative functions for us. We may
experience problems with outsourced services, such as unfavorable pricing, untimely delivery of services, or poor quality.
Also, these third parties may experience adverse economic conditions due to difficulties in the global economy that could
lead to difficulties supporting our operations. In light of the amount and types of functions that we will outsource, these
service provider risks could have a material adverse effect on our business and results of operations.
We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our
business and operating results.
We face significant competition from companies that provide listings, information, lead generation, and powersports
and recreation vehicle buying services designed to reach consumers and enable dealers to reach these consumers. We will
compete for a share of overall powersports and recreation vehicle purchases as well as powersport and recreation vehicle
dealer’s marketing and technology spend. To the extent that powersports and recreation vehicle dealers view alternative
strategies to be superior to RumbleOn, we may not be able to maintain or grow the number of dealers in our network, we may
sell fewer powersports and recreation vehicles to users of our platform, and our business, operating results and financial
condition will be harmed.
We also expect that new competitors will continue to enter the online powersports and recreation vehicle retail
industry with competing products and services, which could have an adverse effect on our revenue, business and financial
results.
Our competitors could significantly impede our ability to expand our network of dealers and regional auctions and to
reach consumers. Our competitors may also develop and market new technologies that render our existing or future products
and services less competitive, unmarketable or obsolete. In addition, if our competitors develop products or services with
similar or superior functionality to our solutions, we may need to decrease the prices for our solutions in order to remain
competitive. If we are unable to maintain our current pricing structure due to competitive pressures, our revenue will be
reduced, and our operating results will be negatively affected.
Our current and potential competitors may have significantly more financial, technical, marketing and other
resources than we have, and the ability to devote greater resources to the development, promotion, and support of their
products and services. Additionally, they may have more extensive recreation vehicle industry relationships than we have,
longer operating histories and greater name recognition. As a result, these competitors may be better able to respond more
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quickly to undertake more extensive marketing or promotional campaigns. If we are unable to compete with these companies,
the demand for our products and services could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change
in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or
strengthen cooperative relationships with our current or future third-party data providers, technology partners, or other parties
with whom we may have relationships, thereby limiting our ability to develop, improve, and promote our solutions. We may
not be able to compete successfully against current or future competitors, and competitive pressures may harm our revenue,
business and financial results.
Seasonality or weather trends may cause fluctuations in our unique visitors, revenue and operating results.
Our revenue trends are likely to be a reflection of consumers’ recreation vehicle buying patterns. While different
types of recreation vehicles are designed for different seasons (motorcycles are typically for non-snow seasons, while
snowmobiles are typically designed for winter), our revenue may be cyclical if, for example, powersport and recreation
vehicles and powersports and recreational dealers continue to represent a large percentage of our revenue. Historically, the
industry has been seasonal with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically
slowest in the fall quarter but increase in February and March, coinciding with tax refund season. Our business will also be
impacted by cyclical trends affecting the overall economy, specifically the retail recreation vehicle industry, as well as by
actual or threatened severe weather events.
We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure
to protect such information and data could damage our reputation and brand and harm our business and operating
results.
We collect, process, store, share, disclose and use personal information and other data provided by consumers,
dealers and auctions. We rely on encryption and authentication technology licensed from third parties to effect secure
transmission of such information. We may need to expend significant resources to protect against security breaches or to
address problems caused by breaches. Any failure or perceived failure to maintain the security of personal and other data that
is provided to us by consumers and dealers could harm our reputation and brand and expose us to a risk of loss or litigation
and possible liability, any of which could harm our business and operating results. In addition, from time to time, it is
possible that concerns will be expressed about whether our products, services, or processes compromise the privacy of our
users. Concerns about our practices with regard to the collection, use or disclosure of personal information or other privacy
related matters, even if unfounded, could harm our business and operating results.
There are numerous federal, state and local laws around the world regarding privacy and the collection, processing,
storing, sharing, disclosing, using and protecting of personal information and other data, the scope of which are changing,
subject to differing interpretations, and which may be costly to comply with and may be inconsistent between countries and
jurisdictions or conflict with other rules. We generally comply with industry standards and are subject to the terms of our
privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal
obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is
possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one
jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Any failure
or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third
parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or
transfer of sensitive information, which may include personally identifiable information or other user data, may result in
governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and
could cause consumers and recreation vehicle dealers to lose trust in us, which could have an adverse effect on our business.
Additionally, if vendors, developers or other third parties that we work with violate applicable laws or our policies, such
violations may also put consumer or dealer information at risk and could in turn harm our reputation, business and operating
results.
Failure to adequately protect our intellectual property could harm our business and operating results.
A portion of our success may be dependent on our intellectual property, the protection of which is crucial to the
success of our business. We expect to rely on a combination of patent, trademark, trade secret and copyright law and
contractual restrictions to protect our intellectual property. In addition, we will attempt to protect our intellectual property,
technology, and confidential information by requiring our employees and consultants to enter into confidentiality and
assignment of inventions agreements and third parties to enter into nondisclosure agreements. These agreements may not
effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and
13
may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information,
intellectual property, or technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our website features, software, and functionality or obtain and use information that we consider proprietary.
Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and
possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought
by owners of other registered trademarks or trademarks that incorporate variations of the term “RumbleOn” or “RMBL.”
We currently hold the “RumbleOn.com” Internet domain name and various other related domain names. The
regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level
domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we
may not be able to acquire or maintain all domain names that use the name RumbleOn or RMBL.
We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business
and operating results.
We may from time to time face allegations that we have infringed the trademarks, copyrights, patents and other
intellectual property rights of third parties, including from our competitors or non-practicing entities.
Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to
predict and may require us to stop offering some features, purchase licenses or modify our products and features while we
develop non-infringing substitutes or may result in significant settlement costs.
In addition, we use open source software in our products and will use open source software in the future. From time
to time, we may face claims against companies that incorporate open source software into their products, claiming ownership
of, or demanding release of, the source code, the open source software or derivative works that were developed using such
software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in
litigation, require us to purchase a costly license or require us to devote additional research and development resources to
change our platform or services, any of which would have a negative effect on our business and operating results.
Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements,
these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results
and our reputation.
We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified
personnel, our ability to develop and successfully grow our business could be harmed.
We believe our success will depend on the efforts and talents of our executives and employees, including Marshall
Chesrown, our Chairman and Chief Executive Officer, and Steven R. Berrard, our Chief Financial Officer. Our future success
depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified
individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of
our senior management or key employees could materially adversely affect our ability to execute our business plan and
strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers are at-will
employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our
business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of
any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees
or retaining and motivating existing employees, our business could be materially and adversely affected.
We may acquire other companies or technologies, which could divert our management’s attention, result in additional
dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
Our success will depend, in part, on our ability to grow our business in response to the demands of consumers,
dealers and other constituents within the powersports and recreation vehicle industry as well as competitive pressures. In
some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies
rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-
consuming, and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in
connection with acquisitions include:
● diversion of management time and focus from operating our business to addressing acquisition integration
challenges;
14
●
●
●
●
●
●
coordination of technology, research and development and sales and marketing functions;
transition of the acquired company’s users to our website and mobile applications;
retention of employees from the acquired company;
cultural challenges associated with integrating employees from the acquired company into our organization;
integration of the acquired company’s accounting, management information, human resources, and other
administrative systems;
the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition
may have lacked effective controls, procedures, and policies;
● potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect
our operating results in a given period;
●
●
liability for activities of the acquired company before the acquisition, including patent and trademark
infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown
liabilities; and
litigation or other claims in connection with the acquired company, including claims from terminated
employees, consumers, former stockholders, or other third parties.
Our failure to address these risks or other problems encountered in connection with our future acquisitions and
investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur
unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our
equity securities, the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of
which could harm our financial condition. Also, the anticipated benefits of any acquisitions may not materialize to the extent
we anticipate or at all.
Risks Related to Ownership of our Common Stock
The trading price for our Class B Common Stock may be volatile and could be subject to wide fluctuations in per share
price.
Our Class B Common Stock is listed for trading on The NASDAQ Capital Market under the trading symbol
“RMBL,” however historically there has been a limited public market for our Class B Common Stock. The liquidity of any
market for the shares of our Class B Common Stock will depend on a number of factors, including:
●
the number of stockholders;
● our operating performance and financial condition;
●
●
●
the market for similar securities;
the extent of coverage of us by securities or industry analysts; and
the interest of securities dealers in making a market in the shares of our common stock.
The market price for our Class B Common Stock may be highly volatile and could be subject to wide fluctuations.
In addition, the price of shares of our Class B Common Stock could decline significantly if our future operating results fail to
meet or exceed the expectations of market analysts and investors and actual or anticipated variations in our quarterly
operating results could negatively affect our share price.
Other factors may also contribute to volatility of the price of our Class B Common Stock and could subject our
Class B Common Stock to wide fluctuations. These include, but are not limited to:
● developments in the financial markets and worldwide or regional economies;
●
announcements of innovations or new products or services by us or our competitors;
15
●
●
announcements by the government relating to regulations that govern our industry;
significant sales of our Class B Common Stock or other securities in the open market;
● variations in interest rates;
●
●
changes in the market valuations of other comparable companies; and
changes in accounting principles.
Our principal stockholders and management own a significant percentage of our stock and an even greater percentage of
the Company’s voting power and will be able to exert significant control over matters subject to stockholder approval.
Our executive officers and directors as a group beneficially own shares of our Class A Common Stock and Class B
Common Stock representing approximately 74.5% in aggregate of our voting power, including approximately 62.5% in
aggregate voting power held by Messrs. Chesrown and Berrard as the only holders of our 1,000,000 outstanding shares of our
Class A Common Stock, which has ten votes for each one share outstanding. As a result, these stockholders have the ability
to determine all matters requiring stockholder approval. For example, these stockholders are able to control elections of
directors, amendments of our organizational documents approval of any merger, sale of assets, or other major corporate
transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may
believe are in your best interest as a stockholder or to take other action that you may believe are not in your best interest as a
stockholder. This may also adversely affect the market price of our Class B Common Stock.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or
misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our Class B Common Stock may be influenced by the research and reports that industry or
securities analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading
opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to
meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us
or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock
price or trading volume to decline.
Because our Class B Common Stock may be deemed a low-priced “penny” stock, an investment in our Class B Common
Stock should be considered high risk and subject to marketability restrictions.
When the trading price of our Class B Common Stock is $5.00 per share or lower, it is deemed a penny stock, as
defined in Rule 3a51-1 under the Exchange Act, and subject to the penny stock rules of the Exchange Act specified in rules
15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
● deliver to the customer, and obtain a written receipt for, a disclosure document;
● disclose certain price information about the stock;
● disclose the amount of compensation received by the broker-dealer or any associated person of the broker-
dealer;
●
●
send monthly statements to customers with market and price information about the penny stock; and
in some circumstances, approve the purchaser’s account under certain standards and deliver written statements
to the customer with information specified in the rules.
Consequently, if our Class B Common Stock is $5.00 per share price or lower, the penny stock rules may restrict the
ability or willingness of broker-dealers to sell the Class B Common Stock and may affect the ability of holders to sell their
Class B Common Stock in the secondary market and the price at which such holders can sell any such securities. These
additional procedures could also limit our ability to raise additional capital in the future.
16
A significant portion of our total outstanding shares of Class B Common Stock is restricted from immediate resale but
may be sold into the market in the near future. This could cause the market price of our Class B Common Stock to drop
significantly, even if our business is doing well.
Sales of a substantial number of shares of our Class B Common Stock in the public market or the perception that
these sales might occur, could depress the market price of our Class B Common Stock and could impair our ability to raise
capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the
prevailing market price of our Class B Common Stock.
On February 8, 2017, our executive officers, directors, and certain stockholders entered into an Amended and
Restated Stockholders Agreement (the “Stockholders Agreement”), restricting the stockholders’ ability to transfer shares of
our common stock through the earlier of (i) October 19, 2017, or (ii) the date on which we receive at least $3,500,000 in
proceeds of any equity financing, subject to certain exceptions. Approximately 7.3 million shares of our Class B Common
Stock were subject to these restrictions. In addition to the Stockholders Agreement, our executive officers, directors and
certain stockholders entered into lock-up agreements, which restricted the sale of our common stock by such parties through
December 31, 2017. Approximately 7.1 million shares of our Class B Common Stock were subject to these lock-up
agreements. In addition, approximately 6.3 million shares of our Class B Common Stock are currently subject to a
contractual lock-up through April 21, 2018 with the underwriters of the 2017 Public Offering. Subject to certain limitations,
including sales volume limitations with respect to shares held by our affiliates, following April 21, 2018, substantially all of
our outstanding shares of common stock will become eligible for sale. Sales of stock by the stockholders currently subject to
these lock-ups could have a material adverse effect on the trading price of our common stock.
We do not currently or for the foreseeable future intend to pay dividends on our common stock.
We have never declared or paid any cash dividends on our common stock. We currently do not intend to pay cash
dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earning in the development and
expansion of our business. As a result, any return on your investment in our common stock will be limited to the appreciation
in the price of our common stock, if any.
We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure
requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS
Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other
public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for
our common stock and our stock price may be more volatile.
We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our
revenue exceeds $1 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market
value of our common stock that is held by non-affiliates exceeds $700 million.
Even if we no longer qualify as an “emerging growth company,” we may still be subject to reduced reporting requirements
so long as we are considered a “smaller reporting company.”
Many of the exemptions available for emerging growth companies are also available to smaller reporting companies
like us that have less than $75 million of worldwide common equity held by non-affiliates. So, although we may no longer
qualify as an emerging growth company, we may still be subject to reduced reporting requirements.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other
public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and,
together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required
new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting
obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or any
17
subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our
financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of
our common stock.
We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our
management will be required to assess the effectiveness of these controls annually. However, for as long as we are an
“emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to
attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging
growth company” for up to five years. An independent assessment of the effectiveness of our internal controls could detect
problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to
financial statement restatements and require us to incur the expense of remediation.
Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.
Nevada law and our charter, bylaws, and other governing documents contain provisions that could discourage, delay
or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders, which could cause our
stock price to decline. In addition, these provisions could limit the price investors would be willing to pay in the future for
shares of our common stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Properties.
We currently maintain our corporate offices at 4521 Sharon Road, Suite 370, Charlotte, NC 28211. We currently
have no monthly rent, nor do we accrue any expense for monthly rent for our corporate offices, although we pay for internet
and telephone services at these offices.
We sublease our Dallas, Texas operations center and pay approximately $3,700 a month. This sublease expires on
April 30, 2018. We believe we can extend the sublease on a month-to-month basis while we look for a new, larger location
for our operations team and we expect that the terms of any lease we enter will be at market rates. We are a co-leasee on a
warehouse space in Missouri from which we operate our licensed dealer operation; total shared monthly rent for the building
is $4,250. Also, we pay for space to store vehicles on a monthly basis in Washington state from a dealer that is separate and
distinct from the location of the dealership, on the same terms as paid by the dealer. This facility serves as our northwestern
regional distribution center. Included in accounts payable at December 31, 2017 is $30,000 for rent owed to the dealer. For
additional information, see Certain Relationships and Related Transactions, and Director Independence - Test Dealer.
Item 3.
Legal Proceedings.
We are not a party to any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not Applicable.
18
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase Of Equity
Securities
Market Information
As of October 29, 2017, our Class B common stock has been listed on the Nasdaq Global Select Market
(“NASDAQ”) under the symbol RMBL. Before October 29, 2017, our common stock traded on the OTCQB Market under
the symbol RMBL, and before January 1, 2017, our common stock was not traded, except for 5,000 shares, which traded on
the OTC Markets Pink Sheets on January 22, 2016 at a price of $0.245 per share. The following table sets forth the high and
low closing sales prices per share of our common stock for the period indicated:
Year Ending December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders of Common Stock
High
Low
$
$
$
$
5.00 $
7.00 $
9.50 $
10.00 $
0.00
3.40
6.50
4.05
As of February 23, 2018, we had approximately 43 stockholders of record of 11,928,541 issued and outstanding
shares of Class B Common Stock and two holders of record of 1,000,000 issued and outstanding shares of Class A Common
Stock.
Dividends
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the
foreseeable future on the shares of common stock. We intend to reinvest any earning in the development and expansion of
our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our board
of directors, based upon the Board’s assessment of:
● our financial condition;
●
earnings;
● need for funds;
●
capital requirements;
● prior claims of preferred stock to the extent issued and outstanding; and
● other factors, including any applicable law.
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
Item 6.
Selected Financial Data.
This item is not applicable, as we are considered a smaller reporting company.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The management’s discussion and analysis of financial condition and results of operations should be read in
conjunction with the audited financial statements and accompanying notes included in this annual report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
RumbleOn operates a capital light disruptive e-commerce platform facilitating the ability of both consumers and
dealers to Buy-Sell-Trade-Finance pre-owned vehicles in one online location. Our goal is to transform the way pre-owned
vehicles are bought and sold by providing users with the most efficient, timely and transparent transaction experience. Our
initial focus is the market for vin specific pre-owned vehicles with an emphasis on motorcycles and other powersports.
Serving both consumers and dealers, through our online marketplace platform, we make cash offers for the purchase
of pre-owned vehicles. In addition, we offer a large inventory of pre-owned vehicles for sale along with third-party financing
and associated products. Our operations are designed to be scalable by working through an infrastructure and capital light
model that is achievable by virtue of a synergistic relationship with our regional partners, including dealers and auctions. We
utilize regional partners in the acquisition of pre-owned vehicles as well as to provide inspection, reconditioning and
distribution services. Correspondingly, we can earn fees and transaction income, while our regional partners can earn
incremental revenue and enhance profitability through increased sales and fees from inspection, reconditioning and
distribution programs.
Our business model is driven by a technology platform we acquired in February 2017, through our acquisition of
substantially all of the assets of NextGen. The acquired system provides integrated vehicle appraisal, inventory management,
customer relationship and lead management, equity mining, and other key services necessary to drive the online marketplace.
Over the past 16 years, the developers of the software have designed and built, for large multi-national clients, a number of
dealer and, what we believe to be, high quality applications solutions.
Key Operation Metrics
As our business expands we will regularly review a number of metrics, to evaluate our business, measure our
progress, and make strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our
growth, including increasing brand awareness, maximizing the opportunity to source the purchase of low cost pre-owned
vehicles from consumers and dealers while enhancing the selection of vehicles we make available to our customers. Our key
operating metrics also demonstrate our ability to translate these drivers into sales and to monetize these retail sales through a
variety of product offerings.
Vehicles sold
Regional partners
Average monthly unique users
Vehicle inventory available on website
Average days to sale
Total average gross margin per vehicle
Vehicles Sold
Year Ended December 31,
2017
2016
678
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97,877
751
38
750
$
-
-
-
-
-
-
We define vehicles sold as the number of pre-owned vehicles sold to consumers and dealers in each period, net of
returns under our three-day return policy. We view vehicles sold as a key measure of our growth for several reasons. First,
vehicles sold is the primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple
complementary revenue streams, including financing, vehicle service contracts and trade-ins. Second, growth in vehicles sold
increases the base of available customers for referrals and repeat sales. Third, growth in vehicles sold is an indicator of our
ability to successfully scale our logistics, fulfillment, and customer service operations.
Regional Partners
Our operations are designed to be scalable by working through an infrastructure and capital light model that is
achievable by virtue of a synergistic relationship with regional partners. We utilize these regional partners in the acquisition
of powersport vehicles and regional partner locations provide inspection, reconditioning and distribution services.
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Correspondingly, we earn fees and transaction income, and regional partners earn incremental revenue and enhance
profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs. As regional
partners are added throughout the U.S., the cost and time associated with distribution programs will be significantly reduced
as the pickup and delivery of pre-owned vehicles will become more localized thus reducing shipping costs and the average
days to sale for pre-owned vehicles.
Average Monthly Unique Users
We define a monthly unique user as an individual who has visited our website within a calendar month, based on
data provided by Google Analytics. We calculate average monthly unique users as the sum of monthly unique users in a
given period, divided by the number of months in that period, including vehicles of our dealer partners. We view average
monthly unique users as a key indicator of the strength of our brand, the effectiveness of our advertising and merchandising
campaigns and consumer awareness.
Vehicle Inventory Available on Website
We define vehicle inventory available on website as the number of pre-owned vehicles listed for sale on our
website on the last day of a given reporting period, including vehicles of our dealer partners. Until we reach an optimal
pooled inventory level, we view pre-owned vehicle inventory available as a key measure of our growth. Growth in available
pre-owned vehicle inventory increases the selection of pre-owned vehicles available to consumers and dealers on a
nationwide basis, which we believe will allow us to increase the number of pre-owned vehicles we sell.
Average Days to Sale
We define average days to sale as the average number of days between vehicle acquisition by us and delivery to a
customer for all pre-owned vehicles sold in a period. However, this metric does not include any pre-owned vehicles that
remain unsold at period end. We view average days to sale as a useful metric due to its impact on pre-owned vehicle average
selling price. We anticipate that average days to sale will increase in future periods until we reach an optimal pooled
inventory level and fully scale our acquisition and sales channel processes.
Total Average Gross Margin per Vehicle
We define total average gross margin per vehicle as the aggregate gross margin in a given period divided by pre-
owned vehicles sold in that period. Total average gross margin per vehicle is driven by sales of pre-owned vehicles to
consumers and dealers which, provides an opportunity to generate finance and vehicle service contract revenue from
consumer sales. We believe average gross margin per vehicle is a key measure of our growth and long-term profitability.
COMPONENTS OF RESULTS OF OPERATIONS
Revenue
Revenue is derived from two primary sources: (1) the Company’s online marketplace, which is the largest source of
revenue and includes: (i) the sale of pre-owned vehicles through consumer and dealer sales channels; (ii) vehicle financing;
(iii) vehicle service contracts; and (iv) retail merchandise sales; and (2) subscription and other fees relating to the RumbleOn
software solution, which includes: (i) a vehicle appraisal process; (ii) inventory management system; (iii) customer
relationship and lead management program; (iv) equity mining (v) implementation: and (vi) training.
The Company recognizes revenue when all of the following conditions are satisfied: (i) there is persuasive evidence
of an arrangement; (ii) the product or service has been provided to the customer; (iii) the amount to be paid by the customer
is fixed or determinable; and (iv) the collection of the Company’s payment is probable.
See Item 8 of Part II, Financial Statements and Supplementary Data—Note 1— “Description of Business and
Significant Accounting Policies – Revenue Recognition” for a further description of the Company’s revenue recognition.
Pre-owned Vehicle Sales
We sell pre-owned vehicles through consumer and dealer sales channels. These multiple sales channels provide us
the opportunity to maximize profitability through increased sales volume and lower average days to sale by selling to the
channel where the opportunity is the greatest at any given time based on customer demand, market conditions or inventory
availability. The number of pre-owned vehicles sold to any given channel may vary from period to period based on customer
demand, market conditions and available inventory.
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Pre-owned vehicle sales represent the aggregate sales of pre-owned vehicles to consumers and dealers through our
website or at auctions. We generate gross profit on pre-owned vehicle sales from the difference between the vehicle selling
price and our cost of sales associated with acquiring the vehicle and preparing it for sale. We expect pre-owned vehicle sales
to increase as we begin to utilize a combination of brand building as well as direct response channels to efficiently source and
scale our addressable markets while expanding our suite of product offerings to consumers who may wish to trade-in or to
sell us their vehicle independent of a retail sale. Factors affecting pre-owned vehicle sales include the number of retail pre-
owned vehicles sold and the average selling price of these vehicles. At this stage of our development, changes in both retail
pre-owned vehicles sold and in average selling price will drive changes in revenue.
