Dear Shareholders,
We have ambitious plans for RumbleOn and 2019 was
another successful year. We took aggressive steps to scale
the business and made progress towards our goals. With over
$840 million in revenue in 2019 we believe we have
demonstrated the value of RumbleOn’s national brand and
our ability to drive impressive growth.
2019 was our first full year in cars and trucks, the results of
which have been beyond our imagination. During 2019 we
also entered the consumer finance market with our
RumbleOn Finance offering and grew
RumbleOnClassifides.com to the 3rd largest consumer listing
site for powersports in the country, surpassing eBay. As we
enter the next phase in our evolution, we believe we are well‐
positioned to execute on our mission to become the first
online vehicle provider to achieve profitability.
We have made progress towards rationalizing overhead and
refining our cost structure company‐wide, taken a more
disciplined approach to sales and demonstrated gross margin
improvements.
As we entered 2020, we began to see our strategy of
opportunistically building inventory in Q4 for the anticipated
acceleration in sales in 2020 pay off, with January and
February tracking consistent with our objectives. Beginning in
March, the industry, and our business, experienced
imbalances in supply and demand as the pandemic and
related shelter‐in‐place orders began to take hold. Our
business was further impacted from a direct hit by the
tornado that struck our Nashville Automotive hub on March
3rd. Despite our strong January and February these macro
events reduced our revenue and business operations in
manners consistent with others in our industry.
We recognize the return to “business as usual” will take time.
In the meantime, we will continue to take a conservative
approach to sales volume and closely monitor market
conditions as we build RumbleOn for the long‐term.
In July of this year we announced a strategic alliance with
CarGurus, and the newest iteration of RumbleOn.com,
RumbleOn 3.0, which we expect will go live in the third
quarter of this year. RumbleOn 3.0 will help dealers
strengthen their online presence and stay competitive by
allowing them to list both new and used powersports on our
site, as well as giving them access to our unparalleled
technology such as cash offers, RumbleOn Finance and Dealer
Direct. These enhancements expand RumbleOn’s
opportunities for monetization of the platform and
technology. Over 100 franchise and independent preowned
dealerships across 29 states have already registered to
participate in the third generation of RumbleOn and we are
confident many more will be joining them as our easy‐to‐use
technology drives quality leads to registered dealers.
RumbleOn is about innovation. We are still in our early days,
and we look forward to years of innovation ahead of us. We
will continue making enhancements that position us to
execute on our mission using innovative technology solutions.
I’d like to say thank you to all our staff for all your hard work
and dedication, especially during these difficult times, our
shareholders for your support, and all of our partners and
customers for helping us as we progress towards achieving
our goal of becoming the first online vehicle provider to
achieve profitability.
Sincerely,
Marshall Chesrown
Co‐founder, Chairman and Chief Executive Officer
There is no playbook for running a company during a
pandemic, but one of RumbleOn’s key advantages is our
highly experienced management team. We are committed to
prudent management of our financial resources and as such,
we were decisive and quick to take action to protect our
business from the onset of the pandemic. We also made
operational changes, including adding temporary facilities in
Nashville and developing enhanced virtual solutions for our
dealers, which enabled us to reaccelerate our business of
both buying and selling pre‐owned vehicles as demand
returned and it became safe to resume operations in a
meaningful way.
__________________________________________________________________________________________________
Any forward‐looking statements in our discussion are based on the expectations, estimates and projections of management as of
today and are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict, which could cause
actual results to differ materially from those expressed or implied in the forward‐looking statements. These statements are not
guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our 2019
Form 10‐K and other recent filings with the SEC for a more detailed discussion of the risks that could impact the future operating
results and financial condition of RumbleOn, Inc. We disclaim any intentions or obligations to update or revise any forward‐looking
statements, except as required by law.
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RUMBLEON, INC.
Table of Contents to Annual Report on Form 10-K
for the Year Ended December 31, 2019
Business.
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase Of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information.
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Exhibits, Financial Statement Schedules.
Form 10-K Summary.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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31
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62
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66
68
70
71
73
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74
PART I
In this Annual Report on Form 10-K, "we," "our," "us," "RumbleOn," and "the Company" refer to RumbleOn Inc. and its
consolidated subsidiaries, unless the context requires otherwise.
Forward-Looking and Cautionary Statements
This Annual Report on Form 10-K contains forward-looking statements and involves risks and uncertainties that could
materially affect expected results of operations, liquidity, cash flows, and business prospects. These statements include, among
other things, statements that:
● We have a limited operating history and we cannot assure you we will achieve or maintain profitability;
● Our annual and quarterly operating results may fluctuate significantly or may fall below the expectations of investors or
securities analysts, each of which may cause our stock price to fluctuate or decline;
● The initial development and progress of our business to date may not be indicative of our future growth prospects and, if
we continue to grow rapidly, we may not be able to manage our growth effectively;
● There is substantial doubt about our ability to continue as a going concern;
● We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or
unforeseen circumstances. If capital is not available on terms acceptable to us or at all, we may not be able to develop and
grow our business as anticipated and our business, operating results and financial condition may be harmed;
● We may fail to maintain our listing on The Nasdaq Stock Market;
● The success of our business relies heavily on our marketing and branding efforts, especially with respect to the RumbleOn
website and our branded mobile applications, and these efforts may not be successful;
● The failure to develop and maintain our brand could harm our ability to grow unique visitor traffic and to expand our
regional partner network;
● We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search
results, our traffic would decline, and our business would be adversely affected;
● A significant disruption in service on our website or of our mobile applications could damage our reputation and result in
a loss of consumers, which could harm our business, brand, operating results, and financial condition;
● We may be unable to maintain or grow relationships with information data providers or may experience interruptions in
the data feeds they provide, which may limit the information that we are able to provide to our users and regional partners
as well as adversely affect the timeliness of such information and may impair our ability to attract or retain consumers and
our regional partners and to timely invoice all parties;
● If we are unable to provide a compelling vehicle buying experience to our users, the number of transactions between our
users, RumbleOn and dealers will decline, and our revenue and results of operations will suffer harm;
● If key industry participants, including powersports and recreation vehicle dealers and regional auctions, perceive us in a
negative light or our relationships with them suffer harm, our ability to operate and grow our business and our financial
performance may be damaged;
● The growth of our business relies significantly on our ability to increase the number of regional partners in our network
such that we are able to increase the number of transactions between our users and regional partners. Failure to do so
would limit our growth;
● Our ability to grow our complementary product offerings may be limited, which could negatively impact our
development, growth, revenue and financial performance;
● We rely on third-party financing providers to finance a portion of our customers' vehicle purchases;
1 ● Our sales of powersports/recreation vehicles may be adversely impacted by increased supply of and/or declining prices
for pre-owned vehicles and excess supply of new vehicles;
● We rely on a number of third parties to perform certain operating and administrative functions for the Company;
● We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our
business and operating results;
● Seasonality or weather trends may cause fluctuations in our unique visitors, revenue and operating results;
● We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure
to protect such information and data could damage our reputation and brand and harm our business and operating results;
● Failure to adequately protect our intellectual property could harm our business and operating results;
● We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business
and operating results;
● We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and regulations.
Failure to comply with these laws and regulations could have a material adverse effect on our business, results of
operations and financial condition;
● We provide transportation services and rely on external logistics to transport vehicles. Thus, we are subject to business
risks and costs associated with the transportation industry. Many of these risks and costs are out of our control, and any of
them could have a material adverse effect on our business, financial condition and results of operations;
● We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified
personnel, our ability to develop and successfully grow our business could be harmed;
● We may acquire other companies or technologies, which could divert our management's attention, result in additional
dilution to our stockholders and otherwise disrupt our operations and harm our operating results;
● The recent outbreak of COVID-19 will likely have a significant negative impact on our business, sales, results of
operations, financial condition, and liquidity;
● We may be unable to realize the anticipated synergies related to the Acquisitions, which could have a material adverse
effect on our business, financial condition and results of operations;
● We may be unable to successfully integrate the Wholesale Entities' business and realize the anticipated benefits of the
Acquisitions;
● Our business relationships, those of the Wholesale Entities or the combined company may be subject to disruption due to
uncertainty associated with the Acquisitions;
●
If we are unable to maintain effective internal control over financial reporting for the combined companies, we may fail to
prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the
accuracy and completeness of our financial statements;
● The Wholesale Entities may have liabilities that are not known, probable or estimable at this time;
● As a result of the Acquisitions, we and the Wholesale Entities may be unable to retain key employees;
● The trading price for our Class B Common Stock may be volatile and could be subject to wide fluctuations in per share
price;
● Our principal stockholders and management own a significant percentage of our stock and an even greater percentage of
the Company's voting power and will be able to exert significant control over matters subject to stockholder approval;
2
●
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or
misleading opinion regarding our stock, our stock price and trading volume could decline;
● Because our Class B Common Stock may be deemed a low-priced "penny" stock, an investment in our Class B Common
Stock should be considered high risk and subject to marketability restrictions;
● We do not currently or for the foreseeable future intend to pay dividends on our common stock;
● We are subject to reduced reporting requirements so long as we are considered a "smaller reporting company" and we
cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common
stock less attractive to investors;
●
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other
public reporting, which would harm our business and the trading price of our common stock;
● Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline;
● Although the Notes are referred to as convertible senior Notes, the Notes are effectively subordinated to any of our future
secured debt and structurally subordinated to any liabilities of our subsidiaries;
● The Notes are our obligations only and a substantial portion of our operations are conducted through, and a substantial
portion of our consolidated assets are held by, our subsidiaries;
● Operating our business requires a significant amount of cash, and we may not have sufficient cash flow from our business
to pay the Notes and any other debt;
● Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the Notes;
● The trading price for our Class B Common Stock may be volatile and could be subject to wide fluctuations in per share
price which could adversely impact the trading price of the Notes;
● We may incur substantially more debt in the future or take other actions which would intensify the risks discussed in
these risk factors;
● We may not have the ability to raise the funds necessary to settle the Notes in cash on a conversion, to repurchase the
Notes on a fundamental change, or to repay the Notes at maturity. In addition, the terms of our future debt may contain
limitations on our ability to pay cash on conversion or repurchase of the Notes;
● Redemption may adversely affect the return on the Notes;
● The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating
results;
● Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the market price
of our Class B Common Stock;
● Future sales of our Class B Common Stock or equity-linked securities in the public market could lower the market price
for our Class B Common Stock and adversely impact the trading price of the Notes;
● Holders of Notes are not entitled to any rights with respect to our Class B Common Stock, but they will be subject to all
changes made with respect to them to the extent our conversion obligation includes shares of our Class B Common Stock;
● The conditional conversion feature of the Notes could result in holders receiving less than the value of our Class B
Common Stock into which the Notes would otherwise be convertible;
● On conversion of the Notes, holders may receive less valuable consideration than expected because the value of our Class
B Common Stock may decline after holders exercise their conversion rights but before we settle our conversion
obligation;
3
● The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change or a notice
of redemption may not adequately compensate holders for any lost value of their Notes as a result of such transaction or
redemption;
● The conversion rate of the Notes may not be adjusted for dilutive events;
● Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be
obligated to offer to repurchase the Notes;
● Certain provisions in the indenture governing the Notes may delay or make it more expensive for a third party to acquire
us;
● Holders of Notes are not entitled to receive any shares of our Class B Common Stock otherwise deliverable upon
conversion of the Notes to the extent that such receipt would cause such holders to become, directly or indirectly, a
beneficial owner of shares of our Class B Common Stock in excess of 4.99% of the total number of the shares of our
Class B Common Stock then issued and outstanding;
● We cannot assure you that an active trading market will develop for the Notes;
● Any adverse rating of the Notes may cause their trading price to fall; and
● Other statements regarding our future operations, financial condition and prospects, and business strategies.
Forward-looking statements may appear throughout this report, including without limitation, the following sections: Item
1 "Business," Item 1A "Risk Factors," and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations. "Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates,"
"expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions. These
forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which
could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in
particular, the risks discussed under the caption "Risk Factors" in Item 1A and those discussed in other documents we file with the
Securities and Exchange Commission (SEC). We undertake no obligation to revise or publicly release the results of any revision to
these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place
undue reliance on such forward-looking statements.
Market and Industry Data
Some of the market and industry data contained in this Annual Report on Form 10-K are based on independent industry
publications or other publicly available information. Although we believe that these independent sources are reliable, we have not
independently verified and cannot assure you as to the accuracy or completeness of this information. As a result, you should be
aware that the market and industry data contained herein, and our beliefs and estimates based on such data, may not be reliable.
Item 1. Business.
Overview
RumbleOn, Inc., a Nevada corporation, is a technology driven, motor vehicle dealer and e-commerce platform provider
disrupting the vehicle supply chain using innovative technology that aggregates, processes and distributes inventory in a faster and
more cost-efficient manner.
We operate an infrastructure-light platform that facilitates the ability of all participants in the supply chain, including
RumbleOn, other dealers and consumers to Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to transform the
way VIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and
transparent transaction experiences. While our initial customer facing emphasis through most of 2018 was on motorcycles and
other powersports, in 2019 we enhanced our platform to accommodate nearly any VIN-specific vehicle, and via our October 2018
acquisition of Wholesale, Inc., we made a concerted effort to grow our cars and light truck categories.
In this Annual Report on Form 10-K (this "Form 10-K"), we refer to RumbleOn, Inc., as "RumbleOn," "RMBL," the
"Company," "we," "us," and "our," and similar words. All share amounts included in this Form 10-K have been adjusted for the
one-for-twenty reverse stock split of our Class A Common Stock and Class B Common Stock, effective May 20, 2020.
4
Our Model
RumbleOn's goal is to disrupt the inefficient, friction-laden pre-owned vehicle supply chain through the use of innovative
technology. We have created a modern, technology-based platform to acquire and distribute inventory transparently and efficiently
at value-oriented prices. We intend to leverage this platform to maximize the overall profit and return on vehicles that RumbleOn
buys/sells for its own account, as well to provide both dealers and consumers technology-based tools, financing and logistics-based
solutions to simplify their business or aid them through the complex process of buying/selling a vehicle.
Our model is anchored on powerful technology that enables RumbleOn to efficiently acquire, process (including
reconditioning, photos and inspection), market and distribute vehicles to dealers and consumers. Collectively, this allows us to
maximize inventory value and reduce inventory risk as we effect the entire vehicle supply chain in a faster and more cost-efficient
manner. There are two critical inputs that are key to understanding how we do this: 1) our innovative technology and 2) our
inventory management.
Innovative Technology
Technology underpins everything at RumbleOn. If you want to disrupt an industry, you have to have answer two
fundamental questions:
1) What can we do to eliminate existing customer pain points?
2) How do we remove friction from a marketplace?
We leverage technology to drive change in an industry that is as old as the automobile or motorcycle itself. At a high-
level, we believe there are two main areas where leveraging these innovations provides us a competitive advantage and eliminates
existing customer pain points and removes friction from a marketplace – 1) our proprietary supply chain and distribution software
and 2) and our mobile-first web application strategy.
We utilize internally developed software and real time API's to look at the overall supply chain and reconfigure inventory
for the purpose of acquisition and distribution. Our technology aggregates multiple data sources in real-time, tracking and
cataloging inventory across the country.
We analyze real-time market data to inform our acquisition decisions, continually capturing and archiving such data using
advanced algorithms, to calibrate pricing and estimate freight and reconditioning expenses. The values are then used in our Cash
Offer tool to quickly determine a fair and reasonable, non-negotiable offer.
Lastly, we continue to enhance our website and mobile application to provide not only a compelling user experience,
from the front-end user interface and powerful search tools to enabling secure data, document and payment exchanges between
parties, but also to help optimize search engine marketing and lower overall cost of customer acquisition. For example, the
RumbleOn app has features such as auto-populating details into the Cash Offer tool when a customer scans their VIN, we
introduced simplified uploading of vehicle photos by app users, we integrate technologies to try and block inappropriate content on
our Classifieds site, and we are creating fun social experiences like our Road Trip Planner and successful blog campaigns.
Inventory Management
We believe our ability to access and acquire inventory efficiently and cost effectively, from both consumers and dealers,
is a key differentiator for RumbleOn. Using pre-owned retail and wholesale vehicle market data obtained from a variety of internal
and external data sources, we evaluate a significant number of vehicles daily across both online and traditional auction/dealer-
based channels to determine their fit with end-buyer demand, internal profitability targets and our existing inventory needs by
make, model, condition and price point.
The supply of pre-owned vehicles is influenced by a variety of factors, including: the total number of vehicles in
operation; the rate of new vehicle sales, which in turn generate pre-owned vehicles; the number of pre-owned vehicles sold or
remarketed through our consumer and dealer channels; model-year changes; fleet turnover; seasonality; natural disasters; and
economic downturns.
5
As such, we are very focused on nimbly managing our overall inventory, and strive to maintain our current average days
to sale under 30 days. We believe this not only minimizes potential impacts on profits from the items described above but also
provides us significant competitive benefits; namely: i) we have flexibility to adjust our inventory in response to unforeseen
market dynamics – such as adverse weather conditions, including tornadoes and hurricanes, or other events or conditions that
impact purchasing decisions, including disruptions in the domestic and global economy due to the COVID-19 pandemic (discussed
below); and ii) we can make swift decisions to capitalize on market anomalies or leverage arbitrage opportunities that may benefit
our volume and margins in a more consistent fashion.
To support our emphasis on inventory management and reduction of capital investment needs, we leverage a robust
partner network that manages the reconditioning, inspections and distribution of our inventory. Our current regional partners are
located in the cities below:
Cincinnati, OH; Dallas, TX; Las Vegas, NV;
Atlanta, GA; Statesville, NC; Philadelphia, PA; Nashville, TN;
Orlando, FL; San Diego, CA; San Francisco, CA;
West Palm Beach, FL
Every unit of inventory we acquire is posted immediately to both our website and Dealer Direct virtual inventory tool, as
well as sent to one of our regional partners who then uploads photos, prepares detailed inspection reports, reconditions the vehicle
to a dealer's expectation and sets the vehicle for live auction sale in the near future. If the vehicle is sold to a consumer, it is
reconditioned to the appropriate level for the buyer, which reduces unnecessary reconditioning costs and enables us to protect our
margin when selling directly to a dealer who might prefer to manage or perform much of the reconditioning to their standards.
More importantly, we are able to quickly establish new regional partners as needed to reduce our cost of sales and freight expense
while creating more capacity for over-all sales growth. Currently, there are hundreds of potential expansion locations that welcome
the opportunity for their business. These are owned by the likes of Cox Automotive (Manheim); Copart (National Powersports
Auctions); KARS (Adesa auctions) just to name a few.
Competitive Positioning
We believe we are disrupting a massive opportunity in the market and unlike others, we are using this data-powered
technology to serve consumers, dealers and service providers across the entire supply chain. Our comprehensive offering includes
the following:
Dealers
Dealer to Consumer Sales
Dealer to Dealer Sales
Online Cash Offers from RumbleOn
Inventory Management
Dealer Branded Cash Offers
Dealer Listing Site
Logistics Support
Consumers
Consumer to Consumer Sales
Online Cash Offers from RumbleOn
Classifieds (including transaction support)
Finance a Purchase
Warranty Products
Inspection Services
Logistics Support
Other
Lender Listing Site
Dealer Listing Site
Data Aggregation
Auction Locations
Transport Providers
Inspection Services
Peer-to-Peer Payment
Presently we are buying and selling our entire inventory and delivering the same customer experience across our websites
– rumbleon.com, RumbleOn Dealer Direct and other URL's also represented as powered by RumbleOn - providing us with a
strategic advantage of having vertical brands. These solutions exist as separate websites and each fills a gap in the legacy buying
and selling experience while taking advantage of vertical search of the same inventory across multiple consumer and dealer
channels.
RumbleOn.com is our primary national online consumer facing platform. Consumers can currently get a real Cash Offer
for their vehicle as well as purchase vehicles through this website. Customers can pay for their vehicle using cash or they may
select from a range of finance options from unrelated third parties such as banks or credit unions, as well as RumbleOn Finance,
our own financing platform. Additionally, customers have the option to protect their vehicle with Extended Protection Plans
("EPPs") and vehicle appearance protection products as part of our online checkout process. EPPs include extended service plans
which are designed to cover unexpected expenses associated with mechanical breakdowns and guaranteed asset protection,
which is intended to cover the unpaid balance on a vehicle loan in the event of a total loss of the vehicle or unrecovered theft as
well as other traditional protection products.
RumbleOn Dealer Direct is currently being used by multiple dealers which allows them to leverage the RumbleOn
inventory as a virtual inventory of their own at wholesale prices without having to wait for auction day.
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Wholesale Inc. and AutoSport, Powered by RumbleOn (as well as any other sub-brands we may utilize) – The
significant local brand awareness these parallel sites provide allows us to take advantage of existing organic search benefits and
customer goodwill by creating a locally branded website with most of the same functionality as RumbleOn.com.
RumbleOn Classifieds was launched in December 2018 and is a one-stop free listing site for consumers who wish to
pursue peer-to-peer transactions, similar to Craigslist. Consumers list the vehicle at the price they wish. RumbleOn then offers
both buyers and sellers a suite of option tools to facilitate the transaction process, including assistance with titles, documentation,
third-party inspection, financing, funds-transfer, and logistics. Classifieds allows us to not only buy more inventory from
unsuccessful listings, but more importantly provide consumers who were unwilling to accept the RumbleOn Cash Offer price an
opportunity to stay in the RumbleOn network.
RumbleOn Finance is our wholly owned consumer finance entity that provides vehicle buyers competitive borrowing
alternatives fully underwritten internally. During the second half of 2019, RumbleOn Finance began originating finance
transactions on powersports.
Our Market / Competition
We participate in both the automotive and powersports markets.
Automotive
The U.S. used car marketplace is highly fragmented, and we face competition from franchised dealers, who sell both new
and used vehicles; independent used car dealers; online and mobile sales platforms; and private parties. There are approximately
18,000 franchised automotive dealerships, which sell both new and used vehicles, as well as approximately 43,000 used car
independents in the U.S. according to NADA and Borrell Associates' 2017 Outlook, respectively. Moreover, the top 100 car
retailers control approximately 8.6% of the used car market share in 2018 according to AutomotiveNews.
Collectively, there were approximately 273 million registered vehicles in operation in 2018. Additionally, in 2019
automakers sold approximately 17 million new cars and approximately 41 million used cars were sold, many of which were
accompanied by trade-ins. Lastly, the National Auto Auction Association and Cox Automotive estimate there are more than 16
million vehicles annual sold through wholesale channels, with approximately 9.6 million sold through auctions , the vast majority
of which are run through the two largest auction participants, Manheim and Adesa, 4.9 million dealer-to-dealer and 2.1 direct to
consumer or offsite/online.
Based on the large number of new and used vehicles being sold each year, coupled with the relatively small market share
of any single used car seller, we believe that both sources of used vehicles, and our ability to sell them, will continue to be
sufficient to meet our current and future needs.
Powersports
We currently operate in the powersports and recreational vehicle market with significant scale and breadth of products.
The Motorcycle Industry Council estimates that in 2018, 10.1 million U.S. households owned the 12.2 million motorcycles. Of
these, 87% of these were on-highway models, our initial targeted segment. According to the Powersports Business 2016 Market
Data Book, or the 2020 Market Data book, pre-owned motorcycle registrations were 1.1 million units in 2015 with new unit sales
of approximately 281,000. The owner demographic is favorable to the market outlook as millennials and baby boomers are
maturing into the median ranges. The owner group is characterized by brand loyal riding enthusiasts. Additionally, the dealer
market is fragmented with an estimated 10,000 outlets authorized to sell powersports and recreation vehicles that include new and
pre-owned motorcycles, scooter, and all-terrain vehicles.
Our initial focus was on pre-owned Harley-Davidson motorcycles as it provided a targeted, identifiable segment to
establish the functionality of the platform and the RumbleOn brand. Harley-Davidson is a highly regarded and dominant brand in
the motorcycle market, (representing approximately 50% market share of new 601cc+ on-road motorcycles according to both
Harley-Davidson public filings and the Motorcycle Industry Council) and there were approximately 3.1 million Harley Davidson
riders in 2019, up approximately 55,00 from the prior year per the IHS Markit Motorcycles in Operations data. As our business has
evolved we have expanded into other powersports and recreational vehicle with a strong emphasis on the "metric" brands of
motorcycles (Honda, Yamaha, Kawasaki, Suzuki, etc.), which essentially doubled the available market and is a natural extension
as these vehicles are often sold or traded for Harley-Davidson vehicles. The metric market and dealer profile closely mirror that of
the Harley-Davidson market although it is more highly fragmented and the average pre-owned vehicle selling price is less than a
pre-owned Harley Davidson. In addition, many of the metric dealers also retail other powersport vehicles including ATVs, UTVs,
snowmobiles and personal watercraft providing RumbleOn an opportunity for product extensions by leveraging existing regional
partner relationships.
7
The ATV, UTV/side-by-side, snowmobile and personal watercraft vehicle, or PWC, markets, are a logical next extension
for our platform, as there is significant overlap in the motorcycle dealer base with dealers of these products. According to estimates
from Polaris, approximately 770,000 ATV/UTV/side-by-sides and 100,000 snowmobiles sold in North America in 2018, and there
are estimated to be approximately 1.2 million snowmobiles registered in the United States with another 600,000 in Canada. Lastly,
according the National Marine Manufacturers Association and the Personal Watercraft Industry Association, in 2016 there were
more than 59,000 new PWCs sold in the United States and there are currently more than 1.1 million PWCs registered in the United
States.
The United States pre-owned powersports and recreational vehicle marketplace is highly fragmented, and we face
competition from franchised dealers, who sell both new and pre-owned vehicles; independent dealers; online and mobile sales
platforms; and private parties. We believe that the principal competitive factors in our industry are delivering an outstanding
consumer experience, competitive sourcing of vehicles, breadth and depth of product selection, and value pricing. Our competitors
vary in size and breadth of their product offerings. We believe that our principal competitive advantages in pre-owned vehicle
retailing includes our ability to provide a high degree of customer satisfaction with the buying experience by virtue of our low, no-
haggle prices and our 100% online marketplace platform including our website and mobile application and our ability to make a
cash offer to purchase a vehicle with our customer-friendly sales process and our breadth of selection of the most popular makes
and models available on our website. In addition, we believe our willingness to make a cash offer to purchase a customer's vehicle,
whether or not the customer is buying a vehicle from us, provides a competitive sourcing advantage for retail vehicles allowing us
to offer value-oriented pricing. We believe the principal competitive factors for our ancillary products and services include an
ability to offer a full suite of products at competitive prices delivered in an efficient manner to the customer. We compete with a
variety of entities in offering these products including banks, finance companies, insurance and warranty providers and extended
vehicle service contract providers. We believe our competitive strengths in this category will include our ability to deliver products
in an efficient manner to customers utilizing our technology and our ability to partner with key participants in each category to
offer a full suite of products at competitive prices. Lastly, additional competitors may enter the businesses in which we will
operate.
The supply of pre-owned vehicles, including automobiles, light trucks and powersports, is influenced by a variety of
factors, including: the total number of vehicles in operation; the rate of new vehicle sales, which in turn generate pre-owned
vehicles; and the number of pre-owned vehicles sold or remarketed through our consumer and dealer channels. Based on the large
number of new and used vehicles being sold each year, coupled with the relatively small market share of any single used car seller,
we believe that both sources of used vehicles, and our ability to sell them, will continue to be sufficient to meet our current and
future needs.
Seasonality
Historically, both the automotive and powersport industries have been seasonal with traffic and sales strongest in the
spring and summer quarters. Sales and traffic are typically slowest in the winter quarter but increase typically in February and
March, coinciding with tax refunds and improved weather conditions. Given this seasonality, coupled with the fact that we are a
growing company, leads us to expect our quarterly results of operations, including our revenue, gross profit, profit/loss, and cash
flow to vary significantly in the future, based in part on vehicle buying patterns. Over time, we expect to normalize to seasonal
trends in both markets, with the corresponding impact that may result from the overall economic conditions.
Nashville Tornado
In the early morning hours of March 3, 2020, a severe tornado struck the greater Nashville area causing significant damage
to our facilities in Nashville. We maintain insurance coverage for damage to our facilities and inventory, as well as business
interruption insurance. We continue in the process of reviewing damages and coverages with our insurance carriers. The loss
comprises three components: (1) inventory loss, currently assessed by the insurance carrier at approximately $13,000,000; (2)
building and personal property loss, primarily impacting our leased facilities, currently assessed by the insurance carrier at
$3,369,087; and (3) loss of business income, for which we have coverage in the amount of $6,000,000.
All three components of our loss claim have been submitted to its insurers. Our inventory claim is subject to a dispute with
the carrier as to the policy limits applicable to the loss. The building insurer has agreed to pay $3,369,087 on the building and
personal property loss, reflecting a complete recovery, net of $5,000 reflecting our deductible. The insurer has made an interim
payment on the building and personal property loss of $2,269,507 and has an outstanding balance of $1,094,580 which is expected
to be paid during the second quarter of 2020. The loss of business income claim is ongoing and remains in the process of negotiation,
however, the insurer has advanced $250,000 against the final settlement. We believe there will be a full recovery of all three loss
components, however no assurance can be given regarding the amounts, if any, that will be ultimately recovered.
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COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and
recommended containment and mitigation measures worldwide. The global outbreak of COVID-19 has led to severe disruptions in
general economic activities, particularly retail operations, as businesses and federal, state, and local governments take increasingly
broad actions to mitigate this public health crisis. We have experienced significant disruption to our business, both in terms of
disruption of our operations and the adverse effect on overall economic conditions. These conditions will significantly negatively
impact all aspects of our business. Our business is also dependent on the continued health and productivity of our associates
throughout this crisis.
The COVID-19 situation has created an unprecedented and challenging time. Our current focus is on positioning the
Company for a strong recovery when this crisis is over. We have taken steps to reduce our inventory and align our operating
expenses to the state of the business. We plan to continue to operate as permitted to support our customers’ needs for reliable
vehicles and to provide as many jobs as possible for our associates. Effective April 9, 2020, 169 associates were temporarily laid-
off effective, however our receipt of PPP funds, as discussed below will allow us to gradually recall these associates over time. All
ongoing employment determinations are subject to change due to the COVID-19 situation future government mandates, as well as
future business conditions. We will continue to monitor the COVID-19 situation and look for ways to preserve cash and reduce our
operating expenses as we are able, however, we expect the consequences of the COVID-19 outbreak will likely have a significant
negative impact on our business, sales, results of operations, financial condition, and liquidity.
Intellectual Property and Proprietary Rights
Our brand image and intellectual property are an important element of our business strategy. As of December 31, 2019,
we have a trademark registration for "RumbleOn", a patent covering near field communications to store and retrieve vehicle
information, and various applications pending with the U.S. Patent and Trademark Office.
Government Regulation
Various aspects of our business are or may be subject, directly or indirectly, to U.S. federal and state laws and regulations.
Failure to comply with such laws or regulations may result in the suspension or termination of our ability to do business in affected
jurisdictions or the imposition of significant civil and criminal penalties, including fines or the award of significant damages
against us and our dealers in class action or other civil litigation.
State Motor Vehicle Sales, Advertising and Brokering Laws
The advertising and sale of new or pre-owned motor vehicles is highly regulated by the states in which we do business.
Although we do not anticipate selling new vehicles, state regulatory authorities or third parties could take the position that some of
the regulations applicable to new vehicle dealers or to the manner in which automobiles, powersports and recreational vehicles are
advertised and sold generally are directly applicable to our business. If our products and services are determined to not comply
with relevant regulatory requirements, we could be subject to significant civil and criminal penalties, including fines, or the award
of significant damages in class action or other civil litigation as well as orders interfering with our ability to continue providing our
products and services in certain states. In addition, even absent such a determination, to the extent dealers are uncertain about the
applicability of such laws and regulations to our business, we may lose, or have difficulty increasing the number of dealers in our
network, which would affect our future growth.
Several states have laws and regulations that strictly regulate or prohibit the brokering of motor vehicles or the making of
so-called "bird-dog" payments by dealers to third parties in connection with the sale of motor vehicles through persons other than
licensed salespersons. If our products or services are determined to fall within the scope of such laws or regulations, we may be
forced to implement new measures, which could be costly, to reduce our exposure to those obligations, including the
discontinuation of certain products or services in affected jurisdictions. Additionally, such a determination could subject us to
significant civil or criminal penalties, including fines, or the award of significant damages in class action or other civil litigation.
In addition to generally applicable consumer protection laws, many states in which we may do business either have or
may implement laws and regulations that specifically regulate the advertising for sale of new or pre-owned automobiles,
powersports and recreational vehicles. These state advertising laws and regulations may not be uniform from state to state,
sometimes imposing inconsistent requirements on the advertiser. If the content displayed on the websites we operate is determined
or alleged to be inaccurate or misleading, we could be subject to significant civil and criminal penalties, including fines, or the
award of significant damages in class action or other civil litigation. Moreover, such allegations, even if unfounded or decided in
our favor, could be extremely costly to defend, could require us to pay significant sums in settlements, and could interfere with our
ability to continue providing our products and services in certain states.
9
Federal Advertising Regulations
The Federal Trade Commission ("FTC") has authority to take actions to remedy or prevent advertising practices that it
considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the future that
any aspect of our business constitutes an unfair or deceptive advertising practice, responding to such allegations could require us to
pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our products and services, any
or all of which could result in substantial adverse publicity, loss of participating dealers, lost revenue, increased expenses, and
decreased profitability.
Federal Antitrust Laws
The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the
marketplace. Some of the information that we may obtain from dealers may be sensitive and, if disclosed inappropriately, could
potentially be pre-owned by dealers to impede competition or otherwise diminish independent pricing activity. A governmental or
private civil action alleging the improper exchange of information, or unlawful participation in price maintenance or other
unlawful or anticompetitive activity, even if unfounded, could be costly to defend and adversely impact our ability to maintain and
grow our dealer network.
In addition, governmental or private civil actions related to the antitrust laws could result in orders suspending or
terminating our ability to do business or otherwise altering or limiting certain of our business practices, including the manner in
which we handle or disclose pricing information, or the imposition of significant civil or criminal penalties, including fines or the
award of significant damages against us in class action or other civil litigation.
The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory
framework governing our operations is subject to continuous change. The enactment of new laws and regulations or the
interpretation of existing laws and regulations in an unfavorable way may affect the operation of our business, directly or
indirectly, which could result in substantial regulatory compliance costs, civil or criminal penalties, including fines, adverse
publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability. Further, investigations by
government agencies, including the FTC, into allegedly anticompetitive, unfair, deceptive or other business practices by us, could
cause us to incur additional expenses and, if adversely concluded, could result in substantial civil or criminal penalties and
significant legal liability.
Employees
As of December 31, 2019, we had approximately 300 full time and 4 part time employees.
Corporate History
RumbleOn, Inc. was originally incorporated in the State of Nevada in October 2013 as a development stage company
under the name Smart Server, Inc. In July 2016, Berrard Holdings Limited Partnership ("Berrard Holdings") acquired 273,750
shares of common stock of the Company from the prior owner of such shares pursuant to an Amended and Restated Stock
Purchase Agreement, dated July 13, 2016. The shares acquired by Berrard Holdings represented 99.5% of the Company's then
issued and outstanding shares of common stock. Steven Berrard, a director and our Chief Financial Officer, has voting and
dispositive control over Berrard Holdings.
In October 2016, Berrard Holdings sold an aggregate of 165,625 shares of the Company's common stock to
Marshall Chesrown, our Chairman of the Board and Chief Executive Officer, and certain other purchasers. The 120,625 shares
acquired by Mr. Chesrown represented 43.9% of the Company's then issued and outstanding shares of common stock. The
remaining shares owned by Berrard Holdings after giving effect to the transaction represented 39.3% of the Company's then issued
and outstanding shares of common stock.
On January 8, 2017, the Company entered into an Asset Purchase Agreement (the "NextGen Agreement") with NextGen
Dealer Solutions, LLC ("NextGen"), Halcyon Consulting, LLC ("Halcyon"), and members of Halcyon signatory thereto ("Halcyon
Members," and together with Halcyon, the "Halcyon Parties") pursuant to which NextGen agreed to sell to the Company
substantially all of the assets of NextGen in exchange for a payment of approximately $750,000 in cash, the issuance to NextGen
of 76,191 unregistered shares of Company common stock (the "Purchaser Shares"), the issuance of a subordinated secured
promissory note issued by the Company in favor of NextGen in the amount of $1,333,333 (the "Acquisition Note") and the
assumption by the Company of certain specified post-closing liabilities of NextGen under the contracts being assigned to the
Company as part of the transaction (the "NextGen Acquisition").
10
On January 9, 2017, the Company's Board of Directors (the "Board") and stockholders holding 318,750 of the Company's
issued and outstanding shares of common stock approved an amendment to the Company's Articles of Incorporation (the
"Certificate of Amendment") to change the name Smart Server, Inc. to RumbleOn, Inc. and to create an additional class of
Company common stock. The Certificate of Amendment became effective on February 13, 2017, after the notice and
accompanying Information Statement describing the amendment was furnished to non-consenting stockholders of the Company in
accordance with Nevada and Federal securities law.
Immediately before approving the Certificate of Amendment, the Company had authorized 5,000,000 shares of common
stock, $0.001 par value (the "Authorized Common Stock"), including 320,000 issued and outstanding shares of common stock (the
"Outstanding Common Stock," and together with the Authorized Common Stock, the "Common Stock"). Pursuant to the
Certificate of Amendment, the Company designated 50,000 shares of Authorized Common Stock as Class A Common Stock (the
"Class A Common Stock"), which Class A Common Stock ranks pari passu with all of the rights and privileges of the Common
Stock, except that holders of Class A Common Stock are entitled to 10 votes per share of Class A Common Stock issued and
outstanding and (ii) all other shares of Common Stock, including all shares of Outstanding Common Stock were deemed Class B
Common Stock (the "Class B Common Stock"), which Class B Common Stock are identical to the Class A Common Stock in all
respects, except that holders of Class B Common Stock will be entitled to one vote per share of Class B Common Stock issued and
outstanding.
On January 9, 2017, the Company's Board and stockholders holding 318,750 of the Company's issued and outstanding
shares of common stock approved the issuance to (i) Mr. Chesrown of 43,750 shares of Class A Common Stock in exchange for an
equal number of shares of Class B Common Stock held by Mr. Chesrown and (ii) Mr. Berrard of 6,250 shares of Class A Common
Stock in exchange for an equal number of shares of Class B Common Stock held by Mr. Berrard.
On February 8, 2017 (the "Closing Date"), RumbleOn and its wholly owned subsidiary NextGen Pro, LLC ("NextGen
Pro") completed the NextGen Acquisition in exchange for approximately $750,000 in cash, the Purchaser Shares, the Acquisition
Note, and the other consideration described above. The Acquisition Note was originally set to mature on the third anniversary of
the Closing Date (the "Maturity Date"). Interest accrues and is paid semi-annually originally (i) at a rate of 6.5% annually from the
Closing Date through the second anniversary of such date and (ii) at a rate of 8.5% annually from the second anniversary of the
Closing Date through the Maturity Date. In January 2020, the Acquisition Note was amended to extend the Maturity Date to
January 31, 2021, modify the interest rate to 10% annually and also provide the holder the option to convert the Acquisition Note
at any time at a price of $3.00 per share of Class B Common Stock. The Company's obligations under the Acquisition Note are
secured by substantially all the assets of the NextGen Pro pursuant to an Unconditional Guaranty Agreement (the "Guaranty
Agreement"), by and among Halcyon and NextGen Pro, and a related Security Agreement between the parties, each dated as of the
Closing Date, as amended in January 2020. Under the terms of the Guaranty Agreement, NextGen Pro has agreed to guarantee the
performance of all of the Company's obligations under the Acquisition Note.
On October 26, 2018, we entered into an Agreement and Plan of Merger (as amended, the "Merger Agreement") by and
among the Company, the Company's newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware limited liability
company ("Merger Sub"), Wholesale Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale, LLC, a Tennessee limited
liability company ("Wholesale"), Steven Brewster and Janelle Brewster (each a "Stockholder," and together the "Stockholders"),
Steven Brewster, a Tennessee resident, as the representative of each Stockholder (the "Representative"), and Marshall Chesrown
and Steven Berrard, providing for the merger (the "Wholesale Merger") of Holdings with and into Merger Sub, with Merger Sub
surviving the Wholesale Merger as a wholly-owned subsidiary of the Company. On October 29, 2018, we entered into an
Amendment to the Merger Agreement making a technical correction to the definition of "Parent Consideration Shares" contained
in the Merger Agreement.
Also, on October 26, 2018, we entered into a Membership Interest Purchase Agreement (the "Purchase Agreement"), by
and among the Company, Steven Brewster and Justin Becker (together the "Express Sellers"), and Steven Brewster as
representative of the Express Sellers, pursuant to which we acquired all of the membership interests (the "Express Acquisition") in
Wholesale Express, LLC, a Tennessee limited liability company ("Wholesale Express").
Wholesale Inc. is one of the largest independent distributors of pre-owned vehicles in the United States and Wholesale
Express, LLC is a related logistics company. The Wholesale Merger and the Express Acquisition were both completed on October
30, 2018 (the "Wholesale Closing Date"). As consideration for the Wholesale Merger, we (i) paid cash consideration of
$12,353,941, subject to certain customary post-closing adjustments and (ii) issued to the Stockholders 1,317,329 shares (the "Stock
Consideration") of our previously designated Series B Non-Voting Convertible Preferred Stock, par value $0.001 (the "Series B
Preferred"). As consideration for the Express Acquisition, we paid cash consideration of $4,000,000, subject to certain customary
post-closing adjustments. Net proceeds from a private placement completed in October 2018 and $5,000,000 funded under our
credit facility were used to partially fund the cash consideration of the Wholesale Merger and the Express Acquisition. Each share
of Series B Preferred automatically converted on a one-for-one basis into shares of the Company's Class B Common Stock on
March 4, 2019.
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On February 3, 2019, the Company completed the acquisition of all of the equity interests of Autosport USA, Inc.
("Autosport"), an independent pre-owned vehicle distributor, pursuant to a Stock Purchase Agreement, dated February 1, 2019 (the
"Stock Purchase Agreement"), by and among RMBL Express, LLC, a wholly owned subsidiary of Company, Scott Bennie (the
"Seller") and Autosport. Aggregate consideration for the Acquisition consisted of (i) a closing cash payment of $600,000, plus (ii)
a fifteen-month $500,000 promissory note in favor of the Seller, plus (iii) a three-year $1,536,000 convertible promissory note in
favor of the Seller, plus (iv) contingent earn-out payments payable in the form of cash and/or the Company's Class B Common
Stock for up to an additional $787,500 if Autosport achieves certain performance thresholds. In connection with the Acquisition,
the Company also paid outstanding debt of Autosport of $235,000 and assumed additional debt of $257,933 pursuant to a
promissory note payable to Seller. The fair value of the contingent earn-out payment was considered immaterial at the date of
acquisition and was excluded from the purchase price allocation. As of December 31, 2019, there have been no payments earned
under the performance thresholds.
Available Information
Our Internet website is www.rumbleon.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act") are available, free of charge, under the Investor Relations tab of our
website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Additionally, the
SEC maintains a website located at www.sec.gov that contains the information we file or furnish electronically with the SEC.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. Investors should carefully consider the risks described
below and all of the other information set forth in this Annual Report on Form 10-K, including our financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding to invest in
our common stock. If any of the events or developments described below occur, our business, financial condition, or results of
operations could be materially or adversely affected. As a result, the market price of our common stock could decline, and
investors could lose all or part of their investment.
Risks Related to Our Business
We have a limited operating history and we cannot assure you we will achieve or maintain profitability.
Our business model is unproven, and we have a limited operating history. We are only in the initial development stage of
our business. We expect to make significant investments in the further development and expansion of our business and these
investments may not result in the successful development, operation, or growth of our business on a timely basis or at all. We may
not generate sufficient revenue and we may incur significant losses in the future for a number of reasons, including a lack of
demand for our products and services, increasing competition, weakness in the automotive, powersports and recreational vehicle
industries generally, as well as other risks described in these Risk Factors, and we may encounter unforeseen expenses, difficulties,
complications and delays, and other unknown factors relating to the development and operation of our business. Accordingly, we
may not be able to successfully develop and operate our business, generate revenue, or achieve or maintain profitability.
Our annual and quarterly operating results may fluctuate significantly or may fall below the expectations of investors or
securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to annual and quarterly fluctuations, and they will be affected by numerous
factors, including:
● a change in consumer discretionary spending;
● a shift in the mix and type of vehicles we sell which could result in lower sales price and lower gross profit;
● weather, which may impact the ability or desire for potential end customers to consider whether they wish to own a
●
powersports and recreational vehicle;
the timing and cost of, and level of investment in, development activities relating to our software development and
services, which may change from time to time;
● our ability to attract, hire and retain qualified personnel;
● expenditures that we will or may incur to acquire or develop additional product and service offerings;
●
●
future accounting pronouncements or changes in our accounting policies; and
the changing and volatile U.S., European and global economic environments.
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If our annual or quarterly operating results fall below the expectations of investors or securities analysts, the price of our
Class B Common Stock could decline substantially. Furthermore, any annual or quarterly fluctuations in our operating results may,
in turn, cause the price of our stock to fluctuate substantially. We believe that annual and quarterly comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
The initial development and progress of our business to date may not be indicative of our future growth prospects and, if we
continue to grow rapidly, we may not be able to manage our growth effectively.
We expect that, in the future, as our revenue increases, our rate of growth will decline. In addition, we will not be able to
grow as fast or at all if we do not accomplish the following:
● maintain and grow our regional partner network;
●
increase the number of users of our products and services, and in particular the number of unique visitors to our
website and our branded mobile applications;
increase the number of transactions between our users and both RumbleOn and our regional partners;
introduce third party ancillary products and services;
●
●
● acquire sufficient number of pre-owned vehicles at attractive cost; and
● sell sufficient number of pre-owned vehicles at acceptable prices.
We may not successfully accomplish any of these objectives. We plan to continue our investment in future growth. We
expect to continue to expend substantial financial and other resources on:
● marketing and advertising;
● product and service development; including investments in our website, business processes, infrastructure, inventory,
product and service development team and the development of new products and services and new features for
existing products; and
● general administration, including legal, accounting and other compliance expenses related to being a public company.
In addition, our anticipated growth may place and may continue to place significant demands on our management and our
operational and financial resources. As we grow, we expect to hire additional personnel. Also, our organizational structure will
become more complex as we add additional staff, and we will need to ensure we adequately develop and maintain operational,
financial and management controls as well as our reporting systems and procedures.
There is substantial doubt about our ability to continue as a going concern.
Our audited financial statements for the year ended December 31, 2019 were prepared under the assumption that we would
continue our operations as a going concern, which assumes the continuity of operations, the realization of assets and the
satisfaction of liabilities as they come due in the normal course of business. Our independent registered public accounting firm for
the year ended December 31, 2019 included a “going concern” paragraph in its report on our financial statements as of, and for the
year ended December 31, 2019, indicating that the Company has incurred recurring losses from operations and negative cash flows
from operations, and these conditions, along with the uncertainty arising from the impact of COVID-19 and other matters set forth
in Note 1 to our audited financial statements, raise substantial doubt about the Company’s ability to continue as a going
concern. If the Company is unable to generate sufficient liquidity from the actions taken in respect of the COVID-19 pandemic,
current working capital, results of operations, and expected continued inventory financing, there is no assurance that sufficient
financing will be available to us when needed to allow us to continue as a going concern.
We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or
unforeseen circumstances. If capital is not available on terms acceptable to us or at all, we may not be able to develop and grow
our business as anticipated and our business, operating results and financial condition may be harmed.
We intend to continue to make investments to support the development and growth of our business and, we may require
additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances.
Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be
available when we need them, on terms that are acceptable to us, or at all. Volatility in the credit markets may also have an adverse
effect on our ability to obtain debt financing. Also, the incurrence of leverage, the debt service requirements resulting therefrom,
and the possibility of a need for financing or any additional financing could have important and negative consequences, including
the following: (a) the Company's ability to obtain additional financing for working capital, capital expenditures, or general
corporate or other purposes may be impaired in the future; (b) certain future borrowings may be at variable rates of interest, which
will expose the Company to the risk of increased interest rates; (c) the Company may need to use a portion of the money it earns to
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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.
We may fail to maintain our listing on The Nasdaq Stock Market.
Our Class B Common Stock is listed for trading on NASDAQ under the trading symbol "RMBL" For our Class B
Common Stock to continue to be listed on NASDAQ, we must meet NASDAQ's continued listing standards. A failure to meet
these standards, including our failure to meet the minimum bid price requirement, could result in our Class B Common Stock
being delisted, which could adversely affect the market liquidity of our Class B Common Stock, impair the value of your
investment, and harm our business. We can provide no assurance that we will continue to satisfy NASDAQ's continued listing
standards and maintain our listing on NASDAQ.
The success of our business relies heavily on our marketing and branding efforts, especially with respect to the RumbleOn
website and our branded mobile applications, and these efforts may not be successful.
We believe that an important component of our development and growth will be the business derived from the RumbleOn
website and our branded mobile applications. Because RumbleOn is a consumer brand, we rely heavily on marketing and
advertising to increase the visibility of this brand with potential users of our products and services.
Our business model relies on our ability to scale rapidly and to decrease incremental user acquisition costs as we grow.
Some of our methods of marketing and advertising may not be profitable because they may not result in the acquisition of
sufficient users visiting our website and mobile applications such that we may recover these costs by attaining corresponding
revenue growth. If we are unable to recover our marketing and advertising costs through increases in user traffic and in the number
of transactions by users of our platform, it could have a material adverse effect on our growth, results of operations and financial
condition.
The failure to develop and maintain our brand could harm our ability to grow unique visitor traffic and to expand our regional
partner network.
Developing and maintaining the RumbleOn brand will depend largely on the success of our efforts to maintain the trust of
our users and dealers and to deliver value to each of our users and dealers. If our potential users perceive that we are not focused
primarily on providing them with a better pre-owned vehicle buying experience, our reputation and the strength of our brand will
be adversely affected.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance
with applicable laws and regulations, the integrity of the data that we provide to users, data privacy and security issues, and other
aspects of our business, irrespective of their validity, could diminish users' and dealers' confidence in and the use of our products
and services and adversely affect our brand. There can be no assurance that we will be able to develop, maintain or enhance our
brand, and failure to do so would harm our business growth prospects and operating results.
We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our
traffic would decline, and our business would be adversely affected.
We depend in part on Internet search engines and social media such as Google™, Bing™, and Facebook™ to drive traffic
to our website. For example, when a user searches the internet for a particular type of powersports or recreational vehicle, we will
rely on a high organic search ranking of our webpages in these search results to refer the user to our website. However, our ability
to maintain high, non-paid search result rankings is not within our control. Our competitors' Internet search engine and social
media efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could
revise their methodologies in a way that would adversely affect our search result rankings. If Internet search engines or social
media companies modify their search algorithms or display technologies in ways that are detrimental to us, or if our competitors'
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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 partner network, dealer management system data
feed providers, data aggregators and integrators, survey companies, purveyors of registration data and possibly others. There may
be some instances in which we use this information to collect a transaction fee from those dealers and recognize revenue from the
related transactions.
From time to time, we may experience interruptions in one or more data feeds that we receive from third-party data
providers, in a manner that affects our ability to operate our business. These interruptions may occur for a number of reasons,
including changes to the software used by these data feed providers and difficulties in renewing our agreements with third-party
data feed providers. Additionally, when an interruption ceases, we may not always be able to collect the appropriate fees and any
such shortfall in revenue could be material to our operating results.
If we are unable to provide a compelling vehicle buying experience to our users, the number of transactions between our users,
RumbleOn and dealers will decline, and our revenue and results of operations will suffer harm.
We cannot assure you that we are able to provide a compelling vehicle buying experience to our users, and our failure to
do so will mean that the number of transactions between our users, RumbleOn and dealers will decline, and we will be unable to
effectively monetize our user traffic. We believe that our ability to provide a compelling powersport and recreation vehicle buying
experience is subject to a number of factors, including:
● our ability to launch new products that are effective and have a high degree of consumer engagement; and
● compliance of our network partners with applicable laws, regulations and the rules of our platform.
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If key industry participants, including powersports and recreation vehicle dealers and regional auctions, perceive us in a
negative light or our relationships with them suffer harm, our ability to operate and grow our business and our financial
performance may be damaged.
We anticipate that we will derive a significant portion of our revenue from by existing vehicle dealers for dealer services
we may provide them. In addition, we utilize a select set of regional partners to perform services for our benefit, including, among
other things, vehicle reconditioning, vehicle storage and vehicle photography. If our relationships with our network of regional
partners suffer harm in a manner that leads to the departure of these regional partners from our network, then our ability to operate
our business, grow revenue, and lower our costs will be adversely affected.
We cannot assure you that we will maintain strong relationships with the regional partners in our network or that we will
not suffer partner attrition in the future. We may also have disputes with regional partners from time to time, including relating to
the collection of fees from them and other matters. We may need to modify our products, change pricing or take other actions to
address regional partner concerns in the future. If we are unable to create and maintain a compelling value proposition for regional
partners to become and remain in our network, our network will not grow and may begin to decline. If a significant number of
these regional partners decided to leave our network or change their financial or business relationship with us, then our business,
growth, operating results, financial condition and prospects could suffer. Additionally, if we are unable to attract regional partners
to our network, our growth could be impaired.
The growth of our business relies significantly on our ability to increase the number of regional partners in our network such
that we are able to increase the number of transactions between our users and regional partners. Failure to do so would limit
our growth.
Our ability to grow the number of regional partners in our network is an important factor in growing our business. We
may be viewed in a negative light by vehicle dealers, and there can be no assurance that we will be able to maintain or grow the
number of regional partners in our network.
Our ability to grow our complementary product offerings may be limited, which could negatively impact our development,
growth, revenue and financial performance.
As we introduce or expand additional offerings for our platform, such as recreation vehicle trade-ins, lead management,
transaction processing, financing, maintenance and insurance, we may incur losses or otherwise fail to enter these markets
successfully. Our expansion into these markets may place us in competitive and regulatory environments with which we are
unfamiliar and involves various risks, including the need to invest significant resources and the possibility that returns on such
investments will not be achieved for several years, if at all. In attempting to establish such new product offerings, we may incur
significant expenses and face various other challenges, such as expanding our sales force and management personnel to cover
these markets and complying with complicated regulations that apply to these markets. In addition, we may not successfully
demonstrate the value of these ancillary products to consumers or dealers, and failure to do so would compromise our ability to
successfully expand into these additional revenue streams.
We rely on third-party financing providers to finance a portion of our customers' vehicle purchases.
We rely on third-party financing providers to finance a portion of our customers' vehicle purchases. Accordingly, our
revenue and results of operations are partially dependent on the actions of these third parties. We provide financing to qualified
customers through a number of third-party financing providers. If one or more of these third-party providers cease to provide
financing to our customers, provide financing to fewer customers or no longer provide financing on competitive terms, it could
have a material adverse effect on our business, sales and results of operations. Additionally, if we were unable to replace the
current third-party providers upon the occurrence of one or more of the foregoing events, it could also have a material adverse
effect on our business, sales and results of operations. We rely on third-party providers to supply EPP products to our customers.
Accordingly, our revenue and results of operations will be partially dependent on the actions of these third-parties. If one or more
of these third-party providers cease to provide EPP products, make changes to their products or no longer provide their products on
competitive terms, it could have a material adverse effect on our business, revenue and results of operations. Additionally, if we
were unable to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could also
have a material adverse effect on our business, revenue and results of operations.
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Our sales of powersports/recreation vehicles may be adversely impacted by increased supply of and/or declining prices for pre-
owned vehicles and excess supply of new vehicles.
We believe when prices for pre-owned vehicles have declined, it can have the effect of reducing demand among retail
purchasers for new vehicles (at or near manufacturer's suggested retail prices). Further, vehicle manufacturers can and do take
actions that influence the markets for new and pre-owned vehicles. For example, introduction of new models with significantly
different functionality, technology or other customer satisfiers can result in increased supply of pre-owned vehicles, and a
corresponding decrease in price of pre-owned vehicles. Also, while historically manufacturers have taken steps designed to
balance production volumes for new vehicles with demand, those steps have not always proven effective. In other instances,
manufacturers have chosen to supply new vehicles to the market in excess of demand at reduced prices which has the effect of
reducing demand for pre-owned vehicles.
We rely on a number of third parties to perform certain operating and administrative functions for the Company.
We rely on a number of third parties to perform certain operating and administrative functions for us. We may experience
problems with outsourced services, such as unfavorable pricing, untimely delivery of services, or poor quality. Also, these third
parties may experience adverse economic conditions due to difficulties in the global economy that could lead to difficulties
supporting our operations. In light of the amount and types of functions that we will outsource, these service provider risks could
have a material adverse effect on our business and results of operations.
We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our
business and operating results.
We face significant competition from companies that provide listings, information, lead generation, and vehicle buying
services designed to reach consumers and enable dealers to reach these consumers. We will compete for a share of overall vehicle
purchases as well as vehicle dealer's marketing and technology spend. To the extent that vehicle dealers view alternative strategies
to be superior to RumbleOn, we may not be able to maintain or grow the number of dealers in our network, we may sell fewer
vehicles to users of our platform, and our business, operating results and financial condition will be harmed.
We also expect that new competitors will continue to enter the online vehicle retail industry with competing products and
services, which could have an adverse effect on our revenue, business and financial results.
Our competitors could significantly impede our ability to expand our network of dealers and regional auctions and to
reach consumers. Our competitors may also develop and market new technologies that render our existing or future products and
services less competitive, unmarketable or obsolete. In addition, if our competitors develop products or services with similar or
superior functionality to our solutions, we may need to decrease the prices for our solutions in order to remain competitive. If we
are unable to maintain our current pricing structure due to competitive pressures, our revenue will be reduced, and our operating
results will be negatively affected.
Our current and potential competitors may have significantly more financial, technical, marketing and other resources
than we have, and the ability to devote greater resources to the development, promotion, and support of their products and services.
Additionally, they may have more extensive recreation vehicle industry relationships than we have, longer operating histories and
greater name recognition. As a result, these competitors may be better able to respond more quickly to undertake more extensive
marketing or promotional campaigns. If we are unable to compete with these companies, the demand for our products and services
could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the
competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen
cooperative relationships with our current or future third-party data providers, technology partners, or other parties with whom we
may have relationships, thereby limiting our ability to develop, improve, and promote our solutions. We may not be able to
compete successfully against current or future competitors, and competitive pressures may harm our revenue, business and
financial results.
Seasonality or weather trends may cause fluctuations in our unique visitors, revenue and operating results.
Our revenue trends are likely to be a reflection of consumers' vehicle buying patterns. While different types of recreation
vehicles are designed for different seasons (motorcycles are typically for non-snow seasons, while snowmobiles are typically
designed for winter), our revenue may be cyclical if, for example, powersport and recreation vehicles represent a large
percentage of our revenue. Historically, the used vehicle industry has been seasonal with traffic and sales strongest in the spring
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and summer quarters. Sales and traffic are typically slowest in the fall quarter but increase in February and March, coinciding with
tax refund season. Our business will also be impacted by cyclical trends affecting the overall economy, as well as by actual or
threatened severe weather events.
We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure to
protect such information and data could damage our reputation and brand and harm our business and operating results.
We collect, process, store, share, disclose and use personal information and other data provided by consumers, dealers
and auctions. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of such
information. We may need to expend significant resources to protect against security breaches or to address problems caused by
breaches. Any failure or perceived failure to maintain the security of personal and other data that is provided to us by consumers
and dealers could harm our reputation and brand and expose us to a risk of loss or litigation and possible liability, any of which
could harm our business and operating results. In addition, from time to time, it is possible that concerns will be expressed about
whether our products, services, or processes compromise the privacy of our users. Concerns about our practices with regard to the
collection, use or disclosure of personal information or other privacy related matters, even if unfounded, could harm our business
and operating results.
There are numerous federal, state and local laws around the world regarding privacy and the collection, processing,
storing, sharing, disclosing, using and protecting of personal information and other data, the scope of which are changing, subject
to differing interpretations, and which may be costly to comply with and may be inconsistent between countries and jurisdictions
or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and
privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry
codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may
be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with
other rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our
privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any
compromise of security that results in the unauthorized release or transfer of sensitive information, which may include personally
identifiable information or other user data, may result in governmental enforcement actions, litigation or public statements against
us by consumer advocacy groups or others and could cause consumers and vehicle dealers to lose trust in us, which could have an
adverse effect on our business. Additionally, if vendors, developers or other third parties that we work with violate applicable laws
or our policies, such violations may also put consumer or dealer information at risk and could in turn harm our reputation, business
and operating results.
Failure to adequately protect our intellectual property could harm our business and operating results.
A portion of our success may be dependent on our intellectual property, the protection of which is crucial to the success
of our business. We expect to rely on a combination of patent, trademark, trade secret and copyright law and contractual
restrictions to protect our intellectual property. In addition, we will attempt to protect our intellectual property, technology, and
confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions
agreements and third parties to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized
use or disclosure of our confidential information, intellectual property, or technology and may not provide an adequate remedy in
the event of unauthorized use or disclosure of our confidential information, intellectual property, or technology. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software, and
functionality or obtain and use information that we consider proprietary.
Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly
leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of
other registered trademarks or trademarks that incorporate variations of the term "RumbleOn" or "RMBL."
We currently hold the "RumbleOn.com" Internet domain name and various other related domain names. The regulation of
domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint
additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to
acquire or maintain all domain names that use the name RumbleOn or RMBL.
We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and
operating results.
We may from time to time face allegations that we have infringed the trademarks, copyrights, patents and other
intellectual property rights of third parties, including from our competitors or non-practicing entities.
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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 operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and regulations.
Failure to comply with these laws and regulations could have a material adverse effect on our business, results of operations
and financial condition.
We are subject to a wide range of federal, state and local laws and regulations. Our sale and purchase of pre-owned
vehicles and related activities, including the sale of complementary products and services, are subject to state and local licensing
requirements, federal and state laws regulating advertising of vehicles and related products and services, state laws related to title
and registration and state laws regulating the sale of vehicles and related products and services. The applicability of these
regulatory and legal compliance obligations is dependent on the evolving interpretations of these laws and regulations and how our
operations are, or are not, subject to them. The financing we resell customers is subject to federal and state laws regulating the
provision of consumer finance. Our facilities and business operations are subject to laws and regulations relating to environmental
protection and health and safety. In addition to these laws and regulations that apply specifically to our business, we are also
subject to laws and regulations affecting public companies, including securities laws and Nasdaq listing rules. The violation of any
of these laws or regulations could result in administrative, civil or criminal penalties or in a cease-and-desist order against our
business operations, any of which could damage our reputation and have a material adverse effect on our business, sales and
results of operations. We have incurred and will continue to incur capital and operating expenses and other costs to comply with
these laws and regulations.
We currently provide transportation services and rely upon third-party logistics and transportation providers to move
vehicles between and among customers, our distribution network partners and auction partners; we and these transportation
providers are subject to the regulatory jurisdiction of the United States Department of Transportation (the "DOT") and individual
states through which our vehicles travel, which have broad administrative powers with respect to our logistics operations. Vehicle
dimensions, driver alcohol and drug testing and driver hours of service are also subject to both federal and state regulation. More
restrictive limitations on vehicle weight and size, trailer length and configuration, methods of measurement, driver qualifications
or driver hours of service would increase our costs, and if we are unable to pass these cost increases on to our customers, our
operating expenses may increase and adversely affect our financial condition, operating results and cash flows. If we or our
providers fail to comply with the DOT regulations or regulations become more stringent, we could be subject to increased
inspections, audits or compliance burdens. Regulatory authorities could take remedial action including imposing fines or shutting
down our operations. If any of these events occur, our financial condition, operating results and cash flows would be adversely
affected.
Our sale of pre-owned vehicles, related products and services and third-party finance products is subject to the state and
local licensing requirements of the jurisdictions in which we operate. Regulators of jurisdictions where our customers reside but in
which we do not have a dealer or financing license could require that we obtain a license or otherwise comply with various state
regulations. Despite our belief that we are not subject to the licensing requirements of those jurisdictions, regulators may seek to
impose punitive fines for operating without a license or demand we seek a license in those jurisdictions, any of which may inhibit
our ability to do business in those jurisdictions, increase our operating expenses and adversely affect our financial condition and
results of operations.
The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory
framework governing our operations is subject to evolving interpretations and continuous change.
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We provide transportation services and rely on external logistics to transport vehicles. Thus, we are subject to business risks
and costs associated with the transportation industry. Many of these risks and costs are out of our control, and any of them
could have a material adverse effect on our business, financial condition and results of operations.
We provide transportation services and rely on external logistics to transport vehicles between and among customers or
distribution network providers, and auction partners. As a result, we are exposed to risks associated with the transportation
industry such as weather, traffic patterns, gasoline prices, recalls affecting our vehicle fleet, local and federal regulations, vehicular
crashes, insufficient internal capacity, rising prices of external transportation vendors, fuel prices, taxes, license and registration
fees, insurance premiums, self-insurance levels, difficulty in recruiting and retaining qualified drivers, disruption of our technology
systems, and increasing equipment and operational costs. Our failure to successfully manage our logistics and fulfillment process
could cause a disruption in our inventory supply chain and distribution, which may adversely affect our operating results and
financial condition.
We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel,
our ability to develop and successfully grow our business could be harmed.
We believe our success will depend on the efforts and talents of our executives and employees, including Marshall
Chesrown, our Chairman and Chief Executive Officer, and Steven R. Berrard, our Chief Financial Officer. Our future success
depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified
individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of our
senior management or key employees could materially adversely affect our ability to execute our business plan and strategy, and
we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers are at-will employees, which
means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry
would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior
management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating
existing employees, our business could be materially and adversely affected.
We may acquire other companies or technologies, which could divert our management's attention, result in additional dilution
to our stockholders and otherwise disrupt our operations and harm our operating results.
Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, dealers
and other constituents within the vehicle industry as well as competitive pressures. In some circumstances, we may determine to
do so through the acquisition of complementary businesses and technologies rather than through internal development. The
identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to
successfully complete identified acquisitions. The risks we face in connection with acquisitions include:
● diversion of management time and focus from operating our business to addressing acquisition integration
challenges;
transition of the acquired company's users to our website and mobile applications;
retention of employees from the acquired company;
● coordination of technology, research and development and sales and marketing functions;
●
●
● cultural challenges associated with integrating employees from the acquired company into our organization;
integration of the acquired company's accounting, management information, human resources, and other
●
administrative systems;
the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may
have lacked effective controls, procedures, and policies;
●
● potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our
●
●
operating results in a given period;
liability for activities of the acquired company before the acquisition, including patent and trademark infringement
claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and
litigation or other claims in connection with the acquired company, including claims from terminated employees,
consumers, former stockholders, or other third parties.
Our failure to address these risks or other problems encountered in connection with our future acquisitions and
investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur
unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity
securities, the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could
harm our financial condition. Also, the anticipated benefits of any acquisitions may not materialize to the extent we anticipate or at
all.
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The recent outbreak of COVID-19 will likely have a significant negative impact on our business, sales, results of
operations, financial condition, and liquidity.
The global outbreak of COVID-19 has led to severe disruptions in general economic activities, particularly retail
operations, as businesses and federal, state, and local governments take increasingly broad actions to mitigate this public health
crisis. We have experienced significant disruption to our business, both in terms of disruption of our operations and the adverse
effect on overall economic conditions. These conditions will significantly negatively impact all aspects of our business. Our
business is also dependent on the continued health and productivity of our associates throughout this crisis. Individually and
collectively, we expect the consequences of the COVID-19 outbreak will likely have a significant negative impact on our business,
sales, results of operations, financial condition, and liquidity.
Additionally, our liquidity could be negatively impacted if these conditions continue for a significant period of time and
we may be required to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, and
meet our financial obligations. Currently capital and credit markets have been disrupted by the crisis and our ability to obtain any
required financing is not guaranteed and largely dependent upon evolving market conditions and other factors.
The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations, financial
condition, and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including the
duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what
extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue
to experience significant impacts to our business as a result of its global economic impact, including any economic downturn or
recession that has occurred or may occur in the future.
Risks Related to the Acquisitions (the "Acquisitions") of Wholesale and Wholesale Express (collectively, the "Wholesale
Entities").
We may be unable to realize the anticipated synergies related to the Acquisitions, which could have a material adverse effect on
our business, financial condition and results of operations.
We expect to realize significant synergies related to the Acquisitions. We also expect to incur costs to achieve these
synergies. While we believe these synergies are achievable, our ability to achieve such estimated synergies in the amounts and
timeframe expected is subject to various assumptions by our management based on expectations that are subject to a number of
risks, which may or may not be realized, as well as the incurrence of other costs in our operations that may offset all or a portion of
such synergies and other factors outside our control. As a consequence, we may not be able to realize all of these synergies within
the time frame expected or at all, or the amounts of such synergies could be significantly reduced. In addition, we may incur
additional and unexpected costs to realize these synergies. Failure to achieve the expected synergies could significantly reduce the
expected benefits associated with the Acquisitions and adversely affect our business.
We may be unable to successfully integrate the Wholesale Entities' business and realize the anticipated benefits of the
Acquisitions.
As a result of the Acquisitions, we are required to devote significant management attention and resources to integrating
the business and operations of Wholesale. Potential difficulties we may encounter in the integration process include the following:
●
●
the inability to successfully combine our business and the businesses of Wholesale in a manner that results in the
anticipated benefits and synergies of the Acquisitions not being realized in the time frame currently anticipated or at
all;
the loss of sales, customers or business partners of ours or of the Wholesale Entities' as a result of such parties
deciding not to continue business at the same or similar levels with us or the Wholesale Entities after the
Acquisitions;
● challenges associated with operating the combined business in markets and geographies in which we do not currently
operate;
● difficulty integrating our direct sales and distribution channels with the Wholesale Entities' to effectively sell the
vehicles of the combined company;
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●
the complexities associated with managing our company and integrating personnel from the Wholesale Entities,
resulting in a significantly larger combined company, while at the same time providing high quality services to
customers;
● unanticipated issues in coordinating accounting, information technology, communications, administration and other
systems;
● difficulty addressing possible differences in corporate culture and management philosophies;
●
● potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the
the failure to retain key employees of ours or of the Wholesale Entities;
Acquisitions;
● performance shortfalls as a result of the diversion of management's attention caused by consummating the
Acquisitions and integrating the Wholesale Entities' operations; and
● managing the increased debt levels incurred in connection with the Acquisitions.
An inability to realize the anticipated benefits and cost synergies of the Acquisitions, as well as any delays encountered in
the integration process, could have a material adverse effect on the operating results of the combined company, which may
materially adversely affect the value of our Class B Common Stock.
In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefit of our plan
for integration may not be realized. Actual synergies, if achieved at all, may be lower than what we expect and may take longer to
achieve than anticipated. For example, the elimination of duplicative costs may not be possible or may take longer than
anticipated, or the benefits from the Acquisitions may be offset by costs incurred or delays in integrating the companies. If we are
not able to adequately address these challenges, we may be unable to successfully integrate the Wholesale Entities' operations into
our own or, even if we are able to combine the business operations successfully, to realize the anticipated benefits of the
integration of the companies.
Our business relationships, those of the Wholesale Entities or the combined company may be subject to disruption due to
uncertainty associated with the Acquisitions.
Parties with which we or the Wholesale Entities do business may experience uncertainty associated with the Acquisitions,
including with respect to current or future business relationships with us, the Wholesale Entities or the combined company. Our
and the Wholesale Entities' business relationships may be subject to disruption, as customers, distributors, suppliers, vendors, and
others may seek to receive confirmation that their existing business relations with us or the Wholesale Entities, as the case may be,
will not be adversely impacted as a result of the Acquisitions or attempt to negotiate changes in existing business relationships or
consider entering into business relationships with parties other than us, the Wholesale Entities, or the combined company as a
result of the Acquisitions. Any of these other disruptions could have a material adverse effect on our or the Wholesale Entities'
businesses, financial condition, or results of operations or on the business, financial condition or results of operations of the
combined company, and could also have an adverse effect on our ability to realize the anticipated benefits of the Acquisitions.
If we are unable to maintain effective internal control over financial reporting for the combined companies, we may fail to
prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the
accuracy and completeness of our financial statements.
We may encounter difficulties and unanticipated issues in combining our respective accounting systems due to the
complexity of the financial reporting processes. We may also identify errors or misstatements that could require adjustments. If we
are unable to implement and maintain effective internal control over financial reporting, we may fail to prevent or detect material
misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our
financial reports and the market price of our securities may decline.
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The Wholesale Entities may have liabilities that are not known, probable or estimable at this time.
As a result of the Acquisitions, the Wholesale Entities are subsidiaries of the Company and remain subject to their past,
current and future liabilities. There could be unasserted claims or assessments against or affecting the Wholesale Entities,
including the failure to comply with applicable laws, regulations, orders and consent decrees or infringement or misappropriation
of third-party intellectual property or other proprietary rights that we failed or were unable to discover or identify in the course of
performing our due diligence investigation of the Wholesale Entities. In addition, there are liabilities of the Wholesale Entities that
are neither probable nor estimable at this time that may become probable or estimable in the future, including indemnification
requests received from customers of the Wholesale Entities relating to claims of infringement or misappropriation of third party
intellectual property or other proprietary rights, tax liabilities arising in connection with ongoing or future tax audits and liabilities
in connection with other past, current and future legal claims and litigation. Any such liabilities, individually or in the aggregate,
could have a material adverse effect on our financial results. We may learn additional information about the Wholesale Entities
that adversely affects us, such as unknown, unasserted, or contingent liabilities and issues relating to compliance with applicable
laws or infringement or misappropriation of third-party intellectual property or other proprietary rights.
As a result of the Acquisitions, we and the Wholesale Entities may be unable to retain key employees.
Our success after the Acquisitions depends in part upon our ability to retain key employees of ours and the Wholesale
Entities. Key employees may depart because of a variety of reasons relating to the Acquisitions. If we and the Wholesale Entities
are unable to retain key personnel who are critical to the successful integration and future operations of the combined company, we
could face disruptions in our operations, loss of existing customers, loss of key information, expertise or know-how, and
unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated
benefits of the Acquisitions.
Risks Related to Ownership of our Common Stock
The trading price for our Class B Common Stock may be volatile and could be subject to wide fluctuations in per share price.