The number of pre-owned vehicles we sell depends on our volume of website traffic, our inventory levels and
selection, the effectiveness of our branding and marketing efforts, the quality of our customer sales experience, our volume of
referrals and repeat customers, the competitiveness of our pricing, competition and general economic conditions. On a
quarterly basis, the number of pre-owned vehicles we sell is also affected by seasonality, with demand for pre-owned
vehicles reaching the high point in the first half of each year, commensurate with the timing of tax refunds, and diminishing
through the rest of the year, with the lowest relative level of pre-owned vehicle sales expected to occur in the fourth calendar
quarter.
Our average retail selling price depends on the mix of pre-owned vehicles we acquire and hold in inventory, retail
market prices in our markets, our average days to sale, and our pricing strategy. We may choose to shift our inventory mix to
higher or lower cost pre-owned vehicles, or to opportunistically raise or lower our prices relative to market to take advantage
of supply or demand imbalances, which could temporarily lead to average selling prices increasing or decreasing.
Additionally, we have shifted away from our initial focus on solely acquiring and selling of higher priced pre-owned Harley-
Davidson motorcycles to acquiring a mix of both Harley Davidson and lower priced pre-owned powersports vehicles that is a
better representation of the overall powersport market. As a result of this change in mix, we expect our average selling price
of pre-owned vehicles will decline from current levels, however we anticipated the decrease in average selling price to be
offset, in part, by an increase in volume sales of metric brands. We anticipate however that our gross margin percentage will
be the same or could improve.
The number of pre-owned vehicles sold to dealers at auctions is determined based on a number of factors including:
(i) filling auction sales channel market demand opportunities to maximize sales and gross margin; (ii) a need to balance the
Company’s overall inventory mix and quantity levels against days to sales targets; and (iii) a need to liquidate those pre-
owned vehicles that do not meet the Company’s quality standards to be sold through Rumbleon.com.
Other Sales and Revenue
We generate other sales and revenue primarily through:
● Vehicle Financing. Customers can pay for their pre-owned vehicle using cash or we offer a range of finance
options through unrelated third-parties such as banks or credit unions. These third-party providers generally pay
us a fee either in a flat amount or in an amount equal to the difference between the interest rates charged to
customers over the predetermined interest rates set by the financial institution. We may be charged back for fees
in the event a contract is prepaid, defaulted upon, or terminated.
● Vehicle Service Contracts. At the time of pre-owned vehicle sale, we provide customers, on behalf of unrelated
third parties who are the primary obligors, a range of other related products and services, including EPP
products and vehicle appearance protection. EPP products include extended service plans (“ESPs”), which are
designed to cover unexpected expenses associated with mechanical breakdowns and guaranteed asset protection
(“GAP”), which is intended to cover the unpaid balance on a vehicle loan in the event of a total loss of the
vehicle or unrecovered theft. Vehicle appearance protection includes products aimed at maintaining vehicle
appearance. We receive commissions from the sale of these product and service contracts and have no
contractual liability to customers for claims under these products. The EPPs and vehicle appearance protection
currently offered to consumers provides coverage up to 60 months (subject to mileage limitations), while GAP
covers the customer for the term of their finance contract. At that time commission revenue will be recognized
at the time of sale, net of a reserve for estimated contract cancellations. The reserve for cancellations will be
estimated based upon historical industry experience and recent trends and will be reflected as a reduction of
Other sales revenue in the accompanying Consolidated Statements of Operations and a component of Accounts
payable and accrued liabilities in the accompanying Consolidated Balance Sheets. Our risk related to contract
cancellations is limited to the revenue that we receive.
● Retail Merchandise Sales. We sell branded and other merchandise and accessories at events.
22
Subscription and other fees
We generate subscription fees from regional partners under a license arrangement that provides access to our
software solution and ongoing support. Regional partners and other dealers pay a monthly subscription fee for access to and
ongoing support for portions of the RumbleOn software solution, which includes: (i) vehicle appraisal process; (ii) inventory
management system; (iii) customer relationship and lead management program; (iv) equity mining; (v) implementations and
(vi) training. Regional partners and dealers may also be charged an initial software installation and training fee. Regional
Partners and dealers do not have the contractual right to take possession of the software and may cancel the license for these
products and services by providing a 30-day notice. Installation and training do not have value to the user without the license
and ongoing support and maintenance.
Cost of Revenue
Cost of revenue is comprised of: (i) cost of pre-owned vehicle sales; (ii) cost of other sales and revenue products;
and (iii) costs of subscription and other fees.
Cost of vehicle sales to consumers and dealers includes the cost to acquire pre-owned vehicles and the
reconditioning and transportation costs associated with preparing these vehicles for resale. Vehicle acquisition costs are
driven by the mix of vehicles we acquire, the source of those vehicles and supply and demand dynamics in the vehicle
market. Reconditioning costs are billed by third-party providers and include parts, labor, and other repair expenses directly
attributable to specific pre-owned vehicles. Transportation costs consist of costs incurred to transport the vehicles from the
point of acquisition. Cost of pre-owned vehicle sales also includes any necessary adjustments to reflect vehicle inventory at
the lower of cost or net realizable value.
Cost of other sales and revenue products includes primarily the costs of (i) extended service protection; (ii) vehicle
appearance products; and (iii) guaranteed asset protection.
Cost of subscription fee revenue includes the (i) cost of various data feeds from third parties; (ii) costs for hosting of
the customer-facing website; (iii) commissions for new sales; and (iv) implementation and training costs for new and existing
dealers.
Vehicle Gross Margin
Gross margin is generated on pre-owned vehicle sales from the difference between the vehicle selling price and our
cost of sales associated with acquiring the vehicle and preparing it for sale. The aggregate dollar gross margins achieved from
the consumer and dealer sales channels are different. Pre-owned vehicles sold to consumers through our website generally
have the highest dollar gross margin since the vehicle is sold directly to the consumer. Pre-owned vehicles sold to dealers are
sold at a price below the retail price offered to consumers, thus the dealer and RumbleOn are sharing the gross margin.
Factors affecting gross margin from period to period include the mix of pre-owned vehicles we acquire and hold in inventory,
retail market prices, our average days to sale, and our pricing strategy. We may opportunistically choose to shift our
inventory mix to higher or lower cost vehicles, or to opportunistically raise or lower our prices relative to market to take
advantage of supply or demand imbalances in our sales channels, which could temporarily lead to average selling prices and
gross margins increasing or decreasing in any given channel. Additionally, the Company has shifted away from its initial
focus on solely acquiring and selling higher priced pre-owned Harley-Davidson motorcycles to acquiring a mix of both
Harley Davidson and lower priced pre-owned powersports vehicles that is a better representation of the overall powersport
market. Because of this change in mix our average selling price of pre-owned vehicles will decline from current levels;
however, we anticipate the decrease in average selling price to be offset, in part, by an increase in volume sales of metric
brands. We anticipate however that our gross margin percentage will be the same or could improve.
Selling, General and Administrative Expense
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising
and marketing, development and operating our product procurement and distribution system, managing our logistics system,
establishing our dealer partner arrangements, and other corporate overhead expenses, including expenses associated with
technology development, legal, accounting, finance, and business development. Selling, general and administrative expenses
also include the transportation cost associated with selling vehicles but excludes the cost of reconditioning, inspecting, and
auction fees which are included in Cost of revenue. Selling, general and administrative expenses will continue to increase
substantially in future periods as we execute and aggressively expand our business through increased marketing spending and
the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and
management controls as well as our reporting systems and procedures.
23
Depreciation and Amortization
Depreciation and amortization is comprised of the: (i) amortization of capitalized and acquired technology
development; and (ii) depreciation of vehicle, furniture and equipment. Depreciation and amortization will continue to
increase as continued investments are made in connection with the expansion and growth of the business.
Interest Expense
Interest expense includes interest incurred on notes payable and other long-term debt, which was used to fund,
startup costs and expenses, technology development, inventory, our transportation fleet, property and equipment and the
acquisition of NextGen.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United
States (“GAAP”) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and
expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and
accompanying notes. The Securities and Exchange Commission (the “SEC”) has defined a company’s critical accounting
policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations,
and which require the company to make its most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies
and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments,
and assumptions that are significant to understanding our results. For additional information, see Item 8 of Part II, Financial
Statements and Supplementary Data Note 1 “Description of Business and Significant Accounting Policies.” Although we
believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available.
Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Revenue Recognition
Revenue is derived from two primary sources: (1) the Company’s online marketplace, which is the largest source of
revenue and includes: (i) the sale of pre-owned vehicles through consumer and dealer sales channels; (ii) vehicle financing;
(iii) vehicle service contracts; (iv) retail merchandise sales; and (2) subscription and other fees relating to the RumbleOn
software solution, which includes: (i) a vehicle appraisal process; (ii) inventory management system; (iii) customer
relationship and lead management program; (iv) equity mining; (v) implementation: and (vi) training.
The Company recognizes revenue when all of the following conditions are satisfied: (i) there is persuasive evidence
of an arrangement; (ii) the product or service has been provided to the customer; (iii) the amount to be paid by the customer
is fixed or determinable; and (iv) the collection of the Company’s payment is probable.
The Company sells pre-owned vehicles to consumers and dealers primarily through our website or regional partners,
which include auctions. Revenue from pre-owned vehicle sales is recognized when the vehicle is delivered, a sales contract is
signed, and the purchase price has either been received or collectability has been established, net of a reserve for returns. Our
return policy allows customers to return their purchases within three days from delivery. Our reserve for sales returns is
estimated using historical experience and trends. The establishment of reserves for sales returns is dependent on a number of
variables. In future periods additional provisions may be necessary due to a variety of factors, including changing customer
return patterns due to the maturation of the online vehicle buying market, macro- and micro- economic factors that could
influence customer return behavior and future pricing environments. If these factors result in adjustments to sales returns,
they could significantly impact our future operating results.
Revenue for sales fees is recognized 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.
Vehicle finance fee revenue is recognized upon delivery of the vehicle to the customer, when the sales contract is
signed, and the financing has been arranged. The Company may be charged back for a fee in the event a contract is prepaid,
defaulted upon, or terminated. Our risk related to contract cancellations is limited to the commissions that we receive.
Cancellations will fluctuate depending on the customer financing default or prepayment rates and shifts in customer behavior.
To the extent that actual experience differs from historical trends, there could be adjustments to our finance contract
cancellation reserves.
Commission revenue on vehicle service contracts is recognized at the time of sale, net of a reserve for estimated
contract cancellations. The reserve for cancellations is estimated based on historical experience and recent trends. Our risk
24
related to contract cancellations is limited to the commissions that we receive. Cancellations will fluctuate depending on the
customer financing default or prepayment rates, and shifts in customer behavior, including those related to changes in the
coverage or term of the product. To the extent that actual experience differs from historical trends, there could be adjustments
to our contract cancellation reserves.
Subscription fees for access to the RumbleOn software solution are paid monthly and revenue recognition
commences when the installation of the software is complete, acceptance has occurred, and collectability of a determinable
amount is probable. Other fees are comprised of software installation and training. Revenue is recognized when installation
and training is complete, acceptance has occurred, and collectability of a determinable amount is probable.
Vehicle Inventory
Pre-owned vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of pre-owned vehicles
primarily acquired from consumers and includes the cost to acquire and recondition a pre-owned vehicle. Reconditioning
costs are billed by third-party providers and includes parts, labor, and other repair expenses directly attributable to a specific
vehicle. Transportation costs are expensed as incurred. Pre-owned inventory is stated at the lower of cost or net realizable
value. Vehicle inventory cost is determined by specific identification. Net realizable value is based on the estimated selling
price less costs to complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends,
such as sales price and inventory turn data of similar vehicles, as well as independent market resources. Each reporting
period, the Company recognizes any necessary adjustments to reflect pre-owned vehicle inventory at the lower of cost or net
realizable value, which is recognized in Cost of sales in our Consolidated Statements of Operations.
Purchase Accounting for Business Combinations
On February 8, 2017, the Company acquired substantially all of the assets of NextGen, which was accounted under
the purchase method of accounting for business combinations. Under the purchase method of accounting, the cost, including
transaction costs, of approximately $4,750,000 to acquire NextGen was preliminarily allocated to the underlying net assets,
based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net
assets acquired was recorded as goodwill. Consistent with accounting principles generally accepted in the U.S. at the time the
acquisition was consummated, the Company valued the purchase price to acquire NextGen based upon the fair value of the
consideration paid which included 1,523,809 shares of Class B Common Stock issued at a negotiated fair value.
The judgments made in determining the estimated fair value and expected useful lives assigned to each class of
assets and liabilities acquired can significantly impact net income (loss). For example, different classes of assets will have
useful lives that differ. Consequently, to the extent a longer-lived asset is ascribed greater value under the purchase method
than a shorter-lived asset there may be less amortization recorded in a given period.
Determining the fair value of certain assets and liabilities acquired requires significant judgment and often involves
the use of significant estimates and assumptions. As provided by the accounting rules, the Company used the one-year period
following the consummation of the acquisition to finalize the estimates of the fair value of assets and liabilities acquired. One
of the areas that requires more judgment in determining fair values and useful lives is intangible assets. To assist in this
process, the Company obtained an appraisal from an independent valuation firm for certain intangible assets. While there are
a number of different methods used in estimating the value of the intangibles acquired, there are two approaches primarily
used: discounted cash flow and market multiple approaches. Some of the more significant estimates and assumptions inherent
in the two approaches include: projected future cash flows (including timing); discount rate reflecting the risk inherent in the
future cash flows; perpetual growth rate; determination of appropriate market comparables; and the determination of whether
a premium or a discount should be applied to comparables. Most of these assumptions were based on available historical
information. As a result of this valuation during the fourth quarter of 2017, the Company finalized the preliminary purchase
price allocation recorded at the acquisition date and made a measurement period adjustment to the preliminary purchase price
allocation which included: (i) an increase to technology development of $1,500,000; (ii) a decrease in goodwill of
$1,390,000; (iii) a decrease to customer contracts of $10,000; and (iv) a decrease to non-compete agreements of $100,000.
The measurement period adjustment also resulted in a $166,250 net increase in accumulated amortization and amortization
expense previously recorded for the nine-months ended September 30, 2017. This measurement period adjustment has been
recorded in this Annual Report on Form 10-K and our Consolidated Financial Statements as if the measurement period
adjustment had been made on February 8, 2017, the date of the acquisition. The company made these measurement period
adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening
events subsequent to such date. See Item 8 of Part II, Financial Statements and Supplementary Data Note 2 “Acquisitions”
for additional discussion.
25
Goodwill
The Company tests goodwill for impairment annually, or more frequently if events or changes in circumstances
indicate that the asset may be impaired. Impairment testing for goodwill is done at the reporting unit level. A reporting unit is
an operating segment or one level below an operating segment (also known as a component). A component of an operating
segment is a reporting unit if the component constitutes a business for which discrete financial information is available, and
segment management regularly reviews the operating results of that component. The Company has concluded that currently it
has one reporting unit.
We performed our test for impairment at the end of the fourth quarter of 2017 using a two-step quantitative process.
Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair
value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit
and step two of the impairment test (measurement) must be performed. Step two of the impairment test, if necessary, requires
the estimation of the fair value for the assets and liabilities of a reporting unit in order to calculate the implied fair value of
the reporting unit’s goodwill. Under step two, an impairment loss is recognized to the extent the carrying amount of the
reporting unit’s goodwill exceeds the implied fair value of goodwill. The fair value of the reporting unit is determined by
management and includes the use of significant estimates and assumptions. Management utilized the income approach,
specifically the discounted cash flow technique as a means for estimating fair value. This discounted cash flow analysis
requires various assumptions including those about future cash flows, transactional and customer growth rates and discount
rates. Expected cash flows will be based on historical customer growth and the growth in transactions, including attrition,
future strategic initiatives and continued long-term growth of the business. The discount rates used for the analysis will
reflect a weighted average cost of capital based on industry and capital structure adjusted for equity risk and size risk
premiums. These estimates can be affected by factors such as customer and transaction growth, pricing, and economic
conditions that can be difficult to predict. There was no impairment of goodwill as of December 31, 2017.
Common Stock Warrants
The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in
Accounting Standards Codification (ASC) 815, Derivatives and Hedging – Contracts in Entity’s Own Equity, as either
derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Any warrants that
(i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or
settlement in its own shares (physical settlement or net-share settlement) provided that such warrants are indexed to the
Company’s own stock is classified as equity. The Company classifies as assets or liabilities any warrants that (i) require net-
cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the
Company’s control), (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or
net-share settlement) or (iii) that contain reset provisions that do not qualify for the scope exception. The Company assesses
classification of its common stock warrants at each reporting date to determine whether a change in classification between
assets and liabilities is required. The Company’s freestanding derivatives consisting of 218,250 warrants to purchase
common stock that were issued to underwriters in connection with the October 23, 2017 public offering of Class B common
stock satisfied the criteria for classification as equity instruments as these warrants do not contain cash settlement features or
variable settlement provision that cause them to not be indexed to the Company’s own common stock. We use the Black-
Scholes pricing model to value the derivative warrant as an equity instrument. The Black-Scholes pricing model, which is
based, in part, upon unobservable inputs for which there is little or no market data, which requires the Company to develop
its own assumptions for: (i) risk-free interest rate; (ii) volatility of the market price of the Company’s common stock; and
(iii) expected dividend yield. As a result, if factors change and different assumptions are used, the warrant equity value and
the change in estimated fair value could be materially different. Generally, as the market price of our common stock
increases, the fair value of the warrant increases, and conversely, as the market price of our common stock decreases, the fair
value of the warrant decreases. Also, a significant increase in the volatility of the market price of the Company’s common
stock, in isolation, would result in a significantly higher fair value measurement; and a significant decrease in volatility
would result in a significantly lower fair value measurement.
Stock Based Compensation
The Company is required to make estimates and assumptions related to our valuation and recording of stock-based
compensation expense under current accounting standards. These standards require all share-based compensation to
employees to be recognized in the statement of operations based on their respective grant date fair values over the requisite
service periods and also requires an estimation of forfeitures when calculating compensation expense.
On June 30, 2017, the Company’s shareholders approved a Stock Incentive Plan (the “Plan”) under which restricted
stock units (“RSUs”) and other equity awards may be granted to employees and non-employee members of the Board of
26
Directors. Twelve percent (12%) of the Company’s issued and outstanding shares of Class B Common Stock from time to
time are reserved for issuance under the Plan. The Company estimates the fair value of awards granted under the Plan on the
date of grant. The fair value of an RSU is based on the average of the high and low market prices of the Company’s Class B
Common Stock on the date of grant and is recognized as an expense on a straight-line basis over its vesting period. Stock
incentive plans requires judgment, including estimating the expected term the award will be outstanding, volatility of the
market price of the Company’s common stock and the amount of the awards that are expected to be forfeited. We have
estimated forfeitures based on historic employee behavior under similar stock-based compensation plans. The fair value of
stock-based compensation is affected by the assumptions selected. A significant increase in the market price of the
Company’s common stock, in isolation, would result in a significantly higher fair value measurement on future issuances;
and a significant decrease in would result in a significantly lower fair value measurement on future issuances. See Item 8 of
Part II, Financial Statements and Supplementary Data Note 1 “Description of Business and Significant Accounting Policies—
Stock-Based Compensation.”
Newly Issued Accounting Pronouncements
The Company has adopted Accounting Standards Update 2015-11 Inventory (Topic 330), Simplifying the
Measurement of Inventory, which requires inventory to be stated at the lower of cost or net realizable value. Vehicle
inventory cost is determined by specific identification. Net realizable value is the estimated selling price less costs to
complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and
inventory turn times of similar vehicles, as well as independent, market resources. Each reporting period the Company
recognizes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value through cost of
revenue in the accompanying Consolidated Statements of Operations.
In January 2017, the FASB issued new guidance, ASU No. 2017-4, Intangibles–Goodwill and Other (Topic 350):
Simplifying the test for Goodwill Impairment. This guidance simplifies subsequent goodwill measurement by eliminating
Step 2 from the goodwill impairment test. Under this update, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. The new standard is effective for
annual periods, and interim periods within those annual periods, beginning after December 15, 2019 with early adoption
permitted for annual goodwill impairment tests performed after January 1, 2017. The standard must be applied prospectively.
Upon adoption, the standard will impact how the Company assesses goodwill for impairment. The Company will adopt this
guidance for periods after January 1, 2018. The adoption of this guidance is not expected to have a significant impact on the
Company’s consolidated financial statements.
27
RESULTS OF OPERATIONS
The following table provides our results of operations for each of the years ended December 31, 2017 and 2016,
including key financial information relating to our business and operations. This financial information should be read in
conjunction with our audited Consolidated Financial Statements and Notes to Consolidated Financial Statements included in
Item 8 of Part II.
Revenue:
Pre-owned vehicle sales
Other sales and revenue
Subscription fees
Total revenue
Cost of revenue
Selling general and administrative
Depreciation and amortization
Total expenses
Operating loss
Interest expense
Net loss before provision for income taxes
Benefit for income taxes
Net Loss
2017
2016
$ 7,020,070 $
159,230
126,602
7,305,902
-
-
-
-
7,027,793
7,586,999
668,467
15,283,259
-
211,493
1,900
213,393
(7,977,357 )
(213,393 )
595,966
11,698
(8,573,323 )
(225,091 )
-
513
$ (8,573,323 ) $ (224,578 )
Comparison of the years ended December 31, 2017 to December 31, 2016
Revenue
Total revenue increased $7,305,902 for the year ended December 31, 2017 as compared to the same period in
2016. The increase in revenue was driven by the initial launch of our e-commerce platform, including the launch of the
RumbleOn website, expanded inventory selection, enhanced social media advertising, aggressive event marketing efforts,
increased brand awareness and customer referrals. We anticipate that pre-owned vehicle sales will continue to grow as we
increase our available online pre-owned vehicle inventory while continuing to efficiently source and scale our addressable
markets of consumers and dealers through brand building and direct response marketing.
Sales of pre-owned vehicles to consumers and dealers through our online marketplace increased $7,020,070 for the
year ended December 31, 2017 as compared to the same period in 2016. This increase was driven by the sale of 678 pre-
owned vehicles to consumers and dealer during the year ended December 31, 2017. The average selling price of the pre-
owned vehicles sold for the year ended December 31, 2017 was $10,363. The average selling price of pre-owned vehicles
sold will fluctuate from period to period as a result of changes in the sales mix to consumers and dealers in any given period.
The Company continues to transition from its initial focus on solely acquiring and selling higher priced Harley-Davidson
motorcycles to acquiring a mix of both Harley Davidson and lower priced powersports vehicles that is a better representation
of the overall powersport market. Because of this change in mix our average selling price will decline from current levels;
however, we anticipate the decrease in average selling price to be offset, in part, by an increase in volume sales of metric
brands. We anticipate however that our gross margin percentage will be the same or could improve from current levels. There
were no sales of pre-owned vehicles to consumers or dealers for the year ended December 31, 2016.
Other sales and revenue increased $159,230 for the year ended December 31, 2017 as compared to the same period
in 2016. This increase was primarily driven by the increase in pre-owned vehicles sold to consumers which led to an increase
in loans originated and sold, vehicle service contracts and retail merchandise sales. There were no loans originated and sold,
vehicle service contracts or retail merchandise sales for the year ended December 31, 2016.
28
Subscription and other fees
Subscription and other fee revenue increased $126,602 for the year ended December 31, 2017 as compared to the
same period in 2016. This increase was comprised of subscription and onboarding fees generated by dealers utilizing our
software. There were no Subscription or other fee revenue for the year ended December 31, 2016.
Expenses
Cost of Revenue
Total cost of revenue increased $7,027,793 for the year ended December 31, 2017 as compared to the same period in
2016. This increase was driven by the: (i) sale of pre-owned vehicles to consumers and dealers; (ii) sale of related products
from the pre-owned vehicle sales to consumer; and (iii) costs and expenses associated with the subscription and onboarding
fee revenue generated from dealers during the year ended December 31, 2017. There were no sales of pre-owned vehicles,
subscription or other fee revenue for the year ended December 31, 2016.
Cost of pre-owned vehicle sales increased $6,840,841 for the year ended December 31, 2017 as compared to the
same period in 2016. This increase was driven by the sale of 678 pre-owned vehicles to consumers and dealers during the
year ended December 31, 2017. The average cost of the pre-owned vehicles sold for the year ended December 31, 2017 was
$9,730 excluding auction fees, transportation and reconditioning cost. There were no sales of pre-owned vehicles to
consumers or dealers for the year ended December 31, 2016.
Cost of other sales and revenue increased $79,029 for the year ended December 31, 2017 as compared to the same
period in 2016. This increase was primarily driven by the increase in pre-owned vehicle sold to consumers which led to an
increase in loans originated and sold, vehicle service contracts and retail merchandise sales. There were no loans originated
and sold, vehicle service contracts or retail merchandise sales for the year ended December 31, 2016.
Cost of subscription and other fee revenue increased $107,923 for the year ended December 31, 2017 as compared
to the same period in 2016. Costs and expenses related to subscription and other fee revenue included: (i) various data feeds
from third parties; (ii) hosting of the customer facing website; (iii) commissions for new sales; and (iv) implementation and
training of new and existing dealers. There were no cost and expenses related to subscription or other fee revenue for the year
ended December 31, 2016.
Selling, general and administrative
Selling general and administrative:
Compensation and related costs
Advertising and marketing
Professional fees
Technology development
General and administrative
2017
2016
-
$ 3,111,363 $
-
1,731,028
153,668
890,580
-
452,957
1,401,071
57,825
$ 7,586,999 $ 211,493
Selling, general and administrative expenses increased $7,375,506 for the year ended December 31, 2017 as
compared to the same period in 2016. The increase is a result of the initial launch of our e-commerce platform, including the
launch of our website and mobile application which resulted in: (i) an increase in expenses associated with advertising and
marketing; (ii) increase headcount associated with the development and operating our product procurement and distribution
system, managing our logistics system; (iii) continued investment in technology development; (iv) transportation cost
associated with selling vehicles; and (v) other corporate overhead costs and expenses, included legal, accounting, finance and
business development.
Compensation and related costs increased $3,111,363 for the year ended December 31, 2017 as compared to the
same period in 2016. The increase was driven by the growth in headcount at our Dallas, Texas operations center and
Charlotte, North Carolina corporate office and included payroll related cost and expenses, benefits and stock-based
compensation related to new hires in our marketing, product and inventory management, accounting, finance, information
technology, and administration departments. As our business continues to grow these expenses will increase as we add
headcount in all areas of the business.
29
Advertising and marketing increased $1,731,028 for the year ended December 31, 2017 as compared to the same
period of 2016. The increase was from the costs associated with the launch of our website and mobile application, aggressive
event marketing and development of a multi-channel approach to consumers and dealers. We began to utilize a combination
of brand building and direct response channels to efficiently source and scale our addressable markets. Our paid advertising
efforts included advertisements through search engine marketing, social media, inventory site listing, retargeting, organic
referral, display, direct mail and branded pay-per-click channels. We believe our strong consumer and dealer focus ensures
loyalty which will drive both high participation in the buy and selling process while increasing referrals. In addition to our
paid channels, in future periods we intend to attract new customers through increased media spending and public relations
efforts and further invest in our proprietary technology platform.
Professional fees increased $736,912 for the year ended December 31, 2017 as compared to the same period in
2016. This increase was primarily a result of legal, accounting and other professional fees and expenses incurred in
connection with the: (i) NextGen Acquisition; (ii) 2017 Private Placement; (iii) second tranche of 2016 Private Placement;
(iv) Senior Secured Promissory Notes (defined below); (v) the 2017 Public Offering; (vi) Nasdaq listing; and (vii) various
corporate matters resulting from the growth and expansion of the RumbleOn business plan. See Item 8 of Part II, Financial
Statements and Supplementary Data Note 2 “Acquisitions,” Note 5—”Notes Payable”, and Note 6—”Stockholders’ Equity”
for additional discussion.
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 development expenses increased
$452,957 for the year ended December 31, 2017 as compared to the same period in 2016. Total technology costs and
expenses incurred for the year ended December 31, 2017 were $959,743 of which $506,786 was capitalized. For the year
ended December 31, 2017, a third-party contractor billed $914,099 of the total technology development costs. The
amortization of capitalized technology development costs for the year ended December 31, 2017 was $588,519, which
included $125,000 of amortization resulting from the increase in capitalized technology development costs associated with a
measurement period adjustment for the NextGen Acquisition that was recorded in the 4th quarter as if the measurement
period adjustment had been made on February 8, 2017, the date of the acquisition. There were no technology development
costs incurred and no amortization of capitalized development costs for the period end December 31, 2016. We expect our
technology development expenses to increase as we continue to upgrade and enhance our technology infrastructure, invest in
our products, expand the functionality of our platform and provide new product offerings. We also expect technology
development expenses to continue to be affected by variations in the amount of capitalized internally developed technology.
General and administrative expenses increased $1,343,246 for the year ended December 31, 2017 as compared to
the same period in 2016. The increase is a result of the cost and expenses associated with the continued progress made in the
development of our business, the establishment of our Dallas operations center and meeting the requirements of being a
public company. General and administrative costs and expenses included: (i) insurance; (ii) advisor and various filing fees for
financing transactions; (iii) office supplies and process application software; (iv) public and investor relations;
(v) transportation cost associated with selling vehicles; and (vi) travel.
Depreciation and Amortization
Depreciation and amortization increased $666,567 for the year ended December 31, 2017 as compared to the same
period in 2016 and was comprised of the: (i) amortization of capitalized technology development and (ii) depreciation of
vehicle, furniture and equipment. The increase in depreciation and amortization is a result of the investments made in
connection with the expansion and growth of the business which for the year ended December 31, 2017 included:
(i) capitalized technology acquisition and development costs of $506,786; and (ii) the purchase of vehicles, furniture and
equipment of $622,513. For the year ended December 31, 2017, amortization of capitalized technology development was
$588,519 which included $166,250 of additional amortization resulting from the December 31, 2017 measurement period
adjustment. Depreciation and amortization on vehicle, furniture and equipment was $78,048. Depreciation and amortization
on furniture and equipment for the same periods in 2016 was $1,900. There was no amortization of capitalized technology
development costs for the year ended December 31, 2016. See Item 8 of Part II, Financial Statements and Supplementary
Data—Note 2—”Acquisitions” for additional discussion.
Interest Expense
Interest expense increased $584,268 for the year ended December 31, 2017 as compared to the same period in 2016.
The increase in interest expense resulted from: (i) interest on a higher level of debt outstanding; (ii) the conversion of the
BHLP Note; (iii) the amortization of the beneficial conversion feature on the Private Placement Notes; and (iv) the
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amortization of the original issue discount on the Senior Secured Promissory Notes. The conversion of the BHLP Note
resulted in a $196,076 charge to interest expense for the remaining balance of the beneficial conversion feature, net of
deferred taxes and is included in interest expense for the year ended December 31, 2017. Interest expense on the Private
Placement Notes for the year ended December 31, 2017 was $158,740 which included $126,076 of debt discount. Interest
expense on the NextGen Notes for the year ended December 31, 2017 was $76,457. Interest expense on the Senior Secured
Promissory Notes for the year ended December 31, 2017 was $161,075 which included $150,000 of original issue discount
amortization. Interest expense for the year ended December 31, 2016 was $11,698 and was attributed to the Convertible Note
Payable-Related party. See Item 8 of Part II, Financial Statements and Supplementary Data—Note 5—”Notes Payable” for
additional discussion.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the year ended December 31, 2017 and 2016:
Net cash (used in) provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase in cash
Operating Activities
2017
2016
(19,976 )
$ (9,623,493 ) $
(1,879,298 )
(45,515 )
19,322,863 1,412,358
$ 7,820,072 $ 1,346,867
Net cash used in operating activities increased $9,603,517 to $9,623,493 for the for the year ended December
31, 2017, as compared to same period in 2016. The increase in net cash used is primarily due to a $8,348,745 increase in our
net loss offset by an increase in the net change operating assets and liabilities of $2,894,953 and a $1,640,181 increase in
non-cash expense items. The increase in the net loss for the for the year ended December 31, 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, acquisition of vehicle inventory, continue
development of the Company’s business and for working capital purposes.
Investing Activities
Net cash used in investing activities increased $1,833,783 to $1,879,298 for the year ended December 31, 2017 as
compared with 2016. The increase in cash used for investment activities was primarily for the purchase of NextGen,
$506,786 in costs incurred for technology development and the purchase of $622,514 of vehicles, furniture and equipment.
On February 8, 2017, the Company acquired substantially all of the assets of NextGen in exchange for $750,000 in
cash, plus 1,523,809 unregistered shares of Class B Common Stock of the Company and a subordinated secured promissory
note issued by the Company in favor of NextGen in the amount of $1,333,334 (the “NextGen Note”). The NextGen Note
matures on the third anniversary of the closing date (the “Maturity Date”). Interest accrues and will be paid semi-annually
(i) at a rate of 6.5% annually from the closing date through the second anniversary of such date and (ii) at a rate of 8.5%
annually from the second anniversary of the closing date through the Maturity Date. In connection with the closing of the
NextGen Acquisition, certain investors of the Company accelerated the funding of the second tranche of their investment
totaling $1,350,000. The investors were issued 1,161,920 shares of Class B Common Stock and promissory notes in the
amount of $667,000. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” “Financing Activities” and Item 8 of Part II, Financial Statements and Supplementary Data—Note 5—”Notes
Payable” for additional discussions.
Financing Activities
Year Ended December 31, 2017
Net cash provided by financing activities increased $17,910,505 to $19,322,863 for the year ended December 31,
2017 as compared to the same period in 2016. This increase is primarily a result of the: (i) 2017 Private Placement of Class B
Common Stock at a price of $4.00 per share with proceeds of $2,630,000; (ii) second tranche of the 2016 Private Placement
of Class B Common Stock with proceeds of $683,040 and $667,000 in promissory notes; (iii) Senior Secured Promissory
Notes proceeds of $1,500,000 (iv) the 2017 Public Offering of 2,910,000 Class B Common Stock at a price of $5.50 with
proceeds of approximately $14.5 million, and (v) Line of credit-floor plan advances of $1,081,593. The proceeds from the
2017 Private Placement, the second tranche of the 2016 Private Placement, the Senior Secured Promissory Notes, 2017
31
Public Offering and Line of credit-floor plan were used to complete the launch of the Company’s website,
www.rumbleon.com, acquire vehicle inventory, technology development, continue development of the Company’s business
and for working capital purposes.
On February 8, 2017, in connection with the NextGen Acquisition, the Company issued the NextGen Note. Interest
accrues and will be paid semi-annually (i) at a rate of 6.5% annually from the closing date through the second anniversary of
such date and (ii) at a rate of 8.5% annually from the second anniversary of the closing date through the Maturity Date. Upon
the occurrence of any event of default, the outstanding balance under the NextGen Note shall become immediately due and
payable upon election of the holder. The Company’s obligations under the NextGen Note are secured by substantially all the
assets of NextGen Pro, pursuant to an Unconditional Guaranty Agreement (the “Guaranty Agreement”), by and among
NextGen and NextGen Pro, and a related Security Agreement between the parties, each dated as of February 8, 2017. Under
the terms of the Guaranty Agreement, NextGen Pro has agreed to guarantee the performance of all the Company’s
obligations under the NextGen Note. Interest expense on the NextGen Notes for the year ended December 31, 2017 was
$76,457. See Item 8 of Part II, Financial Statements and Supplementary Data—Note 5—”Notes Payable” for additional
discussion.
On March 31, 2017, the Company completed funding of the second tranche of the 2016 Private Placement (as
defined below). The investors were issued 1,161,920 shares of Class B Common Stock of the Company and promissory notes
(the “Private Placement Notes”) in the amount of $667,000, in consideration of cancellation of loan agreements having an
aggregate principal amount committed by the purchasers of $1,350,000. Under the terms of the Private Placement Notes,
interest shall accrue on the outstanding and unpaid principal amounts until paid in full. The Private Placement Notes mature
on March 31, 2020. Interest accrues at a rate of 6.5% annually from the closing date through the second anniversary of such
date and at a rate of 8.5% annually from the second anniversary of the closing date through the maturity date. Upon the
occurrence of any event of default, the outstanding balance under the Private Placement Notes shall become immediately due
and payable upon election of the holders. Based on the relative fair values attributed to the Class B Common Stock and
promissory notes issued in the 2016 Private Placement, the Company recorded a debt discount on the promissory notes of
$667,000 with the corresponding amounts as addition to paid in capital. The debt discount is amortized to interest expense
until the scheduled maturity of the Private Placement Notes in March 2020 using the effective interest method. The effective
interest rate at December 31, 2017 was 26.0%. Interest expense on the Private Placement Notes for the year ended December
31, 2017 was $158,740, which included debt discount amortization of $126,076 for the year ended December 31, 2017. See
Item 8 of Part II, “Financial Statements and Supplementary Data—Note 5—Notes Payable” for additional discussion.
On March 31, 2017, the Company completed the sale of 620,000 shares of Class B Common Stock, par value
$0.001, at a price of $4.00 per share for aggregate proceeds of $2,480,000 in the private placement (the “2017 Private
Placement”). Officers and directors of the Company acquired 175,000 shares of Class B Common Stock in the 2017 Private
Placement. In May 2017, the Company completed the sale of an additional 37,500 shares of Class B Common Stock in the
2017 Private Placement. Proceeds from the 2017 Private Placement were used to complete the launch of the Company’s
website, www.rumbleon.com, acquire vehicle inventory, continue development of the Company’s platform, and for working
capital purposes. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 6—Stockholders’ Equity” for
additional discussion.
On September 5, 2017 the Company executed Senior Secured Promissory Notes (the “Senior Secured Promissory
Notes”) in favor of several investors, including certain executive officers and directors of the Company, in the aggregate
principal amount of $1,650,000 (“Principal Amount”), which includes an aggregate original issue discount of $150,000. The
proceeds to the Company from the Senior Secured Promissory Notes, net of original issuance discount, was $1,500,000. The
Senior Secured Promissory Notes were secured by an interest in all the Company’s Collateral, as such term was defined in
the Senior Secured Promissory Notes. The Senior Secured Promissory Notes maturity was September 15, 2018 and borer
interest at a rate equal to 5% per annum through December 31, 2017, and a rate of 10% per annum thereafter. Interest was
payable monthly in arrears. Upon the occurrence of any event of default, the outstanding balance under the Senior Secured
Promissory Notes would become immediately due and payable upon election of the holders. The Principal Amount and any
unpaid interest accrued thereon could be prepaid by the Company at any time prior to the Maturity Date without premium or
penalty upon five days prior written notice to the Noteholder. If the Company consummated in one or more transactions
financing of any nature resulting in net proceeds available to the Company of $5,000,000 or more, then the Noteholders could
require the Company to prepay the Senior Secured Promissory Notes on thirty (30) days prior written notice to the
Company. The original issue discount was amortized to interest expense through repayment of the Senior Secured
Promissory Notes using the effective interest method. On October 23, 2017, the Company completed the 2017 Public
Offering and used approximately $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 interest of $11,075, which resulted in the
termination of the Senior Secured Promissory Notes.
32
On October 23, 2017, the Company completed the 2017 Public Offering of 2,910,000 shares of the Company’s
Class B Common Stock at a price of $5.50 per share for net proceeds to the Company of approximately $14.5 million. In
connection with the 2017 Public Offering, on October 19, 2017, the Class B Common Stock uplisted from the OTCQB and
began trading on The NASDAQ Capital Market under the symbol “RMBL”. The Company used $1,661,075 of the net
proceeds of the 2017 Public Offering for the repayment of the Senior Secured Promissory Notes. See Item 8 of Part II,
“Financial Statements and Supplementary Data—Note 6—Stockholders’ Equity” for a further discussion.
On November 2, 2017, the Company, through its wholly-owned subsidiary RMBL Missouri, LLC (the “Borrower”),
entered into a floor plan line of credit (the “Credit Line”) with NextGear Capital, Inc. (“NextGear”) in the amount of
$2,000,000, or such lesser sum which may be advanced to or on behalf of the Borrower from time to time, pursuant to that
certain Demand Promissory Note and Loan and Security Agreement. As of November 2, 2017, the effective rate of interest
was 6.5%. Advances and interest under the Credit Line are due and payable upon demand, but, in general, in no event later
than 150 days from the date of request for the advance (or the date of purchase in the case of a universal funding agreement)
or of the receivable, as applicable. The Credit Line is secured by a grant of a security interest in the vehicle inventory and
other assets of the Borrower and payment is guaranteed by the Company pursuant to a guaranty in favor of NextGear and its
affiliates. On February 20, 2018, the Company notified NextGear that it was terminating the Credit Line, and all security or
other credit documents entered into in connection therewith. At the time of the notification, there was no indebtedness
outstanding under the Credit Line.
Year Ended December 31, 2016
On July 13, 2016, the Company entered into an unsecured convertible note (the “BHLP Note”) with Berrard
Holdings, an entity owned and controlled by a current officer and director, Mr. Berrard, pursuant to which the Company was
required to repay $191,858 on or before July 13, 2026 plus interest at 6% 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 which 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, 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 share for the BHLP Note of $0.75 per share, resulting in 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 discount 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 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 Consolidated Statements of Operations and the related deferred tax liability was credited to Additional
paid in capital in the Consolidated Balance Sheets. See Item 8 of Part II, “Financial Statements and Supplementary Data—
Note 5—Notes Payable” for additional discussion.
On November 28, 2016, the Company completed a private placement with certain purchasers, with respect to the
sale of an aggregate of 900,000 shares of common stock of the Company at a purchase price of $1.50 per share for total
consideration of $1,350,000 (the “2016 Private Placement”). In connection with the 2016 Private Placement, the Company
also entered into loan agreements, pursuant to which the purchasers would loan to the Company their pro rata share of up to
$1,350,000 in the aggregate upon the request of the Company at any time on or after January 31, 2017 and before November
1, 2020. On March 31, 2017, the Company completed the second tranche of the 2016 Private Placement. See Item 8 of Part
II, “Financial Statements and Supplementary Data—Note 5—Notes Payable” for additional discussion.”
Investment in Growth
At December 31, 2017, our principal sources of liquidity were cash and cash equivalents totaling $9,170,652. Since
inception, our operations have been financed primarily by net proceeds from the sales of shares of our Class B common stock
and proceeds from the issuance of indebtedness. We have incurred cumulative losses of $9,019,300 from our operations
through December 31, 2017 and expect to incur additional losses in the future. We believe that our existing sources of
liquidity will be sufficient to fund our operations for at least the next 12 months. However, 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
33
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 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 that are early in their development, particularly companies in new and rapidly evolving markets. Such risks for us
include an evolving business model, advancement of technology and the management of growth. To address these risks, we
must, among other things, continue our development of relevant applications, stay abreast of changes in the marketplace, as
well as implement and successfully execute our business and marketing strategy. There can be no assurance that we will be
successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects,
financial condition and results of operations.
Also, on February 16, 2018, the Company, through Borrower, entered into an Inventory Financing and Security
Agreement (the “Credit Facility”) with Ally Bank, a Utah chartered state bank (“Ally Bank”) and Ally Financial, Inc., a
Delaware corporation (“Ally” together with Ally Bank, the “Lender”), pursuant to which the Lender may provide up to $25
million in financing, or such lesser sum which may be advanced to or on behalf of the Borrower from time to time, as part of
its floorplan vehicle financing program. Advances under the Credit Facility require the Company maintain 10.0% of the
advance amount as restricted cash. Advances under the Credit Facility will bear interest at a per annum rate designated from
time to time by the Lender and will be determined using a 365/360 simple interest method of calculation, unless expressly
prohibited by law. Advances under the Credit Facility, if not demanded earlier, are due and payable for each vehicle financed
under the Credit Facility as and when such vehicle is sold, leased, consigned, gifted, exchanged, transferred, or otherwise
disposed of. Interest under the Credit Facility is due and payable upon demand, but, in general, in no event later than 60 days
from the date of request for payment. Upon any event of default (including, without limitation, the Borrower’s obligation to
pay upon demand any outstanding liabilities of the Credit Facility), the Lender may, at its option and without notice to the
Borrower, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to
Lender and its affiliates by the Borrower and its affiliates. The Credit Facility is secured by a grant of a security interest in
the vehicle inventory and other assets of the Borrower and payment is guaranteed by the Company pursuant to a guaranty in
favor of the Lender, and secured by the Company pursuant to a General Security Agreement.
Off-Balance Sheet Arrangements
As of September 30, 2017, we did not have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources that is material to investors.