Our Class B Common Stock is listed for trading on The NASDAQ Capital Market under the trading symbol "RMBL,"
however historically there has been a limited public market for our Class B Common Stock. The liquidity of any market for the
shares of our Class B Common Stock will depend on a number of factors, including:
the number of stockholders;
●
● our operating performance and financial condition;
●
●
●
the market for similar securities;
the extent of coverage of us by securities or industry analysts; and
the interest of securities dealers in making a market in the shares of our common stock.
The market price for our Class B Common Stock may be highly volatile and could be subject to wide fluctuations. In
addition, the price of shares of our Class B Common Stock could decline significantly if our future operating results fail to meet or
exceed the expectations of market analysts and investors and actual or anticipated variations in our quarterly operating results
could negatively affect our share price.
Other factors may also contribute to volatility of the price of our Class B Common Stock and could subject our Class B
Common Stock to wide fluctuations. These include:
● developments in the financial markets and worldwide or regional economies;
● announcements of innovations or new products or services by us or our competitors;
● announcements by the government relating to regulations that govern our industry;
● significant sales of our Class B Common Stock or other securities in the open market;
● variations in interest rates;
● changes in the market valuations of other comparable companies; and
● changes in accounting principles.
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Our principal stockholders and management own a significant percentage of our stock and an even greater percentage of the
Company's voting power and will be able to exert significant control over matters subject to stockholder approval.
Our executive officers and directors as a group beneficially own shares of our Class A Common Stock and Class B
Common Stock representing approximately 32.46% in aggregate of our voting power, including approximately 26.37% in
aggregate voting power held by Messrs. Chesrown and Berrard as the only holders of our 50,000 outstanding shares of our Class A
Common Stock, which has 10 votes for each one share outstanding. As a result, these stockholders have the ability to exert
significant control over matters requiring stockholder approval. For example, these stockholders are able to exert significant
control over elections of directors, amendments of our organizational documents' approval of any merger, sale of assets, or other
major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that
you may believe are in your best interest as a stockholder or to take other action that you may believe are not in your best interest
as a stockholder. This may also adversely affect the market price of our Class B Common Stock.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or
misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our Class B Common Stock may be influenced by the research and reports that industry or
securities analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion
regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet the
expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to
publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or
trading volume to decline.
Because our Class B Common Stock may be deemed a low-priced "penny" stock, an investment in our Class B Common Stock
should be considered high risk and subject to marketability restrictions.
When the trading price of our Class B Common Stock is $5.00 per share or lower, it is deemed a penny stock, as defined
in Rule 3a51-1 under the Exchange Act, and subject to the penny stock rules of the Exchange Act specified in rules 15g-1 through
15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
● deliver to the customer, and obtain a written receipt for, a disclosure document;
● disclose certain price information about the stock;
● disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
● send monthly statements to customers with market and price information about the penny stock; and
●
in some circumstances, approve the purchaser's account under certain standards and deliver written statements to the
customer with information specified in the rules.
Consequently, if our Class B Common Stock is $5.00 per share price or lower, the penny stock rules may restrict the
ability or willingness of broker-dealers to sell the Class B Common Stock and may affect the ability of holders to sell their Class B
Common Stock in the secondary market and the price at which such holders can sell any such securities. These additional
procedures could also limit our ability to raise additional capital in the future.
We do not currently or for the foreseeable future intend to pay dividends on our common stock.
We have never declared or paid any cash dividends on our common stock. We currently do not intend to pay cash
dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earning in the development and
expansion of our business. As a result, any return on your investment in our common stock will be limited to the appreciation in
the price of our common stock, if any.
We are subject to reduced reporting requirements so long as we are considered a "smaller reporting company" and we cannot
be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less
attractive to investors.
We are subject to reduced reporting requirements so long as we are considered a "smaller reporting company." We cannot
predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our
common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may
be more volatile.
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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report
our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public
reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together
with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or
improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In
addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by our
independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are
deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify
other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our
reported financial information, which could have a negative effect on the trading price of our common stock.
Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.
Nevada law and our charter, bylaws, and other governing documents contain provisions that could discourage, delay or
prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders, which could cause our stock price
to decline. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our
common stock.
Risks Related to the Company's 6.75% Convertible Senior Notes due 2025 (the "Notes")
Although the Notes are referred to as convertible senior Notes, the Notes are effectively subordinated to any of our future
secured debt and structurally subordinated to any liabilities of our subsidiaries.
The Notes rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to
the Notes, equal in right of payment with all of our liabilities that is not so subordinated, effectively junior in right of payment to
any of our secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all
indebtedness and other liabilities (including trade payables) of our current or future subsidiaries. In the event of our bankruptcy,
liquidation, reorganization, or other winding up, our assets that secure debt ranking senior or equal in right of payment to the Notes
will be available to pay obligations on the Notes only after the secured debt has been repaid in full from these assets, and the assets
of our subsidiaries will be available to pay obligations on the Notes only after all claims senior to the Notes have been repaid in
full. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The indenture
governing the Notes (the "Indenture") does not prohibit us from incurring additional senior debt or any future secured debt, nor
does it prohibit any of our current or future subsidiaries from incurring additional liabilities.
As of December 31, 2019, excluding operating lease liabilities and the derivative liability, our total consolidated net
indebtedness was approximately $82,585,522, of which an aggregate of $60,494,304 was secured indebtedness, and approximately
$59,160,970 of such secured indebtedness is directly attributable to the Company's vehicles in inventory or held for sale, and the
security of those lenders includes all of the vehicles financed by such lenders as well as all of the assets of our subsidiaries
Wholesale Inc. and AutoSport USA, Inc. As of December 31, 2019, approximately $80,092,280 of our total consolidated
indebtedness was senior indebtedness.
The Notes are our obligations only and a substantial portion of our operations are conducted through, and a substantial
portion of our consolidated assets are held by, our subsidiaries.
The Notes are our obligations exclusively. A substantial portion of our operations is conducted through, and a substantial
portion of our consolidated assets is held by, our subsidiaries. Accordingly, our ability to service our debt, including the Notes,
depends, in part, on the results of operations of our subsidiaries and on the ability of such subsidiaries to provide us with cash,
whether in the form of dividends, loans, or otherwise, to pay amounts due on our obligations, including the Notes. However, our
subsidiaries are separate and distinct legal entities, are not guaranteeing the Notes, and have no obligation, contingent or otherwise,
to make payments on the Notes or to make any funds available for that purpose. In addition, dividends, loans, or other distributions
to us from such subsidiaries may be subject to contractual and other restrictions and are subject to other business considerations.
Our right to receive any assets of any of our subsidiaries on such subsidiary's bankruptcy, liquidation, or reorganization, and,
therefore, the right of the holders of Notes to participate in those assets, will be subject to prior claims of creditors of the
subsidiary, including trade creditors, and such subsidiary may not have sufficient assets remaining to make any payments to us as a
shareholder or otherwise. We advise holders of Notes that there may not be sufficient assets remaining to pay amounts due on any
or all the Notes then outstanding.
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Operating our business requires a significant amount of cash, and we may not have sufficient cash flow from our business to
pay the Notes and any other debt.
Our ability to make payments of the principal of, to pay interest on, or to refinance the Notes or other indebtedness
depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our
business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary
capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as
selling assets, restructuring debt, obtaining additional debt financing, or issuing additional equity securities, any of which may be
on terms that are not favorable to us or, in the case of equity securities, highly dilutive. Our ability to refinance the Notes or our
other indebtedness will depend on the capital markets, our business, and our financial condition at such time. We may not be able
to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt
obligations. In addition, our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of
these alternatives. Our failure to comply with any such covenants could result in an event of default which, if not cured or waived,
could result in the acceleration of our debt.
Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the Notes.
We expect that many investors in, and potential purchasers of, the Notes will employ, or seek to employ, a convertible
arbitrage strategy with respect to the Notes. Investors would typically implement such a strategy by selling short the Class B
Common Stock underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes. Investors
may also implement this type of strategy by entering into swaps on our Class B Common Stock in lieu of or in addition to short
selling the Class B Common Stock.
The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions,
and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity
involving equity securities (including our Class B Common Stock) and securities convertible into or exchangeable for equity
securities. Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory
Authority, Inc. and the national securities exchanges of a "Limit Up-Limit Down" program, the imposition of market-wide circuit
breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain
regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Any government or
regulatory action that restricts the ability of investors in or potential purchasers of the Notes to effect short sales of our Class B
Common Stock, borrow our Class B Common Stock, or enter into swaps on our Class B Common Stock could adversely affect the
trading price and the liquidity of the Notes.
The trading price for our Class B Common Stock may be volatile and could be subject to wide fluctuations in per share price
which could adversely impact the trading price of the Notes.
Our Class B Common Stock is listed for trading on The NASDAQ Capital Market under the trading symbol "RMBL,"
however historically there has been a limited public market for our Class B Common Stock. The liquidity of any market for the
shares of our Class B Common Stock will depend on a number of factors, including:
the number of stockholders;
●
● our operating performance and financial condition;
●
●
●
the market for similar securities;
the extent of coverage of us by securities or industry analysts; and
the interest of securities dealers in making a market in the shares of our common stock.
The market price for our Class B Common Stock may be highly volatile and could be subject to wide fluctuations. In
addition, the price of shares of our Class B Common Stock could decline significantly if our future operating results fail to meet or
exceed the expectations of market analysts and investors and actual or anticipated variations in our quarterly operating results
could negatively affect our share price.
26
Other factors may also contribute to volatility of the price of our Class B Common Stock and could subject our Class B
Common Stock to wide fluctuations. These include:
announcements of innovations or new products or services by us or our competitors;
● developments in the financial markets and worldwide or regional economies;
●
● announcements by the government relating to regulations that govern our industry;
● significant sales of our Class B Common Stock or other securities in the open market;
● variations in interest rates;
● changes in the market valuations of other comparable companies; and
● changes in accounting principles.
A decrease in the market price of our Class B Common Stock would likely adversely impact the trading price of the
Notes. The market price of our Class B Common Stock could also be affected by possible sales of our Class B Common Stock by
investors who view the Notes as a more attractive means of investing in us and by hedging or arbitrage trading activity that we
expect to develop involving our Class B Common Stock. This trading activity could adversely affect the trading price of the Notes.
We may incur substantially more debt in the future or take other actions which would intensify the risks discussed in these risk
factors.
We and our subsidiaries may be able to incur substantial additional debt in the future (including secured debt), subject to
the restrictions contained in our debt instruments. We are not restricted under the terms of the indenture governing the Notes from
incurring additional debt, securing existing or future debt, refinancing our debt, repurchasing our stock, pledging our assets,
making investments, paying dividends, guaranteeing debt, or taking a number of other actions that are not limited by the terms of
the indenture governing the Notes, any of which could have the effect of diminishing our ability to make payments on the Notes
when due.
We may not have the ability to raise the funds necessary to settle the Notes in cash on a conversion, to repurchase the Notes on
a fundamental change, or to repay the Notes at maturity. In addition, the terms of our future debt may contain limitations on
our ability to pay cash on conversion or repurchase of the Notes.
Holders of the Notes have the right to require us to repurchase all or a portion of their Notes on the occurrence of a
fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be
repurchased, plus accrued and unpaid interest, if any, to, but excluding the fundamental change repurchase date, as described in the
Indenture. In addition, on conversion of the Notes, unless we elect to deliver only shares of our Class B Common Stock to settle
such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in
respect of the Notes being converted. Moreover, we are required to repay the Notes in cash at their maturity unless earlier
converted or repurchased. Our ability to meet our obligations to holders of the Notes depends on our operating results and cash
flow. However, we may not have enough available funds on hand or be able to obtain financing at the time we are required to
make payments with respect to Notes at maturity, on surrender for repurchase, or on conversion.
In addition, our ability to repurchase the Notes or to pay cash on conversions of the Notes may be limited by law,
regulations, or agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is
required by the indenture governing the Notes or to pay any cash payable on future conversions of the Notes or at maturity as
required by such indenture would constitute a default under such indenture. A default under such indenture or the fundamental
change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related
indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the
indebtedness and repurchase the Notes or make cash payments on conversions of the Notes, if settled in cash.
Redemption may adversely affect the return on the Notes.
We may not redeem the Notes prior to January 14, 2023. We may redeem for cash all or any portion of the Notes, at our
option, on or after January 14, 2023 if the last reported sale price of our Class B Common Stock has been at least 130% of the
conversion price of the Notes then in effect for at least 20 trading days (whether or not consecutive), including the trading day
immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending
on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price
equal to 100% of the principal amount of Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption
date. We may choose to redeem some or all of the Notes, including at times when prevailing interest rates are relatively low.
Holders of the Notes may not be able to reinvest the proceeds from the redemption of the Notes in a comparable security at an
effective interest rate as high as the interest rate on the Notes being redeemed.
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The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating
results.
In the event the conditional conversion feature of the Notes is triggered, holders of such Notes will be entitled to convert
their Notes at any time during specified periods at their option. If any holder elects to convert its Notes, unless we elect to satisfy
our conversion obligation by delivering only shares of our Class B Common Stock (other than paying cash in lieu of delivering
any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely
affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable
accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current liability rather than a long-term
liability, which would result in a material reduction of our net working capital and may harm our business.
Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the market price of our
Class B Common Stock.
The conversion of some or all of the Notes may dilute the ownership interests of our stockholders. On conversion of the
Notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class B Common Stock, or a combination of
cash and shares of our Class B Common Stock. In addition, in certain circumstances, we will make an interest make-whole
payment to a converting holder which may be paid in cash or shares of our common stock. If we elect to settle our conversion
obligation (or the interest make-whole payment) in shares of our Class B Common Stock or a combination of cash and shares of
our Class B Common Stock, any sales in the public market of our Class B Common Stock issuable on such conversion could
adversely affect prevailing market prices of our Class B Common Stock. In addition, the existence of the Notes may encourage
short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated
conversion of the Notes into shares of our Class B Common Stock could depress the market price of our Class B Common Stock.
Future sales of our Class B Common Stock or equity-linked securities in the public market could lower the market price for our
Class B Common Stock and adversely impact the trading price of the Notes.
In the future, we may raise funds by selling additional equity, equity-linked securities, or debt securities. In addition, a
substantial number of shares of our Class B Common Stock is reserved for issuance on the exercise of stock options, settlement of
restricted stock units, and conversion of the Notes. We cannot predict the size of future issuances or the effect, if any, that they
may have on the market price for our Class B Common Stock. The issuance and sale of substantial amounts of our Class B
Common Stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the
trading price of the Notes and the market price of our Class B Common Stock, and impair our ability to raise capital through the
sale of additional equity or equity-linked securities.
Holders of Notes are not entitled to any rights with respect to our Class B Common Stock, but they will be subject to all changes
made with respect to them to the extent our conversion obligation includes shares of our Class B Common Stock.
Holders of Notes are not entitled to any rights with respect to our Class B Common Stock (including, without limitation,
rights to receive any dividends or other distributions on our Class B Common Stock) prior to the conversion date relating to such
Notes (if we have elected to settle the conversion by delivering only shares of our Class B Common Stock, other than paying cash
in lieu of delivering any fractional share) or the last trading day of the observation period (if we elect to pay and deliver, as the
case may be, a combination of cash and shares of our Class B Common Stock in respect of the conversion). But, holders of Notes
will be subject to all changes affecting our Class B Common Stock. For example, if an amendment is proposed to our certificate of
incorporation or bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to
vote on the amendment occurs prior to the conversion date with respect to any Notes surrendered for conversion, then the holder
surrendering such Notes will not be entitled to vote on the amendment, although such holder will nevertheless be subject to any
changes affecting our Class B Common Stock.
The conditional conversion feature of the Notes could result in holders receiving less than the value of our Class B Common
Stock into which the Notes would otherwise be convertible.
Prior to the close of business on the business day immediately preceding July 1, 2024, holders may convert their Notes
only if specified conditions are met. If the specific conditions for conversion are not met, holders will not be able to convert their
Notes during that period, and they may not be able to receive the shares of Class B Common Stock (or the value of such shares in
cash or a combination of cash and shares of Class B Common Stock) into which the Notes would otherwise be convertible.
28
On conversion of the Notes, holders may receive less valuable consideration than expected because the value of our Class B
Common Stock may decline after holders exercise their conversion rights but before we settle our conversion obligation.
Under the Notes, a converting holder will be exposed to fluctuations in the value of our Class B Common Stock during
the period from the date such holder surrenders Notes for conversion until the date we settle our conversion obligation.
On conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class B
Common Stock, or a combination of cash and shares of our Class B Common Stock (including, if applicable, any interest make-
whole payment we elect, or are deemed to have elected to satisfy by delivering shares of our Class B Common Stock). If we elect
to satisfy our conversion obligation in cash or a combination of cash and shares of our Class B Common Stock, the amount of
consideration that holders will receive on conversion of their Notes will be determined by reference to the volume-weighted
average price of our Class B Common Stock for each trading day in a 40-trading day observation period and an interest make-
whole payment, if applicable.
Accordingly, if the price of our Class B Common Stock decreases during the applicable period, the amount and value of
consideration holders receive will be adversely affected. In addition, if the market price of our Class B Common Stock at the end
of such period is below the volume-weighted average price of our Class B Common Stock during such period, the value of any
shares of our Class B Common Stock that holders will receive in satisfaction of our conversion obligation will be less than the
value used to determine the number of shares that holders will receive.
If we elect to satisfy our conversion obligation only in shares of our Class B Common Stock on conversion of the Notes,
we will, subject to the blocker provisions to the extent applicable, be required to deliver the shares of our Class B Common Stock,
together with cash for any fractional share, on the second business day following the conversion date (provided that, with respect
to any conversion date following the regular record date immediately preceding the maturity date where physical settlement
applies to the related conversion, we will settle any such conversion on the maturity date). Accordingly, if the price of our Class B
Common Stock decreases during this period, the value of the shares that holders receive will be adversely affected and would be
less than the conversion value of the Notes on the conversion date.
The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change or a notice of
redemption may not adequately compensate holders for any lost value of their Notes as a result of such transaction or
redemption.
If a make-whole fundamental change occurs prior to the maturity date for the Notes or if we deliver a notice of
redemption with respect to the Notes, we will, under certain circumstances, increase the conversion rate for the Notes by a number
of additional shares of our Class B Common Stock for Notes converted in connection with such make-whole fundamental change
or notice of redemption. The increase in the conversion rate will be determined based on the date on which the make-whole
fundamental change occurs or becomes effective, or the date we deliver the notice of redemption, as the case may be, and the price
paid (or deemed to be paid) per share of our Class B Common Stock in the make-whole fundamental change or determined with
respect to the notice of redemption, as the case may be. The increase in the conversion rate for Notes converted in connection with
a make-whole fundamental change or a notice of redemption may not adequately compensate you for any lost value of your Notes
as a result of such transaction or redemption. In addition, if the "stock price" (as defined in the Indenture) is greater than $1.00 per
share or less than the Make-Whole Adjustment Reference Price (as defined in the Indenture”), no additional shares of Class B
Common Stock will be added to the conversion rate. Moreover, in no event will the conversion rate per $1,000 principal amount of
Notes as a result of this adjustment exceed 61.6523 shares of Class B Common Stock, subject to adjustment in the same manner as
the conversion rate for the Notes.
Our obligation to increase the conversion rate for Notes converted in connection with a make-whole fundamental change
or a notice of redemption could be considered a penalty, in which case the enforceability would be subject to general principles of
reasonableness and equitable remedies.
The conversion rate of the Notes may not be adjusted for dilutive events.
The conversion rate of the Notes is subject to adjustment for certain events, including, but not limited to, the issuance of
certain stock dividends on our Class B Common Stock, the issuance of certain rights or warrants, subdivisions or combinations of
our Class B Common Stock, distributions of capital stock, indebtedness, or assets, cash dividends, and certain issuer tender or
exchange offers as described under the Indenture. However, the conversion rate will not be adjusted for other events, such as a
third-party tender or exchange offer or an issuance of Class B Common Stock for cash, that may adversely affect the trading price
of the Notes or our Class B Common Stock. An event that adversely affects the value of the Notes may occur, and that event may
not result in an adjustment to the conversion rate. We have no obligation to consider the specific interests of the holders of the
Notes in engaging in any such offering or transaction.
29
Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated
to offer to repurchase the Notes.
On the occurrence of a fundamental change, you have the right to require us to repurchase all or a portion of your Notes.
However, the fundamental change provisions do not afford protection to holders of Notes in the event of other transactions that
could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings, or
acquisitions initiated by us may not constitute a fundamental change requiring us to repurchase the Notes. In the event of any such
transaction, the holders would not have the right to require us to repurchase the Notes, even though each of these transactions
could increase the amount of our indebtedness or otherwise adversely affect our capital structure or any credit ratings, thereby
adversely affecting the holders of Notes.
Certain provisions in the indenture governing the Notes may delay or make it more expensive for a third party to acquire us.
Certain provisions in the indenture governing the Notes may make it more difficult or expensive for a third party to
acquire us. For example, the indenture governing the Notes requires us, at the noteholders' election, to repurchase the Notes for
cash on the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that
converts its Notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we
repurchase the Notes or increase the conversion rate, which could make it more costly for a third party to acquire us. Furthermore,
the indenture for the Notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving
entity assumes our obligations under the Notes. These and other provisions in the indenture could deter or prevent a third party
from making bids to acquire us even when the acquisition may be favorable to you.
Holders of Notes are not entitled to receive any shares of our Class B Common Stock otherwise deliverable upon conversion of
the Notes to the extent that such receipt would cause such holders to become, directly or indirectly, a beneficial owner of shares
of our Class B Common Stock in excess of 4.99% of the total number of the shares of our Class B Common Stock then issued
and outstanding.
Notwithstanding anything to the contrary herein, holders of Notes are not entitled to receive any shares of our Class B
Common Stock otherwise deliverable upon conversion of the Notes to the extent, but only to the extent, that such receipt would
cause such holders to become, directly or indirectly, the "beneficial owner" (within the meaning of Section 13(d) under the
Exchange Act and the rules promulgated thereunder) of our Class B Common Stock in excess 4.99% of the total number of the
shares of our Class B Common Stock then issued and outstanding. Any purported delivery of shares of our Class B Common Stock
upon conversion of the Notes shall be void and have no effect to the extent, but only to the extent, that such delivery would result
in any person becoming the beneficial owner of shares of our Class B Common Stock outstanding at such time in excess of the
beneficial ownership limits then applicable to such person.
As a result of the beneficial ownership limits, shares of Class B Common Stock otherwise deliverable upon conversion of
Notes may be delayed, or never delivered at all. These limitations on beneficial ownership may force you to sell shares of our
Class B Common Stock or other securities you own in order to receive shares you would otherwise be entitled to receive upon
conversion. If holders convert their Notes and do not receive any shares otherwise deliverable upon conversion, we are not be
responsible for any lost value due to a delayed delivery, or if they are never delivered as a result of the conversion restrictions
described above.
We cannot assure you that an active trading market will develop for the Notes.
Prior to the 2020 Note Offering (as defined below), there has been no trading market for the Notes, and we do not intend
to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. We
have been informed by the initial purchaser that it intended to make a market in the Notes after the 2020 Note Offering. However,
the initial purchaser may cease its market-making at any time without notice. The liquidity of the trading market in the Notes, and
the market price quoted for the Notes, may be adversely affected by changes in the overall market for this type of security and by
changes in our financial performance or prospects or in the prospects for companies in our industry generally. We cannot assure
you that an active trading market will develop for the Notes. If an active trading market does not develop or is not maintained, the
market price and liquidity of the Notes may be adversely affected. In that case you may not be able to sell your Notes at a
particular time or you may not be able to sell your Notes at a favorable price.
Any adverse rating of the Notes may cause their trading price to fall.
We do not intend to seek a rating on the Notes. However, if a rating service were to rate the Notes and if such rating
service were to lower its rating on the Notes below the rating initially assigned to such Notes or otherwise announce its intention to
put such Notes on credit watch, the trading price of the Notes could decline.
30
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Powersports and Automotive Segments
We currently maintain our corporate offices at 901 W Walnut Hill Lane, Irving, Texas 75038, that initially comprises
23,337 square feet, which amount shall increase to (i) 30,337 rentable square feet on November 1, 2020 and (ii) 37,337 rentable
square feet on November 1, 2021. Base rent is currently $60,287 per month and increases to $78,371 on November 1, 2020 and to
$96,454 on November 1, 2021. We also pay our pro rata share of the building's operating expenses. This lease expires on April 30,
2023; however we can elect to extend the term for up to seven years at a rate equal to (i) the lesser of prevailing rental rates at the
time of renewal or (ii) 5% of the annual Base Rent for the immediately preceding term. We provided the sublandlord a security
deposit of approximately $10,000. In addition, in March 2019 we entered into a short-term sublease expiring in October 2019 in
Las Colinas, Texas for approximately 11,000 square feet to support the company's initiatives.
We are a co-leasee on a warehouse space in Missouri from which we operate our licensed dealer operation; total shared
monthly rent for the building is $4,250.
We have two main facilities in the greater Nashville, TN metropolitan area that we assumed as part as the acquisitions of
Wholesale. One serves as a general office/administrative location as well as a staging and reconditioning property, while the other
serves as a retail sales location where we display vehicles and operate a traditional used car sales lot, with minimal vehicle
maintenance services provided. Each location has a lease term expiring on October 30, 2021, and for each property we have two
(2) renewal option, each of which provides for five (5) additional years with ten percent (10%) increase in the base rent. The
collective rent for the two locations is approximately $23,500 per month.
We also lease or sub-lease space to support the operations in (i) West Palm Beach, FL that we assumed as part of the
Autosport acquisition and for which we pay approximately $75,000 per year and (ii) Las Vegas, NV to support the development of
the RumbleOn Finance business and for which we pay approximately $160,000 per year. Both the FL and NV ancillary location
leases currently expire in the second half of 2020.
The Company is establishing fulfillment centers in strategic locations throughout the United States. Initial locations, for
which leases have been executed include Arlington, Texas, Ocoee, Florida and North Las Vegas, Nevada.
We moved into the Arlington, Texas center in September 2019. This location is approximately 7,000 square feet. The
lease has an initial term of 24.5 months and has one three-year renewal option. We pay approximately $57,000 per year.
The Ocoee, Florida center is approximately 56,012 square feet and is scheduled to open in the first half of 2020. This
lease has an initial term of 64 months with one five-year renewal option. Annual rent will be approximately $470,000.
We moved into the North Las Vegas center in October 2019. This location is approximately 43,916 square feet and has an
initial term of 36 months. Annual rent is approximately $270,000.
Vehicle Logistics and Transportation Services
The needs of the Vehicle Logistics and Transportation Services segment of our operations have been serviced out of
facilities we lease in Mesa, AZ, and Detroit, MI, as well as a portion of space we have in Nashville, TN. Collective annual rent for
the MI and AZ locations is approximately $125,000. In December 2019 we moved into 5,853 of space in Chandler, Arizona to
support our Wholesale Express operations. The lease has a 39-month term and our annual rent is approximately $120,000.
Item 3. Legal Proceedings.
We are not a party to any material legal proceedings other than ordinary routine litigation incidental to our business.
Item 4. Mine Safety Disclosures.
Not Applicable.
31
PART II
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase Of Equity Securities
Market Information
As of October 29, 2017, our Class B Common Stock has been listed on the Nasdaq Global Select Market ("NASDAQ")
under the symbol RMBL. Before October 29, 2017, our common stock traded on the OTCQB Market under the symbol RMBL,
and before January 1, 2017, our common stock was not traded, except for 250 shares, which traded on the OTC Markets Pink
Sheets on January 22, 2016.
Holders of Common Stock
As of May 26, 2020, we had approximately 52 stockholders of record of 2,162,716 issued and outstanding shares of Class
B Common Stock and two holders of record of 50,000 issued and outstanding shares of Class A Common Stock.
Dividends
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable
future on the shares of common stock. We intend to reinvest any earning in the development and expansion of our business. Any
cash dividends in the future to common stockholders will be payable when, as and if declared by our board of directors, based
upon the Board's assessment of:
● our financial condition;
● earnings;
● need for funds;
● capital requirements;
● prior claims of preferred stock to the extent issued and outstanding; and
● other factors, including any applicable law.
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
Item 6. Selected Financial Data
This item is not applicable, as we are considered a smaller reporting company.
32
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.
Overview
We are a technology driven, motor vehicle dealer and e-commerce platform provider disrupting the vehicle supply chain
using innovative technology that aggregates, processes and distributes inventory in a faster and more cost-efficient manner.
We operate an infrastructure-light platform that facilitates the ability of all participants in the supply chain, including
RumbleOn, other dealers and consumers to Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to transform the
way VIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and
transparent transaction experiences. While our initial customer facing emphasis through most of 2018 was on motorcycles and
other powersports vehicles, we continue to enhance our platform to accommodate nearly any VIN-specific vehicle including
motorcycles, ATVs, boats, RVs, cars and trucks. Since our acquisition of Wholesale, Inc. ("Wholesale") in October 2018, we have
significantly increased our sales of cars and light truck categories ("automotive"). Of the 43,143 vehicles we sold in 2019, 29,952
(69.4%) were automotive and 13,191 (30.6%) were powersports vehicles. In 2018 we sold 12,529 vehicles of which 4,005 (32.0%)
were automotive and 8,524 (68.0%) were powersports vehicles.
The COVID-19 situation has created an unprecedented and challenging time. Our current focus is on positioning the
Company for a strong recovery when this crisis is over. We have taken steps to reduce our inventory and align our operating
expenses to the state of the business. We plan to continue to operate as permitted to support our customers’ needs for reliable
vehicles and to provide as many jobs as possible for our associates. As noted above, 169 associates were temporarily laid-off
effective April 9, 2020, however our receipt of PPP funds, as discussed below will allow us to gradually recall these associates
over time. All ongoing employment determinations are subject to change due to the COVID-19 situation future government
mandates, as well as future business conditions. We will continue to monitor the COVID-19 situation and look for ways to
preserve cash and reduce our operating expenses as we are able, however, we expect the consequences of the COVID-19 outbreak
will likely have a significant negative impact on our business, sales, results of operations, financial condition, and liquidity.
Acquisition of Wholesale and Wholesale Express
On October 26, 2018, we entered into an Agreement and Plan of Merger (as amended, the "Merger Agreement") with our
newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware limited liability company ("Merger Sub"), Wholesale
Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale, Steven Brewster and Janelle Brewster (each a "Stockholder",
and together the "Stockholders"), Steven Brewster, a Tennessee resident, as the representative of each Stockholder, and Marshall
Chesrown and Steven R. Berrard, providing for the merger (the "Wholesale Merger") of Holdings with and into Merger Sub, with
Merger Sub surviving the Wholesale Merger as our wholly-owned subsidiary. Also on October 26, 2018, we entered into a
Membership Interest Purchase Agreement (the "Purchase Agreement") with Steven Brewster and Justin Becker (together the
"Express Sellers"), and Steven Brewster as representative of the Express Sellers, pursuant to which we acquired all of the
membership interests (the "Express Acquisition") in Wholesale Express, LLC ("Wholesale Express"). On October 30, 2018 (the
"Wholesale Acquisition Date"), we completed the Wholesale Merger and Express Acquisition. Wholesale is one of the largest
independent distributors of pre-owned vehicles in the United States and Wholesale Express is a related logistics company. The
results of operations of Wholesale and Wholesale Express from the Wholesale Acquisition Date to December 31, 2018 (the "
Wholesale Acquisition Period") are included in the Company's consolidated financial statements for the year ended December 31,
2018. In this Management's Discussion and Analysis of Financial Condition and Results of Operations, no comparable information
is discussed with respect to Wholesale and Wholesale Express for periods before the Wholesale Acquisition Date. For additional
information, see Note 4 – "Acquisitions" in the accompanying Notes to the Consolidated Financial Statements.
33
Acquisition of Autosport
On February 3, 2019 (the "Autosport Acquisition Date"), the Company completed the acquisition (the "Autosport
Acquisition") of all of the equity interests of Autosport USA, Inc. ("Autosport"), an independent pre-owned vehicle
distributor, pursuant to a Stock Purchase Agreement, dated February 1, 2019 (the "Stock Purchase Agreement"), by and among
RMBL Express, LLC (the "Buyer"), a wholly owned subsidiary of Company, Scott Bennie (the "Seller") and Autosport. The
results of operations of Autosport from the Autosport Acquisition Date to December 31, 2019 (the "Autosport Acquisition Period,"
and together with the Wholesale Acquisition Period, the "Acquisition Period") are included in the Company's consolidated
financial statements for the year ended December 31, 2019. In this Management's Discussion and Analysis of Financial Condition
and Results of Operations, no comparable information is discussed with respect to Autosport for periods before the Autosport
Acquisition Date. For additional information, see Note 4 – "Acquisitions" in the accompanying Notes to the Consolidated
Financial Statements.
Reportable Segments
Business segments are defined as components of an enterprise about which discrete financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating
performance. Our operations are organized by management into operating segments by line of business. We have determined that
we have three reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports,
(2) automotive and (3) vehicle logistics and transportation. Our powersports and automotive segments consist of the distribution of
pre-owned vehicles. The powersports segment consists of the distribution of principally motorcycles, while the automotive
segment distributes cars and trucks. Our vehicle logistics and transportation service segment provides nationwide automotive
transportation services primarily between dealerships and auctions. Our vehicle logistics and transportation service reportable
segment has been determined to represent one operating segment and reporting unit. The accounting policies of the segments are
the same and are described in Note 1 – "Description of Business and Significant Accounting Policies" in the accompanying Notes
to the Consolidated Financial Statements.
For the year ended December 31, 2019, our powersports segment accounted for approximately 12.0% of our total revenue
and approximately 24.4% of our total gross profit, our automotive segment accounted for approximately 85.3% of our total
revenue and approximately 62.7% of our total gross profit, and our vehicle logistics and transportation service segment accounted
for approximately 2.7% of our total revenue and approximately 12.9% of our total gross profit. For the year ended December 31,
2018, our vehicle distribution segment accounted for approximately 97.0% of our total revenue and approximately 91.5% of our
total gross profit, and our vehicle logistics and transportation service segment accounted for approximately 3.0% of our total
revenue and approximately 8.5% of our total gross profit.
Key Operation Metrics - Powersports and Automotive Segments
We regularly review a number of metrics, to evaluate our vehicle distribution business, measure our progress, and make
strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our growth, including increasing
brand awareness, maximizing the opportunity to source the purchase of low cost pre-owned vehicles from consumers and dealers
while enhancing the selection of vehicles we make available to our customers. Our key operating metrics also demonstrate our
ability to translate these drivers into sales and to monetize these retail sales through a variety of product offerings.
Powersports:
Vehicles sold
Regional Partners
Average days to sale
Total vehicle revenue
Gross Profit
Automotive:
Vehicles sold
Regional Partners
Average days to sale
Total vehicle revenue
Gross Profit
2019
13,191
7
34
101,008,976
12,335,460
2019
29,952
7
23
717,042,511
31,728,617
$
$
$
$
$
$
2018
8,524
7
32
61,204,416
6,870,350
2018
4,005
9
26
$
$
91,369,996
5,608,491
34
Vehicles Sold
We define vehicles sold as the number of pre-owned vehicles sold to consumers and dealers in each period, net of returns
under our various return policies. We view vehicles sold as a key measure of our growth for several reasons. First, vehicles sold is
the primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple complementary revenue streams,
including financing, vehicle service contracts and trade-ins. Second, growth in vehicles sold increases the base of available
customers for referrals and repeat sales. Third, growth in vehicles sold is an indicator of our ability to successfully scale our
logistics, fulfillment, and customer service operations.
Regional Partners
Our operations are designed to be scalable by working through an infrastructure and capital light model that is achievable
by virtue of a synergistic relationship with regional partners. We utilize these regional partners to provide inspection,
reconditioning and distribution services. These regional partners earn incremental revenue and enhance profitability through fees
from inspection, reconditioning and distribution programs. As regional partners are added throughout the U.S., the cost and time
associated with distribution programs will be significantly reduced as the pickup and delivery of pre-owned vehicles will become
more localized thus reducing shipping costs and the average days to sale for pre-owned vehicles.
Average Days to Sale
We define average days to sale as the average number of days between vehicle acquisition by us and delivery to a
customer for all pre-owned vehicles sold in a period. However, this metric does not include any pre-owned vehicles that remain
unsold at period end. We view average days to sale as a useful metric due to its impact on pre-owned vehicle average selling price.
We anticipate that average days to sale will increase in future periods until we reach an optimal pooled inventory level and fully
scale our acquisition and sales channel processes.
Revenue
Revenue is primarily comprised of pre-owned vehicle sales. We sell pre-owned vehicles through consumer and dealer
sales channels. These multiple sales channels provide us the opportunity to maximize profitability through increased sales volume
and lower average days to sale by selling to the channel where the opportunity is the greatest at any given time based on customer
demand, market conditions or inventory availability. The number of pre-owned vehicles sold to any given channel may vary from
period to period based on customer demand, market conditions and available inventory. We expect pre-owned vehicle sales to
increase as we begin to utilize a combination of brand building as well as direct response channels to efficiently source and scale
our addressable markets while expanding our suite of product offerings to consumers who may wish to trade-in or to sell us their
vehicle independent of a retail sale. Factors affecting pre-owned vehicle sales include the number of retail pre-owned vehicles sold
and the average selling price of these vehicles.