Emerging Growth Company
We are an “emerging growth company” under the federal securities laws 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. We are
choosing not to take advantage of the extended transition period for complying with new or revised accounting standards.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements and involves risks and uncertainties that
could materially affect expected results of operations, liquidity, cash flows, and business prospects. These statements include,
among other things, statements that:
● We have a limited operating history and we cannot assure you we will achieve or maintain profitability;
● Our annual and quarterly operating results may fluctuate significantly or may fall below the expectations of
investors or securities analysts, each of which may cause our stock price to fluctuate or decline;
● The initial development and progress of our business to date may not be indicative of our future growth
prospects and, if we continue to grow rapidly, we may not be able to manage our growth effectively;
34
● We may require additional capital to pursue our business objectives and respond to business opportunities,
challenges or unforeseen circumstances. If capital is not available on terms acceptable to us or at all, we may
not be able to develop and grow our business as anticipated and our business, operating results and financial
condition may be harmed;
● The success of our business relies heavily on our marketing and branding efforts, especially with respect to the
RumbleOn website and our branded mobile applications, and these efforts may not be successful;
● The failure to develop and maintain our brand could harm our ability to grow unique visitor traffic and to
expand our dealer network;
● We rely on Internet search engines and social media to drive traffic to our website, and if we fail to appear
prominently in the search results, our traffic would decline, and our business would be adversely affected;
● A significant disruption in service on our website or of our mobile applications could damage our reputation
and result in a loss of consumers, which could harm our business, brand, operating results, and financial
condition;
● We may be unable to maintain or grow relationships with information data providers or may experience
interruptions in the data feeds they provide, which may limit the information that we are able to provide to our
users and dealers as well as adversely affect the timeliness of such information and may impair our ability to
attract or retain consumers and our dealers and to timely invoice all parties;
●
●
If key industry participants, including powersports and recreation vehicle dealers and regional auctions,
perceive us in a negative light or our relationships with them suffer harm, our ability to operate and grow our
business and our financial performance may be damaged;
If we are unable to provide a compelling recreation vehicle buying experience to our users, the number of
transactions between our users, RumbleOn and dealers will decline, and our revenue and results of operations
will suffer harm;
● The growth of our business relies significantly on our ability to increase the number of dealers and regional
auctions in our network such that we are able to increase the number of transactions between our users, dealers
and auctions. Failure to do so would limit our growth;
● Our ability to grow our complementary product offerings may be limited, which could negatively impact our
development, growth, revenue and financial performance;
● We rely on third-party financing providers to finance a significant portion of our customers’ vehicle purchases;
● Our sales of powersports/recreational vehicles may be adversely impacted by increased supply of and/or
declining prices for pre-owned powersports and recreational vehicles and excess supply of new powersports and
recreational vehicles;
● We rely on a number of third parties to perform certain operating and administrative functions for the
Company;
● We participate in a highly competitive market, and pressure from existing and new companies may adversely
affect our business and operating results;
● Seasonality or weather trends may cause fluctuations in our unique visitors, revenue and operating results;
● We collect, process, store, share, disclose and use personal information and other data, and our actual or
perceived failure to protect such information and data could damage our reputation and brand and harm our
business and operating results;
● Failure to adequately protect our intellectual property could harm our business and operating results;
● We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our
business and operating results;
35
● Results of operations from quarter to quarter may be volatile as a result of the impact of fluctuations in the fair
value of our outstanding warrants;
● We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate
qualified personnel, our ability to develop and successfully grow our business could be harmed;
● We may acquire other companies or technologies, which could divert our management’s attention, result in
additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results;
● The trading price for our Class B Common Stock may be volatile and could be subject to wide fluctuations in
per share price;
● Our principal stockholders and management own a significant percentage of our stock and an even greater
percentage of the Company’s voting power and will be able to exert significant control over matters subject to
stockholder approval;
●
If securities or industry analysts do not publish research or reports about our business, or if they issue an
adverse or misleading opinion regarding our stock, our stock price and trading volume could decline;
● Because our Class B Common Stock may be deemed a low-priced “penny” stock, an investment in our Class B
Common Stock should be considered high risk and subject to marketability restrictions;
● A significant portion of our total outstanding shares of Class B Common Stock is restricted from immediate
resale but may be sold into the market in the near future. This could cause the market price of our Class B
Common Stock to drop significantly, even if our business is doing well;
● We do not currently or for the foreseeable future intend to pay dividends on our common stock;
● We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced
disclosure requirements applicable to emerging growth companies will make our common stock less attractive
to investors;
● Even if we no longer qualify as an “emerging growth company”, we may still be subject to reduced reporting
requirements so long as we are considered a “smaller reporting company”;
●
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to
accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our
financial and other public reporting, which would harm our business and the trading price of our common stock;
● Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price
to decline;
● other risks and uncertainties detailed in this report;
as well as other statements regarding our future operations, financial condition and prospects, and business strategies.
Forward-looking statements may appear throughout this report, including without limitation, the following sections: Item 1
“Business,” Item 1A “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar
expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks
and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this
Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those
discussed in other documents we file with the Securities and Exchange Commission (SEC). We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given
these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This item in not applicable as we are currently considered a smaller reporting company.
Item 8.
Financial Statements and Supplementary Data.
See Index to Financial Statements and Financial Statement Schedules beginning on page F-1 of this Form 10-K.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Principal Executive Officer and Principal Financial Officer, Marshall Chesrown and Steven R. Berrard, have
evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act)
as of the end of the period covered by this Report. Based on their evaluation, Messrs. Chesrown and Berrard concluded that
our disclosure controls and procedures are designed at a reasonable assurance level and were effective as of the end of the
period covered by this Report to provide reasonable assurance that information we are required to disclose in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our
chief executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control, as is defined in the
Exchange Act. These internal controls are designed to provide reasonable assurance that the reported financial information is
presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are
reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of
human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not
absolute, assurance with respect to reporting financial information.
Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records
that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are
recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles
and the receipts and expenditures of company assets are made and in accordance with our management and directors
authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition,
use or disposition of assets that could have a material effect on our financial statements.
Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based
on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, management concluded that
our internal control over financial reporting was effective as of December 31, 2017.
This annual report does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm
pursuant to the temporary rules of the Securities and Exchange Commission that permit the company to provide only the
management’s report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal
quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
37
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
PART III
Below are the names of and certain information regarding our executive officers and directors:
Name
Marshall Chesrown
Steven R. Berrard
Denmar Dixon
Kartik Kakarala
Mitch Pierce
Kevin Westfall
Richard A. Gray, Jr.
Age
60
63
55
40
60
62
70
Position
Chief Executive Officer and Chairman
Chief Financial Officer and Director
Director
Director
Director
Director
Director
Marshall Chesrown has served as our Chief Executive Officer and Chairman since October 24, 2016. Mr.
Chesrown has over 35 years of leadership experience in the automotive retail sector. From December 2014 to September
2016, Mr. Chesrown served as Chief Operating Officer and as a director of Vroom.com, an online direct car retailer
(“Vroom”). Mr. Chesrown served as Chief Operating Officer of AutoAmerica, an automotive retail company, from May
2013 to November 2014. Previously, Mr. Chesrown served as the President of Chesrown Automotive Group from January
1985 to May 2013, which was acquired by AutoNation, Inc., a leading automotive retail company, in 1997. Mr. Chesrown
served as Senior Vice President of Retail Operations for AutoNation from 1997 to 1999. From 1999 to 2013, Mr. Chesrown
served as the Chairman and Chief Executive Officer of Blackrock Development, a real estate development company widely
known for development of the nationally recognized Golf Club at Black Rock. Mr. Chesrown filed for personal bankruptcy in
May 2013, which petition was discharged in January 2017.
We believe that Mr. Chesrown possesses attributes that qualify him to serve as a member of our Board, including his
extensive experience in the automotive retail sector.
Steven R. Berrard has served as our Chief Financial Officer since January 9, 2017 and served as Interim Chief
Financial Officer from July 13, 2016 through January 9, 2017 and as Chief Executive Officer from July 13, 2016 through
October 24, 2016. Mr. Berrard served as Secretary from July 13, 2016 through June 30, 2017 and has served on our Board
since July 13, 2016. Mr. Berrard served as a director of Walter Investment Management Corp. (“Walter Investment”) from
2010 until May 2017. Mr. Berrard served on the Board of Directors of Swisher Hygiene Inc., a publicly traded industry
leader in hygiene solutions and products, from 2004 until May 2014. Mr. Berrard is the Managing Partner of New River
Capital Partners, a private equity fund he co-founded in 1997. Mr. Berrard was the co-founder and Co-Chief Executive
Officer of AutoNation from 1996 to 1999. Prior to joining AutoNation, Mr. Berrard served as President and Chief Executive
Officer of the Blockbuster Entertainment Group, at the time the world’s largest video store operator. Mr. Berrard served as
President of Huizenga Holdings, Inc., a real estate management and development company, and served in various positions
with subsidiaries of Huizenga Holdings, Inc. from 1981 to 1987. Mr. Berrard was employed by Coopers & Lybrand (now
PricewaterhouseCoopers LLP (“PwC”)) from 1976 to 1981. Mr. Berrard currently serves on the Board of Directors of Pivotal
Fitness, Inc., a chain of fitness centers operating in a number of markets in the United States. He has previously served on the
Boards of Directors of Jamba, Inc., (2005 – 2009), Viacom, Inc., (1987 – 1996), Birmingham Steel (1999 – 2002),
HealthSouth (2004 – 2006), and Boca Resorts, Inc. (1996 – 2004). Mr. Berrard earned his B.S. in Accounting from Florida
Atlantic University.
We believe that Mr. Berrard’s management experience and financial expertise is beneficial in guiding our strategic
direction. He has served in senior management and/or on the Board of several prominent, publicly traded companies. In
several instances, he has led significant growth of the businesses he has managed. In addition, Mr. Berrard has served as the
Chairman of the audit committee of several boards of directors.
Denmar Dixon has served on our Board since January 9, 2017. Mr. Dixon served as a director of Walter Investment
from April 2009 (and for its predecessor since December 2008) until June 2016. Effective October 2015, Mr. Dixon was
appointed Chief Executive Officer and President of Walter Investment and served until his resignation effective June 2016.
Mr. Dixon previously served as Vice Chairman of the Board of Directors and Executive Vice President of Walter Investment
since January 2010 and Chief Investment Officer of Walter Investment since August 2013. Before becoming an executive
officer of Walter Investment, Mr. Dixon also served as a member of Walter Investment’s Audit Committee and Nominating
and Corporate Governance Committee and as Chairman of the Compensation and Human Resources Committee. Before
38
serving on the Board of Walter Investment, Mr. Dixon was elected to the board of managers of JWH Holding Company,
LLC, a wholly-owned subsidiary of Walter Industries, Inc., in anticipation of the spin-off of Walter Investment Management,
LLC from Walter Industries, Inc. (now known as Walter Energy, Inc.). In 2008, Mr. Dixon founded Blue Flame Capital,
LLC, a consulting, financial advisory and investment firm. Before forming Blue Flame, Mr. Dixon spent 23 years with Banc
of America Securities, LLC and its predecessors. At the time of his retirement, Mr. Dixon was a Managing Director in the
Corporate and Investment Banking group and held the position of Global Head of the Basic Industries Group of Banc of
America Securities.
We believe that Mr. Dixon possesses attributes that qualify him to serve as a member of our Board, including his
extensive business development, mergers and acquisitions and capital markets/investment banking experience within the
financial services industry. As a director, he provides significant input into, and is actively involved in, leading our business
activities and strategic planning efforts. Mr. Dixon has significant experience in the general industrial, consumer and business
services industries.
Kartik Kakarala was appointed to our Board immediately following the completion of the NextGen Acquisition in
February 2017. Mr. Kakarala is the Chief Executive Officer of Halcyon Technologies, a global software solutions company.
He is responsible for sales, business development and innovation, as well as the creation of technology assets. He has been
responsible for the growth of a number of strategic, horizontal competencies, and vertical business units like automotive,
utilities, finance and healthcare practices. Mr. Kakarala served as the Chief Executive Officer and President of NextGen from
January 2016 to February 2017, which was acquired by us in February 2017, providing inventory management solutions to
the power sports, recreational vehicle and marine sectors in North America. He served as Chief Executive Officer and
President of NextGenAuto from July 2013 to December 2015. Mr. Kakarala served as Co-Founder and Managing Partner of
Red Bumper from July 2010 to August 2014, a company which provided used car inventory management solutions used by
thousands of automotive dealers across North America and which was later acquired by ADP in 2014. Mr. Kakarala served
as Director/Co-Founder of GridFirst solutions since 2012, a company providing home automation solutions to energy
customers. Mr. Kakarala holds a Master’s degree in Computer Science from University of Houston.
We believe that Mr. Kakarala possesses attributes that qualify him to serve as a member of our Board, as he is
regarded as a pioneer in developing several systems in the automotive industry including CRM, ERP, inventory management
and financial applications.
Mitch Pierce has served on our Board since January 9, 2017. Mr. Pierce has over 35 years of leadership experience
in the automotive retail sector. Mr. Pierce served as the President of Tempe Toyota Group from January 1985 to June 1997,
which was acquired by AutoNation in 1997. Mr. Pierce served as a Regional Vice President of Retail Operations for
AutoNation from 1997 to 2003. Mr. Pierce currently owns one of the five largest Toyota stores in United States and is a
partner in six other major auto dealerships. Mr. Pierce is a board member of the Southern California Toyota Dealers. He
served on the National Dealer Council for Toyota Dealers in 1996-97. He is Past Chairman of the Arizona Automobile
Dealer Association.
We believe that Mr. Pierce possesses attributes that qualify him to serve as a member of our Board, including his
more than 30 years of executive experience in the automotive retail sector and broad base of business knowledge and
experience.
Kevin Westfall has served on our Board since January 9, 2017. Mr. Westfall was a co-founder and served as Chief
Executive Officer of Vroom from January 2012 through November 2015. Previously, from March 1997 through November
2011, Mr. Westfall served as Senior Vice President of Sales and Senior Vice President of Automotive Finance at AutoNation.
Mr. Westfall was a founder of BMW Financial Services in 1990 and served as its President until March 1997. Mr. Westfall
also served as Retail Lease Manager of Chrysler Credit Corporation from 1987 until 1990 and as President of World
Automotive Imports and Leasing from 1980 until 1987.
We believe that Mr. Westfall possesses attributes that qualify him to serve as a member of our Board, including his
more than 30 years of executive experience in automotive retail and finance operations.
Richard A. Gray, Jr., has served on our Board since October 1, 2017. Mr. Gray has served as President of Gray &
Co. Realtors, Inc., a licensed real estate service provider he founded, since 1987. Gray & Co. Realtors has been involved in
the development, liquidation, the joint venture, and management of commercial real estate, representing both U.S. investors
and foreign investors, and since 1998, has also been involved in raising venture capital for startup and additional round
funding for public companies in the technology sector. Before Gray & Co. Realtors, he served as a broker at Wiggins Gray
Interests, a company focused on development of retail and office properties in Dallas Fort Worth Metroplex, as well as office,
industrial, land and retail brokerage from 1985 to 1987. Before Wiggins Gray Interests, he served at Hudson & Hudson
39
Realtors from 1973 to 1985, Murray Investment Company from 1971 to 1973, and Borden Chemical Company from 1969 to
1971. Mr. Gray has also served as a director of the Cystic Fibrosis Foundation, Migra Tech, and Equitable Bank. Mr. Gray
received his BBA from Texas Tech University.
We believe that Mr. Gray possesses attributes that qualify him to serve as a member of our Board, including his
extensive experience in funding technology sector public companies.
Corporate Governance Principles and Code of Ethics
Our Board is committed to sound corporate governance principles and practices. Our Board’s core principles of
corporate governance are set forth in our Corporate Governance Principles, which were adopted by our Board in May 2017.
In order to clearly set forth our commitment to conduct our operations in accordance with our high standards of business
ethics and applicable laws and regulations, our Board also adopted a Code of Business Conduct and Ethics, which is
applicable to all directors, officers and employees. A copy of the Code of Business Conduct and Ethics and the Corporate
Governance Principles are available on our corporate website at www.rumbleon.com. You also may obtain without charge a
printed copy of the Code of Ethics and Corporate Governance Principles by sending a written request to: Investor Relations,
RumbleOn, Inc., 4521 Sharon Road, Suite 370, Charlotte, North Carolina 28211. Amendments or waivers of the Code of
Business Conduct and Ethics will be provided on our website within four business days following the date of the amendment
or waiver.
Board of Directors and Committees
The business and affairs of our company are managed by or under the direction of the Board. The Board is
composed of seven members. The Board has not appointed a lead independent director; instead the presiding director for each
executive session is rotated among the Chairs of the committees of our Board.
Pursuant to our bylaws, our Board may establish one or more committees of the Board however designated, and
delegate to any such committee the full power of the Board, to the fullest extent permitted by law.
Our Board has established three separately designated standing committees to assist the Board in discharging its
responsibilities: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance
Committee. The charters for our Board committees set forth the scope of the responsibilities of that committee. The Board
will assess the effectiveness and contribution of each committee on an annual basis. The charters for our Board committees
were adopted by the Board in May 2017. These charters are available at www.rumbleon.com, and you may obtain a printed
copy of any of these charters by sending a written request to: Investor Relations, RumbleOn, Inc.
Audit Committee. The Board, by unanimous consent, established an Audit Committee in January 2017. Effective
October 1, 2017, the members of this committee are Messrs. Dixon (chair), Westfall, and Gray. The Board has determined
that Mr. Dixon is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K and is the Chairman of the
Audit Committee.
The primary function of the Audit Committee is to assist the Board in fulfilling its responsibilities by overseeing our
accounting and financial processes and the audits of our financial statements. The independent auditor is ultimately
accountable to the Audit Committee, as representatives of the stockholders. The Audit Committee has the ultimate authority
and direct responsibility for the selection, appointment, compensation, retention and oversight of the work of our independent
auditor that is engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest
services for us (including the resolution of disagreements between management and the independent auditors regarding
financial reporting), and the independent auditor must report directly to the Audit Committee. The Audit Committee also is
responsible for the review of proposed transactions between us and related parties. For a complete description of the Audit
Committee’s responsibilities, you should refer to the Audit Committee Charter.
Compensation Committee. In January 2017, the Board, by unanimous consent, established a Compensation
Committee. Effective October 1, 2017, the members of the Compensation Committee are Messrs. Westfall (chair), Dixon,
and Pierce. The Compensation Committee was established to, among other things, administer and approve all elements of
compensation and awards for our executive officers. The Compensation Committee has the responsibility to review and
approve the business goals and objectives relevant to each executive officer’s compensation, evaluate individual performance
of each executive in light of those goals and objectives, and determine and approve each executive’s compensation based on
this evaluation. For a complete description of the Compensation Committee’s responsibilities, you should refer to the
Compensation Committee Charter.
40
Nominating and Corporate Governance Committee. In January 2017, the Board, by unanimous consent, established
a Nominating and Corporate Governance Committee. Effective October 1, 2017, the current members of the Nominating and
Corporate Governance Committee are Messrs. Pierce (chair), Gray, and Dixon. The Nominating Committee is responsible for
identifying individuals qualified to become members of the Board or any committee thereof; recommending nominees for
election as directors at each annual stockholder meeting; recommending candidates to fill any vacancies on the Board or any
committee thereof; and overseeing the evaluation of the Board. For a complete description of the Nominating and Corporate
Governance Committee’s responsibilities, you should refer to the Nominating and Corporate Governance Committee Charter.
The Nominating and Corporate Governance Committee will consider all qualified director candidates identified by
various sources, including members of the Board, management and stockholders. Candidates for directors recommended by
stockholders will be given the same consideration as those identified from other sources. The Nominating and Corporate
Governance Committee is responsible for reviewing each candidate’s biographical information, meeting with each candidate
and assessing each candidate’s independence, skills and expertise based on a number of factors. While we do not have a
formal policy on diversity, when considering the selection of director nominees, the Nominating and Corporate Governance
Committee considers individuals with diverse backgrounds, viewpoints, accomplishments, cultural background and
professional expertise, among other factors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our directors, executive officers and persons who beneficially own
10% or more of our stock file with the Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of our stock and our other equity securities. To our knowledge, based solely on a review of the copies
of such reports furnished to us and written representations that no other reports were required, during the year ended
December 31, 2017, our directors, executive officers and greater than 10% beneficial owners complied with all such
applicable filing requirements, except (i) each of Messrs. Pierce and Gray untimely filed a Form 3 (ii) Mr. Kakarala untimely
filed a Form 4 reporting one transaction, and (iii) each of Messrs. Dixon, Pierce, Westfall and Gray untimely reported one
transaction, which transactions were reported on Form 5s.
Item 11.
Executive Compensation.
Executive and Director Compensation
Summary Compensation
No compensation was earned or paid to our executive officers during the two years ended December 31, 2017.
Executive Employment Arrangements
Marshall Chesrown
We have not entered into an employment agreement or arrangement with Mr. Chesrown. Accordingly, he is
employed as our Chief Executive Officer on an at-will basis. Mr. Chesrown currently receives an annual salary of $250,000.
Mr. Chesrown is eligible for equity compensation under our equity compensation plans, as determined from time to
time by the compensation committee of our Board, however through the date of this filing, no grants of equity awards have
been made to Mr. Chesrown.
Steven Berrard
We have not entered into an employment agreement or arrangement with Mr. Berrard. Accordingly, he is employed
as our Chief Financial Officer on an at-will basis. Mr. Berrard currently receives an annual salary of $250,000.
Mr. Berrard is eligible for equity compensation under our equity compensation plans, as determined from time to
time by the compensation committee of our Board, however through the date of this filing, no grants of equity awards have
been made to Mr. Berrard.
Non-Employee Director Compensation
We have not yet established a policy for non-employee director compensation. As of December 31, 2017, no
compensation had been paid to our non-employee directors, except (i) consulting fees paid to our director Kartik Kakarala
under the terms of a consulting agreement with us, which we further describe under “Certain Relationships and Related Party
41
Transactions - Consulting Agreement” and (ii) an award of 35,000 restricted stock units under the RumbleOn, Inc. 2017
Stock Incentive Plan (the “Incentive Plan”) to Messrs. Dixon, Pierce, Westfall and Gray.
The following table summarizes the compensation paid to our non-employee directors for the year ended December
31, 2017.
Fees Earned
or Paid in
Cash
Stock
All Other
Name
Denmar Dixon
Kartik Kakarala
Mitch Pierce
Kevin Westfall
Richard A. Gray, Jr.
____________
(1) Represents restricted stock units granted under the Incentive Plan. Represents the aggregate grant date fair value
Awards (1)(2)
- $ 122,500 $
- $
- $
- $ 122,500 $
- $ 122,500 $
- $ 188,300 $
Compensation
40,000 $
- $ 122,500
40,000 (3)
- $ 122,500
- $ 122,500
- $ 188,300
Total
computed in accordance with FASB ASC Topic 718. In determining the grant date fair value, we used $3.50 per share
except for Mr. Gray for which we used $5.38 per share. The restricted stock units vest over a three-year period utilizing
the following vesting schedule: (i) 20% on the first anniversary of the grant date; (ii) 30% on the second anniversary of
the grant date; and (iii) 50% on the third anniversary of the grant date.
(2) As of December 31, 2017, each of Messrs. Dixon, Pierce, Westfall and Gray held 35,000 restricted stock units.
(3) Represents consulting fees paid to Mr. Kakarala pursuant to the consulting agreement. For additional information
regarding these consulting fees, see Certain Relationships and Related Transactions - Consulting Agreement below.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners and Management
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. In accordance with the SEC rules, shares of our common stock that may be
acquired upon exercise or vesting of equity awards within 60 days of the date of the table below are deemed beneficially
owned by the holders of such options and are deemed outstanding for the purpose of computing the percentage of ownership
of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other
person.
As of February 23, 2018, 1,000,000 shares of Class A Common Stock and 11,928,541 shares of Class B Common
Stock were issued and outstanding. The following table sets forth information with respect to the beneficial ownership of our
common stock as of February 23, 2018, by (i) each of our directors and executive officers, (ii) all of our directors and
executive officers as a group, and (iii) each stockholder known by us to be the beneficial owner of more than 5% of our
common stock. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole
voting and investment power with respect to the shares of common stock beneficially owned by such person, except to the
extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting
trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge by any person
of our securities or any of our parents, the operation of which may at a subsequent date result in a change in control of our
company.
42
Unless otherwise noted below, the address of each person listed on the table is c/o RumbleOn, Inc., 4521 Sharon
Road, Suite 370, Charlotte, NC 28211.
No. of
Shares of
Class A
Common
Stock
Owned
Percentage
of Class A
Ownership
(1)(2)
No. of
Shares of
Class B
Common
Stock
Owned
Percentage
of Class B
Ownership
(1)(3)
87.5 % 1,739,656
12.5 % 1,970,000
Name and Address of Beneficial Owner
Named Executive Officers and Directors:
Marshall Chesrown(4)
Steven R. Berrard(5)
Denmar Dixon(6)
Kartik Kakarala(7)
Mitch Pierce(8)
Kevin Westfall
Richard A. Gray
All directors and executive officers as a group(7) persons(9)
5% Stockholders:
Ralph Wegis(10)
Halcyon Consulting, LLC(7)
____________
*Represents beneficial ownership of less than 1%.
(1) Calculated in accordance with applicable rules of the SEC.
(2) Based on 1,000,000 shares of Class A Common Stock issued and outstanding as of February 21, 2018. The Class A
875,000
125,000
-
-
-
-
-
1,000,000
- 1,024,179 (11)
- 1,523,809
-
-
-
- 891,537
- 1,523,809
44,500 (11)
19,500 (11)
25,000
14.6 %
16.5 %
8.6 %
12.8 %
*
*
*
53.2 %
100.0 % 6,346,644
-
-
7.5 %
12.8 %
Common Stock has ten votes for each share outstanding compared to one vote for each share of Class B Common
Stock outstanding. As of February 23, 2018, the holders of the Class A Common Stock have in aggregate, including
shares of Class B Common Stock held by them, voting power representing 62.5% of our outstanding common stock on
a fully diluted basis.
(3) Based on 11,928,541 shares of Class B Common Stock issued and outstanding as of February 23, 2018.
(4) As of February 23, 2018, Mr. Chesrown had voting power representing approximately 47.8% of our outstanding
(5)
(6)
(7)
common stock on a fully diluted basis.
Shares are owned directly through Berrard Holdings, a limited partnership controlled by Steven R. Berrard. Mr.
Berrard has the sole power to vote and the sole power to dispose of each of the shares of common stock which he may
be deemed to beneficially own. As of February 23, 2018, Mr. Berrard had voting power representing approximately
14.7% of our outstanding common stock on a fully diluted basis.
982,179 shares are owned directly through Blue Flame Capital, LLC, an entity controlled by Mr. Dixon, 6,900 shares
are held by Mr. Dixon’s spouse, 100 shares are held by Mr. Dixon’s son and 28,000 shares are directly held by Mr.
Dixon. Mr. Dixon has the sole power to vote and the sole power to dispose of each of the shares of common stock
which he may be deemed to beneficially own. As of February 23, 2018, Mr. Dixon had voting power representing
approximately 4.4% of our outstanding common stock on a fully diluted basis.
Shares are owned indirectly through Halcyon Consulting, LLC, a limited liability company owned by Kartik Kakarala
and his brother, Srinivas Kakarala. Kartik Kakarala has shared power to vote and shared power to dispose of such
shares of common stock with his brother. As of February 23, 2018, Mr. Kakarala had voting power representing
approximately 6.9% of our outstanding common stock on a fully diluted basis.
37,500 shares are held through Pierce Family Trust.
(8)
(9) As of February 23, 2018, all directors and executive officers as a group had voting power representing approximately
74.5% of our outstanding common stock on a fully diluted basis.
(10) As of February 23 2018, Mr. Wegis had voting power representing approximately 4.1% of our outstanding common
stock on a fully diluted basis.
Includes 7,000 restricted stock units that vest on March 31, 2018.
(11)
Securities Authorized for Issuance Under Equity Compensation Plans
On January 9, 2017, our Board approved the adoption of the Incentive Plan, subject to stockholder approval at our
2017 Annual Meeting of Stockholders. On June 30, 2017, the Incentive Plan was approved by our stockholders at the 2017
Annual Meeting of Stockholders. The purposes of the Incentive Plan are to attract, retain, reward and motivate talented,
43
motivated and loyal employees and other service providers, or the Eligible Individuals, by providing them with an
opportunity to acquire or increase a proprietary interest in our company and to incentivize them to expend maximum effort
for the growth and success of our company, so as to strengthen the mutuality of the interests between such persons and our
stockholders. The Incentive Plan allows us to grant a variety of stock-based and cash-based awards to Eligible Individuals.
Twelve percent of our issued and outstanding shares of Class B Common Stock from time to time are reserved for issuance
under the Incentive Plan. As of December 31, 2017, 11,928,541 shares of our Class B Common Stock were issued and
outstanding, resulting in up to 1,431,424 shares of our Class B Common Stock available for issuance under the Incentive
Plan. We have not maintained any other equity compensation plans since our inception.
The following table provides information as of December 31, 2017, with respect to all of our compensation plans
under which equity securities are authorized for issuance:
Number of
securities
to be issued
upon
exercise
of
outstanding
options,
warrants
and rights
Weighted
average
exercise price
of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available
for future
issuance
741,000 (1) $
-
4.14 690,424 (2)
-
-
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
____________
(1) Represents restricted stock units outstanding under the Incentive Plan.
(2) Represents securities remaining available for future issuance under the Incentive Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
We have been a party to the following transactions since January 1, 2016, in which the amount involved exceeds
$120,000 and in which any director, executive officer, or holder of more than 5% of any class of our voting stock, or any
member of the immediate family of or entities affiliated with any of them, had or will have a material interest.
Related Party Loans Before Change in Control
As of December 31, 2015, we 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 Pamela Elliot, a former officer and director of our company. All convertible notes and
related party notes outstanding, including interest, of $175,909 as of July 13, 2016 were paid in full in July 2016 in
connection with the change in control.
2016 Financing
On July 13, 2016, Berrard Holdings acquired 5,475,000 shares of our common stock from our former sole director
and executive officer. The shares acquired by Berrard Holdings represented 99.5% of our issued and outstanding common
stock. The aggregate purchase price for the shares was $148,141.75, which Berrard Holdings paid from cash on hand. In
addition, at the closing, Berrard Holdings loaned us, and we and issued to Berrard Holdings the BHLP Note, pursuant to
which we were required to repay $191,858 on or before July 13, 2026 plus interest at 6% per annum. The BHLP Note was
convertible into common stock at any time before maturity at the greater of $0.06 per share or 50% of the price per share of
the next “qualified financing,” which was defined as an offering resulting in net proceeds to us of $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
us. On November 28, 2016, we completed a qualified financing at $1.50 per share, which established the conversion price per
share for the BHLP Note of $0.75 per share. On March 31, 2017, we issued 275,312 shares of common stock upon
conversion of the BHLP Note, which on such date had an aggregate principal amount, including accrued interest, of
$206,484. In connection with the conversion of the BHLP Note, the remaining debt discount of $196,076 was charged to
interest expense in the Consolidated Statements of Operations and the related deferred tax liability was credited to Additional
paid in capital in the Consolidated Balance Sheets.
44
November 2016 Private Placement
On November 28, 2016, we completed the 2016 Private Placement of an aggregate of 900,000 shares of common
stock at a purchase price of $1.50 per share for total consideration of $1,350,000. In connection with the 2016 Private
Placement, the Company also entered into loan agreements with the investors pursuant to which the investors would loan the
Company their pro rata share of up to $1,350,000 in the aggregate upon our request any time on or after January 31, 2017 and
before November 1, 2020, pursuant to the terms of a convertible promissory note attached to the loan agreements.
In connection with the 2016 Private Placement, Blue Flame, an entity controlled by Denmar Dixon, one of the
Company’s directors, paid $250,000 for 166,667 shares of the Company’s Class B Common Stock. Also, in connection with
the private placement, Ralph Wegis, a holder of more than 5% of our common stock, paid $799,999.50 for 533,333 shares of
the Company’s Class B Common Stock.
On March 31, 2017, we completed funding of the second tranche of the 2016 Private Placement, pursuant to which
the investors each received their pro rata share of (1) 1,161,920 shares of common stock and (2) the Private Placement Notes,
in consideration of cancellation of loan agreements having an aggregate principal amount committed by the purchasers of
$1,350,000. The Private Placement Note was not convertible. As a result, Blue Flame received 645,512 shares of Class B
Common Stock and a promissory note in the principal amount of $370,556, and Mr. Wegis received 258,204 shares of Class
B Common Stock, and a promissory note in the principal amount of $148,222. As of December 31, 2017, the amount
outstanding on the promissory notes, including accrued interest was $388,703 and $155,481 for Blue Flame and Mr. Wegis,
respectively. Interest expense on the promissory notes for the year ended December 31, 2017 was $88,189 and $35,276
which included debt discount amortization of $70,042 and $28,017 for Blue Flame and Mr. Wegis, respectively. The interest
was charged to interest expense in the Consolidated Statements of Operations and included in accrued interest under long-
term liabilities in the Consolidated Balance Sheets.
Test Dealer
A key component of the Company’s business model is to utilize regional partners in the acquisition of pre-owned
vehicles as well as utilize these regional partners to provide inspection, reconditioning and distribution services.
Correspondingly, the Company will earn fees and transaction income, and the regional partner may earn incremental revenue
and enhance profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs.
In connection with the development of the regional partner program, the Company tested various aspects of the program by
utilizing a dealership to which Mr. Chesrown, the Company’s Chief Executive Officer has provided financing in the form of
a $400,000 convertible promissory note (the “Dealer”). The note matures on May 1, 2019, interest is payable monthly at 5%
per annum and can be converted into a 25% ownership interest in the Dealer at any time. Revenue recognized by the
Company from the Dealer for the year ended December 31, 2017 was $1,618,958 or 22.1% of total revenue.
In addition, the Company presently subleases warehouse space from the Dealer that is separate and distinct from the
location of the dealership, on the same terms as paid by the Dealer. This subleased facility serves as the northwestern regional
distribution center for the Company. Included in accounts payable at December 31, 2017 is $30,000 for rent owed to the
Dealer.
Consulting Agreement
In connection with the NextGen Acquisition, on February 8, 2017, we entered into a Consulting Agreement with
Kartik Kakarala, who formerly served as the Chief Executive Officer of NextGen and now serves as a director on our Board.
Under the Consulting Agreement, Mr. Kakarala serves as our consultant. The Consulting Agreement may be cancelled by
either party, effective upon delivery of a written notice to the other party. Mr. Kakarala’s compensation pursuant to the
Consulting Agreement is $5,000 per month. During the year ended December 31, 2017, we paid a total of $40,000 under the
Consulting Agreement.
Services Agreement
In connection with the NextGen Acquisition, on February 8, 2017, we entered into a Services Agreement with
Halcyon, to provide development and support services to us. Mr. Kakarala currently serves as the Chief Executive Officer of
Halcyon. Pursuant to the Services Agreement, we pay Halcyon hourly fees for specific services, set forth in the Services
Agreement, and such fees may increase on an annual basis, provided that the rates may not be higher than 110% of the
immediately preceding year’s rates. We reimburse Halcyon for any reasonable travel and pre-approved out-of-pocket
expenses incurred in connection with its services to us. During the year ended December 31, 2017, we paid a total of
45
$914,099 under the Services Agreement. For information relating to the NextGen Acquisition and Halcyon and payments
made to Halcyon, see Business - Corporate History.
March 2017 Private Placement
On March 31, 2017, we completed the 2017 Private Placement of 620,000 shares of our Class B Common Stock at a
price of $4.00 per share for aggregate proceeds of $2.48 million. We sold an additional 37,500 shares in connection with the
2017 Private Placement on April 30, 2017. Our officers and directors acquired 175,000 shares of Class B Common Stock in
the 2017 Private Placement as follows: Mr. Chesrown – 62,500 shares, Mr. Berrard (through Berrard Holdings) – 62,500
shares, Mr. Pierce (through Pierce Family Trust) – 37,500 shares, and Mr. Westfall – 12,500 shares.
2017 Bridge Note Financing
On September 5, 2017, the Company executed $1,650,000 (“Principal Amount”) of Senior Secured Promissory
Notes (the “Notes”) in favor of several investors, including certain executive officers and directors of the Company. The
Notes included an aggregate of $150,000 in original issue discount. Officers and directors held $1,214,144 of the Notes. 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. Officers and directors received in the aggregate principal amount of $1,218,122, plus accrued
interest of $4,144. For the year ended December 31, 2017 interest on the officer and director Notes was $118,121, including
$110,000 of debt discount amortization and is included in interest expense in the Consolidated Statements of Operations.
The following executive officers and directors participated in the Bridge Note financing in the principal amounts set
forth below:
Position
Name
Steven R. Berrard (1)
Denmar Dixon (2)
Kartik Kakarla
Mitch Pierce (3)
_____________
(1) Through Berrard Holdings and through his spouse.
(2) Through Blue Flame Capital, LLC.
(3) Through Pierce Family Trust.
CFO and Director
Director
Director
Director
Related Party Transaction Policy
Principal
Amount
Original
Issue
Discount
$ 275,000 $
$ 275,000 $
$ 137,500 $
$ 275,000 $
25,000
25,000
12,500
25,000
In May 2017, our Board adopted a formal policy that our executive officers, directors, holders of more than 5% of
any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the
foregoing persons, are not permitted to enter into a related party transaction with us without the prior consent of the Audit
Committee, or other independent members of our Board if it is inappropriate for the Audit Committee to review such
transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director,
principal stockholder, or any of their immediate family members or affiliates, in which the amount involved exceeds
$120,000 must first be presented to the Audit Committee for review, consideration and approval. In approving or rejecting
any such proposal, the Audit Committee is to consider the relevant facts and circumstances available and deemed relevant to
the audit committee, including, whether the transaction is on terms no less favorable than terms generally available to an
unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.
Except for the Bridge Note financing, the related party transactions described above were entered into prior to the adoption of
this policy.
Director Independence
Our Board has determined that all of our directors, other than Messrs. Chesrown, Berrard, and Kakarala, qualify as
“independent” directors in accordance with the listing requirements of The NASDAQ Stock Market. The NASDAQ
independence definition includes a series of objective tests regarding a director’s independence and requires that the Board
make an affirmative determination that a director has no relationship with us that would interfere with such director’s
exercise of independent judgment in carrying out the responsibilities of a director. There are no family relationships among
any of our directors or executive officers.
46
Item 14.
Principal Accounting Fees and Services.
Scharf Pera & Co., PLLC (“Scharf Pera”) has served as the Company’s independent registered public accounting
firm since December 2016, and audited the financial statements of the Company for the years ended December 31, 2016 and
2017.
The following table sets forth Scharf Pera’s fees for the years ended December 31, 2016 and 2017.
2017
2016
Audit Fees (1)
Audit-Related Fees
Tax Fees
All Other Fees (3)
Total
_____________
(1) Audit fees consist of fees paid to Scharf Pera during 2017 for the (i) audit of the Company’s year ended December 31,
2017 and 2016 (ii) review of the Company’s unaudited 2017 Quarterly financial statements. Scharf Pera billed no fees
during the year ended December 31, 2016.
63,635 $
-
-
20,032
83,667 $
-
-
-
12,273
12,273 (2)
$
$
(2) During the year ended December 31, 2016, Seale & Beers billed the Company an aggregate of $12,273 in audit fees.
(3) All other fees consist of fees billed in 2017 for review of Registration Statements.
Policy for Approval of Audit and Permitted Non-Audit Services
The Audit Committee has adopted a policy and related procedures requiring its pre-approval of all audit and non-
audit services to be rendered by its independent registered public accounting firm. These policies and procedures are intended
to ensure that the provision of such services do not impair the independent registered public accounting firm’s independence.
These services may include audit services, audit related services, tax services and other services. The policy provides for the
annual establishment of fee limits for various types of audit services, audit related services, tax services and other services,
within which the services are deemed to be pre-approved by the Audit Committee. The independent registered public
accounting firm is required to provide to the Audit Committee back up information with respect to the performance of such
services.
All services provided by Scharf Pera during the fiscal years ended December 31, 2017 and 2016 were approved by
the Audit Committee. The Audit Committee has delegated to its Chair the authority to pre-approve services, up to a specified
fee limit, to be rendered by the independent registered public accounting firm and requires that the Chair report to the Audit
Committee any pre-approved decisions made by the Chair at the next scheduled meeting of the Audit Committee.
47
Item 15.
Exhibits, Financial Statement Schedules.
PART IV
(a) We have filed the following documents as part of this Annual Report on Form 10-K:
1.
2.
3.
The financial statements listed in the “Index to Financial Statements” on page F-1 are filed as part of this report.
Financial statement schedules are omitted because they are not applicable, or the required information is shown in
the financial statements or notes thereto.
Exhibits included or incorporated herein: See below.
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Description
Asset Purchase Agreement, dated as of January 8, 2017 (Incorporated by reference to Exhibit 2.1 in the
Company’s Current Report on Form 8-K, filed on January 9, 2017).
Assignment of Asset Purchase Agreement, dated as of January 31, 2017 (Incorporated by reference to Exhibit
2.2 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Articles of Incorporation filed on October 24, 2013 (Incorporated by reference to Exhibit 3(i)(a) in the
Company’s Registration Statement on Form S-1/A, filed on March 20, 2014).
By-Laws, as Amended (Incorporated by reference to Exhibit 3.2 in the Company’s Annual Report on Form 10-
K, filed on February 14, 2017).
Certificate of Amendment to Articles of Incorporation, filed on February 13, 2017 (Incorporated by reference to
Exhibit 3.3 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Amended and Restated Stockholders Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit
10.1 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Registration Rights Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.2 in the
Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Stockholder’s Agreement, dated October 24, 2016 (Incorporated by reference to Exhibit 10.1 in the Company’s
Current Report on Form 8-K, filed on October 28, 2016).
Sample Stock Certificate – Class B Common Stock (Incorporated by reference to Exhibit 4.4 in the Company’s
Registration Statement on Form S-1/A filed on September 27, 2017).
Form of Warrant to Purchase Class B Common Stock, dated October 18, 2017 (Incorporated by reference to
Exhibit 4.1 in the Company’s Current Report on Form 8-K, filed October 24, 2017).
Consulting Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.3 in the Company’s
Annual Report on Form 10-K, filed on February 14, 2017).
Services Agreement, dated February 8, 2017 (Portions of this Exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for Confidential treatment) (Incorporated
by reference to Exhibit 10.4 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Data Confidentiality Agreement, dated February 8, 2017 (Portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.)
(Incorporated by reference to Exhibit 10.5 in the Company’s Annual Report on Form 10-K, filed on February
14, 2017).
2017 RumbleOn, Inc. Stock Incentive Plan + (Incorporated by reference to Exhibit 10.1 in the Company’s
Current Report on Form 8-K, filed on January 9, 2017).
Form of Loan Agreement (Incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form
8-K, filed on December 21, 2016).
Smart Server, Inc. Form of Promissory Note (Incorporated by reference to Exhibit 10.2 in the Company’s
Current Report on Form 8-K, filed on December 21, 2016).
Promissory Note, dated July 13, 2016 (Incorporated by reference to Exhibit 10.1 in the Company’s Current
Report on Form 8-K, filed on July 19, 2016).
48
Exhibit
Number
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Description
Amendment to Promissory Note, dated August 31, 2016 (Incorporated by reference to Exhibit 10.11 in the
Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Unconditional Guaranty Agreement (Incorporated by reference to Exhibit 10.12 in the Company’s Annual
Report on Form 10-K, filed on February 14, 2017).
Security Agreement (Incorporated by reference to Exhibit 10.13 the Company’s Annual Report on Form 10-K,
filed on February 14, 2017).
NextGen Promissory Note, dated February 8, 2017 (Incorporated by reference to Exhibit 10.1 in the
Company’s Quarterly Report on Form 10-Q, filed on May 15, 2017).
RumbleOn, Inc. Form of Promissory Note (Incorporated by reference to Exhibit 10.1 in the Company’s Current
Report on Form 8-K, filed on April 5, 2017).
Amendment to Amended and Restated Stockholders’ Agreement of RumbleOn, Inc., dated September 29, 2017
(Incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K, filed on October 5,
2017).
Form of Senior Secured Promissory Note, dated September 5, 2017 (Incorporated by reference to Exhibit 10.1
in the Company’s Current Report on Form 8-K, filed on September 11, 2017).
Demand Promissory Note and Loan and Security Agreement, in favor of NextGear Capital, Inc., dated
November 2, 2017 (Incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K,
filed November 8, 2017).
10.16
21.1
23.1
31.1
31.2
32.1*
32.2*
101.INS
101.SCG
101.CAL
101.DEF
101.LAB
101.PRE
Corporate Guaranty, in favor of NextGear Capital, Inc., dated November 2, 2017. (Included in Exhibit 10.15)
Subsidiaries
Consent of Scharf Pera & Co., PLLC.
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
XBRL Instance Document.
XBRL Taxonomy Extension Schema.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
*
+
Furnished herewith
Management Compensatory Plan
Item 16.
Form 10-K Summary.
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The
Company has elected not to include such summary information.
49
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2018
RumbleOn, Inc.
By: /s/ Marshall Chesrown
Marshall Chesrown
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Marshall Chesrown
Marshall Chesrown
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
February 27, 2018
/s/ Steven R. Berrard
Steven R. Berrard
Director and Chief Financial Officer
(Principal Financial Officer and Principal Accounting
February 27, 2018
/s/ Denmar Dixon
Denmar Dixon
/s/ Richard A. Gray, Jr.
Richard A. Gray, Jr.
/s/ Kartik Kakarala
Kartik Kakarala
/s/ Mitch Pierce
Mitch Pierce
/s/ Keven Wetfall
Kevin Westfall
Officer)
Director
Director
Director
Director
Director
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
50
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
RumbleOn, Inc. Consolidated Balance Sheets as of December 31, 2017 and 2016
RumbleOn, Inc. Consolidated Statements of Operations For the Two Years Ended December 31, 2017
RumbleOn, Inc. Consolidated Statement of Stockholders’ Equity (Deficit) For the Two Years Ended December
31, 2017
RumbleOn, Inc. Consolidated Statements of Cash Flows For the Two Years Ended December 31, 2017
RumbleOn, Inc. Notes to Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
F-1
RumbleOn, Inc. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of RumbleOn, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of RumbleOn, Inc. (the “Company”) as of
December 31, 2017 and 2016, and the related consolidated statements of income, stockholders’ equity, and cash flows for
each of the years in the two year period ended December 31, 2017, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Scharf Pera & Co., PLLC
We have served as the Company’s auditor since 2016
Charlotte, North Carolina
February 27, 2018
F-2
RumbleOn, Inc.
Consolidated Balance Sheets
December 31, 2017 and 2016
ASSETS
Current assets:
Cash
Accounts receivable, net
Inventory
Prepaid expense
Total current assets
Property and equipment, net
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Accrued interest payable
Current portion of long-term debt
Total current liabilities
Long term liabilities:
Note payable
Accrued interest payable - related party
Deferred tax liability
Total long-term liabilities
Total liabilities
Commitments and contingencies (Notes 4, 5, 7, 12, 13)
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and
outstanding as of December 31, 2017 and 2016.
Common A stock, $0.001 par value, 1,000,000 shares authorized, 1,000,000 shares issued
and outstanding as of December 31, 2017 and none outstanding at December 31, 2016
Common B stock, $0.001 par value, 99,000,000 shares authorized, 11,928,541 and
6,400,000 shares issued and outstanding as of December 31, 2017 and 2016
Additional paid in capital
Subscriptions receivable
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Accompanying Notes to Financial Statements.