Gross Profit
Gross profit is generated on pre-owned vehicle sales from the difference between the vehicle selling price and our cost of
revenue associated with acquiring the vehicle and preparing it for sale. The aggregate dollar gross profit achieved from the
consumer and dealer sales channels are different. Pre-owned vehicles sold to consumers through our website generally have the
highest dollar gross profit since the vehicle is sold directly to the consumer. Pre-owned vehicles sold to dealers through our
website are sold at a price below the retail price offered to consumers, thus the dealer and RumbleOn are sharing the gross profit.
Pre-owned vehicles sold to dealers through auctions are sold at market. Factors affecting gross profit from period to period include
the mix of pre-owned vehicles we acquire and hold in inventory, retail market prices, our average days to sale, and our pricing
strategy. We may opportunistically choose to shift our inventory mix to higher or lower cost vehicles, or to opportunistically raise
or lower our prices relative to market to take advantage of supply or demand imbalances in our sales channels, which could
temporarily lead to average selling prices and gross profits increasing or decreasing in any given channel.
35
Key Operations Metrics – Powersports
Key Operation Metrics:
Vehicles sold
Total Powersports Revenue
Gross Profit
Gross Profit per vehicle
Gross Margin
Average selling price
Consumer:
Vehicles sold
Total Consumer Revenue
Gross Profit
Gross Profit per vehicle
Gross Margin
Average selling price
Dealer:
Vehicles sold
Total Dealer Revenue
Gross Profit
Gross Profit per vehicle
Gross Margin
Average selling price
Key Operations Metrics – Automotive
Key Operation Metrics:
Total vehicles sold
Total Automotive Revenue
Gross Profit
Gross Profit per vehicle
Gross Margin
Average selling price
Consumer:
Vehicles sold
Total Consumer Revenue
Gross Profit
Gross Profit per vehicle
Gross Margin
Average selling price
Dealer:
Vehicles sold
Total Dealer Revenue
Gross Profit
Gross Profit per vehicle
Gross Margin
Average selling price
(1) Inclusive only of the Autosport Acquisition Period.
(2) Inclusive only of the Wholesale Acquisition Period.
2019
2018
13,191
8,524
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
101,008,976
12,335,461
935
12.2%
7,657
955
8,295,615
2,058,743
2,156
24.8%
8,687
12,236
92,713,361
10,276,718
840
11.1%
7,577
2019 (1)
29,952
717,042,511
31,728,617
1,059
4.4%
23,940
2,792
75,950,236
9,939,683
3,560
13.1%
27,203
27,160
641,092,275
21,788,934
802
3.4%
23,604
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
61,204,416
6,870,350
806
11.2%
7,180
733
6,506,265
1,272,135
1,736
19.6%
8,876
7,791
54,698,150
5,598,215
719
10.2%
7,021
2018 (2)
4,005
91,369,996
5,608,490
1,400
6.1%
22,814
512
12,532,850
2,091,978
4,086
16.7%
24,478
3,493
78,837,146
3,516,512
1,007
4.5%
22,570
36
Key Operation Metrics - Vehicle Logistics and Transportation Services Segment
We regularly review a number of metrics, to evaluate our vehicle logistics and transportation business, measure our
progress, and make strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our growth,
including increasing brand awareness, and maximizing the opportunity to drive increased transportation and logistics unit
volume. Our key operating metrics also demonstrate our ability to translate these drivers into revenue and increased profitability.
Revenue
Vehicles Delivered
Gross Profit
Gross Profit Per Vehicle Delivered
(1) Inclusive only of the Wholesale Acquisition Period.
Revenue
2019
31,931,488
2018 (1)
$
4,931,558
77,449
6,553,899
85
11,571
1,067,963
92
$
$
$
$
$
Revenue is derived from freight brokerage agreements with dealers, distributors, or private party individuals to transport
vehicles from a point of origin to a designated destination. The transaction price is based on the consideration specified in the
customer's contract. The freight brokerage agreements are fulfilled by independent third-party transporters who are obligated to
meet our performance obligations and standards. Generally, customers are billed either upon shipment of the vehicle or on a
monthly basis, and remit payment according to approved payment terms. Revenue is recognized as risks and rewards of
transportation of the vehicle is transferred to the owner during delivery. Wholesale Express is considered the principal in the
delivery transactions since it is primarily responsible for fulfilling the service. As a result, revenue is recorded gross. In the normal
course of operations, Wholesale Express provides transportation services to Wholesale. Revenue and cost of revenue for these
services for the year ended December 31, 2019 and the Wholesale Acquisition Period was $9,353,628 and $1,107,739,
respectively, and was eliminated in the consolidated financial statements for the years ended December 31, 2019 and 2018,
respectively.
Vehicles Delivered
We define vehicles delivered as the number of vehicles delivered from a point of origin to a designated destination under
freight brokerage agreements with dealers, distributors, or private party individuals. Vehicles delivered is the primary driver of
revenue growth and in turn profitability in the vehicle logistics and transportation services segment.
Gross Profit
Gross profit is generated on the difference between the price received from a customer under a freight brokerage
agreement for the transport of a vehicle from a point of origin to a designated destination minus our cost to contract an independent
third-party transporter to fulfill our obligation under the freight brokerage agreement with the customer. We define gross profit per
vehicle delivered as the aggregate gross profit in a given period divided by the number of pre-owned vehicles delivered in that
period.
COMPONENTS OF RESULTS OF OPERATIONS
Revenue
Revenue for our powersports and automotive segments is derived from our online marketplace and auctions and primarily
includes the sale of pre-owned vehicles to consumer and dealers.
Revenue from our vehicle logistics and transportation service segment is derived by providing automotive transportation
services between dealerships and auctions throughout the United States.
37
The Company recognizes revenue using the modified retrospective method. ASC 606 prescribes a five-step model that
includes: (1) identify the contract; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the
transaction price to the performance obligations; and (5) recognize revenue when (or as) performance obligations are satisfied.
Based on the manner in which we historically recognized revenue, the adoption of ASC 606 did not have a material impact on the
amount or timing of our revenue recognition, and we recognized no cumulative effect adjustment upon adoption. See Item 8 of
Part II, Financial Statements and Supplementary Data—Note 1— "Description of Business and Significant Accounting Policies –
Revenue Recognition" for a further description of the Company's revenue recognition.
Pre-owned Vehicle Sales
Pre-owned vehicle sales are primarily comprised of revenue of pre-owned vehicle sales.
We sell pre-owned vehicles through consumer and dealer sales channels. These multiple sales channels provide us the
opportunity to maximize profitability through increased sales volume and lower average days to sale by selling to the channel
where the opportunity is the greatest at any given time based on customer demand, market conditions or inventory availability. The
number of pre-owned vehicles sold to any given channel may vary from period to period based on customer demand, market
conditions and available inventory.
Pre-owned vehicle sales represent the aggregate sales of pre-owned vehicles to consumers and dealers through our
website or at auctions. We expect pre-owned vehicle sales to increase as we begin to utilize a combination of brand building as
well as direct response channels to efficiently source and scale our addressable markets while expanding our suite of product
offerings to consumers who may wish to trade-in or to sell us their vehicle independent of a retail sale. Factors affecting pre-owned
vehicle sales include the number of retail pre-owned vehicles sold and the average selling price of these vehicles.
The number of pre-owned vehicles we sell depends on our volume of website traffic, volume of cash offers made, our
inventory levels and selection, the effectiveness of our branding and marketing efforts, the quality of our customer sales
experience, our volume of referrals and repeat customers, the competitiveness of our pricing, competition and general economic
conditions. On a quarterly basis, the number of pre-owned vehicles we sell is also affected by seasonality, with demand for pre-
owned vehicles reaching the high point in the first half of each year, commensurate with the timing of tax refunds, and diminishing
through the rest of the year, with the lowest relative level of pre-owned vehicle sales expected to occur in the fourth calendar
quarter.
Our average retail selling price depends on the mix of pre-owned vehicles we acquire and hold in inventory, retail market
prices in our markets, our average days to sale, and our pricing strategy. We may choose to shift our inventory mix to higher or
lower cost pre-owned vehicles, or to opportunistically raise or lower our prices relative to market to take advantage of supply or
demand imbalances, which could temporarily lead to average selling prices increasing or decreasing.
The number of pre-owned vehicles sold to dealers at auctions is determined based on a number of factors including:
(i) filling auction sales channel market demand opportunities to maximize sales and gross margin; (ii) a need to balance the
Company's overall inventory mix and quantity levels against days to sales targets; and (iii) a need to liquidate those pre-owned
vehicles that do not meet the Company's quality standards to be sold through Rumbleon.com.
Vehicle Logistics and Transportation Services
Vehicle logistics and transportation services revenue is generated primarily by entering into freight brokerage agreements
with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The
transaction price is based on the consideration specified in the customer's contract. A performance obligation is created when the
customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These
performance obligations are satisfied as the shipments move from origin to destination. The freight brokerage agreements are
fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these
transporters are obligated to meet our performance obligations and standards. Performance obligations are short-term, with transit
days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and remit
payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as all risks and rewards of
transportation of the vehicle are transferred to the owner during delivery.
Cost of Revenue – Pre-owned Vehicles Sales
Cost of revenue is primarily comprised of cost of pre-owned vehicle sales.
38
Cost of pre-owned vehicle sales to consumers and dealers includes the cost to acquire pre-owned vehicles and the
reconditioning and transportation costs associated with preparing these vehicles for resale. Vehicle acquisition costs are driven by
the mix of vehicles we acquire, the source of those vehicles and supply and demand dynamics in the vehicle market.
Reconditioning costs are billed by third-party providers and include parts, labor, and other repair expenses directly attributable to
specific pre-owned vehicles. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition.
Cost of pre-owned vehicle sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net
realizable value.
Cost of Revenue – Vehicle Logistics and Transportation Services
Cost of vehicle transportation and logistics services primarily include the costs of independent third-party transporters to
deliver a vehicle from a point of origin to a designated destination.
Selling, General and Administrative Expense
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising and
marketing, development and operating our product procurement and distribution system, managing our logistics system,
establishing our dealer partner arrangements, and other corporate overhead expenses, including expenses associated with
technology development, legal, accounting, finance, and business development. Selling, general and administrative expenses also
include the transportation cost associated with selling vehicles but excludes the cost of reconditioning, inspecting, and auction fees
which are included in Cost of revenue. Selling, general and administrative expenses will continue to increase substantially in future
periods as we execute and aggressively expand our business through increased marketing spending and the addition of
management and support personnel to ensure we adequately develop and maintain operational, financial and management controls
as well as our reporting systems and procedures, but we anticipate they will decline as a percentage of sales revenue.
Depreciation and Amortization
Depreciation and amortization is comprised of the: (i) amortization of capitalized and acquired technology development;
and (ii) depreciation of vehicles, leasehold improvements, furniture and equipment. Depreciation and amortization will continue to
increase as continued investments are made in connection with the expansion and growth of the business.
Interest Expense
Interest expense includes interest incurred on notes payable and other long-term debt, which was used to fund startup
costs and expenses, technology development, inventory, our transportation fleet, property and equipment and the acquisition of
NextGen.
Seasonality
The volume of vehicles sold will generally fluctuate from quarter-to-quarter. This seasonality is caused by several factors
including weather, the timing of pre-owned vehicles available for sale from selling consumers, the availability and quality of
vehicles, holidays, and the seasonality of the retail market for pre-owned vehicles. As a result, revenue and operating expenses
related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used
vehicle auction accessibility as well as additional costs associated with the holidays and winter weather.
RESULTS OF OPERATIONS
The following table provides our results of operations for the year ended December 31, 2019 and 2018, including key
financial information relating to our business and operations. This financial information should be read in conjunction with our
audited Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of Part II. The
results of operations of Wholesale and Wholesale Express are included in the Company's consolidated financial statements for the
year ended December 31, 2018 for the Wholesale Acquisition Period. The results of operations of Autosport are included in the
Company's Consolidated Financial Statements for the year ended December 31, 2019 for the Autosport Acquisition Period. In this
Management's Discussion and Analysis of Financial Condition and Results of Operations, no comparable information is discussed
with respect to Wholesale or Wholesale Express for periods before the Wholesale Acquisition Date and Autosport for the periods
before the Autosport Acquisition Date.
39
For the Year ended December 31, 2019 (1)
Vehicle
Logistics and
Transportation
Services
Elimination(3)
Powersports Automotive
Total
2018(2)
Revenue:
Pre-owned Vehicle Sales:
Powersports
Automotive (2)
Transportation and Vehicle Logistics (2)
Total Revenue
Cost of Revenue:
Powersports
Automotive (2)
Transportation (2)
Total Cost of Revenue
$101,008,976 $
— $101,008,976 $ 61,204,416
— 717,042,511 91,369,996
3,823,819
101,008,976 717,042,511 31,931,488 (9,353,628) 840,629,347 156,398,231
— $
— 717,042,511
—
— 31,931,488 (9,353,628) 22,577,860
— $
—
88,673,515
— 88,673,515 54,334,066
— 685,313,894 85,761,505
2,755,856
88,673,515 685,313,894 25,377,590 (9,353,628) 790,011,371 142,851,427
—
— 685,313,894
—
— 25,377,590 (9,353,628) 16,023,962
—
—
Gross Profit
$ 12,335,461 $ 31,728,617 $ 6,553,898 $
— $ 50,617,976 $ 13,546,804
(1) Inclusive only of the Autosport Acquisition Period.
(2) Inclusive only of the Wholesale Acquisition Period.
(3) Intercompany freight services from Wholesale Express are eliminated in the consolidated financial statements
Powersports and Automotive Segments
The following table provides our results of operations for the years ended December 31, 2019 and 2018 for the
powersports and automotive segments, including key financial information relating to these segments. Our vehicle distribution
segment consists of the distribution of powersports and automotive vehicles, as further described below. This financial information
should be read in conjunction with our audited Consolidated Financial Statements and Notes to Consolidated Financial Statements
included in Item 8 of Part II. The results of operations of Wholesale are included in the Company's Consolidated Financial
Statements for the year ended December 31, 2018 for the Wholesale Acquisition Period. The results of operations of Autosport are
included in the Company's Consolidated Financial Statements for the year ended December 31, 2019 for the Autosport Acquisition
Period. In this Management's Discussion and Analysis of Financial Condition and Results of Operations, no comparable
information is discussed with respect to Wholesale for periods before Wholesale Acquisition Date and Autosport for the periods
before the Autosport Acquisition Date.
40
Revenue:
Pre-owned Vehicle Sales:
Powersports
Automotive (1)
Total vehicle revenue
Cost of Revenue:
Powersports
Automotive (1)
Total cost of revenue
Gross Profit
Selling, General and Administrative
Depreciation and Amortization
Operating loss
Interest expense
Decrease in derivative liability
Loss on early extinguishment of debt
Net loss before provision for income taxes
Benefit for income taxes
Net loss
(1) Inclusive only of the Acquisition Period.
2019
2018
$
101,008,976
717,042,511
818,051,487
$
61,204,416
91,369,996
152,574,412
88,673,515
685,313,894
773,987,409
54,334,066
85,761,505
140,095,571
44,064,078
12,478,841
82,006,330
34,934,997
1,779,021
982,772
(39,721,273)
(23,438,928)
(7,186,418)
1,302,500
(1,499,250)
(47,104,441)
(1,780,685)
—
—
(25,219,613)
—
—
$
(47,104,441)
$
(25,219,613)
Total revenue increased by $665,477,075 to $818,051,487 for the year ended December 31, 2019 compared to
$152,574,412 for the same period of 2018. The increase was primarily due to an increase in the number of pre-owned vehicles sold
to 43,143 for the year ended December 31, 2019 as compared to 12,529 for the same period of 2018. The increase in vehicles sold
was a result of the continued expansion of our powersports business and the acquisition of Wholesale. Powersport vehicle sales
revenue increased by $39,804,560 to $101,008,976 for the year ended December 31, 2019 as compared to $61,204,416 for the
same period in 2018. Automotive sales revenue increased by $625,672,515 to $717,042,511 for the year ended December 31, 2019
as compared to $91,369,996 for the Wholesale Acquisition Period.
Total cost of revenue increased $633,891,838 to $773,987,409 for the year ended December 31, 2019 compared to
$140,095,571 for the same period of 2018. The increase was primarily due to an increase in the number of pre-owned vehicles sold
for the year ended December 31, 2019 as compared to the same period of 2018 and the acquisition of Wholesale. Powersport total
cost of revenue increased by $34,339,449 to $88,673,515 for the year ended December 31, 2019 as compared to the same period of
2018. Automotive total cost of revenue increased by $599,552,389 to $685,313,894 for the year ended December 31, 2019 as
compared to $85,761,505 for the Wholesale Acquisition Period.
Powersports
The following table provides the results of operations for the year ended December 31, 2019 and 2018 for our
powersports segment, including key financial information relating to the powersports business. This financial information should
be read in conjunction with our audited Consolidated Financial Statements and Notes to Consolidated Financial Statements
included in Item 8 of Part II.
41
Powersports
Vehicle revenue:
Consumer
Dealer
Total vehicle revenue
Vehicle gross Profit:
Consumer
Dealer
Total vehicle gross profit
Vehicles sold:
Consumer
Dealer
Total vehicles Sold
Gross profit per vehicle:
Consumer
Dealer
Total
Gross margin per vehicle:
Consumer
Dealer
Total
Average vehicle selling price:
Consumer
Dealer
Total
Powersports Vehicle Revenue
2019
2018
$
$
$
$
$
$
$
$
$
$
8,295,615
92,713,361
101,008,976
2,058,743
10,276,718
12,335,461
955
12,236
13,191
2,156
840
935
24.8%
11.1%
12.2%
8,687
7,577
7,657
$
$
$
$
$
$
$
$
$
$
6,506,266
54,698,150
61,204,416
1,272,135
5,598,215
6,870,350
733
7,791
8,524
1,736
719
806
19.6%
10.2%
11.2%
8,876
7,021
7,180
Total powersports vehicle revenue increased by $39,804,560 to $101,008,976 for the year ended December 31, 2019
compared to $61,204,416 for the same period of 2018. The growth in powersports revenue was primarily due to an increase in the
number of pre-owned vehicles sold to 13,191 for the year ended December 31, 2019 as compared to 8,524 for the same period of
2018, and an increase in the average selling price per vehicle to $7,657 for the year ended December 31, 2019 from $7,180 for the
same period of 2018. The increase in units sold was driven by a significant growth in visits to the RumbleOn website, an increase
in requests for cash offers by consumers and dealers, expanded levels of inventory available for sale, an enhanced digital and
social media advertising campaign, increased awareness of the RumbleOn brand and customer referrals and the launch of our
Dealer Direct online acquisition platform which allows dealers to use our web or mobile application to view, bid and buy
inventory when and where they want. The increase in the average selling price of pre-owned vehicles for the year ended December
31, 2019 as compared to the same period of 2018 was due to a shift in inventory mix available for sale and higher sales prices. We
anticipate that pre-owned vehicle sales will continue to grow as we further increase selection and availability of our online pre-
owned vehicle inventory and enhance our website with additional functionality while continuing to efficiently source and scale our
addressable markets of consumers and dealers through brand building, direct response marketing and event marketing and the
expansion of our consumer classified listing site.
Powersports Cost of Revenue
Powersport cost of vehicle revenue increased by $34,339,449 to $88,673,515 for the year ended December 31, 2019 and
consisted of: (i) the acquisition cost of vehicles sold to consumers and dealers of $85,143,181 from the sale of 13,191 pre-owned
vehicles at an average acquisition cost of $6,455 and (ii) aggregate reconditioning and transportation costs of $3,530,334. For the
year ended December 31, 2018, the $54,334,066 cost of vehicle revenue consisted of: (i) the acquisition cost of vehicles sold to
consumers and dealers of $52,061,289 from the sale of 8,524 pre-owned vehicles at an average acquisition cost of $6,108 and (ii)
aggregate reconditioning and transportation costs of $2,272,777.
42
Powersports Gross Profit
Powersport vehicle gross profit increased $5,465,111 to $12,335,461 for the year ended December 31, 2019 as compared
to $6,870,350 for the same period of 2018. The increase was primarily due to an increase in the number of pre-owned vehicles sold
at an average higher gross profit for the year ended December 31, 2019 as compared to the same period of 2018. The increase in
powersport gross profit was driven primarily by an increase in gross profit per vehicle to $935 or a 12.2% gross margin for the
year ended December 31, 2019 as compared to $806 or 11.2 % gross margin for the same period of 2018. The increase was
primarily a result of: (i) a shift in inventory mix available for sale and higher sales prices and (ii) an increase in transportation and
dealer fees.
Automotive
The following table provides the results of operations for the year ended December 31, 2019 and 2018 for the automotive
segment including key financial information relating to the automotive business. Our automotive distribution business was added
on the Wholesale Acquisition Date in connection with the Wholesale acquisition. The results of operations of Autosport are
included in the Company's Consolidated Financial Statements for the year ended December 31, 2019 for the Autosport Acquisition
Period. This financial information should be read in conjunction with our audited Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in Item 8 of Part II. In this Management's Discussion and Analysis of Financial
Condition and Results of Operations, no comparable information is discussed with respect to Wholesale for periods before the
Wholesale Acquisition Date and Autosport for the periods before the Autosport Acquisition Date.
2019(1)
2018(2)
Automotive
Vehicle revenue:
Consumer
Dealer
Total vehicle revenue
Gross Profit:
Consumer
Dealer
Total vehicle gross profit
Vehicles sold:
Consumer
Dealer
Total vehicles sold
Gross profit per vehicle
Consumer
Dealer
Total
Gross margin per vehicle
Consumer
Dealer
Total
Average selling price:
Consumer
Dealer
Total
(1) Inclusive only of the Autosport Acquisition Period.
(2) Inclusive only of the Wholesale Acquisition Period.
$
$
$
$
$
$
$
$
$
75,950,236
641,092,275
717,042,511
9,939,683
21,788,934
31,728,617
2,792
27,160
29,952
3,560
802
1,059
13.1%
3.4%
4.4%
27,203
23,604
23,940
$
$
$
$
$
$
$
$
$
12,532,850
78,837,146
91,369,996
2,091,978
3,516,512
5,608,490
512
3,493
4,005
4,086
1,007
1,400
16.7%
4.5%
6.1%
24,478
22,570
22,814
43
Automotive Revenue
Total revenue increased by $625,672,515 to $717,042,511 for the year ended December 31, 2019 compared to
$91,369,996 for the Wholesale Acquisition Period. For the year ended December 31, 2019, 29,952 pre-owned vehicles were sold
at an average selling price of $23,940. During the Wholesale Acquisition Period, 4,005 preowned vehicles were sold at an average
selling price of $22,814. The average selling price of pre-owned vehicles sold will fluctuate from period to period as a result of
changes in the sales mix to consumers and dealers in any given period.
Total revenue from the sale to consumers for the year ended December 31, 2019 was $75,950,236 comprised of the sale
of 2,792 preowned vehicles at an average selling price of $27,203. Total revenue from the sale to consumers for the Wholesale
Acquisition Period was $12,532,850 comprised of the sale of 512 preowned vehicles at an average selling price of $24,478.
Total revenue from the sale to dealers for the year ended December 31, 2019 was $641,092,275 comprised of the sale of
27,160 preowned vehicles at an average selling price of $23,604. Total revenue from the sale to dealers for the Wholesale
Acquisition Period was $78,837,146 comprised of the sale of 3,493 preowned vehicles at an average selling price of $22,570.
Substantially all sales to dealers were conducted through third-party auctions.
Automotive Cost of Revenue
Total cost of revenue for the year ended December 31, 2019 was $685,313,894, which included $66,010,553 from the
sales to consumers and $619,303,341 from sales to dealers. During the year ended December 31, 2019, we sold 29,952 preowned
vehicles that had (i) an acquisition cost of $673,039,189 and (ii) aggregate reconditioning and transportation costs of $12,274,705.
Total cost of revenue for the Wholesale Acquisition Period was $85,761,505, which included $10,440,871 from the sales to
consumers, $75,320,634 from sales to dealers. During the Wholesale Acquisition Period, we sold 4,005 preowned vehicles that
had (i) an acquisition cost of $84,009,915 and (ii) aggregate reconditioning and transportation costs of $1,751,590.
Total cost of revenue from the sale to consumers for the year ended December 31, 2019 was $66,010,553 comprised of
the sale of 2,792 vehicles that had: (i) a per vehicle acquisition cost of $23,069 and (ii) aggregate reconditioning and transportation
costs of $1,600,597. Total cost of revenue from the sale to dealers for the year ended December 31, 2019 was $619,303,341
comprised of the sale of 27,160 preowned vehicles that had: (i) a per vehicle acquisition cost of $22,409 and (ii) aggregate
reconditioning and transportation costs of $10,674,108.
Total cost of revenue from the sale to consumers for the Wholesale Acquisition Period was $10,440,872 comprised of the
sale of 512 vehicles that had: (i) a per vehicle acquisition cost of $19,847 and (ii) aggregate reconditioning and transportation costs
of $278,961. Total cost of revenue from the sale to dealers for the Wholesale Acquisition Period was $75,320,634 comprised of the
sale of 3,493 preowned vehicles that had: (i) a per vehicle acquisition cost of $21,142 and (ii) aggregate reconditioning and
transportation costs of $1,472,629. The average cost of pre-owned vehicles sold will fluctuate from period to period as a result of
changes in the sales mix to consumers and dealers in any given period.
Automotive Gross Profit
Total gross profit for the year ended December 31, 2019 was $31,728,617 from sales to consumers and dealers. Gross
profit per vehicle sold to consumers and dealers was $1,059 or a 4.4% gross margin. Total gross profit for the Wholesale
Acquisition Period was $5,608,490, which included $2,091,978 from the sales to consumers and $3,516,512 from sales to dealers.
Gross profit per vehicle sold to consumers and dealers was $1,400 or a 6.1% gross margin.
Total gross profit per vehicle sold to consumers for the year ended December 31, 2019 was $3,560 or a 13.1% gross
margin. Total gross profit per vehicle sold to dealers for the year ended December 31, 2019 was $802 or a 3.4% gross margin.
Total gross profit per vehicle sold to consumers for the Wholesale Acquisition Period was $4,086 or a 16.7% gross margin. Total
gross profit per vehicle sold to dealers for the Wholesale Acquisition Period was $1,007 or a 4.5% gross margin. The gross profit
of pre-owned vehicles sold will fluctuate from period to period as a result of changes in the sales mix to consumers and dealers in
any given period.
44
Vehicle Logistics and Transportation Services Segment
The following table provides our results of operations for the year ended December 31, 2019 and 2018 for our vehicle
logistics and transportation services segment, including key financial information relating to this segment. Our vehicle logistics
and transportation services were added on the Wholesale Acquisition Date in connection with the Express Acquisition. The results
of operations of Wholesale Express are included in the Company's Consolidated Financial Statements for the year ended
December 31, 2018 for the Wholesale Acquisition Period. This financial information should be read in conjunction with our
audited Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of Part II. In this
Management's Discussion and Analysis of Financial Condition and Results of Operations, no comparable information is discussed
with respect to Wholesale Express for periods before the Wholesale Acquisition Date.
Vehicle Logistics and Transportation Services
Total revenue
Cost of revenue
Gross profit
Selling, general and administrative
Depreciation and Amortization
Operating income
Interest Expense
Net Income before income tax
Vehicles delivered
Revenue per delivery
Gross profit per delivery
Gross margin per delivery
2019
2018
$
31,931,488
$
4,931,558
25,377,590
3,863,595
6,553,898
4,617,920
7,405
1,928,573
1,186
1,927,387
77,449
412
85
20.5%
$
$
$
1,067,963
1,028,933
1,234
37,796
—
37,796
11,571
426
92
21.7%
$
$
$
Vehicle Logistics and Transportation Services Revenue
Total revenue for the year ended December 31, 2019 was $31,931,488 resulting from the transport of 77,449 preowned
vehicles at an average price per vehicle transported of $412. Total revenue for the Acquisition Period was $4,931,558 resulting
from the transport of 11,571 preowned vehicles at an average price per vehicle transported of $426. In the normal course of
operations, the Company utilizes transportation services of Wholesale Express. For the year ended December 31, 2019 and the
Wholesale Acquisition Period, intercompany freight services provided by Wholesale Express was $9,353,628 and $1,107,739,
respectively and was eliminated in the consolidated financial statements.
Vehicle Logistics and Transportation Services Cost of Revenue
Total cost of revenue for the year ended December 31, 2019 was $25,377,590 and was comprised of the delivery of
77,449 units at a delivery cost per unit of $328. Total cost of revenue for the Wholesale Acquisition Period was $3,863,595 and
was comprised of the delivery of 11,571 units at a delivery cost per unit of $334. Included in cost of revenue for the year ended
December 31, 2019 and the Wholesale Acquisition Period, was freight services purchases from Wholesale Express of $9,353,628
and $1,107,739, respectively and was eliminated in the consolidated financial statements.
Vehicle Logistics and Transport Services Gross Profit
Total gross profit for the year ended December 31, 2019 was $6,553,898 or $85 per unit transported as compared to
$1,067,963 or $92 per unit for the Wholesale Acquisition Period.
45
Selling, general and administrative
Selling general and administrative:
Compensation and related costs
Advertising and marketing
Professional fees
Technology development
General and administrative
2019
2018
$
$
33,502,020
18,228,262
2,542,357
2,408,338
29,943,272
86,624,249
$
$
10,656,107
11,457,572
1,788,425
1,152,108
10,909,718
35,963,930
Selling, general and administrative expenses increased by $50,660,319 to $86,624,249 for the year ended December 31,
2019 compared to $35,963,930 for the same period of 2018. The increase was a result of a $29,750,886 increase for Wholesale and
Express in 2019 as compared to the Wholesale Acquisition Period, and the recognition of an impairment loss on goodwill of
$1,850,000. The remainder of the $19,059,433 increase was from the continued rapid growth and expansion of our business which
resulted in: (i) an increase in expenses associated with advertising and marketing; (ii) increase headcount associated with the
development and operating our product procurement, distribution and logistics systems, human resources, marketing and business
development; (iii) continued investment in technology development; (iv) increases in transportation costs and auction fees
associated with selling vehicles; and (v) an increase in other corporate overhead costs and expenses, including accounting and
finance.
Compensation and related costs increased by $22,845,913 to $33,502,020 for the year ended December 31, 2019
compared to $10,656,107 for the same period of 2018. The increase was primarily a result of a $15,859,146 increase for Wholesale
and Express in 2019 as compared to the Wholesale Acquisition Period. The remainder of the increase of $6,986,767 was driven by
the rapid expansion of our business which resulted in increased headcount to support this growth. The Company had
approximately 297 employees at the end of 2019 versus 288 employees at the end of 2018. As our business grows, we will
continue to add headcount in all areas of the Company, which will result in an increase in compensation and related expenses in
absolute dollar terms but significantly decrease as a percentage of total revenue.
Advertising and marketing increased by $6,770,690 to $18,228,262 for the year ended December 31, 2019 compared to
$11,457,572 for the same period of 2018. The increase was primarily a result of a $2,451,098 increase for Wholesale and Express
in 2019 as compared to the Wholesale Acquisition Period. . The remainder of the increase of $4,319,592 is a result of a significant
increase in our marketing spend among our digital, social and search marketing campaigns.
We are continuing to successfully develop our omnichannel marketing strategy, targeting both consumers and dealers, by
combining brand building, lead generation, and content marketing to efficiently source and scale our addressable markets. In
addition to a strong social media marketing strategy, our digital paid advertising efforts also include programmatic, display
advertisements, IP and Geo-Targeting, cascading data retargeting, organic search and content creation, video marketing,
personalized automation, and aggressive event and experiential marketing. Our traditional mediums have expanded further into
localized radio, OOH advertising and the production of future television and connected TV brand awareness advertising for 2020.
We believe our lifestyle focus of nurturing the buyer/seller personas of both consumers and dealers ensures loyalty which will
drive both high participation in the buying and selling process, while increasing referrals and third-party partnerships. This
nurturing will scale tremendously as we prepare to launch personalized video experiences, unique to each user looking to acquire a
cash offer through the end of 2020 and the appendage and unification of our current user data, to provide a more targeted message
for each stage of the customers' journey. In addition to our paid channels, in future periods we intend to attract new customers
through increased media spending and public relations efforts while continuing to invest in our proprietary technology platforms
and the overall user experience. As we continue to gain share in our addressable market, we expect advertising and marketing
spending will continue to increase in absolute dollar terms but will decrease as a percentage of total revenue.
Professional fees increased by $753,932 to $2,542,357 for the year ended December 31, 2019 compared to $1,788,425 for
the same period of 2018. The increase was primarily a result of a $243,151 increase for Wholesale and Express in 2019 as
compared to the Wholesale Acquisition Period. The remainder of the increase of $510,781 was primarily a result of legal,
accounting and other professional fees and expenses incurred in connection with the activities associated with the rapid growth and
expansion of the business. Fees and expenses were incurred for: (i) equity financings; (ii) debt financings; (iii) acquisition
activities; (iv) general corporate matters; (v) the preparation of quarterly and annual financial statements; and (vi) the preparation
and filing of regulatory reports required of the Company for public reporting purposes For additional information, see Note 4 –
"Acquisitions" and Note 8 - "Notes Payable and Lines of Credit" and Note 9 - "Stockholders' Equity," in the accompanying Notes
to the Consolidated Financial Statements.
46
Technology development expenses increased $1,256,230 to $2,408,338 for the year ended December 31, 2019 compared
to $1,152,108 for the same period of 2018. The increase was a result of a significant increase in headcount and third-party
contractors to meet an increase level of technology development projects and initiatives. Included in these new technology
development projects and initiatives were modules or significant upgrades to existing platforms for: (i) Retail online auction; (ii)
Native App in IOS and Android; (iii) new architecture on website design and functionality; (iv) RumbleOn Marketplace; (v)
redesigned cash offer tool; (vi) deal-jacket tracking tool; (vii) inventory tracking tool; (viii) CRM and multiple third-party
integrations; (ix) new analytics and machine learning initiatives; and (x) IT monitoring infrastructure. Total technology costs and
expenses incurred for the year ended December 31, 2019 were $5,494,081 of which $3,085,743 was capitalized. For the year
ended December 31, 2018, total technology costs and expenses incurred were $3,314,815 of which $2,162,707 was capitalized.
For the year ended December 31, 2019, a third-party contractor billed $1,028,884 of the total technology development costs as
compared to $2,117,739 for the same period of 2018. The amortization of capitalized technology development costs for the year
ended December 31, 2019 was $1,436,088 as compared to $825,782 for the same period of 2018. We expect our technology
development expenses to increase as we continue to upgrade and enhance our technology infrastructure, invest in our products,
expand the functionality of our platform and provide new product offerings. We also expect technology development expenses to
continue to be affected by variations in the amount of capitalized internally developed technology.
General and administrative expenses increased by $19,033,554 to $29,943,272 for the year ended December 31, 2019
compared to $10,909,718 for the same period of 2018. The increase was primarily a result of a $11,197,491 increase for Wholesale
and Express in 2019 as compared to the Wholesale Acquisition Period. The remainder of the increase of $7,836,063 is a result of
the recognition of an impairment loss on goodwill of $1,850,000 and the cost and expenses associated with the continued progress
made and growth experienced in the development of our business, expansion of our Dallas and Nashville operation centers and
meeting the requirements of being a public company. The increase in general and administrative costs and expenses consists
primarily of: (i) insurance of $926,385; (ii) travel of $595,710; (iii) office supplies and process application software of $236,191;
(iv) rent of $1,247,411; (v) transportation cost and auction fees associated with selling vehicles of $8,457,250. As our business
grows, we will continue to add cost and expenses in all areas of the Company, which will result in an increase in selling and
administrative costs in absolute dollar terms but significantly decrease as a percentage of total revenue.
Depreciation and Amortization
Depreciation and amortization increased by $802,420 to $1,786,426 for the year ended December 31, 2019 compared to
$984,006 for the same period of 2018. The increase in depreciation and amortization is a result of the cumulative investments
made in connection with the expansion and growth of the business which for the year ended December 31, 2019 included
capitalized technology acquisition and development costs of $3,085,743. For the year ended December 31, 2019, amortization of
capitalized technology development was $1,436,088 as compared to $825,782 for the same period of 2018. Depreciation and
amortization on vehicle, furniture, equipment and leasehold improvements was $350,338 as compared to $158,224 for the same
period of 2018.