F-3
2017
2016
577,107
2,834,666
308,880
$ 9,170,652 $ 1,350,580
-
-
1,667
12,891,305 1,352,247
3,360,832
1,850,000
50,693
-
-
45,515
$ 18,152,830 $ 1,397,762
$ 1,179,216 $ 219,101
-
-
219,101
33,954
1,081,593
2,294,763
1,459,410
32,665
-
1,492,075
1,282
5,508
78,430
85,220
3,786,838
304,321
-
-
1,000
-
-
-
11,929
6,400
23,372,360 1,534,015
(1,000 )
-
(9,019,297 )
(445,974 )
14,365,992 1,093,441
$ 18,152,830 $ 1,397,762
RumbleOn, Inc.
Consolidated Statements of Operations
For the Two Years Ended December 31, 2017
Revenue:
Pre-owned vehicle sales
Other sales and revenue
Subscription fees
Total Revenue
Expenses:
Cost of revenue
Selling, general and administrative
Depreciation and amortization
Total expenses
Operating loss
Interest expense
Net loss before benefit for income taxes
Benefit for income taxes
Net loss
2017
2016
$ 7,020,070 $
159,230
126,602
7,305,902
-
-
-
-
7,027,793
7,586,999
668,467
15,283,259
-
211,493
1,900
213,393
(7,977,357 )
(213,393 )
595,966
11,698
(8,573,323 )
(225,091 )
-
513
$ (8,573,323 ) $ (224,578 )
Weighted average number of common shares outstanding - basic and fully diluted
9,917,584 5,581,370
Net loss per share - basic and fully diluted
$
(0.86 ) $
(0.04 )
See Accompanying Notes to Financial Statements.
F-4
RumbleOn, Inc.
Consolidated Statement of Stockholders’ Equity (Deficit)
For the Two Years Ended December 31, 2017
Preferred Shares
Common A Shares
Common B Shares
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid in
Capital
Subscriptions Accumulated
Receivable
Deficit
Total
Stockholder's
Equity
(Deficit)
Balance,
December 31,
2015
Cash received
for subscription
receivable
Donated capital
Issuance of
common stock
Beneficial
conversion
feature, net of
deferred taxes
Net loss
Balance,
December 31,
2016
Exchange of
common stock
Issuance of
common stock in
connection with
acquisition
Issuance of stock
in private
placements
Issuance of
common stock in
connection with
loan Agreement
Issuance of
common stock in
connection with
conversion of a
Note Payable-
related Party, net
of debt discount
Issuance of
common stock in
connection with
equity offering
Stock-based
compensation
Net loss
Balance,
December 31,
2017
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
5,500,000 $
5,500
$
64,500 $
(5,000 ) $
(221,396 ) $
(156,396 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
5,000
2,000
-
-
-
5,000
2,000
900,000
900
1,349,100
(1,000 )
-
1,349,000
-
-
-
-
118,415
-
-
118,415
-
-
(224,578 )
(224,578 )
-
-
6,400,000 $
6,400
$ 1,534,015 $
(1,000 ) $
(445,974 ) $
1,093,441
-
-
1,000,000
1,000
(1,000,000 )
(1,000 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,523,809
1,524
2,665,142
-
-
2,666,666
-
-
657,500
658
2,629,342
-
-
2,630,000
-
-
1,161,920
1,162
1,348,878
-
-
1,350,040
-
-
275,312
275
284,639
-
-
284,914
-
-
2,910,000
2,910
14,407,321
1,000
- 14,411,231
-
-
-
-
-
-
-
-
503,023
-
-
503,023
-
-
(8,573,323 )
(8,573,323 )
- $
-
1,000,000 $
1,000
11,928,541 $
11,929
$ 23,372,360
- $
(9,019,297 ) $ 14,365,992
See Accompanying Notes to Financial Statements.
F-5
2017
2016
$ (8,573,323 ) $ (224,578 )
668,467
276,076
196,076
503,023
-
-
1,900
1,282
-
-
792
(513 )
(307,213 )
(2,834,666 )
(577,107 )
960,115
70,237
(5,178 )
(1,667 )
-
-
210,302
(7,494 )
-
$ (9,623,493 ) $
(19,976 )
(750,000 )
(506,786 )
-
(622,512 )
(1,879,298 )
-
-
(45,515 )
-
(45,515 )
214,358
3,248,593
(1,650,000 )
(158,000 )
17,724,270 1,354,000
2,000
-
19,322,863 1,412,358
7,820,072 1,346,867
1,350,580
3,713
$ 9,170,652 $ 1,350,580
RumbleOn, Inc.
Consolidated Statements of Cash Flows
For the Two Years Ended December 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of debt discount
Interest expense on conversion of debt
Share based compensation expense
Impairment of asset
Increase in deferred tax liability
Changes in operating assets and liabilities:
Increase in prepaid expenses
Increase in inventory
Increase in accounts receivable
Increase in accounts payable and accrued liabilities
Increase (decrease) in accrued interest payable
Increase in other assets
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used for acquisitions
Technology development
Purchase of other assets
Purchase of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable
Repayments for notes payable
Proceeds from sale of common stock
Donated capital
Net cash provided by financing activities
NET CHANGE IN CASH
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD
See Accompanying Notes to Financial Statements.
F-6
Notes to Financial Statements
NOTE 1 –DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
RumbleOn, Inc. (the “Company”) was incorporated in October 2013 under the laws of the State of Nevada, as Smart
Server, Inc. (“Smart Server”). On February 13, 2017, the Company changed its name from Smart Server, Inc. to RumbleOn,
Inc.
Description of Business
Smart Server was originally formed to engage in the business of designing and developing mobile application
payment software for smart phones and tablet computers. After Smart Server ceased its technology development activities in
2014, it had no operations and nominal assets, meeting the definition of a “shell company” under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and regulations thereunder.
In July 2016, Berrard Holdings Limited Partnership (“Berrard Holdings”) acquired 99.5% of the common stock of
the Company from the principal stockholder. Shortly after the Berrard Holdings common stock purchase, the Company began
exploring the development of a capital light e-commerce platform facilitating the ability of both consumers and dealers to
Buy-Sell-Trade-Finance pre-owned recreation vehicles in one online location. The Company’s goal is for the platform to be
widely recognized as the leading online solution for the sale, acquisition, and distribution of recreation vehicles by providing
users with the most efficient, timely and transparent experience.
The Company’s business plan is currently driven by a technology platform it acquired on February 8, 2017 from
NextGen Dealer Solutions, LLC (“NextGen”), which the Company owns and operates through its wholly-owned subsidiary
NextGen Pro, LLC (“NextGen Pro”). The NextGen platform provides vehicle appraisal, inventory management, customer
relationship management and lead management, equity mining, and other key services necessary to drive the online
marketplace. For additional information, see Note 2— “Acquisitions.”
Serving both consumers and dealers, through our online marketplace platform, we make cash offers for the purchase
of pre-owned vehicles. In addition, we offer a large inventory of pre-owned vehicles for sale along with third-party financing
and associated products. Our operations are designed to be scalable by working through an infrastructure and capital light
model that is achievable by virtue of a synergistic relationship with regional partners. We utilize regional partners in the
acquisition of pre-owned vehicles as well as to provide inspection, reconditioning and distribution services. Correspondingly,
we earn fees and transaction income, and regional partners will earn incremental revenue and enhance profitability through
increased sales, leads, and fees from inspection, reconditioning and distribution programs.
Year end
In October 2016, the Company changed its fiscal year-end from November 30 to December 31.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in
the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, inventory valuation,
depreciable lives, carrying value of intangible assets, sales returns, receivables valuation, restructuring-related liabilities,
taxes, and contingencies. Actual results could differ materially from those estimates.
Earnings (Loss) Per Share
The Company follows the FASB Accounting Standards Codification (“ASC”) Topic 260-Earnings per share. Basic
earnings per common share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share calculations are
determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share
equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in
the computation.
F-7
Revenue Recognition
Revenue is derived from two primary sources: (1) the Company’s online marketplace, which is our largest source of
revenue and includes: (i) the sale of pre-owned vehicles through consumer and dealer sales channels; (ii) vehicle financing;
(iii) vehicle service contracts; and (iv) retail merchandise sales and (2) subscription and other fees relating to the RumbleOn
software solution, which includes: (i) a vehicle appraisal process; (ii) inventory management system; (iii) customer
relationship and lead management program; (iv) equity mining (v) implementation; and (vi) training.
The Company recognizes revenue when all of the following conditions are satisfied: (i) there is persuasive evidence
of an arrangement; (ii) the product or service has been provided to the customer; (iii) the amount to be paid by the customer
is fixed or determinable; and (iv) the collection of the Company’s payment is probable.
Pre-owned Vehicle Sales
The Company sells pre-owned vehicles to consumers and dealers primarily through our website or regional auctions.
The source of these vehicles is primarily from the Company’s cash offer to buy program and customers who trade-in their
existing vehicles when making a pre-owned vehicle purchase. Revenue from pre-owned vehicle sales is recognized when the
vehicle is delivered, a sales contract is signed, and the purchase price has either been received or collectability has been
established, net of a reserve for returns. We allow the customer to return the vehicles we sell with a 3-day, money-back
guarantee. Pre-owned vehicle sales revenue is recognized net of a reserve for returns, which is based on historical experience
and trends.
Retail Merchandise Sales
The Company sells branded and other merchandise and accessories at events and recognizes sales revenue, net of
sales taxes at the time it sells the merchandise or in the case of online sales when the merchandise is delivered to the
customer and payment has been received.
Vehicle Financing
Consumers can pay for their vehicle using cash or the Company offers a range of finance options through unrelated
third-parties such as banks or credit unions. These third-party providers generally pay the Company a fee either in a flat
amount or in an amount equal to the difference between the interest rates charged to customers over the predetermined
interest rates set by the financial institution. The Company may be charged back for commissions in the event a contract is
prepaid, defaulted upon, or terminated. Revenue for these finance fees are recognized upon delivery of the vehicle to the
customer, when the sales contract is signed, and the financing has been arranged.
Vehicle Service Contracts
At the time of vehicle sale, the Company provides customers, on behalf of unrelated third parties who are the
primary obligors, a range of other related products and services, including extended protection plan products and vehicle
appearance protection. Extended protection plan products include extended service plans that are designed to cover
unexpected expenses associated with mechanical breakdowns and guaranteed asset protection, which is intended to cover the
unpaid balance on a vehicle loan in the event of a total loss of the vehicle or unrecovered theft. Vehicle appearance protection
includes products aimed at maintaining vehicle appearance. The Company receives commissions from the sale of these
product and service contracts and has no contractual liability to customers for claims under these products. The extended
protection plan and vehicle appearance protection currently offered to consumers provide coverage up to 60 months (subject
to mileage limitations), while guaranteed asset protection covers the customer for the term of their finance contract.
Commission revenue on vehicle sales contracts is recognized at the time of sale, net of a reserve for estimated
contract cancellations. The reserve for cancellations is estimated based upon historical industry experience and recent trends
and is reflected as a reduction of Other sales revenue in the accompanying Consolidated Statements of Operations and a
component of Accounts payable and accrued liabilities in the accompanying Consolidated Balance Sheets. Our risk related to
contract cancellations is limited to the commission revenue that we receive.
Subscription Fees
Subscription fees are generated from dealer partners, under a license arrangement that provides access to our
software solution and ongoing support. Unless waived by the Company dealers pay a monthly subscription fee for access to
and ongoing support for portions of the RumbleOn software solution which includes: (i) a vehicle appraisal process;
(ii) inventory management system; (iii) customer relationship and lead management program; and (iv) equity mining. Dealers
F-8
may also be charged an initial software installation and training fee. Dealers do not have the contractual right to take
possession of the software and may cancel the license for these products and services by providing a 30-day notice.
Installation and training do not have value to the user without the license and ongoing support and maintenance. Revenue for
installation and training is recognized when complete, acceptance has occurred, and collectability of a determinable amount
is probable. Because a dealer has the right to cancel the license with 30 days’ notice revenue recognition of monthly
subscription fees commences upon completion of installation, acceptance has occurred, and collectability of a determinable
amount is probable.
Purchase Accounting for Business Combinations
The Company accounts for acquisitions by allocating the fair value of the consideration transferred to the fair value
of the assets acquired and liabilities assumed on the date of the acquisition and any remaining difference is recorded as
goodwill. Adjustments may be made to the preliminary purchase price allocation when facts and circumstances that existed
on the date of the acquisition surface during the allocation period subsequent to the preliminary purchase price allocation, not
to exceed one year from the date of acquisition. Contingent consideration is recorded at fair value based on the facts and
circumstances on the date of the acquisition and any subsequent changes in the fair value are recorded through earnings each
reporting period.
Goodwill
Goodwill is not amortized but rather tested for impairment at least annually. The Company tests goodwill for
impairment annually during the fourth quarter of each year. Goodwill will also be tested for impairment between annual tests
if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below
its carrying amount. Impairment testing for goodwill is done at the reporting unit level. A reporting unit is an operating
segment or one level below an operating segment (also known as a component). A component of an operating segment is a
reporting unit if the component constitutes a business for which discrete financial information is available, and management
regularly reviews the operating results of that component. The Company has concluded that currently it has one reporting
unit. Goodwill is being amortized for income tax purposes over a 15-year period.
We performed our test for impairment at the end of the fourth quarter of 2017 using a two-step quantitative process.
Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair
value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit
and step two of the impairment test (measurement) must be performed. Step two of the impairment test, if necessary, requires
the estimation of the fair value for the assets and liabilities of a reporting unit in order to calculate the implied fair value of
the reporting unit’s goodwill. Under step two, an impairment loss is recognized to the extent the carrying amount of the
reporting unit’s goodwill exceeds the implied fair value of goodwill. The fair value of the reporting unit is determined by
management and includes the use of significant estimates and assumptions. Fair value can be determined by utilizing a
combination of valuation methods, including EBITDA and revenue multiples (market approach) and the present value of
discounted cash flows (income approach). Management utilized the income approach, specifically the discounted cash flow
technique as a means for estimating fair value. This discounted cash flow analysis requires various assumptions including
those about future cash flows, transactional and customer growth rates and discount rates. Expected cash flows will be based
on historical customer growth and the growth in transactions, including attrition, future strategic initiatives and continued
long-term growth of the business. The discount rates used for the analysis will reflect a weighted average cost of capital
based on industry and capital structure adjusted for equity risk and size risk premiums. These estimates can be affected by
factors such as customer and transaction growth, pricing, and economic conditions that can be difficult to predict. There was
no impairment of Goodwill as of December 31, 2017. In January 2017, the FASB issued new guidance, ASU No. 2017-4,
Intangibles–Goodwill and Other (Topic 350): Simplifying the test for Goodwill Impairment. This guidance simplifies
subsequent goodwill measurement by eliminating Step two from the goodwill impairment test. The Company will adopt this
guidance for periods after January 1, 2018. For additional information, see Note 1 “Recent Pronouncements.”
Other Assets
Included in “Other assets” on the Company’s Consolidated Balance Sheets are amounts related to acquired internet
domain names which are considered to be an indefinite lived intangible assets. Indefinite lived intangible assets are tested for
impairment, at a minimum, on an annual basis using an income approach or sooner whenever events or changes in
circumstances indicate that an asset may be impaired. There was no impairment of indefinite lived assets as of December 31,
2017.
F-9
Long-Lived Assets
Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used are measured
by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such
assets or asset groups are considered to be impaired, the impairment to be recognized will be measured by the amount by
which the carrying amount of the assets or asset groups exceeds the related fair values. The Company also performs a
periodic assessment of the useful lives assigned to the long-lived assets.
Technology Development Costs
Technology development costs are accounted for pursuant to ASC 350, Intangibles — Goodwill and Other.
Technology development costs include internally developed software and website applications that are used by the Company
for its own internal use and to provide services to its customers, which include consumers, dealer partners and ancillary
service providers. Under the terms of these customer arrangements the Company retains the revenue generating technology
and hosts the applications on its servers and mobile applications. The customer does not have a contractual right to take
possession of the software during the term of the arrangement and are not permitted to run the software itself or contract with
another party unrelated to the entity to host the software. Technology development costs consist principally of
(i) development activities including payroll and related expenses billed by a third-party contractor involved in application,
content, production, maintenance, operation, and platform development for new and existing products and services,
(ii) technology infrastructure expenses, and (iii) costs of Company employees devoted to the development and maintenance
of software products. Technology and content costs for design, maintenance and post-implementation stages of internal-use
software and general website development are expensed as incurred. For costs incurred to develop new website functionality
as well as new software products and significant upgrades to existing internally used platforms or modules, capitalization
begins during the application development stage and ends when the software is available for general use. Capitalized
technology development is amortized on a straight-line basis over periods ranging from 3 to 7 years. The Company will
perform periodic assessment of the useful lives assigned to capitalized software applications. Additionally, the Company
from time-to-time may abandon additional development activities relating to specific software projects or applications and
charge accumulated costs to technology development expense in the period such determination is made.
Vehicle Inventory
Vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of the cost to acquire and
recondition a pre-owned vehicle. Reconditioning costs are billed by third-party providers and includes parts, labor, and other
repair expenses directly attributable to a specific vehicle. Transportation costs are expensed as incurred. Pre-owned inventory
is stated at the lower of cost or net realizable value. Pre-owned vehicle inventory cost is determined by specific identification.
Net realizable value is the estimated selling price less costs to complete, dispose and transport the vehicles. Selling prices are
derived from historical data and trends, such as sales price and inventory turn times of similar vehicles, as well as
independent market resources. Each reporting period, the Company recognizes any necessary adjustments to reflect pre-
owned vehicle inventory at the lower of cost or net realizable value through Cost of revenue in the accompanying
Consolidated Statements of Operations.
Valuation Allowance for Accounts Receivable
The Company estimates the allowance for doubtful accounts for accounts receivable by considering a number of
factors, including overall credit quality, age of outstanding balances, historical write-off experience and specific account
analysis that projects the ultimate collectability of the outstanding balances. Ultimately, actual results could differ from these
assumptions.
Cash and Cash Equivalents
The Company considers all cash accounts and all highly liquid short-term investments purchased with an original
maturity of three months or less to be cash or cash equivalents. As of December 31, 2017 and 2016, the Company did not
have any investments with maturities greater than three months.
Property and Equipment, Net
Property and equipment is stated at cost less accumulated depreciation and amortization and consists of capitalized
technology development costs, furniture and equipment. Depreciation and amortization is recorded on a straight-line basis
over the estimated useful life of the assets. Costs of significant additions, renewals and betterments, are capitalized and
depreciated. Maintenance and repairs are charged to expense when incurred.
F-10
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available
to management as of December 31, 2017 and December 31, 2016. The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts
payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in
nature and their carrying amounts approximate fair values or they are payable on demand.
ASC Topic 820-10-30-2-Fair Value Measurement establishes a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most
observable inputs be used when available. Observable inputs are from sources independent of the Company, whereas
unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or
liability developed on the best information available in the circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1: The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or
liabilities,” with the caveat that the reporting entity must have access to that market. Information at this level is based on
direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior
reliability. However, relatively few items, especially physical assets, actually trade in active markets.
Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and,
even when they do exist, they may be too thin to provide reliable information. Inputs other than quoted market prices
included in Level 1, that are observable for the asset or liability, either directly or indirectly, are Level 2 inputs.
Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets
and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they
“shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for
situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the
standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they
are expected to reflect assumptions made by market participants.
Beneficial Conversion Feature
From time to time, the Company has issued convertible notes that have conversion prices that create an embedded
beneficial conversion feature pursuant to the guidelines established by the ASC Topic 470-20, Debt with Conversion and
Other Options. The Beneficial Conversion Feature (“BCF”) of a convertible security is normally characterized as the
convertible portion or feature of certain securities that provide a rate of conversion that is below market value or in-the-
money when issued. The Company records a BCF related to the issuance of a convertible security when issued and also
records the estimated fair value of any conversion feature issued with those securities. Beneficial conversion features that are
contingent upon the occurrence of a future event are recorded when the contingency is resolved.
The BCF of a convertible note is measured by allocating a portion of the note’s proceeds to the conversion feature, if
applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion
feature, both of which are credited to additional paid-in-capital. The debt discount is amortized to interest expense over the
life of the note using the effective interest method. The Company calculates the fair value of the conversion feature
embedded in any convertible security using either a) the Black Scholes valuation model, or b) a discount cash flow analysis
tested for sensitivity to key Level 3 inputs using Monte Carlo simulation.
Common Stock Warrants
The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in
Accounting Standards Codification (ASC) 815, Derivatives and Hedging – Contracts in Entity’s Own Equity, as either
derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Any warrants that
(i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or
settlement in its own shares (physical settlement or net-share settlement) provided that such warrants are indexed to the
Company’s own stock is classified as equity. The Company classifies as assets or liabilities any warrants that (i) require net-
cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the
Company’s control), (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or
net-share settlement) or (iii) that contain reset provisions that do not qualify for the scope exception. The Company assesses
classification of its common stock warrants at each reporting date to determine whether a change in classification between
assets and liabilities is required. The Company’s freestanding derivatives consisting of 218,250 warrants to purchase
F-11
common stock that were issued to underwriters in connection with the October 23, 2017 public offering of Class B common
stock satisfied the criteria for classification as equity instruments as these warrants do not contain cash settlement features or
variable settlement provision that cause them to not be indexed to the Company’s own stock.
Cost of Revenue
Cost of vehicle sales includes the cost to acquire vehicles and the reconditioning and transportation costs associated
with preparing the vehicles for resale. Vehicle acquisition costs are driven by the mix of vehicles the Company acquires, the
source of those vehicles, and supply and demand dynamics in the vehicle market. Reconditioning costs are billed by third-
party providers and include parts, labor, and other repair expenses directly attributable to specific vehicles. Transportation
costs consist of costs incurred to transport the vehicles from the point of acquisition. Cost of sales also includes any necessary
adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Cost of subscription and other fee revenue includes the (i) various data feeds from third parties; (ii) hosting of the
customer facing website; (iii) commissions for new sales; and (iv) implementation and training of new and existing
customers. These costs and expenses are charged to Cost of revenue as incurred.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising
to consumers and dealers, development and operating our product procurement and distribution system, managing our
logistics system, transportation cost associated with selling vehicles, establishing our dealer partner arrangements, and other
corporate overhead expenses, including expenses associated with technology development, legal, accounting, finance, and
business development.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred and are included in Selling, general and administrative
expenses in the accompanying Consolidated Statements of Operations. Advertising and marketing expenses was $1,731,028
for the year ended December 31, 2017. There were no advertising and marketing costs incurred for the year ended December
31, 2016.
Stock-Based Compensation
On June 30, 2017 the Company’s shareholders approved a Stock Incentive Plan (the “Plan”) under which restricted
stock units (“RSUs”) and other equity awards may be granted to employees and non-employee members of the Board of
Directors. Twelve percent (12%) of the Company’s issued and outstanding shares of Class B Common Stock from time to
time are reserved for issuance under the Plan. The Company estimates the fair value of awards granted under the Plan on the
date of grant. The fair value of an RSU is based on the average of the high and low market prices of the Company’s Class B
Common Stock on the date of grant and is recognized as an expense on a straight-line basis over its vesting period; to date,
substantially all the RSUs issued vest over a three-year period utilizing the following vesting schedule: (i) 20% on the first
anniversary of the grant date; (ii) 30% on the second anniversary of the grant date; and (iii) 50% on the third anniversary of
the grant date. During the year ended December 31, 2017 the Company granted 741,000 RSUs under the Plan to members of
the Board of Directors, officers and employees. Compensation expense for the year ended December 31, 2017 was $503,023.
and is included in selling, general and administrative expenses in the consolidated statements of operations. There was no
stock-based compensation for the year ended December 31, 2016. At December 31, 2017 total unrecognized compensation
cost related to RSUs was $2,258,718 and the weighted average period over which this cost is expected to be recognized is 2.5
years.