Interest Expense
Interest expense increased by $5,406,919 to $7,187,604 for the year ended December 31, 2019 compared to $1,780,685
for the same period of 2018. Interest expense consists of interest on the: (i) Hercules Loan; (ii) Private Placement Notes; (iii) the
subordinated secured promissory note issued to NextGen (the "NextGen Note"); (iv) the Credit Facility and the NextGear Credit
Line (each as defined below) (together, the "Line of Credit-Floor Plans"); (v) Notes; and (vi) the notes issued in connection with
the Autosport Acquisition (the "Convertible Notes-Autosport"). The increase resulted from: (i) interest on a higher level of debt
outstanding; (ii) the amortization of the beneficial conversion feature on the Private Placement Notes; (iii) the amortization of the
debt issuance costs on the Hercules Loan, Notes and Convertible Notes-Autosport; and (iv) amortization of transaction costs on the
Notes. Interest expense for the year ended December 31, 2019 for the: (i) Hercules Loan was $758,466 and included $342,841 of
debt issuance cost amortization; (ii) Private Placement Notes was $316,091; (iii) Line of Credit-Floor Plans was $3,239,293;
(iv) Convertible Notes-Autosport was $228,002 and included $103,005 of debt discount amortization; (v) Notes was $2,523,064
and included $1,218,064 of debt discount and transaction fee amortization; (vi) NextGen Note was $110,484. Interest expense for
the year ended December 31, 2018 for the: (i) Hercules Loan was $770,810 and included $304,213, of debt issuance cost
amortization; (ii) Private Placement Notes was $259,177 which included $205,926 of debt discount amortization; (iii) NextGen
Note was $87,617; and (iv) Line of Credit – Floor Plans was $663,081. Included in interest expense is $513,305 for Wholesale for
the Wholesale Acquisition Period. See Part II, Financial Statements and Supplementary Data—Note 8—"Notes Payable and Lines
of Credit " for additional discussion.
On May 14, 2019, the Company made a payment to Hercules Capital Inc. ("Hercules") of $11,134,696, representing the
principal, accrued and unpaid interest, fees, costs and expenses outstanding under its Loan and Security Agreement (the "Loan
Agreement") with Hercules dated April 30, 2018 (the "Hercules Indebtedness"). Upon the payment, all outstanding indebtedness
and obligations of the Company owed to Hercules under the Loan Agreement were paid in full, and the Loan Agreement was
47
terminated. The Company used a portion of the net proceeds from the Note Offering (described below) to pay the Hercules
Indebtedness. In accordance with the guidance in ASC 470-50, Debt, the Company accounted for the extinguishment of the
Hercules Loan Agreement as an extinguishment and recognized a loss on early extinguishment of debt of $1,499,250 for the year
ended December 31, 2019 the Consolidated Statements of Operations. The loss on early extinguishment consisted primarily of the
prepayment penalty paid to Hercules and unamortized debt discounts including the remaining portion of warrant values and debt
issuance costs.
Derivative Liability
In connection with the Notes, a derivative liability was recorded at issuance with an interest make-whole provision of
$1,330,000 based on a Monte-Carlo Simulation using a volatility of 85.0% and a risk-free rate of 2.3%. This amount was recorded
as a debt discount and is amortized to interest expense over the term of the Notes using the effective interest rate. The derivative
liability is remeasured at each reporting date with the change in value of $1,302,500 being recorded in the Statements of
Operations for the year ended December 31, 2019. The value of the derivative liability as of December 31, 2019 is $27,500.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income
or net income as a measure of operating performance or cash flows or as a measure of liquidity. Non-GAAP financial measures are
not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to U.S.
GAAP.
Adjusted EBITDA is defined as net loss adjusted to add back interest expense including debt extinguishment and
depreciation and amortization, and certain charges and expenses, such as non-cash compensation costs, acquisition related costs,
derivative income, financing activities, litigation expenses, severance, new business development costs, technology
implementation costs and expenses, and facility closure and lease termination costs, as these charges and expenses are not
considered a part of our core business operations and are not an indicator of ongoing, future company performance.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our
business. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties
to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results, because it
excludes, among other things, certain results of decisions that are outside the control of management, while other measures can
differ significantly depending on long-term strategic decisions regarding capital structure and capital investments.
The following tables reconcile Adjusted EBITDA to net loss for the periods presented:
Net loss
Add back:
Interest expense (including debt extinguishment)
Depreciation and amortization
EBITDA
Adjustments
Goodwill impairment
Non-cash-stock-based compensation
Derivative income
Severance
New business development
Other non-recurring costs
Adjusted EBITDA
Liquidity and Capital Resources
2019
2018
$
(45,177,053)
$
(25,181,817)
8,686,854
1,786,426
(34,703,773)
1,850,000
3,836,518
(1,302,500)
1,079,438
1,224,523
1,639,666
(26,376,128)
$
1,780,685
984,006
(22,417,126)
—
1,657,680
—
—
—
—
(20,759,446)
$
We generate cash from the sale of used retail vehicles, the sale of wholesale vehicles, and providing vehicle logistics and
transportation services for used vehicles. We generate additional cash flows through our financing activities including our short-
term revolving inventory floor plan facilities, the issuance of long-term notes, and new issuances of equity. Historically, cash
generated from financing activities has funded growth and expansion and strategic initiatives and we expect this to continue in the
future.
48
Our ability to service our debt and fund working capital, capital expenditures, and business development efforts will
depend on our ability to generate cash from operating and financing activities, which is subject to our future operating
performance, as well as to general economic, financial, competitive, legislative, regulatory, and other conditions, some of which
may be beyond our control. Our future capital requirements will depend on many factors, including our rate of revenue growth, our
expansion of our various lines of business and the timing and extent of our spending to support our technology and software
development efforts.
We had the following liquidity resources available as of December 31, 2019 and December 31, 2018:
Cash and cash equivalents
Restricted cash (1)
Total cash, cash equivalents, and restricted cash
Availability under short-term revolving facilities
Committed liquidity resources available
2019
49,660
6,676,622
6,726,282
35,839,030
42,565,652
$
$
2018
9,134,902
6,650,000
15,784,902
16,133,106
31,918,008
$
$
(1) Amounts included in restricted cash represent the deposits required under the Company's short-term revolving facilities.
On January 14, 2020, the Company closed a public offering at a public price of $11.40 per share (the "2020 Public
Offering"). On January 16, 2020, the Company received notice of the Underwriters' intent to exercise the over-allotment option in
full (the "Over-allotment Exercise"). On January 17, 2020, the Company closed the Over-allotment Exercise. The Over-allotment
Exercise increased the aggregate number of shares sold in the 2020 Public Offering to 1,035,000. Including the Over-allotment
Exercise, proceeds from the 2020 Public Offering, after deducting the 7.0% underwriter’s commission and $75,000 for underwriter
expenses, were $10,898,070.
Also on January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by the
Joinder Agreement, with the investors in the 2019 Note Offering (as defined below), pursuant to which the Company agreed to
complete (i) a note exchange pursuant to which $30,000,000 of the Old Notes (as defined below) would be cancelled in exchange
for a new series of 6.75% Convertible Senior Notes due 2025 (the "New Notes"), and (ii) the issuance of additional New Notes in a
private placement in reliance on the exemption from registration provided by Rule 506 of Regulation D of the Securities Act as a
sale not involving any public offering. On January 14, 2020, the Company closed the 2020 Note Offering. The proceeds for the
2020 Note Offering, after deducting for the payment of accrued interest and offering-related expenses, but exclusive of company
costs were $8,272,375.
As of December 31, 2019, and 2018, excluding operating lease liabilities and the derivative liability, the outstanding
principal amount of indebtedness was $82,585,522 and $67,347,925, respectively, summarized in the table below. See Note 8 —
Notes Payable and Lines of Credit and Note 19 – Subsequent Events to our consolidated financial statements included in Part II,
Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information on our debt.
49
Asset-Based Financing:
Inventory
Total asset-based financing
Convertible senior notes
Senior unsecured notes
Total debt
Less: unamortized discount and debt issuance costs
Total debt, net
December 31,
2019
59,160,970
59,160,970
31,333,334
2,568,843
93,063,147
(10,477,625)
82,585,522
$
$
2018
56,372,501
56,372,501
12,190,834
667,000
69,230,335
(1,882,410)
67,347,925
$
$
The following table sets forth a summary of our cash flows for the year ended December 31, 2019 and 2018:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net (decrease) increase in cash
Operating Activities
2019
(39,747,330)
(3,871,223)
34,559,933
(9,058,620)
$
$
2018
(23,452,753)
(17,564,367)
47,631,370
6,614,250
$
$
Net cash used in operating activities increased $16,294,577 to $39,747,330 for the year ended December 31, 2019, as
compared to the year ended December 31, 2018. The increase in net cash used is primarily due to a $19,995,236 increase in our net
loss offset by a $3,700,659 increase in non-cash expense items. The increase in the net loss for the year ended December 31, 2019
was a result of the continued expansion and progress made on our business plan, including a significant increase in compensation,
marketing and advertising spend, costs and expenses associated with the sale of inventory, continued development of the
Company's business and for working capital purposes.
Investing Activities
Net cash used in investing activities decreased $13,693,144 to $3,871,223 for the year ended December 31, 2019 as
compared to the year ended December 31, 2018. The decrease in cash used for investment activities was primarily due to a
decrease of $14,560,251 for acquisitions, offset by an increase in costs incurred for technology development of $923,036. In 2019
the Company used $835,000 to acquire Autosport, while in 2018 the Company used cash of $15,395,251 to acquire Wholesale, Inc
and Wholesale Express, LLC.
On February 3, 2019, the Company completed the Autosport Acquisition pursuant to the Stock Purchase Agreement, by
and among the Buyer, the Seller and Autosport. Aggregate consideration for the Autosport Acquisition consisted of (i) a closing
cash payment of $600,000, plus (ii) the Promissory Note in favor of the Seller, plus (iii) the Convertible Note in favor of the Seller,
plus (iv) contingent Earn-Out Shares for up to an additional $787,500 if Autosport achieves certain performance thresholds. In
connection with the Autosport Acquisition, the Buyer also paid outstanding debt of Autosport of $235,000 and assumed additional
debt of $257,933 pursuant to the Second Convertible Note. The fair value of the contingent earn-out payment was considered
immaterial at the date of acquisition and was excluded from the purchase price allocation. As of December 31, 2019, there have
been no payments earned under the performance thresholds.
On October 26, 2018, we entered into the Merger Agreement with the Merger Sub, Holdings, Wholesale, the
Stockholders, the Representative, and, for the limited purposes of Section 5.8, Marshall Chesrown and Steven R. Berrard,
providing for the Wholesale Merger. Also, on October 26, 2018, we entered into the Purchase Agreement with the Express Sellers,
and Steven Brewster as representative of the Express Sellers, pursuant to which the Company completed the Express Acquisition.
On October 30, 2018, the Company completed the Wholesale Merger and Express Acquisition. As consideration for the Wholesale
Merger, we (i) paid cash consideration of $12,353,941, subject to certain customary post-closing adjustments, and (ii) issued to the
Stockholders the Stock Consideration. As consideration for the Express Acquisition, we paid cash consideration of $4,000,000,
subject to certain customary post-closing adjustments.
50
Financing Activities
Year Ended December 31, 2019
Net cash provided by financing activities decreased $13,071,437 to $34,559,933 for the year ended December 31, 2019 as
compared to the same period in 2018. This decrease is primarily a result of a reduction in the finance offerings in 2019 compared
to 2018, as discussed below. The proceeds from these transactions were used to: (i) acquire vehicle inventory; (ii) accelerate
technology development; and (iii) continue development of the Company's business and for working capital purposes.
On February 11, 2019, the Company completed an underwritten public offering of 63,825 shares of its Class B Common
Stock at a price of $111.00 per share for net proceeds to the Company of $6,543,655 (the "February 2019 Public Offering"). The
completed offering included 8,325 shares of Class B Common Stock issued upon the underwriter's exercise in full of its over-
allotment option. The Company used the net proceeds from the offering for working capital and general corporate purposes, which
included purchases of additional inventory held for sale, increased spending on marketing and advertising and capital expenditures
necessary to grow the business.
On May 9, 2019, the Company entered into a purchase agreement (the "Note Purchase Agreement") with JMP Securities
LLC ("JMP Securities") to issue and sell $30,000,000 in aggregate principal amount of the Company's 6.75% Convertible Senior
Notes due 2024 (the "Notes" or "Old Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under
the Securities Act (the "2019 Note Offering"). Proceeds from the 2019 Note Offering, after deducting the initial purchaser's
discounts, advisory fees, and related offering expenses, were $27,385,500.
The Notes were issued on May 14, 2019 pursuant to an Indenture (the "Indenture"), by and between the Company and
Wilmington Trust, National Association, as trustee. The Notes bore interest at 6.75% per annum, payable semiannually on May 1
and November 1 of each year, beginning on November 1, 2019. The Notes could bear additional interest under specified
circumstances relating to the Company's failure to comply with its reporting obligations under the Indenture or if the Notes were
not freely tradeable as required by the Indenture. The Notes would have matured on May 1, 2024, unless earlier converted,
redeemed or repurchased pursuant to their terms.
The initial conversion rate of the Notes was 8.6956 shares of Class B Common Stock per $1,000 principal amount of the
Notes, subject to adjustment (which is equivalent to an initial conversion price of approximately $115.00 per share, subject to
adjustment). The conversion rate was subject to adjustment in some events but would not have be adjusted for any accrued and
unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture), the Company
would, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its
Notes in connection with such make-whole fundamental change.
Before the close of business on October 31, 2023, the Notes were convertible only under certain circumstances specified
in the Indenture. On or after November 1, 2023, to the close of business on the business day immediately preceding the maturity
date, holders could have converted all or any portion of their notes at the applicable conversion rate at any time, in multiples of
$1,000 principal amount, at the option of the holder regardless of such conditions. Upon conversion, the Company would pay or
deliver cash, shares of Class B Common Stock, or a combination of cash and shares of Class B Common Stock, at the Company's
election.
The Notes were not redeemable by the Company prior to the May 6, 2022. The Company could have redeemed for cash
all or any portion of the Notes, at its option, on or after May 6, 2022 if the last reported sale price of the Class B Common Stock
had been at least 150.0% of the conversion price then in effect for at least 20 trading days (whether or not consecutive). No sinking
fund was provided for the Notes.
The Notes were the Company's senior unsecured obligations and rank senior in right of payment to any of the Company's
indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company's
unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company's secured
indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and
other liabilities of current or future subsidiaries of the Company (including trade payables).
The Notes were subject to events of default typical for this type of instrument. If an event of default, other than an event
of default in connection with certain events of bankruptcy, insolvency or reorganization occurs and is continuing, the Trustee or
the holders of at least 25.0% in principal amount of the outstanding Notes, could have declared 100.0% of the principal of and
accrued and unpaid interest on the Notes immediately due and payable.
51
On May 9, 2019, the Company also entered into a Securities Purchase Agreement (the "Securities Purchase Agreement")
with certain accredited investors (the "Investors") pursuant to which the Company agreed to sell in a private placement (the "2019
Private Placement") an aggregate of 95,000 shares of the Class B Common Stock (the "Private Placement Shares"), at a purchase
price of $100.00 per share. JMP Securities served as the placement agent for the 2019 Private Placement. The Company paid JMP
Securities a commission of 7.0% of the gross proceeds in the 2019 Private Placement. Upon closing, the proceeds for the 2019
Private Placement, after deducting commissions and related offering expenses, were $8,665,000.
On May 14, 2019, the Company used a portion of net proceeds from the 2019 Note Offering to pay Hercules (as defined
below) $11,134,695, representing the principal, accrued and unpaid interest, fees, costs and expenses outstanding under the Loan
Agreement (as defined below). Upon the payment, all outstanding indebtedness and obligations of the Company owed to Hercules
under the Loan Agreement were paid in full, and the Loan Agreement was terminated.
Year Ended December 31, 2018
Net cash provided by financing activities increased $28,308,507 to $47,631,370 for the year ended December 31, 2018 as
compared to the same period in 2017. This increase is primarily a result of the: (i) 2018 public offering of 116,438 shares of Class
B Common Stock with net proceeds of $13,015,825; (ii) the private placement of an aggregate of 151,500 shares of our Class B
Common Stock (the "2018 Private Placement") with net proceeds of $20,086,155; (iii) proceeds of $9,227,035 from Hercules
loans; and (iv) Net advances of $5,302,355 under floor plan lines of credit. The proceeds from these transactions were used to: (i)
acquire vehicle inventory; (ii) accelerate technology development; (iii) fund the acquisition of Wholesale and Express; and (iv)
continue development of the Company's business and for working capital purposes.
On February 16, 2018, the Company, through RMBL Missouri, entered into an Inventory Financing and Security
Agreement (the "Credit Facility") with Ally Bank, a Utah chartered state bank ("Ally Bank") and Ally Financial, Inc., a Delaware
corporation (together with Ally Bank "Ally"), pursuant to which Ally may provide up to $25,000,000 in financing, or such lesser
sum which may be advanced to or on behalf of RMBL Missouri from time to time, as part of its floorplan vehicle financing
program. Advances under the Credit Facility require RMBL Missouri to maintain 10.0% of the advanced amount as restricted
cash. Advances under the Credit Facility will bear interest at a per annum rate designated from time to time by Ally and will be
determined using a 365/360 simple interest method of calculation, unless expressly prohibited by law. Advances under the Credit
Facility, if not demanded earlier, are due and payable for each vehicle financed under the Credit Facility as and when such vehicle
is sold, leased, consigned, gifted, exchanged, transferred, or otherwise disposed of. Interest under the Credit Facility is due and
payable upon demand, but, in general, in no event later than 60 days from the date of request for payment. Upon any event of
default (including, without limitation, the Borrower's obligation to pay upon demand any outstanding liabilities of the Credit
Facility), Ally may, at its option and without notice to RMBL Missouri, exercise its right to demand immediate payment of all
liabilities and other indebtedness and amounts owed to Ally and its affiliates by RMBL Missouri and its affiliates. The Credit
Facility is secured by a grant of a security interest in the vehicle inventory and other assets of RMBL Missouri and payment is
guaranteed by the Company pursuant to a guaranty in favor of Ally and secured by the Company pursuant to a General Security
Agreement.
On April 30, 2018 (the "Closing Date"), the Company, and it wholly owned subsidiaries, (collectively the "Initial
Borrowers"), entered into a Loan and Security Agreement (the "Loan Agreement") with Hercules Capital, Inc. a Maryland
Corporation ("Hercules") pursuant to which Hercules may provide one or more term loans in an aggregate principal amount of up
to $15,000,000 (the "Hercules Loan"). Under the terms of the Loan Agreement, $5,000,000 was funded at closing with the balance
available in two additional tranches over the term of the Loan Agreement, subject to certain operating targets and otherwise as set
forth in the Loan Agreement. The Hercules Loan has an initial 36-month maturity and initial 10.5% interest rate. The Hercules
Loan is subject to various covenants, including gross profit and EBITDA. As of December 31, 2018, the Company was in
compliance with such covenants.
Under the Loan Agreement, on the Closing Date, the Company issued Hercules a warrant to purchase 4.091 (increasing to
5,455 if a fourth tranche in the principal amount of up to $5,000,000 is advanced at the party's agreement) shares of the Company's
Class B Common Stock (the "Warrant') at an exercise price of $110.00 per share (the "Warrant Price"). The Warrant is
immediately exercisable and expires on April 30, 2023.
Advances under the Hercules Loan ("Advances") will bear interest at a per annum rate equal to the greater of either (i) the
prime rate plus 5.75%, or (ii) 10.25%, based on a year consisting of 360 days. Advances under the Loan Agreement are due and
payable on May 1, 2021, unless the Initial Borrowers achieve certain performance milestones, in which case Advances will be due
and payable on November 1, 2021.
Upon any event of default, Hercules may, at its option, exercise its right to demand immediate payment of all liabilities
and other indebtedness and amounts owed to Hercules by the Initial Borrowers.
52
The Hercules Loan is secured by a grant of a security interest in substantially all assets (the "Collateral") of the Initial
Borrowers, except the Collateral does not include (a) certain outstanding equity of the Initial Borrowers' foreign subsidiaries, if
any, or (b) nonassignable licenses or contracts of the Initial Borrowers, if any.
On July 20, 2018, the Company completed an underwritten public offering of 116,438 shares of its Class B Common
Stock at a price of $121.00 per share for aggregate net proceeds to the Company of $13,015,825. The completed offering included
15,188 shares of Class B Common Stock issued upon the underwriter's exercise in full of its over-allotment option. The Company
intends to use the net proceeds from the offering for working capital and general corporate purposes, which may include purchases
of additional inventory held for sale, increased spending on marketing and advertising and capital expenditures necessary to grow
the business.
On October 26, 2018, we entered into the Merger Agreement by and among the Company, Merger Sub, Holdings,
Wholesale, and the Stockholders), Steven Brewster, a Tennessee resident, as the representative of each Stockholder (the
"Representative"), and, for the limited purposes of Section 5.8, Marshall Chesrown and Steven R. Berrard, providing for the
Wholesale Merger of Holdings with and into Merger Sub, with Merger Sub surviving the Wholesale Merger as a wholly-owned
subsidiary of the Company. On October 29, 2018, we entered into an Amendment to the Merger Agreement making a technical
correction to the definition of "Parent Consideration Shares" contained in the Merger Agreement.
Also, on October 26, 2018, we entered into the Purchase Agreement, by and among the Company, the Express Sellers,
and Steven Brewster as representative of the Express Sellers, pursuant to which we acquired all of the membership interests (the
"Express Acquisition") in Wholesale Express.
The Wholesale Merger and the Express Acquisition were both completed on October 30, 2018 (the "Wholesale Closing
Date"). As consideration for the Wholesale Merger, we (i) paid cash consideration of $12,353,941, subject to certain customary
post-closing adjustments, and (ii) issued to the Stockholders 1,317,329 shares (the "Stock Consideration") of our Series B Non-
Voting Convertible Preferred Stock, par value $0.001. As consideration for the Express Acquisition, we paid cash consideration of
$4,000,000, subject to certain customary post-closing adjustments.
On October 30, 2018, the Company, NextGen Pro, LLC, ("NextGen Pro"), RMBL Missouri, LLC, ("RMBL Missouri"),
RMBL Texas, LLC ("RMBL Texas", and together with the Company, NextGen Pro, and RMBL Missouri, each, an
"Existing Borrower", and collectively, the "Existing Borrowers"), Merger Sub, Wholesale, Wholesale Express, RMBL Express,
LLC, ("RMBL Express", and together with Merger Sub, Wholesale and Wholesale Express, the "New Borrowers"; together with
the Existing Borrowers, the "Borrowers"), Hercules, in its capacity as lender (in such capacity, "Lender"), and Hercules, in its
capacity as administrative agent and collateral agent for Lender (in such capacities, "Agent"), entered into the First Amendment
and Waiver to Loan and Security Agreement (the "Amendment"), amending the Loan Agreement, (as amended by the
Amendment, the "Amended Loan Agreement"), by and among the Existing Borrowers, Lender and Agent. Under the terms of the
Amendment, $5,000,000 (less certain fees and expenses) was funded by Lender to the Borrowers in connection with the Wholesale
Closing Date (the "Tranche II Advance"). The Tranche II Advance has a maturity date of October 1, 2021 and an initial interest
rate of 11.00%. Pursuant to the Amendment, we issued to Hercules a warrant to purchase 1,048 shares of Class B Common Stock
at an exercise price of $143.13 per share. In connection with the Company's public offering in February 2019, the exercise price of
the warrant was adjusted to $110.94 and the number of shares of Class B Common Stock underlying the warrant was adjusted to
1,352. The warrant is immediately exercisable and expires on October 30, 2023.
Also, on October 30, 2018, Wholesale, as borrower, entered into a floorplan vehicle financing credit line (the "NextGear
Credit Line") with NextGear Capital, Inc. ("NextGear"). The available credit under the NextGear Credit Line is initially
$63,000,000, it was increased to $70,000,000 after February 28, 2019. The NextGear Credit Line is due and payable on demand.
Advances under the NextGear Credit Line will bear interest at an initial per annum rate of 5.25%, based upon a 360-day year, and
compounded daily, and the per annum interest rate will vary based on a base rate, plus the contract rate, which is currently
negative 2.00%, until the outstanding liabilities to NextGear are paid in full. See Note 8 – Notes Payable and Lines of Credit to our
consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report
on Form 10-K for further information on this loan
On October 30, 2018, we completed the 2018 Private Placement at a price of $142.00 per share for non-affiliates of the
Company, and, with respect to directors participating in the 2018 Private Placement, at a price of $162.00 per share. The gross
proceeds for the 2018 Private Placement were $21,553,000. National Securities Corporation, a wholly owned subsidiary of
National Holdings Corporation, and Craig-Hallum Capital Group (together the "Placement Agents") served as the placement
agents for the 2018 Private Placement. We paid the Placement Agents a fee of 6.5% of the gross proceeds in the 2018 Private
Placement. Net proceeds from the 2018 Private Placement and $5,000,000 funded under the Tranche II Advance were used to
partially fund the cash consideration of the Wholesale Merger and the Express Acquisition and the balance will be used for
working capital purposes.
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Liquidity
We have incurred losses and negative cash flow from operations since inception through December 31, 2019 and expect to
incur additional losses and negative cash flow in the future. As we continue to expand our business, build our brand name and
awareness, and continue technology and software development efforts, we may need access to additional capital. Historically, we
have raised additional capital to fund our expansion through equity issuances or debt instruments; refer to Note 8 — Notes Payable
and Lines of Credit and Note 9 — Stockholders Equity. Also, we have historically funded vehicle inventory purchases through our
Line of Credit-Floor Plans. As of May 28, 2020, we had approximately $15,000,000 available under our NextGear Credit Line
that we may draw against through December 31, 2020 to fund future vehicle inventory purchases, as described further in Note 8 —
Notes Payable and Lines of Credit.
Due to the impact of COVID-19 on the economy, we have a strong focus on preserving liquidity. Our primary liquidity
sources are available cash and cash equivalents, amounts available under the NextGear Credit Line, proceeds from the Paycheck
Protection Program loan, monetization of our retail loan portfolio and through rationalizing costs and expenses, including
temporarily laying off 169 employees. Although we have experienced a decrease in revenue as a result of the impact of the
COVID-19 pandemic, as of May 28, 2020, the Company has $9,000,000 of unrestricted cash and has approximately $15,000,000
of remaining availability under the NextGear Credit.
The Company’s consolidated financial statements have been prepared assuming that will continue as a going concern,
which assumes the continuity of operations, the realization of assets and the satisfaction of liabilities as they come due in the
normal course of business. Although the Company believes that we will be able to generate sufficient liquidity from the measures
described above, our current circumstances including uncertainties due to Covid-19 pandemic raise substantial doubt about our
ability to operate as a going concern. The accompanying consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have any off-balance sheet arrangements that have or are reasonably likely to have
a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to investors.
Subsequent Events
Public Offering
On January 10, 2020, the Company entered into the Underwriting Agreement with the Underwriters relating to the
Company's 2020 Public Offering of the 900,000 Firm Shares and the 135,000 Additional Shares.
The Underwriters agreed to purchase the Firm Shares at a price of $11.40 per share. The Firm Shares were offered,
issued, and sold pursuant to a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective
shelf registration statement filed with the SEC on Form S-3 (Registration No. 333-234340) under the Securities Act.
On January 14, 2020, the Company issued the Firm Shares and closed the 2020 Public Offering at a public price of
$11.40 per share. On January 16, 2020, the Company received notice of the Underwriters' intent to complete the Over-allotment
Exercise. On January 17, 2020, the Company issued the Additional Shares and closed the Over-allotment Exercise. The Over-
allotment Exercise increased the aggregate number of shares sold in the 2020 Public Offering to 1,035,000. Including the Over-
allotment Exercise, proceeds from the 2020 Public Offering, after deducting the 7.0% underwriter’s commission and $75,000 for
underwriter expenses, were $10,898,070. Certain of the Company's officers and directors participated in the 2020 Public Offering.
The Company intends to use the net proceeds of the 2020 Public Offering for working capital and general corporate
purposes, which may include further technology development, increased spending on marketing and advertising and capital
expenditures necessary to grow the business. Pending these uses, the Company may invest the net proceeds in short-term interest-
bearing investment grade instruments.
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Convertible Note Exchange and Offer
Also on January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by the
Joinder Agreement, with the investors in the 2019 Note Offering, pursuant to which the Company agreed to complete (i) a note
exchange pursuant to which $30,000,000 of the Old Notes would be cancelled in exchange for a new series of 6.75% Convertible
Senior Notes due 2025 and (ii) the issuance of additional New Notes in a private placement in reliance on the exemption from
registration provided by Rule 506 of Regulation D of the Securities Act as a sale not involving any public offering. On January 14,
2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering, after deducting for payment of
accrued interest on the Old Notes and offering-related expenses were approximately $8,272,375.
The New Notes were issued on January 14, 2020 pursuant to an Indenture (the "New Indenture"), by and between the
Company and Wilmington Trust, National Association, as trustee (the "Trustee"). The Note Agreement includes customary
representations, warranties and covenants by the Company and customary closing conditions. The New Notes bear interest at
6.75% per annum, payable semiannually on January 1 and July 1 of each year, beginning on July 1, 2020. The New Notes may
bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting obligations
under the New Indenture or if the New Notes are not freely tradeable as required by the New Indenture. The New Notes will
mature on January 1, 2025, unless earlier converted, redeemed or repurchased pursuant to their terms.
The initial conversion rate of the New Notes is 25 shares of Class B Common Stock per $1,000 principal amount of New
Notes, which is equal to an initial conversion price of $40.00 per share. The conversion rate is subject to adjustment in certain
events as set forth in the New Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the
occurrence of a "make-whole fundamental change" (as defined in the New Indenture), the Company will, in certain circumstances,
increase the conversion rate by a number of additional shares for a holder that elects to convert its New Notes in connection with
such make-whole fundamental change. Before July 1, 2024, the New Notes will be convertible only under circumstances as
described in the New Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental
change adjustment will result in a conversion rate greater than 61.6523 shares per $1,000 in principal amount.
The New Indenture contains a "blocker provision" which provides that no holder (other than the depositary with respect
to the notes) or beneficial owner of a New Note shall have the right to receive shares of the Class B Common Stock upon
conversion to the extent that, following receipt of such shares, such holder or beneficial owner would be the beneficial owner of
more than 4.99% of the outstanding shares of the Class B Common Stock.
The New Notes are not redeemable by the Company before the January 14, 2023. The Company may redeem for cash all
or any portion of the New Notes, at its option, on or after January 14, 2023 if the last reported sale price of the Class B Common
Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive),
including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30
consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company
provides notice of redemption at a redemption price equal to 100.0% of the principal amount of the notes to be redeemed, plus
accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.
The New Notes rank senior in right of payment to any of the Company's indebtedness that is expressly subordinated in
right of payment to the New Notes; equal in right of payment to any of the Company's unsecured indebtedness that is not so
subordinated; effectively junior in right of payment to any of the Company's secured indebtedness to the extent of the value of the
assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future subsidiaries of
the Company (including trade payables).
The New Notes are subject to events of default typical for this type of instrument. If an event of default, other than an
event of default in connection with certain events of bankruptcy, insolvency or reorganization of the Company or any significant
subsidiary, occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25.0% in principal amount of
the outstanding New Notes by notice to the Company and the Trustee, may declare 100.0% of the principal of and accrued and
unpaid interest, if any, on all the New Notes then outstanding to be due and payable.
In connection with the 2020 Note Offering, on January 14, 2020, the Company entered into a registration rights
agreement with the Note Investors, pursuant to which the Company has agreed to file with the SEC a shelf registration statement
registering the sale, on a continuous or delayed basis, of all of the New Notes and to use its commercially reasonable efforts to
cause the shelf registration statement to become or be declared effective under the Securities Act no later than the day that is 120
days after January 14, 2020.
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Investor Note Exchange
Also, in connection with the closing of the 2020 Public Offering and the 2020 Note Offering, the Company repaid
$500,000 plus accrued interest related to the note payable to Halcyon, and certain of the Company's investors extended the
maturity of currently outstanding promissory notes, and exchanged such notes for the New Investor Notes, pursuant to the Investor
Note Exchange Agreement, by and between the Company and each Investor, including Halcyon, an entity affiliated with Kartik
Kakarala, a director of the Company, such New Investor Note for an aggregate principal amount of $833,333, Blue Flame, an
entity affiliated with Denmar Dixon, a director of the Company, such New Investor Note for an aggregate principal amount of
$99,114 and Mr. Dixon, individually, such New Investor Note for an aggregate principal amount of $272,563. The New Investor
Notes, having an aggregate principal amount of approximately $1,502,352, will mature on January 31, 2021, and will be
convertible at any time at the Investor's option at a price of $60.00 per share. In connection with the issuance of the New Investor
Notes, the Company also entered into a Security Agreement, dated as of January 14, 2020 with the Investors, pursuant to which the
Company granted to the Investors a security interest in certain collateral to secure, on a pro rata basis based on the percentage
equal to the amount of principal outstanding on each New Investor Note divided by the amount of principal outstanding on all of
the New Investor Notes to each Investor.
The New Investor Notes and the New Notes were sold to the investors pursuant to the Investor Note Exchange Agreement
and the Note Agreement, respectively, in a private placement in reliance on the exemption from registration provided by Rule 506
of Regulation D of the Securities Act as a sale not involving any public offering. To the extent that any shares of Class B Common
Stock are issued upon conversion of the New Investor Notes and the New Notes, they will be issued in transactions anticipated to
be exempt from registration under the Securities Act by virtue of Section 3(a)(9) thereof, because no commission or other
remuneration is expected to be paid in connection with conversion of the New Investor Notes and the New Notes, and any
resulting issuance of shares of Class B Common Stock.
Nasdaq Notices
On January 17, 2020, the Company received a notice from the Listing Qualifications department of the Nasdaq Stock
Market ("Nasdaq") indicating that the Company is not in compliance with the minimum bid price requirement of $1.00 per share
set forth in Nasdaq Listing Rule 5450(a)(1) based upon the closing bid price for the 30 consecutive business days ended January
16, 2020. The Nasdaq notice does not impact the Company's listing at this time and the Company's stock will continue to trade on
Nasdaq while the Company works to regain compliance with the Nasdaq.
As a result of the Reverse Stock Split, as defined below, the Company believes it has regained compliance with Rule
5450(a)(1).
Nashville Tornado
In the early morning hours of March 3, 2020, a severe tornado struck the greater Nashville area causing significant
damage to our facilities in Nashville. We maintain insurance coverage for damage to our facilities and inventory, as well as
business interruption insurance. We continue in the process of reviewing damages and coverages with our insurance carriers. The
loss comprises three components: (1) inventory loss, currently assessed by the insurance carrier at approximately $13,000,000; (2)
building and personal property loss, primarily impacting our leased facilities, currently assessed by the insurance carrier at
$3,369,087; and (3) loss of business income, for which we have coverage in the amount of $6,000,000.
All three components of our loss claim have been submitted to its insurers. Our inventory claim is subject to a dispute
with the carrier as to the policy limits applicable to the loss. The building insurer has agreed to pay $3,369,087 on the building and
personal property loss, reflecting a complete recovery, net of $5,000 reflecting our deductible. The insurer has made an interim
payment on the building and personal property loss of $2,269,507 and has an outstanding balance of $1,094,580 which is expected
to be paid during the second quarter of 2020. The loss of business income claim is ongoing and remains in the process of
negotiation, however, the insurer has advanced $250,000 against the final settlement. We believe there will be a full recovery of all
three loss components, however no assurance can be given regarding the amounts, if any, that will be ultimately recovered.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and
recommended containment and mitigation measures worldwide. The global outbreak of COVID-19 has led to severe disruptions in
general economic activities, particularly retail operations, as businesses and federal, state, and local governments take increasingly
broad actions to mitigate this public health crisis. We have experienced significant disruption to our business, both in terms of
disruption of our operations and the adverse effect on overall economic conditions. These conditions will significantly negatively
impact all aspects of our business. Our business is also dependent on the continued health and productivity of our associates
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throughout this crisis. Individually and collectively, we expect the consequences of the COVID-19 outbreak will likely have a
significant negative impact on our business, sales, results of operations, financial condition, and liquidity.
The COVID-19 situation has created an unprecedented and challenging time. Our current focus is on positioning the
Company for a strong recovery when this crisis is over. We have taken steps to reduce our inventory and align our operating
expenses to the state of the business. We plan to continue to operate as permitted to support our customers’ needs for reliable
vehicles and to provide as many jobs as possible for our associates. Effective April 9, 2020, 169 associates were temporarily laid-
off effective, however our receipt of PPP funds, as discussed below will allow us to gradually recall these associates over time. All
ongoing employment determinations are subject to change due to the COVID-19 situation future government mandates, as well as
future business conditions. We will continue to monitor the COVID-19 situation and look for ways to preserve cash and reduce our
operating expenses as we are able, however, we expect the consequences of the COVID-19 outbreak will likely have a significant
negative impact on our business, sales, results of operations, financial condition, and liquidity.
PPP Loan
On May 1, 2020, the Company, and its wholly owned subsidiaries Wholesale, Inc. and Wholesale Express, LLC
(together, the "Subsidiaries," and with the Company, the "Borrowers"), each entered into loan agreements and related promissory
notes (the "SBA Loan Documents") to receive U.S. Small Business Administration Loans (the "SBA Loans") pursuant to the
Paycheck Protection Program (the "PPP") established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES
Act"), in the aggregate amount of $5,176,845 (the "Loan Proceeds"). The Borrowers received the Loan Proceeds on May 1, 2020.
Under the SBA Loan Documents, the SBA Loans have a fixed interest rate of 1.0%, repayment begins six months from the date of
disbursement of each SBA Loan, and the SBA Loans mature two years from the date of first disbursement. There is no prepayment
penalty.
Pursuant to the terms of the SBA Loan Documents, the Borrowers may apply for forgiveness of the amount due on the
SBA Loans in an amount equal to the sum of the following costs incurred by the Borrowers during the eight-week period (or any
other period that may be authorized by the U.S. Small Business Administration) beginning on the date of first disbursement of the
SBA Loans: payroll costs, any payment of interest on a covered mortgage obligation, payment on a covered rent obligation, and
any covered utility payment. The amount of SBA Loan forgiveness shall be calculated in accordance with the requirements of the
PPP, including the provisions of Section 1106 of the CARES Act, although no more than 25% of the amount forgiven can be
attributable to non-payroll costs. No assurance is provided that forgiveness for any portion of the SBA Loans will be obtained.
The promissory notes evidencing the SBA Loans contain customary events of default relating to, among other things,
payment defaults, breach of representations and warranties, or provisions of the promissory notes. The occurrence of an event of
default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Borrowers, and/or filing
suit and obtaining judgment against the Borrowers.
Reverse Stock Split
On May 18, 2020, the Company filed a Certificate of Change to the Company’s Articles of Incorporation with the
Secretary of State of the State of Nevada to effect a one-for-twenty reverse stock split of its issued and outstanding Class A
Common Stock and Class B Common Stock (the "Reverse Stock Split"). The Reverse Stock Split was effective at 12:01 a.m.,
Eastern Time, on May 20, 2020. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that
would have resulted from the Reverse Stock Split were rounded up to the nearest whole share. The authorized preferred stock of
the Company was not impacted by the Reverse Stock Split. Following the Reverse Stock Split, the Company has outstanding
50,000 shares of Class A Common Stock and approximately 2,162,696 shares of Class B Common Stock. On May 20, 2020, the
Company’s Class B Common Stock commenced trading on the Nasdaq Capital Market on a split-adjusted basis. The Company has
retrospectively adjusted the 2018 and 2019 financial statements for loss per share and share amounts as a result of the reverse stock
split.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States
("GAAP") requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and
related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The
Securities and Exchange Commission (the "SEC") has defined a company's critical accounting policies as the ones that are most
important to the portrayal of the company's financial condition and results of operations, and which require the company to make
its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.
Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other
key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our
results. For additional information, see Item 8 of Part II, Financial Statements and Supplementary Data Note 1 — "Description of
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Business and Significant Accounting Policies. Although we believe that our estimates, assumptions, and judgments are reasonable,
they are based upon information presently available. Actual results may differ significantly from these estimates under different
assumptions, judgments, or conditions.
Revenue Recognition
We adopted ASC 606, Revenue from Contracts with Customers on January 1, 2018 using the modified retrospective
method. ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3)
determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when
(or as) performance obligations are satisfied. Based on the manner in which we historically recognized revenue, the adoption of
ASC 606 did not have a material impact on the amount or timing of our revenue recognition, and we recognized no cumulative
effect adjustment upon adoption.
For vehicles sold at wholesale to dealers we satisfy our performance obligation for vehicles sales when the wholesale
purchaser obtains control of the underlying vehicle, which is upon delivery when the transfer of title, risks and rewards of
ownership and control pass to the dealer. We recognize revenue at the amount we expect to receive for the pre-owned vehicle,
which is the fixed price determined at the auction. The purchase price of the wholesale vehicle is typically due and collected within
30 days of delivery of the wholesale vehicle.
For vehicles sold to consumers the purchase price is set forth in the customer contracts at a stand-alone selling price
which is agreed upon prior to delivery. We satisfy our performance obligation for pre-owned vehicle sales upon delivery when the
transfer of title, risks and rewards of ownership and control pass to the customer. We recognize revenue at the agreed upon
purchase price stated in the contract, including any delivery charges, less an estimate for returns. Our return policy allows
customers to initiate a return during the first three days after delivery. Estimates for returns are based on an analysis of historical
experience, trends and sales data. Changes in these estimates are reflected as an adjustment to revenue in the period identified. The
amount of consideration received for pre-owned vehicle sales to consumers includes noncash consideration representing the value
of trade-in vehicles, if applicable, as stated in the contract. Prior to the delivery of the vehicle, the payment is received, or
financing has been arranged. Payments from customers that finance their purchases with third parties are typically due and
collected within 30 days of delivery of the pre-owned vehicle. In future periods additional provisions may be necessary due to a
variety of factors, including changing customer return patterns due to the maturation of the online vehicle buying market, macro-
and micro-economic factors that could influence customer return behavior and future pricing environments. If these factors result
in adjustments to sales returns, they could significantly impact our future operating results. Revenue exclude any sales taxes, title
and registration fees, and other government fees that are collected from customers.
Vehicle logistics and transportation services revenue is generated primarily by entering into freight brokerage agreements
with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The
transaction price is based on the consideration specified in the customer's contract. A performance obligation is created when the
customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These
performance obligations are satisfied as the shipments move from origin to destination. The freight brokerage agreements are
fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these
transporters are obligated to meet our performance obligations and standards. Performance obligations are short-term, with transit
days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and remit
payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as risks and rewards of
transportation of the vehicle is transferred to the owner during delivery. Wholesale Express is considered the principal in the
delivery transactions since it is primarily responsible for fulfilling the service. As a result, revenue is recorded gross.
Valuation of Inventory
Pre-owned vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of pre-owned vehicles
primarily acquired from consumers and includes the cost to acquire and recondition a pre-owned vehicle. Reconditioning costs are
billed by third-party providers and includes parts, labor, and other repair expenses directly attributable to a specific vehicle.
Transportation costs are expensed as incurred. Pre-owned inventory is stated at the lower of cost or net realizable value. Vehicle
inventory cost is determined by specific identification. Net realizable value is based on the estimated selling price less costs to
complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and
inventory turn data of similar vehicles, as well as independent market resources. Each reporting period, the Company recognizes
any necessary adjustments to reflect pre-owned vehicle inventory at the lower of cost or net realizable value, which is recognized
in cost of revenue in our Consolidated Statements of Operations.
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Purchase Accounting for Business Combinations
On February 3, 2019, the Company completed the Autosport Acquisition pursuant to the Stock Purchase Agreement, by
and among the Buyer, the Seller and Autosport. Aggregate consideration for the Autosport Acquisition consisted of (i) a closing
cash payment of $600,000, plus (ii) the Promissory Note in favor of the Seller, plus (iii) the Convertible Note in favor of the Seller,
plus (iv) contingent earn-out payments payable in the form of cash and/or the Company's Class B Common Stock for up to an
additional $787,500 if Autosport achieves certain performance thresholds. In connection with the Autosport Acquisition, the Buyer
also paid outstanding debt of Autosport of $235,000 and assumed additional debt of $257,933 pursuant to the Second Convertible
Note.
On October 26, 2018, we entered into the Merger Agreement with the Merger Sub, Holdings, Wholesale, the
Stockholders, the Representative, and, for the limited purposes of Section 5.8, Marshall Chesrown and Steven R. Berrard,
providing for the Wholesale Merger. On October 29, 2018, we entered into an Amendment to the Merger Agreement making a
technical correction to the definition of "Parent Consideration Shares" contained in the Merger Agreement.
Also, on October 26, 2018, we entered into the Purchase Agreement with the Express Sellers, and Steven Brewster as
representative of the Express Sellers, pursuant to which the Company completed the Express Acquisition. On October 30, 2018,
the Company completed the Wholesale Merger and Express Acquisition. As consideration for the Wholesale Merger, we (i) paid
cash consideration of $12,353,941, subject to certain customary post-closing adjustments, and (ii) issued to the Stockholders the
Stock Consideration. As consideration for the Express Acquisition, we paid cash consideration of $4,000,000, subject to certain
customary post-closing adjustments.
The Wholesale, Express and Autosport acquisitions were accounted under the acquisition method of accounting for
business combinations. Under the acquisition method of accounting, the cost, including transaction costs was preliminarily
allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the
estimated fair values of the net assets acquired was recorded as goodwill. Consistent with accounting principles generally accepted
in the U.S. at the time the acquisition was consummated, the Company valued the purchase price to acquire Wholesale, Wholesale
Express and Autosport based upon the fair value of the consideration paid.
The judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and
liabilities acquired can significantly impact net income (loss). For example, different classes of assets will have useful lives that
differ. Consequently, to the extent a longer-lived asset is ascribed greater value under the acquisition method than a shorter-lived
asset there may be less amortization recorded in a given period.
Determining the fair value of certain assets and liabilities acquired requires significant judgment and often involves the
use of significant estimates and assumptions. As provided by the accounting rules, the Company used the one-year period
following the consummation of the acquisition to finalize the estimates of the fair value of assets and liabilities acquired. One of
the areas that requires more judgment in determining fair values and useful lives is intangible assets. To assist in this process, the
Company obtained an appraisal from an independent valuation firm for certain intangible assets. While there are a number of
different methods used in estimating the value of the intangibles acquired, there are two approaches primarily used: discounted
cash flow and market multiple approaches. Some of the more significant estimates and assumptions inherent in the two approaches
include: projected future cash flows (including timing); discount rate reflecting the risk inherent in the future cash flows; perpetual
growth rate; determination of appropriate market comparables; and the determination of whether a premium or a discount should
be applied to comparables.
See Item 8 of Part II, Financial Statements and Supplementary Data, Note 1 – Description of Business and Significant
Accounting Policies and Note 4 — "Acquisitions" for additional discussion.
Goodwill
Goodwill represents the excess purchase price over the fair value of net assets acquired which is not allocable to
separately identifiable intangible assets. Other identifiable intangible assets, such as domain names, customer relationships, and
trade names are separately recognized if the intangible asset is obtained through contractual or other legal right or if the intangible
asset can be sold, transferred, licensed or exchanged.
Goodwill is not amortized but tested for impairment at the reporting unit level annually on December 31 and upon the
occurrence of an indicator of impairment. We have the option to qualitatively or quantitatively assess goodwill for impairment and
we evaluated our goodwill using a quantitative assessment process. Our operations are organized by management into operating
segments by line of business. We have determined that we have three reportable segments as defined in generally accepted
accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics and transportation. Our
powersports and automotive segments consist of the distribution of pre-owned vehicles. The powersports segment consists of the
59
distribution of principally motorcycles, while the automotive segment distributes cars and trucks. Each of these segments are
considered separate reporting units for purposes of goodwill testing. Our vehicle logistics and transportation service segment
provides nationwide automotive transportation services between dealerships and auctions. Our vehicle logistics and transportation
service reportable segment has been determined to represent one operating segment and reporting unit.
We have the option to qualitatively or quantitatively assess goodwill for impairment and we evaluated our goodwill using
a quantitative assessment process. During 2019, for the three reporting units we performed quantitative impairment testing of the
fair value of our reporting units using an income and market valuation approach. The income valuation approach estimates our
enterprise value using a net present value model, which discounts projected free cash flows of our business using the weighted
average cost of capital as the discount rate. We also validated the fair value for each reporting unit using the income approach by
calculating a cash earnings multiple and determining whether the multiple was reasonable compared to recent market transactions
completed in the industry. As part of that assessment, we also reconcile the estimated aggregate fair values of our reporting units to
our market capitalization. We believe this reconciliation process is consistent with a market participant perspective. This
consideration would also include a control premium that represents the estimated amount an investor would pay for our equity
securities to obtain a controlling interest, and other significant assumptions including revenue and profitability growth, profit
margins, residual values and the cost of capital.
For the year ended December 31, 2019, we recognized an impairment loss on goodwill of $1,850,000 related to
powersports, which is recorded in selling, general and administrative expenses in the Consolidated Statement of Operations. No
goodwill impairment resulted from the quantitative impairments tests of the remaining reporting units as of December 31, 2019
and 2018. The remaining reporting units had sufficient excess fair value over the respective carrying values. No other impairment
charges related to intangible assets were recognized in 2018.
Stock-Based Compensation
The Company is required to make estimates and assumptions related to our valuation and recording of stock-based
compensation expense under current accounting standards. These standards require all stock-based compensation to employees to
be recognized in the statement of operations based on their respective grant date fair values over the requisite service periods and
also requires an estimation of forfeitures when calculating compensation expense.
On June 30, 2017 the Company's shareholders approved a Stock Incentive Plan (the "Plan") reserving for issuance under
the Plan in the form of restricted stock units ("RSUs"), stock options ("Options"), Performance Units, and other equity awards
(collectively "Awards") for our employees, consultants, directors, independent contractors and certain prospective employees who
have committed to become an employee (each an "Eligible Individual") of up to 12.0% of the shares of Class B Common Stock
outstanding from time to time. On June 25, 2018, the Company's shareholders approved an amendment to the Plan to increase the
number of shares authorized for issuance under the Plan from 12.0% of the Company's issued and outstanding shares of Class B
Common Stock from time to time to 100,000 shares of Class B Common Stock (the "First Plan Amendment"). On May 20, 2019,
the Company's stockholders approved another amendment to the Plan to increase the number of shares authorized for issuance
under the Plan from 100,000 shares of Class B Common Stock to 200,000 shares of Class B Common Stock (the "Second Plan
Amendment"). To date, the vesting of RSU and Option awards for most employees is service / time based, however some senior
level employees have been granted awards that include a mix of service based, performance based and market condition-based
vesting. Substantially all service/time based RSU and Option awards issued typically vest over a three-year period approximating
the following vesting schedule: (i) 20.0% vesting anywhere from eight-months to thirteen month after grant date, (ii) an additional
30.0% during the subsequent twelve months of the initial vesting, and (iii) the final 50.0% during the following twelve months. All
currently outstanding performance-based awards and market condition-based awards granted to date have vesting schedules
dependent on achieving a particular objective within sixteen (16) months. More specifically, the Company granted to certain
members of management an aggregate of (i) 12,213 performance-based awards that vest after two consecutive quarters of $1.00 or
greater operating income and trailing four quarter revenue of $900,000,000 at any time through September 30, 2020, and (ii)
36,938 market-based awards. The Company estimates the fair value of awards granted under the Plan on the date of grant. Fair
value of all awards is based on the share price of the Class B Common Stock on the date of the award, and in the case of options,
calculated using the Black-Scholes option valuation model. See Item 8 of Part II, Financial Statements and Supplementary Data
Note 1 "Description of Business and Significant Accounting Policies—Stock-Based Compensation."
Newly Issued Accounting Pronouncements
In February 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-02) related to the accounting for
leases. This pronouncement requires lessees to record most leases on their balance sheet while also disclosing key information
about those lease arrangements. Under the new guidance, lease classification as either a finance lease or an operating lease will
affect the pattern and classification of expense recognition in the income statement. The classification criteria to distinguish
between finance and operating leases are generally consistent with the classification criteria to distinguish between capital and
operating leases under existing lease accounting guidance. This pronouncement is effective for fiscal years, and for interim periods
60
within those fiscal years, beginning after December 15, 2018. We adopted the new standard for our fiscal year beginning January
1, 2019.
In May 2014, the Financial Accounting Standards Board ("FASB") issued a new accounting standard (ASC Topic 606)
that amends the accounting guidance on revenue recognition. The new accounting standard is intended to provide a more robust
framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure
requirements. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and
is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or
services. The principles in the standard should be applied using a five-step model that includes 1) identifying the contract(s) with a
customer, 2) identifying the performance obligations in the contract, 3) determining the transaction price, 4) allocating the
transaction price to the performance obligations in the contract, and 5) recognizing revenue when (or as) the performance
obligations are satisfied. The standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. In addition, the standard amends the existing requirements for the recognition of a
gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, sales of real estate) to be
consistent with the standard's guidance on recognition and measurement (including the constraint on revenue). The FASB also
subsequently issued several amendments to the standard, including clarification on principal versus agent guidance, identifying
performance obligations, and immaterial goods and services in a contract.
The new accounting standard update must be applied using either of the following transition methods: (i) a full
retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain
practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the standard
recognized at the date of adoption (which requires additional footnote disclosures). The Company adopted ASC 606, Revenue from
Contracts with Customers on January 1, 2018 using the modified retrospective method. Based on the manner in which the
Company historically recognized revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its
revenue recognition and the Company recognized no cumulative effect adjustment upon adoption.
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 management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of December 31, 2019. We maintain disclosure controls and procedures that are designed to provide reasonable
assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act), the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective as of December 31, 2019.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as is
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. These internal controls are designed to provide reasonable
assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent
61
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, 2019.
This annual report does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm
pursuant to the temporary rules of the Securities and Exchange Commission that permit the company to provide only the
management's report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter
that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
On May 27, 2020, the Compensation Committee terminated the Executive RSUs (defined below) previously granted to
Messrs. Chesrown, Berrard and Levy. For additional information regarding the Executive RSUs, see Part III, Item 11 – Executive
Compensation.
On April 9, 2020, the Company reported that it would implement temporary salary reductions for those employees whose
annual salaries exceed $75,000, including, in consultation with the Compensation Committee of the Company's Board of
Directors, the salaries of our Chief Executive Officer and Chief Financial Officer. As a result of the Company’s approval of
Paycheck Protection Program funds on May 1, 2020, the Company has determined that these salary reductions are not needed at
this time and such reductions were not implemented.
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
Richard A. Gray, Jr.
Kartik Kakarala
Peter Levy
Michael Marchlik
Kevin Westfall
Age
62
65
58
72
42
50
47
64
Position
Chief Executive Officer and Chairman
Chief Financial Officer and Director
Director
Director
Director
Chief Operating Officer
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
62
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 on the Board of several prominent, publicly traded companies. In several
instances, he has led significant growth of the businesses he has managed. In addition, Mr. Berrard has served as the Chairman of
the audit committee of several boards of directors.
Denmar Dixon has served on our Board since January 9, 2017. Mr. Dixon served as a director of Walter Investment from
April 2009 (and for its predecessor since December 2008) until June 2016. Effective October 2015, Mr. Dixon was appointed
Chief Executive Officer and President of Walter Investment and served until his resignation effective June 2016. Mr. Dixon
previously served as Vice Chairman of the Board of Directors and Executive Vice President of Walter Investment since January
2010 and Chief Investment Officer of Walter Investment since August 2013. Before becoming an executive officer of Walter
Investment, Mr. Dixon also served as a member of Walter Investment's Audit Committee and Nominating and Corporate
Governance Committee and as Chairman of the Compensation and Human Resources Committee. Before serving on the Board of
Walter Investment, Mr. Dixon was elected to the board of managers of JWH Holding Company, LLC, a wholly-owned subsidiary
of Walter Industries, Inc., in anticipation of the spin-off of Walter Investment Management, LLC from Walter Industries, Inc. (now
known as Walter Energy, Inc.). In 2008, Mr. Dixon founded Blue Flame Capital, LLC, a consulting, financial advisory and
investment firm. Before forming Blue Flame, Mr. Dixon spent 23 years with Banc of America Securities, LLC and its
predecessors. At the time of his retirement, Mr. Dixon was a Managing Director in the Corporate and Investment Banking group
and held the position of Global Head of the Basic Industries Group of Banc of America Securities.
We believe that Mr. Dixon possesses attributes that qualify him to serve as a member of our Board, including his
extensive business development, mergers and acquisitions and capital markets/investment banking experience within the financial
services industry. As a director, he provides significant input into, and is actively involved in, leading our business activities and
strategic planning efforts. Mr. Dixon has significant experience in the general industrial, consumer and business services
industries.
Richard A. Gray, Jr., has served on our Board since October 1, 2017. Mr. Gray has served as President of Gray & Co.
Realtors, Inc., a licensed real estate service provider he founded, since 1987. Gray & Co. Realtors has been involved in the
development, liquidation, the joint venture, and management of commercial real estate, representing both U.S. investors and
foreign investors, and since 1998, has also been involved in raising venture capital for startup and additional round funding for
public companies in the technology sector. Before Gray & Co. Realtors, he served as a broker at Wiggins Gray Interests, a
company focused on development of retail and office properties in Dallas Fort Worth Metroplex, as well as office, industrial, land
and retail brokerage from 1985 to 1987. Before Wiggins Gray Interests, he served at Hudson & Hudson Realtors from 1973 to
1985, Murray Investment Company from 1971 to 1973, and Borden Chemical Company from 1969 to 1971. Mr. Gray has also
served as a director of the Cystic Fibrosis Foundation, Migra Tech, and Equitable Bank. Mr. Gray received his BBA from Texas
Tech University.
63
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.
Kartik Kakarala was appointed to our Board immediately following the completion of the Company's acquisition of
substantially all of the assets of the NextGen Dealer Solutions, LLC ("NextGen") in February 2017. Mr. Kakarala is the Chief
Executive Officer of Halcyon Technologies, a global software solutions company. He is responsible for sales, business
development and innovation, as well as the creation of technology assets. He has been responsible for the growth of a number of
strategic, horizontal competencies, and vertical business units like automotive, utilities, finance and healthcare practices. Mr.
Kakarala served as the Chief Executive Officer and President of NextGen from January 2016 to February 2017, which was
acquired by us in February 2017, providing inventory management solutions to the power sports, recreational vehicle and marine
sectors in North America. He served as Chief Executive Officer and President of NextGenAuto from July 2013 to December 2015.
Mr. Kakarala served as Co-Founder and Managing Partner of Red Bumper from July 2010 to August 2014, a company which
provided pre-owned car inventory management solutions used by thousands of automotive dealers across North America and
which was later acquired by ADP in 2014. Mr. Kakarala served as Director/Co-Founder of GridFirst solutions since 2012, a
company providing home automation solutions to energy customers. Mr. Kakarala holds a master’s degree in Computer Science
from University of Houston.
We believe that Mr. Kakarala possesses attributes that qualify him to serve as a member of our Board, as he is regarded as
a pioneer in developing several systems in the automotive industry including CRM, ERP, inventory management and financial
applications.
Peter Levy has served as our Chief Operating Officer since May 20, 2019. From November 2017 to present, Mr. Levy
served as our Senior Vice President of Operations overseeing the day-to-day inventory logistics, auctions, dealer networks, and
managing the teams responsible for driving sales within the Company. Mr. Levy is a seasoned and highly respected operating
executive who has been involved in the automotive industry for over 25 years. Mr. Levy previously served as a Business
Development Partner of AWG Remarketing Whann Technology/Integrated Auction Solutions, LLC from January 2011 to
November 2017. Also, Mr. Levy's distinguished career includes multiple executive and management level positions within the
industry at companies such as AutoNation and Automotive Remarketing Services, all focusing on business development and
creative uses of technology to gain market share. Mr. Levy graduated from Indiana University with a B.S. in Marketing and
Finance.
Michael Marchlik has served on our Board since May 6, 2020. Mr. Marchlik has served as the Chief Executive Officer
of the Advisory & Valuations division of Great American Group ("GA") since April 2017 and is responsible for overseeing the
operations and client service efforts for lenders, sponsors and borrowers. Prior to that, he served as a Partner and National Sales
and Marketing Director of GA from January 2010 to April 2017, as Executive Vice President, Western Region of GA from
January 2004 to December 2009, as Senior Vice President of Sales, Western Region of GA from June 2001 to December 2003,
and as Director of Operations at GA from July 1996 to May 2001. With nearly two and a half decades of experience in all
segments of the asset disposition and valuation industries, he has extensive understanding of corporate transactional services,
credit structure and asset-based valuation, lending solutions and business operations. Mr. Marchlik attended Northeastern
University in Boston where he received a Bachelor of Science in Finance.
We believe that Mr. Marchlik possesses attributes that qualify him to serve as a member of our Board, including his
extensive understanding of corporate transactional services, credit structure and asset-based valuation, lending solutions and
business operations.
Kevin Westfall has served on our Board since January 9, 2017. Mr. Westfall was a co-founder and served as Chief
Executive Officer of Vroom from January 2012 through November 2015. Previously, from March 1997 through November 2011,
Mr. Westfall served as Senior Vice President of Sales and Senior Vice President of Automotive Finance at AutoNation. Mr.
Westfall was a founder of BMW Financial Services in 1990 and served as its President until March 1997. Mr. Westfall also served
as Retail Lease Manager of Chrysler Credit Corporation from 1987 until 1990 and as President of World Automotive Imports and
Leasing from 1980 until 1987.
We believe that Mr. Westfall possesses attributes that qualify him to serve as a member of our Board, including his more
than 30 years of executive experience in automotive retail and finance operations.
Corporate Governance Principles and Code of Ethics
Our Board is committed to sound corporate governance principles and practices. Our Board's core principles of corporate
governance are set forth in our Corporate Governance Principles. In order to clearly set forth our commitment to conduct our
operations in accordance with our high standards of business ethics and applicable laws and regulations, our Board also adopted a
Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees. A copy of the Code of Business
64
Conduct and Ethics and the Corporate Governance Principles are available on our corporate website at www.rumbleon.com. You
also may obtain without charge a printed copy of the Code of Ethics and Corporate Governance Principles by sending a written
request to: Investor Relations, RumbleOn, Inc., 901 W Walnut Hill Lane, Irving, Texas 75038. Amendments or waivers of the
Code of Business Conduct and Ethics will be provided on our website within four business days following the date of the
amendment or waiver.
Board of Directors
The business and affairs of our company are managed by or under the direction of the Board. The Board is currently
composed of seven members. The Board has not appointed a lead independent director; instead the presiding director for each
executive session is rotated among the Chairs of the committees of our Board.
The Board held five meetings and took one action by unanimous written consent during the year ended December 31,
2019. In 2019, each person serving as a director attended at least 75% of the total number of meetings of our Board and any Board
committee on which he served.
Our directors are expected to attend our Annual Meeting of Stockholders. Any director who is unable to attend our
Annual Meeting is expected to notify the Chairman of the Board in advance of the Annual Meeting. All of our directors serving at
the time of the 2019 Annual Meeting of Stockholders were in attendance.
Board Committees
Pursuant to our bylaws, our Board may establish one or more committees of the Board however designated, and delegate
to any such committee the full power of the Board, to the fullest extent permitted by law.
Our Board has established three separately designated standing committees to assist the Board in discharging its
responsibilities: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee.
The charters for our Board committees set forth the scope of the responsibilities of that committee. The Board will assess the
effectiveness and contribution of each committee on an annual basis. The charters for our Board committees were adopted by the
Board in May 2017. These charters are available at www.rumbleon.com, and you may obtain a printed copy of any of these
charters by sending a written request to: Investor Relations, RumbleOn, Inc., 901 W Walnut Hill Lane, Irving, Texas 75038.
Audit Committee. The current members of the Audit Committee are Messrs. Dixon (chair), Marchlik, Gray, and Westfall.
The Board has determined that Mr. Dixon is an "audit committee financial expert," as defined in Item 407 of Regulation S-K and
is the Chairman of the Audit Committee.
The primary function of the Audit Committee is to assist the Board in fulfilling its responsibilities by overseeing our
accounting and financial processes and the audits of our financial statements. The independent auditor is ultimately accountable to
the Audit Committee, as representatives of the stockholders. The Audit Committee has the ultimate authority and direct
responsibility for the selection, appointment, compensation, retention and oversight of the work of our independent auditor that is
engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us (including
the resolution of disagreements between management and the independent auditors regarding financial reporting), and the
independent auditor must report directly to the Audit Committee. The Audit Committee also is responsible for the review of
proposed transactions between us and related parties. For a complete description of the Audit Committee's responsibilities, you
should refer to the Audit Committee Charter. The Audit Committees held seven meetings and took two actions by unanimous
written consent during the year ended December 31, 2019.
Compensation Committee. The current members of the Compensation Committee are Messrs. Westfall (chair), Marchlik,
and Dixon. The Compensation Committee was established to, among other things, administer and approve all elements of
compensation and awards for our executive officers. The Compensation Committee has the responsibility to review and approve
the business goals and objectives relevant to each executive officer's compensation, evaluate individual performance of each
executive in light of those goals and objectives, and determine and approve each executive's compensation based on this
evaluation. For a complete description of the Compensation Committee's responsibilities, you should refer to the Compensation
Committee Charter. The Compensation Committee held three meetings and took one actions by unanimous written consent during
the year ended December 31, 2019.
Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance
Committee are Messrs. Dixon (chair) and Gray. The Nominating Committee is responsible for identifying individuals qualified to
become members of the Board or any committee thereof; recommending nominees for election as directors at each annual
stockholder meeting; recommending candidates to fill any vacancies on the Board or any committee thereof; and overseeing the
evaluation of the Board. For a complete description of the Nominating and Corporate Governance Committee's responsibilities,
65
you should refer to the Nominating and Corporate Governance Committee Charter. The Nominating and Corporate Governance
Committees took one action by unanimous written consent during the year ended December 31, 2019.
The Nominating and Corporate Governance Committee will consider all qualified director candidates identified by
various sources, including members of the Board, management and stockholders. Candidates for directors recommended by
stockholders will be given the same consideration as those identified from other sources. The Nominating and Corporate
Governance Committee is responsible for reviewing each candidate's biographical information, meeting with each candidate and
assessing each candidate's independence, skills and expertise based on a number of factors. While we do not have a formal policy
on diversity, when considering the selection of director nominees, the Nominating and Corporate Governance Committee
considers individuals with diverse backgrounds, viewpoints, accomplishments, cultural background and professional expertise,
among other factors.
Item 11. Executive Compensation.
Executive and Director Compensation
Summary Compensation Table
The following table provides the compensation paid to our principal executive officer and other executive officers whose
total compensation exceeded $100,000 for the years ended December 31, 2019 and December 31, 2018.
Name and Principal Position
Fiscal Year
Salary
Bonus
Stock
Awards(1)
Total
Marshall Chesrown
Chief Executive Officer
Steven R. Berrard
Chief Financial Officer
Peter Levy(3)
Chief Operating Officer
2019
2018
2019
2018
$
$
360,000
240,000
$
200,000
150,000(2)
360,000
240,000
$
200,000
150,000(2)
-
-
-
-
560,000
$ 390,000
560,000
$ 390,000
2019
$
280,273
$
50,500
204,000 (4) $ 534,773
(1) Does not include the grant date fair value of performance and market based restricted stock units granted to each of Mr.
Chesrown and Mr. Berrard in the amount of $838,000 and to Mr. Levy in the amount of $204,250, each as determined
pursuant to FASB ASC Topic 718, which restricted stocks unit were terminated as described below under the section titled
Executive Employment Arrangement.
(2) Represents a discretionary bonus approved by the Company's Compensation Committee for service provided to the Company
in connection with the acquisitions of Wholesale, Inc. and Wholesale Express, LLC in October 2018.
(3) On May 20, 2019, Peter Levy was promoted to Chief Operating Officer of the Company. As a result, compensation for only
2019 is presented above.
(4) Does not reflect compensation paid to Mr. Levy. Instead, the amount shown reflects the grant date fair value of restricted
stock units granted to Mr. Levy determined pursuant to FASB ASC Topic 718.
Executive Employment Arrangement
Marshall Chesrown and Steven Berrard
On May 25, 2019, the Compensation Committee approved an increase in the annual base salary for Marshall Chesrown
and Steven Berrard from $240,000 to $360,000, retroactive to January 1, 2019. The Compensation Committee also approved a
discretionary bonus of up to $500,000 for each of Messrs. Chesrown and Berrard payable as follows: (i) $100,000 payable
immediately in connection with the Company's performance for the quarter ended March 31, 2019 and the launch of the
Company's finance business, (ii) $100,000 upon reaching the revenue target approved by the Committee for the year ending
December 31, 2019 and payable upon completion of the Company's audited financial statements for the year ending December 31,
2019, (iii) $100,000 payable upon achieving powersports and automotive unit sales with a target average gross margin per unit
approved by the Committee at any time through December 31, 2019, and (iv) $100,000 payable in two equal installments upon
achieving a certain percentage of revenue and gross margin targets approved by the Committee for the quarters ended June 30,
2019 and September 30, 2019. Messrs. Chesrown and Berrard each achieved and were paid $200,000 under the bonus plan.
The Committee also approved grants of up to 20,000 restricted stock units ("RSUs") for each of Messrs. Chesrown and
Berrard, which vest as follows: (i) 5,000 RSUs vest after two consecutive quarters of $1.00 or greater operating income and
trailing four quarter revenue targets approved by the Committee at any time through September 30, 2020, (ii) 5,000 RSUs vest at
66
such time as the shares of Class B Common Stock trade at a minimum closing price of $200.00 per share for 30 consecutive
trading days at any time through September 30, 2020, and (iii) 10,000 RSUs vest at such time as the shares of Class B Common
Stock trade at a minimum closing price of $300.00 per share for thirty consecutive trading days at any time through September 30,
2020. Messrs. Chesrown and Berrard received these RSUs on June 3, 2019 (the "CEO and CFO RSUs").
On May 27, 2020, the Committee terminated the CEO and CFO RSUs.
The Company has not entered into employment agreements or arrangements with Messrs. Chesrown or Berrard.
Accordingly, Messrs. Chesrown and Berrard are employed as the Company's Chief Executive Officer and Chief Financial Officer,
respectively, on an at-will basis.
Peter Levy
We have not entered into an employment agreement or arrangement with Mr. Levy. Accordingly, he is employed as our
Chief Operating Officer on an at-will basis. Mr. Levy currently receives an annual salary of $300,000, which is paid weekly, in
accordance with our standard payroll practice. Mr. Levy is eligible for equity compensation under our equity compensation plans,
as determined from time to time by the Compensation Committee of the Board.
On August 22, 2019, the Compensation Committee approved a grant of 2,500 RSUs to Mr. Levy, which vest (1) 20% on
the last day of the ninth month following the grant date, (2) 7.5% every three months on the last day of each three month period
beginning on the last day of the twelfth month following the grant date through the last of the twenty-first month following the
grant date and (3) 12.5% every three months on the last day of each three month period beginning on the last day of the twenty-
fourth month following the grant date through the last day of the thirty-first month following the grant date.
Also, on August 22, 2019, the Committee approved a grant of up to 5,000 RSUs to Mr. Levy, which vest as follows: (i)
1,250 RSUs vest after two consecutive quarters of $1.00 or greater operating income and trailing four quarter revenue of
$900,000,000 at any time through June 30, 2020, (ii) 1,250 RSUs vest at such time as the shares of Class B Common Stock trade
at a minimum closing price of $200.00 per share for 30 consecutive trading days at any time through June 30, 2020, and (iii) 2,500
RSUs vest at such time as the shares of Class B Common Stock trade at a minimum closing price of $300.00 per share for 30
consecutive trading days at any time through June 30, 2020 (the “COO RSUs, collectively with the CEO and CFO RSUs, the
"Executive RSUs").
On May 27, 2020, the Committee terminated the COO RSUs.
Non-Employee Director Compensation
We have not yet established a policy for non-employee director compensation. During the year ended December 31,
2019, no compensation was paid to our non-employee directors, except an award of 1,750 RSUs under the Incentive Plan to
Messrs. Dixon, Gray, Kakarala, Westfall and Reece for their service to the Board.
The following table summarizes the compensation paid to our non-employee directors for the year ended December 31,
2019.
Name
Denmar Dixon
Richard A. Gray, Jr.
Kartik Kakarala
Kevin Westfall
Joseph Reece (3)
Stock
Awards (1)(2)
$
$
$
$
$
160,300
160,300
160,300
160,300
160,300
Total
160,300
160,300
160,300
160,300
160,300
$
$
$
$
$
(1) Represents RSUs granted under the Incentive Plan. Represents the aggregate grant date fair value computed in accordance
with FASB ASC Topic 718. In determining the grant date fair value, we used $91.60 per share. The RSUs vest one year from
the grant date and are subject to pro rata vesting if a director leaves the Board of Directors before the one-year period.
(2) As of December 31, 2019, each of Messrs. Dixon, Gray, Kakarala, and Westfall held RSUs as follows: Mr. Dixon – 6,025; Mr.
Gray – 4,550; Mr. Kakarala – 3,150; and Mr. Westfall – 4,025.
(3) Mr. Reece resigned from the board on October 21, 2019, and forfeited all vested and unvested RSUs.
67
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners and Management
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. In accordance with the SEC rules, shares of our common stock that may be acquired upon
exercise or vesting of equity awards within 60 days of the date of the table below are deemed beneficially owned by the holders of
such options and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage of ownership of any other person.
As of May 26, 2020, 50,000 shares of Class A Common Stock and 2,162,716 shares of Class B Common Stock were
issued and outstanding. The following table sets forth information with respect to the beneficial ownership of our common stock as
of May 26, 2020, by (i) each of our directors and executive officers, (ii) all of our directors and executive officers as a group, and
(iii) each stockholder known by us to be the beneficial owner of more than 5% of our common stock. To the best of our
knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with
respect to the shares of common stock beneficially owned by such person, except to the extent such power may be shared with a
spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To
our knowledge, there is no arrangement, including any pledge by any person of our securities or any of our parents, the operation
of which may at a subsequent date result in a change in control of our company.
Unless otherwise noted below, the address of each person listed on the table is c/o RumbleOn, Inc., 901 W Walnut Hill
Lane, Irving, Texas 75038.
Beneficial Owner Executive Officers and Directors
Marshall Chesrown(3)
Steven Berrard(4)
Denmar Dixon(5)
Kevin Westfall
Kartik Kakarala(6)
Peter Levy
Richard Gray
Michael Marchlik
All executive officers and directors as a group (8
persons) (7)
*Represents beneficial ownership of less than 1%.
Class A
Common Stock
Beneficially
Owned
Percentage of
Class A Common
Stock
Beneficially
Owned (%)(1)
Class B Common
Stock Beneficially
Owned
43,750
6,250
—
—
—
—
—
—
87.5%
12.5%
—
—
—
—
—
—
93,750
108,500
78,874(8)
4,851(9)
78,772(10)
6,944(11)
5,071(12)
—
Percentage of
Class B Common
Stock
Beneficially
Owned (%)(2)
4.33%
5.02%
3.65%
*
3.64%
*
*
—
—
—
376,762(13)
17.42%
(1) Based on 50,000 shares of Class A Common Stock issued and outstanding as of May 26, 2020. The Class A Common Stock has
ten votes for each share outstanding compared to one vote for each share of Class B Common Stock outstanding
(2) Based on 2,162,716 shares of Class B Common Stock issued and outstanding as of May 26, 2020.