Income Taxes
The Company follows ASC Topic 740, Income Taxes, for recording the provision for income taxes. Deferred tax
assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets
and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available
evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a
valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized.
Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods.
F-12
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only
allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon
examination by the taxing authorities. As of December 31, 2017, the Company reviewed its tax positions and determined
there were no outstanding, or retroactive tax positions with less than a fifty percent likelihood of being sustained upon
examination by the taxing authorities, therefore this standard has not had a material effect on the Company.
The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12
months.
Recent Pronouncements
Effective in the Current Period.
The Company has adopted Accounting Standards Update 2015-11 Inventory (Topic 330), Simplifying the
Measurement of Inventory, which requires inventory to be stated at the lower of cost or net realizable value. Vehicle
inventory cost is determined by specific identification. Net realizable value is the estimated selling price less costs to
complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and
inventory turn times of similar vehicles, as well as independent, market resources. Each reporting period the Company
recognizes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value through Cost of
revenue in the accompanying Consolidated statements of operations.
Effective in Future Periods
In May 2014, the FASB issued an accounting pronouncement (FASB ASU 2014-09) related to revenue recognition.
This ASU, along with subsequent ASUs issued to clarify certain provisions and the effective date of ASU 2014-09, provides
a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that an
entity will apply to determine the measurement of revenue and the timing of when it is recognized. The entity will recognize
revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be entitled to in
exchange for those goods or services. This standard will become effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2017. ASU 2014-09 may be adopted using either a full retrospective method,
which requires a restatement of prior periods presented, or a modified retrospective method with the cumulative effect of
applying the standard recognized at the date of adoption. We will adopt this standard for our fiscal year beginning January 1,
2018. While we continue to assess all potential impacts of this standard, we generally do not expect adoption of the standard
to have a material impact on our consolidated financial statements. We primarily sell products and recognize revenue at the
point of sale or delivery to customers, at which point the earnings process is deemed to be complete. Our performance
obligations are clearly identifiable, and we do not anticipate significant changes to the assessment of such performance
obligations or the timing of our revenue recognition upon adoption of the new standard. Our primary business processes are
consistent with the principles contained in the ASU, and we do not expect significant changes to those processes, our internal
controls or systems. We are still evaluating the impact of the new standard on our financial statement disclosures.
In February 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-02) related to the accounting
for leases. This pronouncement requires lessees to record most leases on their balance sheet while also disclosing key
information about those lease arrangements. Under the new guidance, lease classification as either a finance lease or an
operating lease will affect the pattern and classification of expense recognition in the income statement. The classification
criteria to distinguish between finance and operating leases are generally consistent with the classification criteria to
distinguish between capital and operating leases under existing lease accounting guidance. This pronouncement is effective
for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. We expect to adopt the
new standard for our fiscal year beginning January 1, 2018. A modified retrospective transition approach is required for
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements,
with practical expedients available for election as a package. We do not expect that this standard will have a material effect
on our Consolidated balance sheets since we currently do not have a significant number of leases in effect.
In May 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-12), which provided narrow scope
improvements and practical expedients related to FASB ASU 2014-09, Revenue from Contracts with Customers. The
improvements address completed contracts and contract modifications at transition, noncash consideration, the presentation
of sales taxes and other taxes collected from customers, and assessment of collectability when determining whether a
transaction represents a valid contract. The pronouncement has the same effective date as the new revenue standard, which is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We will adopt
this pronouncement for our fiscal year beginning January 1, 2018 and do not expect it to have a material effect on our
Consolidated financial statements.
F-13
In August 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-15) related to the classification
of certain cash receipts and cash payments on the statement of cash flows. The pronouncement provides clarification
guidance on eight specific cash flow presentation issues that have developed due to diversity in practice. The issues include,
but are not limited to, debt prepayment or extinguishment costs, settlement of zero-coupon debt, proceeds from the settlement
of insurance claims, and cash receipts from payments on beneficial interests in securitization transactions. The
pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning January 1, 2018, and
do not expect it to have a material effect on our Consolidated financial statements.
In January 2017, the FASB issued new guidance, ASU No. 2017-4, Intangibles–Goodwill and Other (Topic
350): Simplifying the test for Goodwill Impairment. This guidance simplifies subsequent goodwill measurement by
eliminating Step 2 from the goodwill impairment test. Under this update, an entity should perform its annual, or interim,
goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. The new standard is effective for
annual periods, and interim periods within those annual periods, beginning after December 15, 2019 with early adoption
permitted for annual goodwill impairment tests performed after January 1, 2017. The standard must be applied prospectively.
Upon adoption, the standard will impact how the Company assesses goodwill for impairment. We plan to adopt this
pronouncement for our fiscal year beginning January 1, 2018, and do not expect it to have a material effect on our
Consolidated financial statements.
NOTE 2 - ACQUISITIONS
On February 8, 2017, the Company acquired substantially all of the assets of NextGen in exchange for $750,000 in
cash, plus 1,523,809 unregistered shares of Class B Common Stock of the Company, which were issued at a negotiated fair
value of $1.75 per share and a subordinated secured promissory note issued by the Company in favor of NextGen in the
amount of $1,333,334 (the “NextGen Note”). The NextGen Note matures on the third anniversary of the closing date (the
“Maturity Date”). During the fourth quarter of 2017, the company finalized the preliminary purchase price allocation
recorded at the acquisition date and made a measurement period adjustment to the preliminary purchase price allocation
which included:(i) an increase to technology development of $1,500,000; (ii) a decrease in goodwill of $1,390,000; (iii) a
decrease to customer contracts of $10,000; and (iv) a decrease to non-compete agreements of $100,000. The measurement
period adjustment also resulted in a $166,250 net increase in accumulated amortization and amortization expense previously
recorded for the nine-months ended September 30, 2017. This measurement period adjustment has been recorded as of
December 31, 2017 and is reflected in the table below. The company made these measurement period adjustments to reflect
facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such
date. The measurement period adjustment did not have a material impact on the Company’s net loss in any period during the
year ended December 31, 2017.
F-14
The following table presents the purchase price consideration as of December 31, 2017:
Net tangible assets acquired:
Technology development
Customer contracts
Non-compete agreements
Tangible assets acquired
Goodwill
Total purchase price
Less: Issuance of shares
Less: Debt issued
Cash paid
Preliminary
Purchase
Price
Cumulative
Measurement
Period
Allocation
Adjustment
Final
Purchase
Price
Allocation
1,400,000 1,500,000 2,900,000
10,000
(10,000 )
100,000
(100,000 )
-
-
1,510,000 1,390,000 2,900,000
3,240,000 (1,390,000 ) 1,850,000
4,750,000
- 4,750,000
(2,666,666 )
- (2,666,666 )
(1,333,334 )
- (1,333,334 )
$ 750,000 $
- $ 750,000
Supplemental pro forma information
The results of operations of NextGen since the acquisition date are included in the accompanying consolidated
financial statements.
The following supplemental pro forma information presents the financial results as if the acquisition of NextGen
was made as of January 1, 2017 for the year ended December 31, 2017 and on January 1, 2016 for the year ended December
31, 2016.
Pro forma adjustments for the year ended December 31, 2017 and 2016 primarily include adjustments to reflect
additional depreciation and amortization of $61,866 and $352,576, respectively, related to technology development and
identifiable intangible assets recorded as part of the acquisition, and interest expense related to the NextGen Note of $27,353
and $85,772, respectively.
Pro forma revenue
Pro forma net loss
Loss per share-basic and fully diluted
2017
2016
$ 7,312,428 $ 138,141
$ (8,710,513 ) $ (2,450,829 )
$
(0.86 ) $
(0.34 )
Weighted average common shares and common stock equivalents outstanding-Basic and fully
diluted
10,076,227 7,105,179
F-15
NOTE 3 – PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net of accumulated depreciation and amortization as of
December 31, 2017 and 2016:
Vehicles
Furniture and equipment
Technology development
Total property and equipment
Less: accumulated depreciation and amortization
2016
$
2017
472,870
149,643
3,406,786
4,029,299
668,467
$ 3,360,832
-
-
-
-
-
-
Amortization and depreciation on Property and Equipment is determined on a straight-line basis over the estimated
useful lives ranging from 3 to 5 years.
During the fourth quarter of 2017, the company finalized the preliminary purchase price allocation of the NextGen
acquisition and made a measurement period adjustment to increase the amount of the preliminary purchase price that was
allocated to technology development from $1,400,000 to $2,900,000 and increased the amount of amortization previously
reported for the nine-month period ended September 30, 2017 by $200,000. For additional information, see Note 2
“Acquisitions”
At December 31, 2017, capitalized technology development costs were $3,406,786 which includes $2,900,000 of
software acquired in the NextGen transaction. Total technology development costs incurred was $959,743 for the year ended
December 31, 2017 of which $506,786 was capitalized and $452,957 was charged to expense in the accompanying
Consolidated statements of operations. The amortization of capitalized technology development costs was $588,519 for the
year ended December 31, 2017. There were no technology development costs incurred and no amortization of capitalized
development costs for the year ended December 31, 2016. Depreciation expense on vehicles, furniture and equipment was
$79,948 and $475, respectively for the years ended December 31, 2017 and 2016.
NOTE 4 – ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
The following table summarizes accounts payable and other accrued liabilities as of December 31, 2017 and 2016:
Accounts payable
Accrued Payroll
Other accrued expenses
2017
2016
$ 1,094,310 $ 219,101
-
-
79,288
5,618
$ 1,179,216 $ 219,101
F-16
NOTE 5 – NOTES PAYABLE
Notes payable consisted of the following as of December 31, 2017 and 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 $
2017
2016
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
Line of credit-floor plan dated November 2, 2017. Facility provides up to $2,000,000 of
available credit secured by vehicle inventory and other assets. Interest rate at December 31,
2017 was 6.5%. Principal and interest is payable on demand.
Less: Debt discount
Current portion
Long-term portion
Note Payable-NextGen
1,081,593
-
(540,924 )
(196,076 )
$ 2,541,003 $
1,081,593
$ 1,459,410 $
1,282
-
1,282
On February 8, 2017, in connection with the acquisition of NextGen, the Company issued a subordinated secured
promissory note in favor of NextGen in the amount of $1,333,334. Interest accrues and will be paid semi-annually (i) at a rate
of 6.5% annually from the closing date through the second anniversary of such date and (ii) at a rate of 8.5% annually from
the second anniversary of the closing date through the Maturity Date. Upon the occurrence of any event of default, the
outstanding balance under the NextGen Note shall become immediately due and payable upon election of the holder. The
Company’s obligations under the NextGen Note are secured by substantially all the assets of NextGen Pro, pursuant to an
Unconditional Guaranty Agreement (the “Guaranty Agreement”), by and among NextGen and NextGen Pro, and a related
Security Agreement between the parties, each dated as of February 8, 2017. Under the terms of the Guaranty Agreement,
NextGen Pro has agreed to guarantee the performance of all the Company’s obligations under the NextGen Note. Interest
expense on the NextGen Notes for the year ended December 31, 2017 was $76,457.
Notes Payable-Private Placement
On March 31, 2017, the Company completed funding of the second tranche of the 2016 Private Placement (as
defined below). The investors were issued 1,161,920 shares of Class B Common Stock of the Company and promissory notes
(the “Private Placement Notes”) in the amount of $667,000, in consideration of cancellation of loan agreements having an
aggregate principal amount committed by the purchasers of $1,350,000. Under the terms of the Private Placement Notes,
interest shall accrue on the outstanding and unpaid principal amounts until paid in full. The Private Placement Notes mature
on March 31, 2020. Interest accrues at a rate of 6.5% annually from the closing date through the second anniversary of such
date and at a rate of 8.5% annually from the second anniversary of the closing date through the maturity date. Upon the
occurrence of any event of default, the outstanding balance under the Private Placement Notes shall become immediately due
and payable upon election of the holders. Based on the relative fair values attributed to the Class B Common Stock and
promissory notes issued in the 2016 Private Placement, the Company recorded a debt discount on the promissory notes of
$667,000 with the corresponding amounts as addition to paid in capital. The debt discount is amortized to interest expense
until the scheduled maturity of the Private Placement Notes in March 2020 using the effective interest method. The effective
interest rate at December 31, 2017 was 26.0%. Interest expense on the Private Placement Notes for the year ended December
31, 2017 was $158,740, which included debt discount amortization of $126,076 for the year ended December 31, 2017.
Notes Payable-Senior Secured Promissory Notes
On September 5, 2017, the Company executed Senior Secured Promissory Notes (the “Notes”) in favor of several
investors, including certain executive officers and directors of the Company, in the aggregate principal amount of $1,650,000
(“Principal Amount”), which includes an aggregate original issue discount of $150,000. The proceeds to the Company from
F-17
the Senior Secured Promissory Notes, net of original issuance discount, was $1,500,000. The Senior Secured Promissory
Notes are secured by an interest in all the Company’s Collateral, as such term is defined in the Senior Secured Promissory
Notes. The Senior Secured Promissory Notes mature on September 5, 2018 and bear interest at a rate equal to 5% per annum
through December 31, 2017, and a rate of 10% per annum thereafter. Interest is payable monthly in arrears. Upon the
occurrence of any event of default, the outstanding balance under the Senior Secured Promissory Notes shall become
immediately due and payable upon election of the holders. The Principal Amount and any unpaid interest accrued thereon
may be prepaid by the Company at any time prior to the maturity date without premium or penalty upon five days prior
written notice to the noteholder. If the Company consummates in one or more transactions financing of any nature resulting
in net proceeds available to the Company of $5,000,000 or more, then the noteholders may require the Company to prepay
the Senior Secured Promissory Notes on thirty (30) days prior written notice to the Company. The original issue discount is
amortized to interest expense until the scheduled maturity of the Senior Secured Promissory Notes in September 2018 using
the effective interest method. The effective interest rate at September 30, 2017 was 10.0%. Interest expense on the Senior
Secured Promissory Notes for the year ended December 31, 2017 was $161,075 which included $150,000 of original issue
discount amortization. On October 23, 2017, the Company completed a public offering and used approximately
$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 interest, which resulted in the termination of the Senior Secured Promissory
Notes.
Line of Credit-Floor Plan
On November 2, 2017, the Company through its wholly-owned subsidiary RMBL Missouri, LLC (the “Borrower”),
entered into a floor plan line of credit (the “Credit Line”) with NextGear Capital, Inc. (“NextGear”) in the amount of
$2,000,000, or such lesser sum which may be advanced to or on behalf of the Borrower from time to time, pursuant to that
certain Demand Promissory Note and Loan and Security Agreement. Any advance under the Credit Line bears interest on a
per annum basis from the date of the request of such advance (or date of the financed receivable, as applicable), based upon a
360-day year, and such interest shall be compounded daily until such outstanding advances are paid in full at a rate of interest
set forth in schedules published by NextGear. As of November 2, 2017, the effective rate of interest is 6.5%. Advances and
interest under the Credit Line are due and payable upon demand, but, in general, in no event later than 150 days from the date
of request for the advance (or the date of purchase in the case of a universal funding agreement), or of the receivable, as
applicable. Upon any event of default (including, without limitation, the Borrower’s obligation to pay upon demand any
outstanding liabilities of the Credit Line), NextGear may, at its option and without notice to the Borrower, exercise its right to
demand immediate payment of all liabilities and other indebtedness and amounts owed to NextGear and its affiliates by the
Borrower and its affiliates. The Credit Line is secured by a grant of a security interest in the vehicle inventory and other
assets of the Borrower and payment is guaranteed by the Company pursuant to a guaranty in favor of the NextGear and its
affiliates.
Convertible Note Payable-Related Party
On July 13, 2016, the Company entered into an unsecured convertible note (the “BHLP Note”) with Berrard
Holdings, an entity owned and controlled by a current officer and director, Mr. Berrard, pursuant to which the Company was
required to repay $191,858 on or before July 13, 2026 plus interest at 6% 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 which 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, 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 share for the BHLP Note of $0.75 per share, resulting in 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 discount 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 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 Consolidated statements of operations and the related deferred tax liability was credited to Additional
paid in capital in the Consolidated Balance Sheets.
F-18
NOTE 6 – STOCKHOLDERS’ EQUITY
On January 9, 2017, the Company’s Board of Directors approved, subject to stockholder approval, the adoption of
the RumbleOn, Inc. 2017 Stock Incentive Plan (the “Plan”), On June 30, 2017, 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 outstanding shares of Class B Common Stock from
time to time are reserved for issuance under the Plan. As of December 31, 2017, 11,928,541 shares are issued and
outstanding, resulting in up to 1,431,424 shares available for issuance under the Plan. As of December 31, 2017, the
Company has granted 741,000 RSUs under the Plan to certain officers and employees of the Company. The aggregate fair
value of the RSUs, net of expected forfeitures was $2,761,740. The RSUs generally vest over a three-year period as follows:
(i) 20% on the first anniversary of the grant date; (ii) 30% on the second anniversary of the grant date; and (iii) 50% on the
third anniversary of the grant date. The fair value of the grant is amortized over the period from the grant date through the
vesting dates. Compensation expense recognized for these grants for the year ended December 31, 2017 is $503,023. As of
December 31, 2017, the Company has approximately $2,258,718 in unrecognized stock-based compensation, with an average
remaining vesting period of 2.5 years.
On January 9, 2017, the Company’s Board of Directors and stockholders holding 6,375,000 of the Company’s
issued and outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation (the
“Certificate of Amendment”), to change the name 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”).
Immediately before approving the Certificate of Amendment, the Company had authorized 100,000,000 shares of
common stock, $0.001 par value (the “Authorized Common Stock”), including 6,400,000 issued and outstanding shares of
common stock (the “Outstanding Common Stock, and together with the Authorized Common Stock, the “Common Stock”).
Pursuant to the Certificate of Amendment, the Company designated 1,000,000 shares of Authorized Common Stock as Class
A Common Stock (the “Class A Common Stock”), which Class A Common Stock ranks pari passu with all of the rights and
privileges of the Common Stock, except that holders of the Class A Common Stock are entitled to ten votes per share of
Class A Common Stock issued and outstanding, and all other shares of Common Stock, including all shares of Outstanding
Common Stock shall be deemed Class B Common Stock (the “Class B Common Stock”), which Class B Common Stock is
identical to the Class A Common Stock in all material respects, except that holders of the Class B Common Stock are entitled
to one vote per share of Class B Common Stock issued and outstanding.
Also on January 9, 2017, the Company’s Board of Directors and stockholders holding 6,375,000 of the Company’s
issued and outstanding shares of common stock approved the issuance to (i) Marshall Chesrown of 875,000 shares of Class A
Common Stock in exchange for an equal number of shares of Class B Common Stock held by Mr. Chesrown, and (ii) Steven
R. Berrard of 125,000 shares of Class A Common Stock in exchange for an equal number of shares of Class B Common
Stock held by Mr. Berrard, effective at the time the Certificate of Amendment was filed with the Secretary of State of
Nevada.
On February 13, 2017, the Effective Date, the Company filed the Certificate of Amendment with the Secretary of
State of the State of Nevada changing the Company’s name to RumbleOn, Inc. and creating the Class A and Class B
Common Stock. Also on the Effective Date, the Company issued an aggregate of 1,000,000 shares of Class A Common
Stock to Messrs. Chesrown and Berrard in exchange for an aggregate of 1,000,000 shares of Class B Common Stock held by
them. Also on the Effective Date, the Company amended its bylaws to reflect the name change to RumbleOn, Inc. and to
reflect the Company’s primary place of business as Charlotte, North Carolina.
On March 31, 2017, the Company completed the sale of 620,000 shares of Class B Common Stock, par value
$0.001, at a price of $4.00 per share for aggregate proceeds of $2,480,000 in the private placement (the “2017 Private
Placement”). Officers and directors of the Company acquired 175,000 shares of Class B Common Stock in the 2017 Private
Placement. In May 2017, the Company completed the sale of an additional 37,500 shares of Class B Common Stock in the
2017 Private Placement. Proceeds from the 2017 Private Placement were used to complete the launch of the Company’s
website, www.rumbleon.com, acquire vehicle inventory, continue development of the Company’s platform, and for working
capital purposes.
On June 30, 2017, the Company filed a Registration Statement on Form S-1 (the “Registration Statement”) with the
SEC covering the resale of 8,993,541 shares of Class B Common Stock issued in the NextGen acquisition and the 2017
F-19
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 filing of the Registration Statement, our
officers and directors and certain stockholders entered into a lock-up agreement restricting, through December 31, 2017, the
resale of an aggregate of 6,848,800 shares of our common stock held by them and subject to the Registration Statement.
On October 23, 2017, the Company completed an underwritten public offering of 2,910,000 shares of Class B
common stock at a public offering price of $5.50 per share for net proceeds to the Company of approximately
$14,500,000 after deducting the underwriting discount and offering fees and expenses payable by the Company (the
“Offering”). The Company also granted the underwriters a 30-day option, which expires on November 19, 2017, to purchase
up to an additional 436,500 shares of Class B common stock to cover over-allotments. The Company used $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 interest, which resulted in the termination of the Senior Secured Promissory Notes. The
Company intends 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, in connection with the Offering, on October 19, 2017, the Class B Common Stock uplisted from the OTCQB
and began trading on The NASDAQ Capital Market under the symbol “RMBL.”
At December 31, 2016, the Company was authorized to issue 100,000,000 shares of common stock, $0.001 par
value (the “Authorized Common Stock”), including 6,400,000 issued and outstanding shares of common stock (the
“Outstanding Common Stock, and together with the Authorized Common Stock, the “Common Stock”). Pursuant to the
Certificate of Amendment, the Company designated 1,000,000 shares of Authorized Common Stock as Class A Common
Stock (the “Class A Common Stock”), which Class A Common Stock ranks pari passu with all of the rights and privileges of
the Common Stock, except that holders of the Class A Common Stock are entitled to ten votes per share of Class A Common
Stock issued and outstanding, and (ii) all other shares of Common Stock, including all shares of Outstanding Common Stock
shall be deemed Class B Common Stock (the “Class B Common Stock”), which Class B Common Stock will be identical to
the Class A Common Stock in all respects, except that holders of the Class B Common Stock are entitled to one vote per
share of Class B Common Stock issued and outstanding. On November 28, 2016, the Company completed a private
placement with certain purchasers, with respect to the sale of an aggregate of 900,000 shares of common stock of the
Company at a purchase price of $1.50 per share for total consideration of $1,350,000 (the “2016 Private Placement”). In
connection with the 2016 Private Placement, the Company also entered into loan agreements, pursuant to which the
purchasers would loan to the Company their pro rata share of up to $1,350,000 in the aggregate upon the request of the
Company at any time on or after January 31, 2017 and before November 1, 2020. On March 31, 2017, the Company
completed the second tranche of the 2016 Private Placement. For additional information, see Note 5— “Notes Payable.”