(3) As of May 26, 2020, Mr. Chesrown has voting power representing approximately 19.95% of our outstanding common stock.
(4) Shares are owned directly through Berrard Holdings, a limited partnership controlled by Steven R. Berrard. Mr. Berrard has
the sole power to vote and the sole power to dispose of each of the shares of common stock which he may be deemed to
beneficially own. As of May 26, 2020, Mr. Berrard has voting power representing approximately 6.42% of our outstanding
common stock.
(5) 62,642 shares are owned directly through Blue Flame Capital, LLC, an entity controlled by Mr. Dixon, 638 shares are held by
Mr. Dixon's spouse, 75 shares are held by Mr. Dixon's son and 12,600 shares are directly held by Mr. Dixon. Mr. Dixon has the
sole power to vote and the sole power to dispose of each of the shares of common stock which he may be deemed to beneficially
own. As of May 26, 2020, Mr. Dixon has voting power representing 2.85% of our outstanding common stock.
(6) Shares are owned indirectly through Halcyon Consulting, LLC, a limited liability company owned by Kartik Kakarala and his
brother, Srinivas Kakarala. Kartik Kakarala has shared power to vote and shared power to dispose of such shares of common stock
with his brother. As of May 26, 2020, Mr. Kakarala has voting power representing 2.87% of our outstanding common stock.
68
(7) As of May 26, 2020, all directors and executive officers as a group have voting power representing approximately 32.46% of
our outstanding common stock.
(8) Includes 2,919 restricted stock units that have vested and are pending delivery or will vest within 60 days.
(9) Includes 2,231 restricted stock units that have vested and are pending delivery or will vest within 60 days.
(10) Includes 2,231 restricted stock units that have vested and are pending delivery or will vest within 60 days.
(11) Includes 2,501 restricted stock units that have vested and are pending delivery or will vest within 60 days.
(12) Includes 2,596 restricted stock units that have vested and are pending delivery or will vest within 60 days.
(13) Includes 12,478 restricted stock units that have vested and are pending delivery or will vest within 60 days.
Securities Authorized for Issuance Under Equity Compensation Plans
On January 9, 2017, our Board approved the adoption of the Incentive Plan subject to stockholder approval at our 2017
Annual Meeting of Stockholders. On June 30, 2017, the Incentive Plan was approved by our stockholders at the 2017 Annual
Meeting of Stockholders. The purposes of the Incentive Plan are to attract, retain, reward and motivate talented, motivated and
loyal employees and other service providers, or the Eligible Individuals, by providing them with an opportunity to acquire or
increase a proprietary interest in our company and to incentivize them to expend maximum effort for the growth and success of our
company, so as to strengthen the mutuality of the interests between such persons and our stockholders. The Incentive Plan allows
us to grant a variety of stock-based and cash-based awards to Eligible Individuals. On May 10, 2018, the Board approved, subject
to stockholder approval, an amendment to the Incentive Plan to increase the number of shares of Class B Common Stock
authorized for issuance under the Incentive Plan from twelve percent (12%) of all issued and outstanding Class B Common Stock
from time to time to 100,000 shares of Class B Common Stock (the "Plan Increase"). On June 25, 2018, the Plan Increase was
approved by our stockholders at the 2018 Annual Meeting of Stockholders. On May 20, 2019, the Company's stockholders
approved another amendment to the Plan to increase the number of shares authorized for issuance under the Plan from 100,000
shares of Class B Common Stock to 200,000 shares of Class B Common Stock. We have not maintained any other equity
compensation plans since our inception.
The following table provides information as of December 31, 2019, with respect to all of our compensation plans under
which equity securities are authorized for issuance:
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Plan Category
Number of securities
to be issued upon exercise of
outstanding options, warrants
and rights
Number of
securities
remaining available
for future issuance
136,076(1)
-
41,299(2)
-
(1) Represents restricted stock units outstanding under the Incentive Plan.
(2) Represents securities remaining available for future issuance under the Incentive Plan.
69
Item 13. Certain Relationships and Related Transactions, and Director Independence.
We have been a party to the following transactions since January 1, 2018, in which the amount involved exceeds
$120,000 and in which any director, executive officer, or holder of more than 5% of any class of our voting stock, or any member
of the immediate family of or entities affiliated with any of them, had or will have a material interest.
November 2016 Private Placement
On November 28, 2016, we completed a private placement with certain purchasers, with respect to the sale of an
aggregate of 45,000 shares of common stock of the Company at a purchase price of $30.00 per share for total consideration of
$1,350,000 (the "2016 Private Placement"). In connection with the 2016 Private Placement, the Company also entered into loan
agreements with the investors pursuant to which the investors would loan the Company their pro rata share of up to $1,350,000 in
the aggregate upon our request any time on or after January 31, 2017 and before November 1, 2020, pursuant to the terms of a
convertible promissory note attached to the loan agreements.
In connection with the 2016 Private Placement, Blue Flame, an entity controlled by Denmar Dixon, one of the Company's
directors, paid $250,000 for 45,000 shares of the Company's Class B Common Stock.
On March 31, 2017, we completed funding of the second tranche of the 2016 Private Placement, pursuant to which the
investors each received their pro rata share of (1) 58,096 shares of common stock and (2) the Private Placement Notes, in the
amount of $667,000, and cancellation of loan agreements having an aggregate principal amount committed by the purchasers of
$1,350,000. The Private Placement Notes were not convertible. As a result, Blue Flame received 32,276 shares of Class B
Common Stock and a promissory note in the principal amount of $370,556. As of December 31, 2019 and 2018, the amount
outstanding on the promissory notes due to Blue Flame, including accrued interest was $394,287 and $378,495, respectively.
Interest expense on the promissory notes due to Blue Flame for the year ended December 31, 2019 and 2018 was $183,286 and
$143,987, respectively, which included debt discount amortization of $144,109 and $114,404, respectively. The interest was
charged to interest expense in the Consolidated Statements of Operations.
Test Dealer
In connection with the development of the regional partner program, the Company tested various aspects of the program
by utilizing a dealership to which Mr. Chesrown, the Company's Chief Executive Officer has provided financing in the form of a
$400,000 convertible promissory note (the "Dealer"). The note, which could be converted into a 25.0% ownership interest in the
Dealer at any time, was to mature on May 1, 2019, with interest payable monthly at 5.0% per annum This financing arrangement
was terminated in April 2018. Revenue recognized by the Company from the Dealer for the year ended December 31, 2018 was
$619,193 or .04% of 2018 total revenue.
In addition, the Company previously subleased warehouse space from the Dealer that is separate and distinct from the
location of the dealership, on the same terms as paid by the Dealer. This subleased facility serves as the northwestern regional
distribution center for the Company. The lease was terminated on June 30, 2018. For the year ended December 31, 2018, the
Company paid $90,000 in rent under the sublease. Included in accounts receivable at December 31, 2018 was $40,176 owed to the
Company by the Dealer.
Services Agreement
In connection with the NextGen Acquisition, on February 8, 2017, we entered into a Services Agreement with Halcyon,
to provide development and support services to us. Mr. Kakarala currently serves as the Chief Executive Officer of Halcyon.
Pursuant to the Services Agreement, we paid Halcyon hourly fees for specific services, set forth in the Services Agreement, and
such fees could increase on an annual basis, provided that the rates were not higher than 110.0% of the immediately preceding
year's rates. We also reimbursed Halcyon for any reasonable travel and pre-approved out-of-pocket expenses incurred in
connection with its services to us. The Services Agreement was terminated on March 31, 2018. During the year ended December
31, 2018, we paid a total of $54,159 under the Services Agreement.
October 2018 PIPE Transaction
On October 25, 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (the
"Investors") pursuant to which the Company agreed to sell in a private placement (the "PIPE Transaction") an aggregate of
151,500 shares of its Class B Common Stock, at a purchase price of $142.00 per share for non-affiliates of the Company.
70
Mr. Dixon, who invested through Blue Flame, purchased 1,500 shares of Class B Common Stock in the PIPE Transaction
at a price of $162.00 per share (the per share price to affiliates of the Company) for an aggregate purchase price of $243,000. Also,
Mr. Reece, a Director at the time, individually purchased 500 shares of Class B Common Stock for an aggregate purchase price of
$81,000. The Board of Directors approved these purchases in accordance with Rule 16b-3(d)(1) of the Exchange Act. Messrs.
Dixon and Reece abstained from the Board of Directors' vote approving the PIPE Transaction.
Nashville Leases
In connection with the acquisition of Wholesale, we entered into leases for two facilities in the greater Nashville area
owned by Mr. Brewster, a former 5% or greater holder of our Class B Common Stock. Each location has a lease term expiring on
October 30, 2021, and for each property we have two (2) renewal options, each of which provides for five (5) additional years with
a ten percent (10.0%) increase in the base rent. The aggregate rent for the two locations is approximately $55,000 per month.
Related Party Transaction Policy
In May 2017, our Board adopted a formal policy that our executive officers, directors, holders of more than 5.0% of any
class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing
persons, are not permitted to enter into a related party transaction with us without the prior consent of the Audit Committee, or
other independent members of our Board if it is inappropriate for the Audit Committee to review such transaction due to a conflict
of interest. Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of their
immediate family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to the Audit
Committee for review, consideration and approval. In approving or rejecting any such proposal, the Audit Committee is to
consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, whether the
transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar
circumstances and the extent of the related party's interest in the transaction.
Director Independence
Our Board has determined that all of our directors, other than Messrs. Chesrown, Berrard, and Kakarala, qualify as
"independent" directors in accordance with the listing requirements of The NASDAQ Stock Market. The NASDAQ independence
definition includes a series of objective tests regarding a director's independence and requires that the Board make an affirmative
determination that a director has no relationship with us that would interfere with such director's exercise of independent judgment
in carrying out the responsibilities of a director. There are no family relationships among any of our directors or executive officers.
Item 14. Principal Accounting Fees and Services.
On November 19, 2019, the Audit Committee of the Company engaged Grant Thornton LLP ("Grant Thornton") as the
Company's independent registered public accounting firm, effective November 19, 2019. Also, effective November 19, 2019, the
Audit Committee of the Company dismissed Scharf Pera & Co., PLLC ("Scharf Pera") as the Company's independent registered
public accounting firm.
Scharf Pera audited the Company's financial statements as of and for the years ended December 31, 2017 and December
31, 2018. Scharf Pera's reports on the Company's financial statements as of and for the years ended December 31, 2017 and
December 31, 2018 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with Scharf Pera's audits of the Company's financial statements as of and for the years ended December 31,
2017 and December 31, 2018 and the subsequent interim period through November 19, 2019, there were (i) no "disagreements" (as
that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Scharf Pera on
any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Scharf Pera, would have caused Scharf Pera to make a reference to the subject
matter thereof in connection with its reports on the Company's financial statements for such years and (ii) no "reportable events"
(as that term is defined in Item 304(a)(1)(v) of Regulation S-K and the related instructions).
During the years ended December 31, 2017 and December 31, 2018, and through the subsequent interim period as of
November 19, 2019, neither the Company, nor any party on its behalf, consulted with Grant Thornton regarding either (i) the
application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might
be rendered with respect to the Company's financial statements, and no written reports or oral advice was provided to the Company
by Grant Thornton that was an important factor considered by the Company in reaching a decision as to any accounting, auditing
or financial reporting issue or (ii) any matter that was either the subject of a disagreement (as that term is defined in Item
71
304(a)(1)(iv) of Regulation S-K and related instructions) or a reportable event (as that term is defined in Item 304(a)(1)(v) of
Regulation S-K).
The following table sets forth Grant Thornton's and Scharf Pera’s fees for the years ended December 31, 2019 and 2018.
Audit Fees (1)
Tax Fees
All Other Fees
Total
2019
340,000
—
—
340,000
$
$
2018
80,294
12,415(2)
17,717(3)
110,426
$
$
(1) These audit fees include the fees billed by Grant Thornton of $340,000 for the audit of the Company for the year ended
December 31, 2019. The fees for 2018 are for amounts billed by Scharf Pera for (i) the audits of the Company for the years
ended December 31, 2018 and 2017 and (ii) their review of the Company's unaudited 2018 Quarterly financial statements.
(2) These tax fees consist of tax fees billed by Scharf Pera in 2018.
(3) These other fees consist of fees billed by Scharf Pera in 2018 for review of Registration Statements.
Policy for Approval of Audit and Permitted Non-Audit Services
The Audit Committee has adopted a policy and related procedures requiring its pre-approval of all audit and non-audit
services to be rendered by its independent registered public accounting firm. These policies and procedures are intended to ensure
that the provision of such services do not impair the independent registered public accounting firm's independence. These services
may include audit services, audit related services, tax services and other services. The policy provides for the annual establishment
of fee limits for various types of audit services, audit related services, tax services and other services, within which the services are
deemed to be pre-approved by the Audit Committee. The independent registered public accounting firm is required to provide to
the Audit Committee back up information with respect to the performance of such services.
All services provided by Grant Thornton and Scharf Pera during the fiscal year ended December 31, 2019 and 2018 were
approved by the Audit Committee. The Audit Committee has delegated to its Chair the authority to pre-approve services, up to a
specified fee limit, to be rendered by the independent registered public accounting firm and requires that the Chair report to the
Audit Committee any pre-approved decisions made by the Chair at the next scheduled meeting of the Audit Committee.
72
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. The financial statements listed in the "Index to Financial Statements" on page F-1 are filed as part of this report.
2. Financial statement schedules are omitted because they are not applicable, or the required information is shown in the
financial statements or notes thereto.
3. Exhibits included or incorporated herein: See below.
Exhibit
Number Description
2.1
Agreement and Plan of Merger, dated October 26, 2018, by and among RumbleOn, Inc., RMBL Tennessee, LLC,
Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster as
representative, and for limited purposes, Marshall Chesrown and Steven R. Berrard.
(Incorporated by reference to Exhibit 2.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
Amendment to the Agreement and Plan of Merger, dated October 29, 2018, by and among RumbleOn, Inc., RMBL
Tennessee, LLC, Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven
Brewster as representative (Incorporated by reference to Exhibit 2.2 in the Company's Current Report on Form 8-K,
filed on October 31, 2018).
Membership Interest Purchase Agreement, dated October 26, 2018, by and among RumbleOn, Inc. Steven Brewster,
Justin Becker, and Steven Brewster as representative. (Incorporated by reference to Exhibit 2.3 in the Company's
Current Report on Form 8-K, filed on October 31, 2018).
Articles of Incorporation filed on October 24, 2013 (Incorporated by reference to Exhibit 3(i)(a) in the Company's
Registration Statement on Form S-1/A, filed on March 20, 2014).
By-Laws, as Amended (Incorporated by reference to Exhibit 3.2 in the Company's Annual Report on Form 10-K,
filed on February 14, 2017).
Certificate of Amendment to Articles of Incorporation, filed on February 13, 2017 (Incorporated by reference to
Exhibit 3.3 in the Company's Annual Report on Form 10-K, filed on February 14, 2017).
Certificate of Amendment to Articles of Incorporation, filed on June 25, 2018 (Incorporated by reference to Exhibit
3.1 in the Company's Current Report on Form 8-K, filed on June 28, 2018).
Certificate of Designation for the Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 in the Company's
Current Report on Form 8-K, filed on October 31, 2018).
Amended and Restated Stockholders Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.1
in the Company's Annual Report on Form 10-K, filed on February 14, 2017).
Registration Rights Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.2 in the Company's
Annual Report on Form 10-K, filed on February 14, 2017).
Stockholder's Agreement, dated October 24, 2016 (Incorporated by reference to Exhibit 10.1 in the Company's
Current Report on Form 8-K, filed on October 28, 2016).
Sample Stock Certificate – Class B Common Stock (Incorporated by reference to Exhibit 4.4 in the Company's
Registration Statement on Form S-1/A filed on September 27, 2017).
Form of Warrant to Purchase Class B Common Stock, dated October 18, 2017 (Incorporated by reference to Exhibit
4.1 in the Company's Current Report on Form 8-K, filed October 24, 2017).
Warrant, dated April 30, 2018 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-
K, filed on May 1, 2018).
Warrant to Purchase Class B Common Stock, dated October 30, 2018 (Incorporated by reference to Exhibit 4.1 in the
Company's Current Report on Form 8-K, filed on October 31, 2018).
Indenture, dated May 14, 2019, between RumbleOn, Inc. and Wilmington Trust National Association (Incorporated
by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
Form of 6.75% Convertible Senior Note due 2024 (included as Exhibit A to the Indenture filed as Exhibit 4.8)
(Incorporated by reference to Exhibit 4.2 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
Registration Rights Agreement, dated May 14, 2019, between the Company and JMP Securities LLC (Incorporated
by reference to Exhibit 4.3 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
Description of Registrant's Securities.
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).
2.2
2.3
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10.1
10.2
Unconditional Guaranty Agreement (Incorporated by reference to Exhibit 10.12 in the Company's Annual Report on
Form 10-K, filed on February 14, 2017).
10.3
Security Agreement (Incorporated by reference to Exhibit 10.13 the Company's Annual Report on Form 10-K, filed
on February 14, 2017).
73
10.4
NextGen Promissory Note, dated February 8, 2017 (Incorporated by reference to Exhibit 10.1 in the Company's
Quarterly Report on Form 10-Q, filed on May 15, 2017).
10.5
RumbleOn, Inc. Form of Promissory Note (Incorporated by reference to Exhibit 10.1 in the Company's Current
Report on Form 8-K, filed on April 5, 2017).
10.6
Amendment to Amended and Restated Stockholders' Agreement of RumbleOn, Inc., dated September 29, 2017
(Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on October 5, 2017).
10.7
Inventory Financing and Security Agreement, by and among RMBL Missouri, LLC, Ally Bank and Ally Financial,
Inc., dated February 16, 2018 (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-
K, filed on February 23, 2018).
10.8
Addendum to Inventory Financing and Security Agreement, by and among RMBL Missouri, LLC, Ally Bank and
Ally Financial, Inc., dated February 16, 2018 (Incorporated by reference to Exhibit 10.2 in the Company's Current
Report on Form 8-K, filed on February 23, 2018).
10.9
Cross Collateral, Cross Default and Guaranty Agreement, by and among Ally Bank, Ally Financial, Inc., RumbleOn,
Inc., and RMBL Missouri, LLC, dated February 16, 2018 (Incorporated by reference to Exhibit 10.3 in the
Company's Current Report on Form 8-K, filed on February 23, 2018).
10.10
General Security Agreement, by and among RumbleOn, Inc., Ally Bank and Ally Financial, Inc., dated February 16,
2018 (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on February 23,
2018).
10.11
Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. + (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on June 28, 2018).
10.12
Registration Rights Agreement, dated October 30, 2018, by and among RumbleOn, Inc., Steven Brewster and Janet
10.13
10.14
Brewster, and Steven Brewster as representative (Incorporated by reference to Exhibit 10.1 in the Company's Current
Report on Form 8-K, filed on October 31, 2018).
Escrow Agreement, dated October 30, 2018, by and among RumbleOn, Inc., Steven Brewster as representative, and
Continental Stock Transfer and Trust Company (Incorporated by reference to Exhibit 10.2 in the Company's Current
Report on Form 8-K, filed on October 31, 2018).
Demand Promissory Note and Loan and Security Agreement, dated October 30, 2018, by and between NextGear
Capital, Inc. and Wholesale, LLC (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on
Form 8-K, filed on October 31, 2018).
10.15
Corporate Guaranty, in favor of NextGear Capital, Inc., dated October 30, 2018 (Incorporated by reference to Exhibit
10.5 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
10.16
Form of Securities Purchase Agreement, dated October 25, 2018(Incorporated by reference to Exhibit 10.6 in the
Company's Current Report on Form 8-K, filed on October 31, 2018).
10.17
Purchase Agreement, dated May 9, 2019, between the Company and JMP Securities LLC (Incorporated by reference
to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
10.18
Form of Securities Purchase Agreement, dated May 9, 2019 (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on May 15, 2019).
10.19
Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. + (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on May 22, 2019).
21.1
Subsidiaries
Consent of Grant Thornton LLP
23.1
23.2
Consent of Scharf Pera & Co., PLLC
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
31.1
31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
32.1*
32.2*
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
XBRL Instance Document.
101.INS
101.SCG XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase.
* Furnished herewith
+ Management Compensatory Plan
Item 16. Form 10-K Summary.
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The Company
has elected not to include such summary information.
74
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: May 29, 2020
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)
May 29, 2020
/s/ Steven R. Berrard
Steven R. Berrard
Director and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
May 29, 2020
/s/ Denmar Dixon
Denmar Dixon
/s/ Richard A. Gray, Jr.
Richard A. Gray, Jr.
/s/ Kartik Kakarala
Kartik Kakarala
/s/ Michael Marchlik
Michael Marchlik
/s/ Kevin Westfall
Kevin Westfall
Director
Director
Director
Director
Director
May 29, 2020
May 29, 2020
May 29, 2020
May 29, 2020
May 29, 2020
75 (cid:3)
(cid:3)
(cid:3)
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Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
RumbleOn, Inc. Consolidated Balance Sheets as of December 31, 2019 and 2018
RumbleOn, Inc. Consolidated Statements of Operations For the Two Years Ended December 31, 2019 and 2018
RumbleOn, Inc. Consolidated Statement of Stockholders' Equity (Deficit) For the Two Years Ended December 31,
2019 and 2018
RumbleOn, Inc. Consolidated Statements of Cash Flows For the Two Years Ended December 31, 2019 and 2018
RumbleOn, Inc. Notes to Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
RumbleOn, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of RumbleOn, Inc. (a Nevada corporation) and subsidiaries (the
“Company”) as of December 31, 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for
the year in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2019, and the results of its operations and its cash flows for the year in the period ended December 31, 2019, in conformity with
accounting principles generally accepted in the United States of America.
Change in accounting principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases on
January 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02: Leases (Topic 842).
Going concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has incurred recurring losses from operations and negative cash flows
from operations. These conditions, along with the uncertainty arising from the impact of COVID-19 and other matters as set forth
in Note 1, raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2019.
Dallas, Texas
May 29, 2020
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of RumbleOn, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of RumbleOn, Inc. (the “Company”)as of December, 31 2018, and
the related consolidated statements of income, stockholders’ equity, and cash flows for the year ended December 31, 2018, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations
and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ Scharf Pera & Co., PLLC
We have served as the Company’s auditor since 2016
Charlotte, North Carolina
April 1, 2019
F-3
RumbleOn, Inc.
Consolidated Balance Sheets
December 31, 2019 and 2018
2019
2018
ASSETS
Current assets:
Cash
Restricted cash
Accounts receivable, net
Inventory
Prepaid expense and other current assets
Total current assets
Property and equipment, net
Right-of-use assets
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Accrued interest payable
Current portion of convertible debt, net
Current portion of long-term debt
Total current liabilities
Long -term liabilities:
Notes payable
Convertible debt, net
Derivative liabilities
Operating lease liability, long-term portion
Total long-term liabilities
Total liabilities
Commitments and contingencies (Notes 4, 7, 8, 9, 13, 16)
Stockholders' equity:
Class B Preferred stock, $0.001 par value, 10,000,000 shares
authorized, 0 and 1,317,329 shares issued and outstanding as of
December 31, 2019 and 2018, respectively
Common A stock, $0.001 par value, 50,000 shares authorized,
50,000 shares issued and outstanding as of December 31, 2019 and
2018, respectively
Common B stock, $0.001 par value, 4,950,000 shares authorized,
1,111,681 and 874,315 shares issued and outstanding as of December
31, 2019 and 2018, respectively
Additional paid in capital
Accumulated deficit
Total stockholders' equity
$
$
$
49,660
6,676,622
8,482,707
57,381,281
1,210,474
73,800,744
6,427,674
6,040,287
26,886,563
237,823
113,393,091
12,421,094
749,305
1,363,590
59,160,970
73,694,959
1,924,733
20,136,229
27,500
4,722,101
26,810,563
100,505,522
—
50
1,112
92,268,213
(79,381,806)
12,887,569
$
$
$
9,134,902
6,650,000
8,465,810
52,191,523
1,096,945
77,539,180
5,177,877
—
26,107,146
102,178
108,926,381
10,554,913
206,037
—
58,555,006
69,315,956
8,792,919
—
—
—
8,792,919
78,108,875
1,317
50
874
65,016,379
(34,201,114)
30,817,506
Total liabilities and stockholders' equity
$
113,393,091
$
108,926,381
See Accompanying Notes to Financial Statements.
F-4
RumbleOn, Inc.
Consolidated Statements of Operations
For the Two Years Ended December 31, 2019 and 2018
Revenue:
Pre-owned Vehicle Sales:
Powersports
Automotive
Transportation and Vehicle Logistics
Total revenue
Cost of revenue:
Powersports
Automotive
Transportation
Total cost of revenue
Gross profit
Selling, general and administrative
Depreciation and amortization
Operating loss
Interest expense
Decrease in derivative liability
Loss on early extinguishment of debt
Net loss before provision for income taxes
Benefit for income taxes
Net loss
2019
2018
$
101,008,976
717,042,511
22,577,860
840,629,347
$
61,204,416
91,369,996
3,823,819
156,398,231
88,673,515
685,313,894
16,023,962
790,011,371
50,617,976
86,624,249
1,786,426
54,334,066
85,761,505
2,755,856
142,851,427
13,546,804
35,963,930
984,006
(37,792,699)
(23,401,132)
(7,187,604)
1,302,500
(1,499,250)
(45,177,053)
(1,780,685)
—
—
(25,181,817)
—
—
$
(45,177,053)
$
(25,181,817)
Weighted average number of common shares outstanding - basic and
fully diluted
1,114,714
741,659
Net loss per share - basic and fully diluted
$
(40.53)
$
(33.95)
See Accompanying Notes to Financial Statements.
F-5
RumbleOn, Inc.
Consolidated Statement of Stockholders' Equity
For the Two Years Ended December 31, 2019 and 2018
Preferred Shares
Common A
Shares
Common B Shares
Additional
Paid in
Accumulated
Total
Stockholders'
Equity
Balance, December 31, 2017
—
— 50,000
50
596,427
596 23,384,643
Shares
Amount Shares Amount Shares
Amount Capital
Deficit
(9,019,297) 14,365,992
(Deficit)
Issuance of common stock
—
—
— —
267,938
268 33,101,711
—
33,101,979
Issuance of common stock for
restricted stock units exercise
Stock-based compensation
Issuance of warrants in connection
with loan agreement
Issuance of preferred stock in
connection with acquisition
—
—
—
— —
9,950
10
(10)
—
—
—
— —
— —
1,657,680
—
1,657,680
—
—
— —
— —
221,160
—
221,160
1,317,329
1,317 — —
— —
6,651,195
—
6,652,512
Net loss
—
—
— —
— —
—
(25,181,817) (25,181,817)
Balance, December 31, 2018
1,317,329 $ 1,317 50,000 $
50
874,315 $ 874 $65,016,379 $(34,201,114) $ 30,817,506
Cumulative effect of accounting
change (see Note 1)
Equity component of convertible
senior notes, net of issuance costs
Issuance of common stock for
restricted stock units
Beneficial conversion feature on
convertible notes
Conversion of preferred shares to
common stock
Issuance of common stock
Stock-based compensation
Net loss
—
—
— —
— —
—
(3,639)
(3,639)
—
—
— —
— —
7,745,625
—
7,745,625
—
—
— —
12,675
13
(13)
—
—
—
—
— —
— —
495,185
—
495,185
(1,317,329) (1,317) — —
65,866
66
1,251
—
—
—
—
—
—
— —
158,825
159 15,173,268
—
15,173,427
—
— —
— —
3,836,518
—
3,836,518
—
— —
— —
—
(45,177,053) (45,177,053)
Balance, December 31, 2019
— $ — 50,000 $
50 1,111,681 $ 1,112 $92,268,213 $(79,381,806) $ 12,887,569
See Accompanying Notes to Financial Statements.
F-6
RumbleOn, Inc.
Consolidated Statements of Cash Flows
For the Two Years Ended December 31, 2019 and 2018
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
Bad debt expense
Stock based compensation expense
Loss from extinguishment of debt
Goodwill impairment
Gain from change in value of derivatives
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
(Increase) in inventory
(Increase) Decrease in prepaid expenses and other current assets
(Increase) in other assets
(Decrease) increase in accounts payable and accrued liabilities
Increase in accrued interest payable
Decrease in other liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for acquisitions
Proceeds from sales of property and equipment
Technology development
Purchase of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and convertible debt
Repayments for notes payable
Net proceeds from lines of credit
Proceeds from sale of common stock
Net cash provided by financing activities
NET CHANGE IN CASH
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD
2019
2018
$
(45,177,053)
$
(25,181,817)
1,786,426
1,664,000
1,123,739
3,836,518
1,499,250
1,850,000
(1,302,500)
2,037,023
(2,327,754)
(113,529)
(135,645)
(5,031,073)
543,268
—
(39,747,330)
(835,000)
169,268
(3,085,743)
(119,748)
(3,871,223)
27,455,537
(10,857,500)
2,788,469
15,173,427
34,559,933
(9,058,620)
15,784,902
984,006
510,139
33,326
1,657,680
—
—
—
(319,335)
(1,717,504)
340,483
(51,485)
152,336
172,083
(32,665)
(23,452,753)
(15,395,251)
—
(2,162,707)
(6,409)
(17,564,367)
9,227,035
—
5,302,355
33,101,980
47,631,370
6,614,250
9,170,652
CASH AND RESTRICTED CASH AT END OF PERIOD
$
6,726,282
$
15,784,902
See Accompanying Notes to Financial Statements.
F-7
Notes to Financial Statements
NOTE 1 –DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
RumbleOn, Inc. (the "Company") was incorporated in October 2013 under the laws of the State of Nevada, as Smart
Server, Inc. ("Smart Server"). On February 13, 2017, the Company changed its name from Smart Server, Inc. to RumbleOn, Inc.
Description of Business
In July 2016, Berrard Holdings Limited Partnership ("Berrard Holdings") acquired 99.5% of the common stock of the
Company from the principal stockholder. Shortly after the Berrard Holdings common stock purchase, the Company began
exploring the development of a capital light e-commerce platform facilitating the ability of both consumers and dealers to Buy-
Sell-Trade-Finance pre-owned vehicles in one online location and in April 2017, the Company launched its platform. The
Company's goal is to transform the way pre-owned vehicles are bought and sold by providing users with the most efficient, timely
and transparent transaction experience. While the Company's initial customer facing emphasis through most of 2018 was on
motorcycles and other powersports, the Company continues to enhance its platform to accommodate nearly any VIN-specific
vehicle including motorcycles, ATVs, boats, RVs, cars and trucks, and via its acquisition of Wholesale, Inc. in October 2018, the
Company is making a concerted effort to grow its cars and light truck categories.
On October 26, 2018, the Company entered into an Agreement and Plan of Merger (as amended, the "Merger
Agreement") with the Company's newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware limited liability
company ("Merger Sub"), Wholesale Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale, LLC, a Tennessee limited
liability company ("Wholesale"), Steven Brewster and Janelle Brewster (each a "Stockholder," and together the "Stockholders"),
Steven Brewster, a Tennessee resident, as the representative of each Stockholder (the "Representative"), and Marshall Chesrown
and Steven R. Berrard, providing for the merger of Holdings with and into Merger Sub, with Merger Sub surviving the merger as a
wholly-owned subsidiary of the Company (the "Wholesale Transaction"). On October 29, 2018, the Company entered into an
Amendment to the Merger Agreement making a technical correction to the definition of "Parent Consideration Shares" contained
in the Merger Agreement.
Also, on October 26, 2018, the Company entered into a Membership Interest Purchase Agreement (the "Purchase
Agreement"), by and among the Company, Steven Brewster and Justin Becker (together the "Express Sellers"), and Steven
Brewster as representative of the Express Sellers, pursuant to which the Company acquired all of the membership interests (the
"Express Transaction," and together with the Wholesale Transaction, the "Transactions") in Wholesale Express, LLC, a Tennessee
limited liability company ("Wholesale Express"). The Transactions were both completed on October 30, 2018 (the "Acquisition
Date"). As consideration for the Wholesale Transaction, the Company (i) paid cash consideration of $12,353,941, subject to certain
customary post-closing adjustments, and (ii) issued to the Stockholders 1,317,329 shares (the "Stock Consideration") of the
Company's Series B Non-Voting Convertible Preferred Stock, par value $0.001 (the "Series B Preferred"). As consideration for the
Express Transaction, the Company paid cash consideration of $4,000,000, subject to certain customary post-closing
adjustments. Wholesale Inc. is one of the largest independent distributors of pre-owned vehicles in the United States and
Wholesale Express, LLC is a related logistics company.
On February 3, 2019, the Company completed the acquisition (the "Autosport Acquisition") of all of the equity interests
of Autosport USA, Inc. ("Autosport"), an independent pre-owned vehicle distributor, pursuant to a Stock Purchase Agreement,
dated February 1, 2019 (the "Stock Purchase Agreement"), by and among RMBL Express, LLC (the "Buyer"), a wholly owned
subsidiary of Company, Scott Bennie (the "Seller") and Autosport. Aggregate consideration for the Autosport Acquisition
consisted of (i) a closing cash payment of $600,000, plus (ii) a fifteen-month $500,000 promissory note (the "Promissory Note") in
favor of the Seller, plus (iii) a three-year $1,536,000 convertible promissory note (the "Convertible Note") in favor of the Seller,
plus (iv) contingent earn-out payments payable in the form of cash and/or the Company's Class B Common Stock (the "Earn-Out
Shares") for up to an additional $787,500 if Autosport achieves certain performance thresholds. In connection with the Autosport
Acquisition, the Buyer also paid outstanding debt of Autosport of $235,000 and assumed additional debt of $257,933 pursuant to a
promissory note payable to Seller (the "Second Convertible Note").
Serving both consumers and dealers, through its online marketplace platform, the Company makes cash offers for the
purchase of pre-owned vehicles. In addition, the Company offers a large inventory of pre-owned vehicles for sale along with third-
party financing and associated products. The Company's operations are designed to be scalable by working through an
infrastructure and capital light model that is achievable by virtue of a synergistic relationship with its regional partners, which are
primarily auctions. The Company utilizes regional partners in the acquisition of pre-owned vehicles to provide inspection,
reconditioning and distribution services. These regional partners earn incremental revenue and enhance profitability through fees
from inspection, reconditioning and distribution programs.
F-8
Our business model is driven by our proprietary technology platform. Our initial platform was acquired in February 2017,
through our acquisition of substantially all of the assets of NextGen Dealer Solutions, LLC ("NextGen"). Since that time, we have
expanded the functionality of that platform through a significant number of high-quality technology development projects and
initiatives. Included in these new technology development projects and initiatives were modules or significant upgrades to the
existing platforms for: (i) Retail online auction; (ii) native IOS and Android apps; (iii) new architecture on website design and
functionality; (iv) RumbleOn Marketplace; (v) redesigned cash offer tool; (vi) deal-jacket tracking tool; (vii) inventory tracking tool;
(viii) CRM and multiple third-party integrations; (ix) new analytics and machine learning initiatives; and (x) IT monitoring
infrastructure.
The COVID-19 situation has created an unprecedented and challenging time. The Company’s current focus is on
positioning the Company for a strong recovery when this crisis is over. The Company has taken steps to reduce its inventory and
align its operating expenses to the state of the business. The Company plans to continue to operate as permitted to support its
customers’ needs for reliable vehicles and to provide as many jobs as possible for its associates. Effective April 9, 2020, 169
associates were temporarily laid-off, however the Company’s receipt of PPP funds, as discussed in Note 19 - Subsequent Events
will allow the Company to gradually recall these associates over time. All ongoing employment determinations are subject to
change due to the COVID-19 situation, future government mandates, as well as future business conditions. The Company will
continue to monitor the COVID-19 situation and look for ways to preserve cash and reduce its operating expenses as the Company
is able. However, the Company expects that the consequences of the COVID-19 outbreak will likely have a significant negative
impact on its business, revenue, results of operations, financial condition, and liquidity.
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP"). All of the Company’s subsidiaries are wholly
owned. The consolidated financial statements include the accounts of RumbleOn Inc. and its wholly owned subsidiaries (the
Company). All intercompany accounts and material intercompany transactions have been eliminated.
Liquidity
We have incurred losses and negative cash flow from operations since inception through December 31, 2019 and expect
to incur additional losses and negative cash flow in the future. As we continue to expand our business, build our brand name and
awareness, and continue technology and software development efforts, we may need access to additional capital. Historically, we
have raised additional capital to fund our expansion through equity issuances or debt instruments; refer to Note 8 — Notes Payable
and Lines of Credit and Note 9 — Stockholders Equity. Also, we have historically funded vehicle inventory purchases through our
Line of Credit-Floor Plans. As of May 28, 2020, we had approximately $15,000,000 available under our NextGear Credit Line
that we may draw against through December 31, 2020 to fund future vehicle inventory purchases, as described further in Note 8 —
Notes Payable and Lines of Credit.