NOTE 7 – COMMON STOCK WARRANTS
In connection with the October 23, 2017 public offering of 2,910,000 shares of Class B common stock the Company
issued to underwriters warrants to purchase 218,250 shares of Class B common stock, which was equal to 7.5% of the
aggregate number of shares of Class B common stock sold in the Offering. The Warrants are exercisable at a per share price
of $6.325, which was equal to 115% of the Offering price per share of the shares sold in the Offering. The Warrants are
exercisable at any time and from time to time, in whole or in part, during the four-year period commencing one year from the
effective date of the registration statement related to the Offering. The Company has classified the warrants as equity in
accordance with ASC 815. The fair value of the warrants were valued at issuance using the Black-Scholes option pricing
model with the following assumptions:
Warrants exercise price
Fair value price per share of common stock
Warrants outstanding
Volatility
Expected term remaining (years)
Risk-free interest rate
Dividend yield
$
$
6.325
5.50
218,250
62.0 %
5.0
1.31 %
-
The dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently
have no intention to do so. The risk-free interest rate used for each warrant classified as a derivative is equal to the U.S.
Treasury rate. The expected term is based on the remaining contractual lives of the warrants at the valuation date. Since the
Company’s stock was not traded frequently in the years before the valuation date the volatility may not reasonably reflect the
Company’s true volatility. Therefore, we relied on the average volatility of selected comparable companies. There were no
F-20
warrants exercised or forfeited for the year ended December 31, 2017. There was no aggregate intrinsic value in the warrants
at December 31, 2017.
The fair value of the warrants at the initial valuation date was $505,273.
NOTE 8 – SELLING, GENERAL AND ADMINISTRATIVE
The following table summarizes the detail of selling, general and administrative expense for the years ended
December 31, 2017 and 2016:
Selling, General and Administrative
Compensation and related costs
Advertising and marketing
Professional fees
Technology development
General and administrative
2017
2016
$ 3,111,363 $
1,731,028
890,580
452,957
1,401,071
-
-
153,668
-
57,825
$ 7,586,999 $ 211,493
NOTE 9 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing
activity for the years ended December 31, 2017 and 2016:
Cash paid for interest
Note payable issued on acquisition
Conversion of notes payable-related party
Issuance of shares for acquisition
NOTE 10 – INCOME TAXES
U.S. Tax Reform
2017
2016
$ 203,578 $
17,909
$ 1,333,334 $
$ 206,209 $
$ 2,666,666 $
-
-
-
On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act, or the Act, was signed in to law.
The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, requires taxpayers to pay a
one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on
certain foreign sourced earnings. On December 31, 2017, the Company did not have any foreign subsidiaries and the
international aspects of the Tax Act are not applicable.
In connection with the initial analysis of the impact of the Tax Act, the Company remeasured certain deferred tax
assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 26.1%. The
remeasurement of the Company’s deferred tax balance was primarily offset by application of its valuation allowance.
F-21
Deferred income taxes reflect the net tax effect of temporary difference between amounts recorded for financial
reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as
follows:
Deferred tax assets:
Net operating loss carryforward
Stock-based compensation
Total deferred income taxes
Deferred tax liabilities:
Basis difference in property and equipment
Basis difference in goodwill
Debt discount-private placement
Total deferred tax liabilities
Net deferred tax asset
Valuation allowance
Net deferred tax asset (liability)
2017
2016
$ 2,281,369 $
131,465
2,412,834
87,614
-
87,614
114,150
32,190
116,840
263,180
2,149,654
-
-
78,430
78,430
9,184
(2,149,654 )
- $
$
(87,614 )
(78,430 )
A reconciliation of the statutory U.S. Federal income tax rate to the Company’s effective income tax rate on income
tax rate on continuing operations for the years ended December 31, 2017 and 2016.
U.S. Federal statutory rate
Impact of tax reform on net deferred tax assets
State and local, net of Federal benefit
Valuation allowance
Effective tax rate
2017
2016
34.0 %
(13.0 )
5.1 %
(26.1 )%
-
34.0 %
-
6.0 %
(39.9 )%
0.01 %
No current provision for Federal income taxes was required for the years ended December 31, 2017 and 2016 due to
the Company’s operating losses. At December 31, 2017 and 2016, the Company has operating loss carryforwards of
$8,740,879 and $230,564, respectively, which begin to expire in 2033. We have provided a valuation allowance on the
deferred tax assets of $2,149,654 and $87,614 for the periods ended December 31, 2017 and 2016, respectively. In assessing
the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income in the periods in which those temporary differences become deductible. Management considers the
scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this
assessment.
NOTE 11 – LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding
during the period. The computation of diluted net loss per share for the year ended, 2017 did not include 735,000 of restricted
stock units or 218,250 of warrants to purchase shares of Class B Common Stock as their inclusion would be antidilutive.
There were no restricted stock units or warrants outstanding for the year ended December 31, 2016.
NOTE 12 – RELATED PARTY TRANSACTIONS
On March 31, 2017, the Company completed the sale of 620,000 shares of Class B Common Stock in the 2017
Private Placement. Officers and directors of the Company acquired 175,000 shares of Class B Common Stock in the 2017
Private Placement. In May 2017, the Company completed the sale of an additional 37,500 shares of Class B Common Stock
in the 2017 Private Placement. For additional information, see Note 6— “Stockholders’ Equity.”
A key component of the Company’s business model is to regional partners in the acquisition of pre-owned vehicles
as well as utilize these regional partners to provide inspection, reconditioning and distribution services. Correspondingly, the
Company will earn fees and transaction income, and the regional partner may earn incremental revenue and enhance
profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs. In connection
with the development of the regional partner program, the Company tested various aspects of the program by utilizing a
F-22
dealership to which Mr. Chesrown, the Company’s Chief Executive Officer has provided financing in the form of a $400,000
convertible promissory note. The note matures on May 1, 2019, interest is payable monthly at 5% per annum and can be
converted into a 25% ownership interest in the Dealer at any time. Revenue recognized by the Company from the Dealer for
the year ended December 31, 2017 was $1,618,958 or 22,1% of total Revenue. Included in Cost of Revenue for the Company
at December 31, 2017 includes $1,451,712 or 20.6% of Total Cost of Sales. Included in Accounts receivable at December 31,
2017 is $449,119 owed to the Company by the Dealer.
In addition, the Company presently subleases warehouse space from the Dealer that is separate and distinct from the
location of the dealership, on the same terms as paid by the Dealer. This subleased facility serves as the northwestern regional
distribution center for the Company. Included in accounts payable at December 31, 2017 is $30,000 for rent owed to the
Dealer.
In connection with the NextGen acquisition, the Company entered into a Consulting Agreement (the “Consulting
Agreement”) with Kartik Kakarala, who formerly served as the Chief Executive Officer of NextGen and now serves as a
director of the Company. Pursuant to the Consulting Agreement, Mr. Kakarala serves as a consultant to the Company. The
Consulting Agreement may be cancelled by either party, effective upon delivery of a written notice to the other party. Mr.
Kakarala’s compensation pursuant to the Consulting Agreement is $5,000 per month. For the year ended December 31, 2017
the Company paid $40,000 under the Consulting Agreement. This amount is included in Selling, general and administrative
expenses in the Consolidated Statements of Operations. For additional information, see Note 2— “Acquisitions.”
In connection with the NextGen acquisition, the Company entered into a Services Agreement (the “Services
Agreement”) with Halcyon Consulting, LLC (“Halcyon”), to provide development and support services to the Company. Mr.
Kakarala currently serves as the Chief Executive Officer of Halcyon. Pursuant to the Services Agreement, the Company will
pay Halcyon hourly fees for specific services, set forth in the Services Agreement, and such fees may increase on an annual
basis, provided that the rates may not be higher than 110% of the immediately preceding year’s rates. The Company will
reimburse Halcyon for any reasonable travel and pre-approved out-of-pocket expenses in connection with its services to the
Company. For the year ended December 31, 2017 the Company paid $914,099 under the Services Agreement.
As of December 31, 2017, the Company had promissory notes of $370,556 and accrued interest of $18,147 due to an
entity controlled by a director and to the director of the Company. The promissory notes were issued in connection with the
completion of the 2016 Private Placement on March 31, 2017. Interest expense on the promissory notes for the year ended
December 31, 2017 was $158,740 which included debt discount amortization of $126,076. The interest was charged to
interest expense in the Consolidated Statements of Operations and included in accrued interest under long-term liabilities in
the Consolidated Balance Sheets.
On September 5, 2017, the Company executed $1,650,000 (“Principal Amount”) of Senior Secured Promissory
Notes (the “Notes”) in favor of several investors, including certain executive officers and directors of the Company. The
Notes included an aggregate of $150,000 in original issue discount. Officers and directors held $1,214,144 of the Notes. 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. Officers and directors received in the aggregate principal amount of $1,218,122, plus accrued
interest of $4,144. For the year ended December 31, 2017 interest on the officer and director Notes was $118,121, including
$110,000 of debt discount amortization and is included in interest expense in the Consolidated Statements of Operations.
As of December 31, 2016, the Company had the BHLP Note payable of $197,358 and accrued interest of $5,508 due
to an entity that is owned and controlled by a current officer and director of the Company. On March 31, 2017, the Company
issued 275,312 shares of Class B Common Stock upon full conversion of the BHLP Note. The accrued interest is included in
accrued interest under Long-term liabilities in the Consolidated Balance Sheets. For additional information, see Note 5—
“Notes Payable.”
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. All convertible notes and related
party notes outstanding as of July 13, 2016 were paid in full in July 2016.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although
occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will
not have a material adverse effect on the Company’s financial position, results of operations or cash flows. As of December
31, 2017 and 2016 we were not aware of any threatened or pending litigation.
F-23
NOTE 14 – SUBSEQUENT EVENTS
On February 16, 2018, the Company, through Borrower, entered into an Inventory Financing and Security
Agreement (the “Credit Facility”) with Ally Bank, a Utah chartered state bank (“Ally Bank”) and Ally Financial, Inc., a
Delaware corporation (“Ally” together with Ally Bank, the “Lender”), pursuant to which the Lender may provide up to $25
million in financing, or such lesser sum which may be advanced to or on behalf of the Borrower from time to time, as part of
its floorplan vehicle financing program. Advances under the Credit Facility require the Company maintain 10.0% of the
advance amount as restricted cash. Advances under the Credit Facility will bear interest at a per annum rate designated from
time to time by the Lender and will be determined using a 365/360 simple interest method of calculation, unless expressly
prohibited by law. Advances under the Credit Facility, if not demanded earlier, are due and payable for each vehicle financed
under the Credit Facility as and when such vehicle is sold, leased, consigned, gifted, exchanged, transferred, or otherwise
disposed of. Interest under the Credit Facility is due and payable upon demand, but, in general, in no event later than 60 days
from the date of request for payment. Upon any event of default (including, without limitation, the Borrower’s obligation to
pay upon demand any outstanding liabilities of the Credit Facility), the Lender may, at its option and without notice to the
Borrower, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to
Lender and its affiliates by the Borrower and its affiliates. The Credit Facility is secured by a grant of a security interest in
the vehicle inventory and other assets of the Borrower and payment is guaranteed by the Company pursuant to a guaranty in
favor of the Lender, and secured by the Company pursuant to a General Security Agreement.
On February 20, 2018, the Company notified NextGear that it was terminating the Credit Line, and all security or
other credit documents entered into in connection therewith. At the time of the notification, there was no indebtedness
outstanding under the Credit Line.
F-24
I, Marshall Chesrown, certify that:
CERTIFICATION
(1)
I have reviewed this Annual Report on Form 10-K of RumbleOn, Inc.;
Exhibit 31.1
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
(4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 27, 2018
By: /s/ Marshall Chesrown
Marshall Chesrown
Chairman and Chief Executive Officer
I, Steven R. Berrard, certify that:
CERTIFICATION
Exhibit 31.2
(1)
(2)
(3)
(4)
I have reviewed this Annual Report on Form 10-K of RumbleOn, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 27, 2018
By: /s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report on Form 10-K of RumbleOn, Inc. (the "Company") for the year
ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
to my knowledge and belief, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
February 27, 2018
By: /s/ Marshall Chesrow
Marshall Chesrown
Chairman and Chief Executive Officer
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report on Form 10-K of RumbleOn, Inc. (the "Company") for the year
ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
to my knowledge and belief, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
February 27, 2018
By: /s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-38248
RumbleOn, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
46-3951329
(I.R.S. Employer
Identification No.)
4521 Sharon Road, Suite 370,
Charlotte, North Carolina 28211
(Address of principal executive offices)
(704) 448-5240
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐ (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2017, the aggregate market value of shares of common stock held by non-affiliates of the registrant was approximately $18.0 million.
The number of shares of Class B Common Stock, $0.001 par value, outstanding on February 23, 2018 was 11,928,541 shares. In addition, 1,000,000
shares of Class A Common Stock, $0.001 par value, were outstanding on February 23, 2018.
RUMBLEON, INC.
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 2017
Item 11.
Executive Compensation
PART III
PART IV
Item 15.
Exhibits, Financial Statement Schedules
1
2
EXPLANATORY NOTE
This Annual Report on Form 10-K/A is being filed by RumbleOn, Inc. (the "Company") to amend the Annual
Report on Form 10-K for the year ended December 31, 2017, filed by the Company with the Securities and Exchange
Commission (the "SEC") on February 27, 2018 (the “Original Filing”) to (i) amend Part III, Item 11 to include certain
executive compensation information omitted from the Original Filing and (ii) to include the certifications required to be filed
with this amendment. Except as set forth in the immediately preceding sentence, this amendment does not amend, modify or
update any disclosures contained in the Original Filing. Nothing contained in this amendment updates any disclosure
contained in the Original Filing to reflect any events occurring after the filing of the Original Filing.
PART III
Item 11.
Executive Compensation.
Executive and Director Compensation
Summary Compensation Table
The following table provides the compensation paid to our principal executive officer and other executive officers
whose total compensation exceeded $100,000 for the year ended December 31, 2017. No compensation was earned or paid to
our executive officers during the year ended December 31, 2016.
Name and Principal Position
Marshall Chesrown
Chief Executive Officer
Fiscal Year Salary(1) Bonus
Stock
Awards
($)
Option
Awards
($)
All Other
Compensation
Total
2017
$ 215,385
-
-
-
- $ 215,385
Steven R. Berrard
Chief Financial Officer
____________
(1) This compensation was paid in a single lump sum during the fourth quarter of 2017.
$ 215,385
2017
-
-
-
- $ 215,385
Executive Employment Arrangements
Marshall Chesrown
We have not entered into an employment agreement or arrangement with Mr. Chesrown. Accordingly, he is
employed as our Chief Executive Officer on an at-will basis. Mr. Chesrown currently receives an annual salary of $240,000,
which is paid weekly, in accordance with our standard payroll practice.
Mr. Chesrown is eligible for equity compensation under our equity compensation plans, as determined from time to
time by the compensation committee of our Board, however through the date of this filing, no grants of equity awards have
been made to Mr. Chesrown.
Steven Berrard
We have not entered into an employment agreement or arrangement with Mr. Berrard. Accordingly, he is employed
as our Chief Financial Officer on an at-will basis. Mr. Berrard currently receives an annual salary of $240,000, which is paid
weekly, in accordance with our standard payroll practice.
Mr. Berrard is eligible for equity compensation under our equity compensation plans, as determined from time to
time by the compensation committee of our Board, however through the date of this filing, no grants of equity awards have
been made to Mr. Berrard.
Non-Employee Director Compensation
We have not yet established a policy for non-employee director compensation. As of December 31, 2017, no
compensation had been paid to our non-employee directors, except (i) consulting fees paid to our director Kartik Kakarala
under the terms of a consulting agreement with us, which we further describe under “Certain Relationships and Related Party
Transactions - Consulting Agreement” and (ii) an award of 35,000 restricted stock units under the RumbleOn, Inc. 2017
Stock Incentive Plan (the “Incentive Plan”) to Messrs. Dixon, Pierce, Westfall and Gray.
1
The following table summarizes the compensation paid to our non-employee directors for the year ended December
31, 2017.
All Other
Compensation
Fees Earned
or Paid in
Cash
Stock
Awards
(1)(2)
- $ 122,500 $
- $
- $
- $ 122,500 $
- $ 122,500 $
- $ 188,300 $
Name
Denmar Dixon
Kartik Kakarala
Mitch Pierce
Kevin Westfall
Richard A. Gray, Jr.
____________
(1) Represents restricted stock units granted under the Incentive Plan. Represents the aggregate grant date fair value
40,000 $
- $ 122,500
- $ 122,500
- $ 188,300
- $ 122,500
Total
40,000 (3)
computed in accordance with FASB ASC Topic 718. In determining the grant date fair value, we used $3.50 per share
except for Mr. Gray for which we used $5.38 per share. The restricted stock units vest over a three-year period utilizing
the following vesting schedule: (i) 20% on the first anniversary of the grant date; (ii) 30% on the second anniversary of
the grant date; and (iii) 50% on the third anniversary of the grant date.
(2) As of December 31, 2017, each of Messrs. Dixon, Pierce, Westfall and Gray held 35,000 restricted stock units.
(3) Represents consulting fees paid to Mr. Kakarala pursuant to the consulting agreement. For additional information
regarding these consulting fees, see Certain Relationships and Related Transactions - Consulting Agreement under Part
III, Item 13.
Item 15.
Exhibits, Financial Statement Schedules.
(a) We have filed the following documents as part of this Annual Report on Form 10-K:
PART IV
1.
2.
3.
The financial statements listed in the “Index to Financial Statements” on page F-1 are filed as part of this report.
Financial statement schedules are omitted because they are not applicable, or the required information is shown in
the financial statements or notes thereto.
Exhibits included or incorporated herein: See below.
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
10.1
Description
Asset Purchase Agreement, dated as of January 8, 2017 (Incorporated by reference to Exhibit 2.1 in the
Company’s Current Report on Form 8-K, filed on January 9, 2017).
Assignment of Asset Purchase Agreement, dated as of January 31, 2017 (Incorporated by reference to Exhibit
2.2 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Articles of Incorporation filed on October 24, 2013 (Incorporated by reference to Exhibit 3(i)(a) in the
Company’s Registration Statement on Form S-1/A, filed on March 20, 2014).
By-Laws, as Amended (Incorporated by reference to Exhibit 3.2 in the Company’s Annual Report on Form 10-
K, filed on February 14, 2017).
Certificate of Amendment to Articles of Incorporation, filed on February 13, 2017 (Incorporated by reference to
Exhibit 3.3 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Amended and Restated Stockholders Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit
10.1 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Registration Rights Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.2 in the
Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Stockholder’s Agreement, dated October 24, 2016 (Incorporated by reference to Exhibit 10.1 in the Company’s
Current Report on Form 8-K, filed on October 28, 2016).
Sample Stock Certificate – Class B Common Stock (Incorporated by reference to Exhibit 4.4 in the Company’s
Registration Statement on Form S-1/A filed on September 27, 2017).
Form of Warrant to Purchase Class B Common Stock, dated October 18, 2017 (Incorporated by reference to
Exhibit 4.1 in the Company’s Current Report on Form 8-K, filed October 24, 2017).
Consulting Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.3 in the Company’s
Annual Report on Form 10-K, filed on February 14, 2017).
2
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Services Agreement, dated February 8, 2017 (Portions of this Exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for Confidential treatment) (Incorporated
by reference to Exhibit 10.4 in the Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Data Confidentiality Agreement, dated February 8, 2017 (Portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.)
(Incorporated by reference to Exhibit 10.5 in the Company’s Annual Report on Form 10-K, filed on February
14, 2017).
2017 RumbleOn, Inc. Stock Incentive Plan + (Incorporated by reference to Exhibit 10.1 in the Company’s
Current Report on Form 8-K, filed on January 9, 2017).
Form of Loan Agreement (Incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form
8-K, filed on December 21, 2016).
Smart Server, Inc. Form of Promissory Note (Incorporated by reference to Exhibit 10.2 in the Company’s
Current Report on Form 8-K, filed on December 21, 2016).
Promissory Note, dated July 13, 2016 (Incorporated by reference to Exhibit 10.1 in the Company’s Current
Report on Form 8-K, filed on July 19, 2016).
Amendment to Promissory Note, dated August 31, 2016 (Incorporated by reference to Exhibit 10.11 in the
Company’s Annual Report on Form 10-K, filed on February 14, 2017).
Unconditional Guaranty Agreement (Incorporated by reference to Exhibit 10.12 in the Company’s Annual
Report on Form 10-K, filed on February 14, 2017).
Security Agreement (Incorporated by reference to Exhibit 10.13 the Company’s Annual Report on Form 10-K,
filed on February 14, 2017).
NextGen Promissory Note, dated February 8, 2017 (Incorporated by reference to Exhibit 10.1 in the Company’s
Quarterly Report on Form 10-Q, filed on May 15, 2017).
RumbleOn, Inc. Form of Promissory Note (Incorporated by reference to Exhibit 10.1 in the Company’s Current
Report on Form 8-K, filed on April 5, 2017).
Amendment to Amended and Restated Stockholders’ Agreement of RumbleOn, Inc., dated September 29, 2017
(Incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K, filed on October 5,
2017).
Form of Senior Secured Promissory Note, dated September 5, 2017 (Incorporated by reference to Exhibit 10.1
in the Company’s Current Report on Form 8-K, filed on September 11, 2017).
Demand Promissory Note and Loan and Security Agreement, in favor of NextGear Capital, Inc., dated
November 2, 2017 (Incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K,
filed November 8, 2017).
Corporate Guaranty, in favor of NextGear Capital, Inc., dated November 2, 2017. (Included in Exhibit 10.15)
Subsidiaries
Consent of Scharf Pera & Co., PLLC.
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
10.16
21.1***
23.1***
31.1*
31.2*
32.1**
32.2**
101.INS*** XBRL Instance Document.
101.SCG*** XBRL Taxonomy Extension Schema.
101.CAL*** XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*** XBRL Taxonomy Extension Definition Linkbase.
101.LAB*** XBRL Taxonomy Extension Label Linkbase.
101.PRE*** XBRL Taxonomy Extension Presentation Linkbase.
*
**
***
Filed herewith.
Furnished herewith
Previously filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and filed
with the Securities and Exchange Commission on February 27, 2018.
+
Management Compensatory Plan
3
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 30, 2018
RumbleOn, Inc.
By: /s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
(Principal Financial and Accounting
Officer)
4
I, Marshall Chesrown, certify that:
CERTIFICATION
(1)
I have reviewed this Annual Report on Form 10-K/A of RumbleOn, Inc.; and
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report.
Exhibit 31.1
March 30, 2018
By: /s/ Marshall Chesrown
Marshall Chesrown
Chairman and Chief Executive Officer
I, Steven R. Berrard, certify that:
(1)
I have reviewed this Annual Report on Form 10-K/A of RumbleOn, Inc.; and
CERTIFICATION
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report.
Exhibit 31.2
March 30, 2018
By: /s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report on Form 10-K/A of RumbleOn, Inc. (the "Company") for the
year ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
to my knowledge and belief, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
March 30, 2018
By: /s/ Marshall Chesrown
Marshall Chesrown
Chairman and Chief Executive Officer
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report on Form 10-K/A of RumbleOn, Inc. (the "Company") for the
year ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
to my knowledge and belief, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
March 30, 2018
By: /s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
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