Due to the impact of COVID-19 on the economy, we have a strong focus on preserving liquidity. Our primary liquidity
sources are available cash and cash equivalents, amounts available under the NextGear Credit Line, proceeds from the Paycheck
Protection Program loan, monetization of our retail loan portfolio and through rationalizing costs and expenses, including
temporarily laying off 169 employees. Although we have experienced a decrease in revenue as a result of the impact of the
COVID-19 pandemic, as of May 28, 2020, the Company has $9,000,000 of unrestricted cash and has approximately $15,000,000
of remaining availability under the NextGear Credit.
The Company’s consolidated financial statements have been prepared assuming that will continue as a going concern,
which assumes the continuity of operations, the realization of assets and the satisfaction of liabilities as they come due in the
normal course of business. Although the Company believes that we will be able to generate sufficient liquidity from the measures
described above, our current circumstances including uncertainties due to Covid-19 pandemic raise substantial doubt about our
ability to operate as a going concern. The accompanying consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-9
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions. Certain accounting estimates involve significant judgments, assumptions and estimates by management
that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities and
the reported amounts of revenue and expenses during the reporting period, which management considers to be critical accounting
estimates. The judgments, assumptions and estimates used by management are based on historical experience, management's
experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments
and assumptions made by management, actual results could differ materially from these judgments and estimates. In particular, the
novel COVID-19 pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may
impact future estimates including, but not limited to inventory valuations, fair value measurements, asset impairment charges and
discount rate assumptions.
Earnings (Loss) Per Share
The Company follows the FASB Accounting Standards Codification ("ASC") Topic 260-Earnings per share. Basic
earnings per common share ("EPS") calculations are determined by dividing net income (loss) by the weighted average number of
shares of common stock outstanding during the year. Diluted earnings (loss) per common share calculations are determined by
dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding.
During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. Common
share and dilutive common share equivalents include: (i) Class A common: (ii) Class B common; (iii) Class B participating
preferred shares; (iv) restrictive stock units; (v) stock options; (vi) warrants to acquire Class B common stock; and (vii) shares
issued in connection with convertible debt.
Revenue Recognition
Revenue for our powersports and automotive segments is derived from our online marketplace and auctions and primarily
includes the sale of pre-owned vehicles to consumer and dealers.
Revenue from our vehicle logistics and transportation service segment is derived by providing automotive transportation
services between dealerships and auctions throughout the United States.
We adopted ASC 606, Revenue from Contracts with Customers on January 1, 2018 using the modified retrospective
method. ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3)
determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when
(or as) performance obligations are satisfied. Based on the manner in which we historically recognized revenue, the adoption of
ASC 606 did not have a material impact on the amount or timing of our revenue recognition, and we recognized no cumulative
effect adjustment upon adoption.
For vehicles sold at wholesale to dealers we satisfy our performance obligation when the wholesale purchaser obtains
control of the underlying vehicle, which is upon delivery when the transfer of title, risks and rewards of ownership and control
pass to the dealer. We recognize revenue at the amount we expect to receive for the used vehicle, which is the fixed price
determined at the auction. The purchase price of the wholesale vehicle is typically due and collected within 30 days of delivery of
the wholesale vehicle.
For vehicles sold to consumers the purchase price is set forth in the customer contracts at a stand-alone selling price
which is agreed upon prior to delivery. We satisfy our performance obligation for used vehicle sales upon delivery when the
transfer of title, risks and rewards of ownership and control pass to the customer. We recognize revenue at the agreed upon
purchase price stated in the contract, including any delivery charges, less an estimate for returns. Our return policy allows
customers to initiate a return during the first three days after delivery. Estimates for returns are based on an analysis of historical
experience, trends and sales data. Changes in these estimates are reflected as an adjustment to revenue in the period identified. The
amount of consideration received for used vehicle sales to consumers includes noncash consideration representing the value of
trade-in vehicles, if applicable, as stated in the contract. Prior to the delivery of the vehicle, the payment is received, or financing
has been arranged. Payments from customers that finance their purchases with third parties are typically due and collected within
30 days of delivery of the used vehicle. In future periods additional provisions may be necessary due to a variety of factors,
including changing customer return patterns due to the maturation of the online vehicle buying market, macro- and micro-
economic factors that could influence customer return behavior and future pricing environments. If these factors result in
adjustments to sales returns, they could significantly impact our future operating results. Revenue exclude any sales taxes, title and
registration fees, and other government fees that are collected from customers.
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Vehicle logistics and transportation services revenue is generated primarily by entering into freight brokerage agreements
with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The
transaction price is based on the consideration specified in the customer's contract. A performance obligation is created when the
customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These
performance obligations are satisfied as the shipments move from origin to destination. The freight brokerage agreements are
fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these
transporters are obligated to meet our performance obligations and standards. Performance obligations are short-term, with transit
days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and remit
payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as risks and rewards of
transportation of the vehicle are transferred to the owner during delivery. Wholesale Express is considered the principal in the
delivery transactions since it is primarily responsible for fulfilling the service. As a result, revenue is recorded gross.
Purchase Accounting for Business Combinations
The Company accounts for acquisitions by allocating the fair value of the consideration transferred to the fair value of the
assets acquired and liabilities assumed on the date of the acquisition and any remaining difference is recorded as goodwill.
Adjustments may be made to the preliminary purchase price allocation when facts and circumstances that existed on the date of the
acquisition surface during the allocation period subsequent to the preliminary purchase price allocation, not to exceed one year
from the date of acquisition. Contingent consideration is recorded at fair value based on the facts and circumstances on the date of
the acquisition and any subsequent changes in the fair value are recorded through earnings each reporting period. During the year
ended December 31, 2019, the Company finalized the preliminary purchase price allocation recorded at the acquisition date for
Wholesale Express and made a measurement period adjustment to the preliminary purchase price allocation which resulted in a
decrease in goodwill of $334,861. The Company made this measurement period adjustment to reflect facts and circumstances
related to accounts receivable and accounts payable that existed as of the acquisition date and did not result from intervening
events subsequent to such date.
Goodwill
Goodwill represents the excess purchase price over the fair value of net assets acquired which is not allocable to
separately identifiable intangible assets. Other identifiable intangible assets, such as domain names, are separately recognized if
the intangible asset is obtained through contractual or other legal right or if the intangible asset can be sold, transferred, licensed or
exchanged.
Goodwill is not amortized but tested for impairment at the reporting unit level annually on December 31 and upon the
occurrence of an indicator of impairment. We have the option to qualitatively or quantitatively assess goodwill for impairment and
we evaluated our goodwill using a quantitative assessment process. Our operations are organized by management into operating
segments by line of business. We have determined that we have three reportable segments as defined in generally accepted
accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics and transportation. Our
powersports and automotive segments consist of the distribution of pre-owned vehicles. The powersports segment consists of the
distribution principally of motorcycles, while the automotive segment distributes cars and trucks. Our vehicle logistics and
transportation service segment provides nationwide automotive transportation services between dealerships and auctions. Each of
these segments are considered separate reporting units for purposes of goodwill testing. Our vehicle logistics and transportation
service reportable segment has been determined to represent one operating segment and reporting unit.
During 2019, for the three reporting units we performed quantitative impairment testing of the fair value of our reporting
units using an income and market valuation approach. The income valuation approach estimates our enterprise value using a net
present value model, which discounts projected free cash flows of our business using the weighted average cost of capital as the
discount rate. The market valuation approach estimates our enterprise value by applying a cash earnings multiple and selecting a
multiple that is reasonable compared to recent market transactions completed in the industry. As part of that assessment, we also
reconcile the estimated aggregate fair values of our reporting units to our market capitalization. We believe this reconciliation
process is consistent with a market participant perspective. This consideration would also include a control premium that
represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest, and other
significant assumptions including revenue and profitability growth, profit margins, residual values and the cost of capital. For the
year ended December 31, 2019, we recognized an impairment loss on goodwill of $1,850,000, which is recorded in selling, general
and administrative expenses in the Consolidated Statement of Operations. No impairment charges related to intangible assets were
recognized in 2018.
Leases
Effective January 1, 2019, the Company adopted ASC 842, Leases. In accordance with ASC 842, the Company first
determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception. This standard requires
F-11 the recognition of right-of-use ("ROU") assets and lease liabilities for the Company's operating leases. For contracts with lease and
non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-
lease components as a single lease component. The Company has also elected not to recognize a lease liability or ROU asset for
leases with a term of 12 months or less and recognize lease payments for those short-term leases on a straight-line basis over the
lease term in the Consolidated Statements of Operations. Operating leases are included in Right-of-use assets, Accounts payable
and accrued liabilities and Operating lease liabilities, long-term portion in the Consolidated Balance Sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the
Company's obligation to make lease payments under the lease. ROU assets and lease liabilities are recognized at the lease
commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company's
leases is generally not determinable and therefore the incremental borrowing rate at the lease commencement date is utilized to
determine the present value of lease payments. The determination of the incremental borrowing rate requires judgment.
Management determines the incremental borrowing rate for each lease using the Company's estimated borrowing rate, adjusted for
various factors including level of collateralization, term and currency to align with the terms of the lease. The ROU asset also
includes any lease prepayments, offset by lease incentives. Certain of the Company's leases include options to extend or terminate
the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when the
Company is reasonably certain that the option will be exercised. An option to terminate is considered unless the Company is
reasonably certain the option will not be exercised.
Other Assets
Included in "Other assets" on the Company's Consolidated Balance Sheets are amounts related to acquired internet
domain names which are considered to be an indefinite lived intangible assets. Indefinite lived intangible assets are tested for
impairment, at a minimum, on an annual basis using an income approach or sooner whenever events or changes in circumstances
indicate that an asset may be impaired. There was no impairment of indefinite lived assets as of December 31, 2019 and 2018.
Long-Lived Assets
Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used are measured by a
comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets or
asset groups are considered to be impaired, the impairment to be recognized will be measured by the amount by which the carrying
amount of the assets or asset groups exceeds the related fair values. The Company also performs a periodic assessment of the
useful lives assigned to the long-lived assets. The Company recorded no impairment charges on property and equipment during the
years ended December 31, 2019 and 2018. See Note 5 — Property and Equipment, Net for additional information on property and
equipment.
Technology Development Costs
Technology development costs are accounted for pursuant to ASC 350, Intangibles — Goodwill and Other. Technology
development costs include internally developed software and website applications that are used by the Company for its own
internal use and to provide services to its customers, which include consumers, dealer partners and ancillary service providers.
Under the terms of these customer arrangements the Company retains the revenue generating technology and hosts the applications
on its servers and mobile applications. The customer does not have a contractual right to take possession of the software during the
term of the arrangement and are not permitted to run the software itself or contract with another party unrelated to the entity to host
the software. Technology development costs consist principally of (i) development activities including payroll and related
expenses billed by a third-party contractor involved in application, content, production, maintenance, operation, and platform
development for new and existing products and services, (ii) technology infrastructure expenses, and (iii) costs of Company
employees devoted to the development and maintenance of software products. Technology and content costs for design,
maintenance and post-implementation stages of internal-use software and general website development are expensed as incurred.
For costs incurred to develop new website functionality as well as new software products and significant upgrades to existing
internally used platforms or modules, capitalization begins during the application development stage and ends when the software is
available for general use. Capitalized technology development is amortized on a straight-line basis over periods ranging from 3 to
7 years. The Company will perform periodic assessment of the useful lives assigned to capitalized software applications.
Additionally, the Company from time-to-time may abandon additional development activities relating to specific software projects
or applications and charge accumulated costs to technology development expense in the period such determination is made.
Vehicle Inventory
Vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of the cost to acquire and recondition a
pre-owned vehicle. Reconditioning costs are billed by third-party providers and includes parts, labor, and other repair expenses
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directly attributable to a specific vehicle. Pre-owned inventory is stated at the lower of cost or net realizable value. Pre-owned
vehicle inventory cost is determined by specific identification. Net realizable value is the estimated selling price less costs to
complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and
inventory turn times of similar vehicles, as well as independent market resources. Each reporting period, the Company recognizes
any necessary adjustments to reflect pre-owned vehicle inventory at the lower of cost or net realizable value through cost of
revenue in the accompanying Consolidated Statements of Operations.
Accounts Receivable, Net
Accounts receivable, net of an allowance for doubtful accounts, includes certain amounts due from customers. The
Company estimates the allowance for doubtful accounts for accounts receivable by considering a number of factors, including
overall credit quality, age of outstanding balances, historical write-off experience and specific account analysis that projects the
ultimate collectability of the outstanding balances. Ultimately, actual results could differ from these assumptions. The allowance
for doubtful accounts was approximately $1,034,919 and $176,190 as of December 31, 2019 and 2018, respectively.
Cash and Cash Equivalents
The Company considers all cash accounts and all highly liquid short-term investments purchased with an original
maturity of three months or less to be cash or cash equivalents. As of December 31, 2019, and 2018, the Company did not have
any investments with maturities greater than three months. At times, the Company has cash balances in domestic bank accounts
that exceed Federal Deposit Insurance Corporation limits. The Company has not experienced any losses related to these cash
concentrations.
Restricted Cash
In connection with the execution of the Inventory Financing and Security Agreement (the "Credit Facility") by and among
the Company's subsidiary, RMBL Missouri, LLC ("RMBL MO"), Ally Bank ("Ally") and Ally Financial, Inc., dated February 16,
2018 the parties entered into a Credit Balance Agreement, and so long as the Company owes any debt to Ally or until the bank
otherwise consents, the Company agrees to maintain a Credit Balance at Ally of 1) at least 10.0% of the amount of the Company's
approved and available credit line under the Credit Facility and 2) no greater than 25.0% of the total principal amount owed to
Ally for inventory financed under the Credit Facility.
In connection with the inventory financing contract (the "NextGear Facility"), entered into by the Company, its wholly
owned subsidiary RMBL Tennessee, Inc, Wholesale, Inc. and NextGear Capital, Inc. ("NextGear"), dated October 30, 2018,
Wholesale, Inc and NextGear entered into a Reserve Agreement requiring Wholesale, Inc to pay to NextGear $5,500,000 (the
"Reserve") to be collateral and security for Wholesale Inc.'s liability under the NextGear Facility as well as any amounts owed by
Wholesale, Inc. to NextGear and its Affiliates, and each of their respective directors, officers, principals, trustees, partners,
shareholders or other holders of any ownership interest, as the case may be, employees, representatives, attorneys and
agents. NextGear is not required to pay Wholesale Inc. interest on the Reserve balance. Upon the satisfaction of all obligations
and the termination by NextGear of the NextGear Facility, NextGear will return to Wholesale, Inc., upon its written request to
NextGear no earlier than ten (10 business days from the date the obligations were indefeasibly paid and satisfied in full and the
NextGear Facility and terminated by Lender.
Property and Equipment, Net
Property and equipment is stated at cost less accumulated depreciation and amortization and consists of capitalized
technology development costs, furniture and equipment. Depreciation and amortization is recorded on a straight-line basis over the
estimated useful life of the assets. Costs of significant additions, renewals and betterments, are capitalized and depreciated.
Maintenance and repairs are charged to expense when incurred.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to
management as of December 31, 2019 and December 31, 2018. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair
values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying
amounts approximate fair values or they are payable on demand.
ASC Topic 820-10-30-2-Fair Value Measurement establishes a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable
inputs be used when available. Observable inputs are from sources independent of the Company, whereas unobservable inputs
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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.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815, Derivatives and
Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted
for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative
treatment under ASC 815, the instrument is evaluated under ASC 470-20; Debt with Conversion and Other Options. Under the
ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments that may
be settled entirely or partially in cash upon conversion in a manner that reflects the issuer's economic interest cost. The effect of
ASC 470-20 on the accounting for our convertible debt instruments is that the equity component is required to be included in the
additional paid-in capital section of stockholders' equity on the consolidated balance sheets and the value of the equity component
is treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we are required to
record non-cash interest expense as a result of the amortization of the discounted carrying value of the convertible debt to their
face amount over the term of the convertible debt.
From time to time, the Company has issued convertible notes that have conversion prices that create an embedded
beneficial conversion feature pursuant to the guidelines established by the ASC Topic 470-20. The Beneficial Conversion Feature
("BCF") of a convertible security is normally characterized as the convertible portion or feature of certain securities that provide a
rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of
a convertible security when issued and also records the estimated fair value of any conversion feature issued with those securities.
Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is
resolved. The debt discount is amortized to interest expense over the life of the note using the effective interest method. The
Company calculates the fair value of the conversion feature embedded in any convertible security using either a) the Black Scholes
valuation model or b) a discount cash flow analysis tested for sensitivity to key Level 3 inputs using Monte Carlo simulation.
Common Stock Warrants
The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in
Accounting Standards Codification (ASC) 815, Derivatives and Hedging – Contracts in Entity's Own Equity, as either derivative
liabilities or as equity instruments depending on the specific terms of the warrant agreement. Any warrants that (i) require physical
settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares
(physical settlement or net-share settlement) provided that such warrants are indexed to the Company's own stock is classified as
equity. The Company classifies as assets or liabilities any warrants that (i) require net-cash settlement (including a requirement to
net cash settle the contract if an event occurs and if that event is outside the Company's control), (ii) gives the counterparty a
choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement) or (iii) that contain reset
provisions that do not qualify for the scope exception. The Company assesses classification of its common stock warrants at each
reporting date to determine whether a change in classification between assets and liabilities is required. The Company's
freestanding derivatives financing satisfy the criteria for classification as equity instruments as these warrants do not contain cash
settlement features or variable settlement provision that cause them to not be indexed to the Company's own stock. There are
16,530 warrants to purchase common stock outstanding at December 31, 2019 consisting of: (i) 10,913 warrants issued to
underwriters in connection with the October 23, 2017 public offering of Class B common stock; (ii) 5,617 warrants issued to
Hercules in connection with the 2018 financings.
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In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity
(Topic 480); Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments with Down Round Features. The
amendments of this ASU update the classification analysis of certain equity-linked financial instruments, or embedded features,
with down round features, as well as clarify existing disclosure requirements for equity-classified instruments. When determining
whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer
precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The guidance in this
ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after
December 15, 2020, with early adoption permitted. The Company adopted ASU 2017-11 during 2018. The adoption of this
standard did not have a material effect on the Company's Consolidated Financial Statements.
Debt Issuance Costs
Debt issuance costs are accounted for pursuant to FASB ASU 2015-03, "Simplifying the Presentation of Debt Issuance
Costs" ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs be presented as a direct deduction from the carrying
amount of the related debt liability, consistent with the presentation of debt discounts.
Cost of Revenue
Cost of vehicle sales includes the cost to acquire vehicles and the reconditioning and transportation costs associated with
preparing the vehicles for resale. Vehicle acquisition costs are driven by the mix of vehicles the Company acquires, the source of
those vehicles, and supply and demand dynamics in the vehicle market. Reconditioning costs are billed by third-party providers
and include parts, labor, and other repair expenses directly attributable to specific vehicles. Transportation costs consist of costs
incurred to transport the vehicles from the point of acquisition. Cost of revenue also includes any necessary adjustments to reflect
vehicle inventory at the lower of cost or net realizable value.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising to
consumers and dealers, development and operating our product procurement and distribution system, managing our logistics
system, transportation cost associated with selling vehicles, establishing our dealer partner arrangements, and other corporate
overhead expenses, including expenses associated with technology development, legal, accounting, finance, and business
development.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred and are included in Selling, general and administrative
expenses in the accompanying Consolidated Statements of Operations. Advertising and marketing expenses was $18,228,262 and
$11,457,572 for the years ended December 31, 2019 and 2018, respectively.
Stock-Based Compensation
On June 30, 2017 the Company's shareholders approved a Stock Incentive Plan (the "Plan") reserving for issuance under
the Plan in the form of restricted stock units ("RSUs"), stock options ("Options"), Performance Unites, and other equity awards
(collectively "Awards") for our employees, consultants, directors, independent contractors and certain prospective employees who
have committed to become an employee (each an "Eligible Individual") of up to 12.0% of the shares of Class B Common Stock
outstanding from time to time. On June 25, 2018, the Company's shareholders approved an amendment to the Plan to increase the
number of shares authorized for issuance under the Plan from 12.0% of the Company's issued and outstanding shares of Class B
Common Stock from time to time to 100,000 shares of Class B Common Stock (the "First Plan Amendment"). On May 20, 2019,
the Company's stockholders approved another amendment to the Plan to increase the number of shares authorized for issuance
under the Plan from 100,000 shares of Class B Common Stock to 200,000 shares of Class B Common Stock (the "Second Plan
Amendment"). To date, the vesting of RSU and Option awards for most employees is service / time based, however some senior
level employees have been granted awards that include a mix of service based, performance based and market condition-based
vesting. Substantially all service/time based RSU and Option awards issued typically vest over a three-year period approximating
the following vesting schedule: (i) 20.0% vesting anywhere from eight-months to thirteen month after grant date, (ii) an additional
30.0% during the subsequent twelve months of the initial vesting, and (iii) the final 50.0% during the following twelve months. All
performance-based awards and market condition-based awards granted to date have vesting schedules dependent on achieving a
particular objective within sixteen (16) months. The Company estimates the fair value of awards granted under the Plan on the
date of grant. Fair value of all awards is based on the share price of the Class B Common Stock on the date of the award, and in the
case of options, calculated using the Black-Scholes option valuation model. During the year ended December 31, 2019, the
Company granted 80,050 RSUs under the Plan to members of the Board of Directors, officers and employees. More specifically,
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the Company granted to certain members of management an aggregate of (i) 12,213 performance-based awards that vest after two
consecutive quarters of $1.00 or greater operating income and trailing four quarter revenue of $900,000,000 at any time through
September 30, 2020, and (ii) 36,938 market-based awards. These awards were terminated on May 27, 2020. Compensation
expense for the year ended December 31, 2019 was $3,836,518 and is included in selling, general and administrative expenses in
the consolidated statements of operations. Compensation expense for the year ended December 31, 2018 was $1,657,680 and is
included in selling, general and administrative expenses in the consolidated statements of operations. At December 31, 2019, total
unrecognized compensation cost related to RSUs was $5,450,009 and the weighted average period over which this cost is expected
to be recognized is approximately 0.8 years.
Income Taxes
The Company follows ASC Topic 740, Income Taxes, for recording the provision for income taxes. Deferred tax assets
and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it
is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows
the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the
taxing authorities. As of December 31, 2019, the Company reviewed its tax positions and determined there were no outstanding, or
retroactive tax positions with less than a fifty percent likelihood of being sustained upon examination by the taxing authorities,
therefore this standard has not had a material effect on the Company.
The Company does not anticipate any significant changes to its total unrecognized tax positions within the next 12
months.
Recent Pronouncements
Adoption of New Accounting Standards.
In January 2017, the FASB issued new guidance, ASU No. 2017-4, Intangibles–Goodwill and Other (Topic
350): Simplifying the test for Goodwill Impairment. This guidance simplifies subsequent goodwill measurement by eliminating
Step 2 from the goodwill impairment test. Under this update, an entity should perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for
the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed
the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual periods, and interim periods
within those annual periods, beginning after December 15, 2019 with early adoption permitted for annual goodwill impairment
tests performed after January 1, 2017. The standard must be applied prospectively. Upon adoption, the standard will impact how
the Company assesses goodwill for impairment. The Company adopted ASU 2017-04 on January 1, 2018 and it did not have a
material effect on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 requires that the rights and
obligations created by leases with a duration greater than 12 months be recorded as assets and liabilities on the balance sheet of the
lessee. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
The Company has adopted this standard as of January 1, 2019 using the modified retrospective approach for all leases entered into
before the effective date. The Company has also elected the option, as permitted in ASU 2018-11, Leases (Topic 842): Targeted
Improvements , whereby initial application of the new lease standard would occur at the adoption date and a cumulative-effect
adjustment, if any, would be recognized to the opening balance of retained earnings in the period of adoption. For comparability
purposes, the Company will continue to comply with previous disclosure requirements in accordance with existing lease guidance
for all periods presented in the year of adoption. The Company has elected the practical expedients permitted under the transition
guidance which enabled the Company: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or
existing contracts are or contain leases; and, (3) not to reassess the treatment of initial direct costs for existing leases. In addition,
the Company has made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet.
Upon adoption of this standard on January 1, 2019, the Company recognized a total operating lease liability in the amount of
$3,118,038, representing the present value of the minimum rental payments remaining as of the adoption date and a right-of-use
asset in the amount of $3,114,399. The cumulative effect of this accounting change of $3,639 is included in the accumulated
deficit for the year ended December 31, 2019. The standard did not have a material impact on the Company's consolidated
statements of operations or statements of cash flows.
F-16
In August 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-15) related to the classification of
certain cash receipts and cash payments on the statement of cash flows. The pronouncement provides clarification guidance on
eight specific cash flow presentation issues that have developed due to diversity in practice. The issues include, but are not limited
to, debt prepayment or extinguishment costs, settlement of zero-coupon debt, proceeds from the settlement of insurance claims,
and cash receipts from payments on beneficial interests in securitization transactions. The pronouncement is effective for fiscal
years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We
adopted this pronouncement for our fiscal year beginning January 1, 2018, and it did not have a material effect on its consolidated
financial statements.
In May 2014, the Financial Accounting Standards Board ("FASB") issued a new accounting standard (ASC Topic 606)
that amends the accounting guidance on revenue recognition. The new accounting standard is intended to provide a more robust
framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure
requirements. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and
is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or
services. The principles in the standard should be applied using a five-step model that includes 1) identifying the contract(s) with a
customer, 2) identifying the performance obligations in the contract, 3) determining the transaction price, 4) allocating the
transaction price to the performance obligations in the contract, and 5) recognizing revenue when (or as) the performance
obligations are satisfied. The standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. In addition, the standard amends the existing requirements for the recognition of a
gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, sales of real estate) to be
consistent with the standard's guidance on recognition and measurement (including the constraint on revenue). The FASB also
subsequently issued several amendments to the standard, including clarification on principal versus agent guidance, identifying
performance obligations, and immaterial goods and services in a contract.
The new accounting standard update must be applied using either of the following transition methods: (i) a full
retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain
practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the standard
recognized at the date of adoption (which requires additional footnote disclosures). The Company adopted ASC 606, Revenue from
Contracts with Customers on January 1, 2018 using the modified retrospective method. Based on the manner in which the
Company historically recognized revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of its
revenue recognition and the Company recognized no cumulative effect adjustment upon adoption.
Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments ("ASU 2016-13"), which amends the guidance on the impairment of financial instruments
by requiring measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal
years, and for interim periods within those fiscal years, beginning after December 15, 2019, and earlier adoption is permitted
beginning in the first quarter of fiscal 2019. The Company is currently evaluating the impact on its consolidated financial
statements and plans to adopt this ASU for its fiscal year beginning January 1, 2020. Finance receivables originated in connection
with the Company's vehicle sales are held for sale and are subsequently sold. At December 31, 2019 and 2018, finance receivables
were $147,893 and $148,378, respectively.
NOTE 2 –ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following as of December 31:
Trade
Finance
Other
Less: allowance for doubtful accounts
2019
9,369,733
147,893
—
9,517,626
1,034,919
8,482,707
$
$
2018
8,264,045
148,378
229,577
8,642,000
176,190
8,465,810
$
$
F-17
NOTE 3 – INVENTORY
Inventory consists of the following as of December 31,
Pre-owned vehicles:
Powersport vehicles
Automobiles and trucks
Less: Reserve
NOTE 4 – ACQUISITIONS
2019
2018
$
$
10,365,050
47,599,433
57,964,483
583,202
57,381,281
$
$
9,783,093
43,081,136
52,864,229
672,706
52,191,523
On February 3, 2019, the Company completed the Autosport Acquisition pursuant to the Stock Purchase Agreement, by
and among the Buyer, the Seller and Autosport. Aggregate consideration for the Autosport Acquisition consisted of (i) a closing
cash payment of $600,000, plus (ii) the Promissory Note in favor of the Seller, plus (iii) the Convertible Note in favor of the Seller,
plus (iv) contingent earn-out payments payable in the form of cash and/or the Company's Class B Common Stock for up to an
additional $787,500 if Autosport achieves certain performance thresholds. In connection with the Autosport Acquisition, the Buyer
also paid outstanding debt of Autosport of $235,000 and assumed debt of $257,933 pursuant to the Second Convertible Note. The
fair value of the contingent earn-out payment was considered immaterial at the date of acquisition and was excluded from the
purchase price allocation. As of December 31, 2019, there have been no payments earned under the performance threshold. See
Note 1 – Description of Business and Significant Accounting Policies for additional information on the Autosport Acquisition.
The allocation of the purchase price is based on the best information available to management. This allocation is
provisional, as the Company is required to recognize additional assets or liabilities if new information is obtained about facts and
circumstances that existed as of February 3, 2019 that, if known, would have resulted in the recognition of those assets or liabilities
as of that date. The Company may adjust the preliminary purchase price allocation after obtaining additional information regarding
asset valuation, liabilities assumed and revisions of previous estimates. The following table summarizes the allocation of the
purchase price based on the estimated fair value of the acquired assets and assumed liabilities of Autosport as of December 31,
2019:
Purchase price consideration:
Cash
$1,536,000 convertible note
$500,000 promissory note
$257,933 Promissory note
Total purchase price consideration
Estimated fair value of assets:
Accounts receivable
Inventory
Estimated fair value of accounts payable and other
Excess of assets over liabilities
Goodwill
Total net assets acquired
$
$
835,000
1,536,000
500,000
257,933
3,128,933
3,177,660
2,862,004
6,039,664
5,875,009
164,655
2,964,278
$
3,128,933
F-18
On October 26, 2018, we entered into an Agreement and Plan of Merger (as amended, the "Merger Agreement") with the
Company's newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware limited liability company ("Merger Sub"),
Wholesale Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale, LLC, a Tennessee limited liability company
("Wholesale"), Steven Brewster and Janelle Brewster (each a "Stockholder", and together the "Stockholders"), Steven Brewster, a
Tennessee resident, as the representative of each Stockholder (the "Representative"), and, for the limited purposes of Section 5.8,
Marshall Chesrown and Steven R. Berrard, providing for the merger (the "Wholesale Merger") of Holdings with and into Merger
Sub, with Merger Sub surviving the Wholesale Merger as a wholly-owned subsidiary of the Company. Also on October 26, 2018,
we entered into a Membership Interest Purchase Agreement (the "Purchase Agreement"), with Steven Brewster and Justin Becker
(together the "Express Sellers"), and Steven Brewster as representative of the Express Sellers, pursuant to which the Company
acquired all of the membership interests (the "Express Acquisition") in Wholesale Express, LLC, a Tennessee limited liability
company ("Wholesale Express"). On October 30, 2018, the Company completed the Wholesale Merger and Express Acquisition.
Also, on October 26, 2018, we entered into a Membership Interest Purchase Agreement (the "Purchase Agreement"), by and
among the Company, Steven Brewster and Justin Becker (together the "Express Sellers"), and Steven Brewster as representative of
the Express Sellers, pursuant to which we acquired all of the membership interests (the "Express Acquisition") in Wholesale
Express, LLC, a Tennessee limited liability company ("Wholesale Express. The Wholesale Merger and the Express Acquisition
were both completed on October 30, 2018 (the "Wholesale Closing Date"). As consideration for the Wholesale Merger, we (i) paid
cash consideration of $12,353,941, subject to certain customary post-closing adjustments, and (ii) issued to the Stockholders
1,317,329 shares (the "Stock Consideration") of our Series B Non-Voting Convertible Preferred Stock, par value $0.001. As
consideration for the Express Acquisition, we paid cash consideration of $4,000,000, subject to certain customary post-closing
adjustments.
The following tables summarize the consideration paid in cash and equity securities for the acquisitions and the amount of
identified assets acquired and liabilities assumed as of the acquisition date:
Issuance of shares
Cash paid
Total purchase price
Estimated fair value of assets:
Cash
Accounts receivable
Inventory
Prepaid expenses
Property & equipment
Due from Related party
Other Assets
Estimated fair value of liabilities assumed:
Accounts payable and other
Floor plan liability
Due to related party
Excess of (liabilities over assets) assets over liabilities
Wholesale
6,652,512
12,353,941
19,006,453
$
$
Express
—
4,000,000
4,000,000
$
$
183,846
5,130,788
47,639,354
186,659
617,422
—
1,026,203
54,784,272
8,144,040
49,988,553
720,000
58,852,593
(4,068,321)
774,844
2,663,077
—
59,377
14,702
720,000
—
4,232,000
1,079,509
—
—
1,079,509
3,152,491
Goodwill
Total net assets acquired
23,074,774
19,006,453
$
847,509
4,000,000
$
The Company finalized the purchase price allocation for Express which resulted in a decrease in goodwill of $334,861
during the year ended December 31, 2019. The Company made this measurement period adjustment to reflect facts and
circumstances that related to accounts receivable and accounts payable that existed at the acquisition date and did not result from
intervening events subsequent to such date.
Supplemental pro forma unaudited information (unaudited)
The results of operations of Wholesale and Express since the acquisition date are included in the accompanying
Consolidated Financial Statements.
F-19
The following unaudited supplemental pro forma information presents the financial results as if the acquisitions of
Wholesale, Express and Autosport were made as of January 1, 2019 for the year ended December 31, 2019 and as of January 1,
2018 for the year ended December 31, 2018.
Pro forma adjustments for the year ended December 31, 2019 primarily include adjustments to reflect the: (i) amortization
of stock compensation expense of $34,859; and (ii) interest expense of $8,906. Pro forma adjustments for the year ended
December 31, 2018 primarily include adjustments to reflect the: (i) amortization of stock compensation expense of $833,333; (ii)
elimination of intercompany sales and cost of revenue of $3,744,911; (iii) income taxes of $158,742.
Unaudited
Pro forma revenue
Pro forma net loss
Loss per share - basic and fully diluted
Weighted-average common shares and common stock equivalents
outstanding basic and fully diluted
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Year Ended December 31,
2019
846,947,956
(45,296,568)
(40.37)
$
$
$
2018
788,428,970
(24,062,816)
(24.42)
$
$
$
1,122,058
985,332
The following table summarizes property and equipment, net of accumulated depreciation and amortization as of
December 31, 2019 and 2018:
Vehicles
Furniture and equipment
Technology development and software
Leasehold improvements
Total property and equipment
Less: accumulated depreciation and amortization
Total
2019
158,327
448,074
8,863,247
246,135
9,715,783
3,288,109
6,427,674
$
$
2018
417,666
474,546
5,777,504
136,386
6,806,102
1,628,225
5,177,877
$
$
Amortization and depreciation on Property and Equipment is determined on a straight-line basis over the estimated useful
lives ranging from 3 to 5 years.
At December 31, 2019, capitalized technology development costs were $8,655,236 which includes $2,900,000 of
software acquired in the NextGen transaction. Total technology development costs incurred was $5,494,081 for the year ended
December 31, 2019 of which $3,085,743 was capitalized and $2,408,338 was charged to expense in the accompanying
Consolidated statements of operations. Depreciation expense for the year ended December 31, 2019 was $1,786,426, which
included the amortization of capitalized technology costs of $1,436,088. Total technology development costs incurred was
$3,314,815 for the year ended December 31, 2018 of which $2,162,707 was capitalized and $1,152,108 was charged to expense in
the accompanying Consolidated statements of operations. Depreciation expense for the year ended December 31, 2018 was
$984,006, which included the amortization of capitalized technology costs of $825,782.
F-20
NOTE 6 – INTANGIBLE ASSETS AND GOODWILL
Following is a summary of the changes in the carrying amount of goodwill and other indefinite-lived asset during the
years ended December 31, 2019, 2018 and 2017, net of a $334,861 measurement period adjustment recorded during the year ended
December 31, 2019.
Balance at December 31, 2017
Acquisitions
Balance at December 31, 2018
Acquisitions
Impairment
Measurement period adjustment
Balance at December 31, 2019
Goodwill
1,850,000
24,257,146
26,107,146
2,964,278
(1,850,000)
(334,861)
26,886,563
$
$
Indefinite Lived
Intangible Assets
45,515
$
—
45,515
—
—
—
45,515
$
The following is a summary of the changes in the carrying amount of goodwill by reportable segment during the years
ended December 31, 2019 and 2018.
Balance at December 31, 2018
Acquisitions
Impairment
Measurement period adjustment
Balance at December 31, 2019
Powersports
Automotive
Vehicle Logistics
$
$
1,850,000
—
(1,850,000)
—
—
$
$
23,074,775
2,964,278
—
—
26,039,053
$
$
1,182,371
—
—
(334,861)
847,510
$
$
Total
26,107,146
2,964,278
(1,850,000)
(334,861)
26,886,563
We test for impairment of our intangible assets at least annually. During the year ended December 31, 2019, we
recognized an impairment loss on goodwill of $1,850,000 related to powersports, which is recorded in selling, general and
administrative expenses in the Consolidated Statement of Operations. There were no impairment charges in 2018. During the
quarter ended September 30, 2019, the Company finalized the preliminary purchase price allocation recorded at the acquisition
date for Wholesale Express and made a measurement period adjustment to the preliminary purchase price allocation which
resulted in a decrease in goodwill of $334,861. The Company made this measurement period adjustment to reflect facts and
circumstances related to accounts receivable and accounts payable that existed as of the acquisition date and did not result from
intervening events subsequent to such date.
NOTE 7 – ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
The following table summarizes accounts payable and other accrued liabilities as of December 31, 2019 and 2018:
Accounts payable
Operating lease liability-current portion
Accrued payroll
State and local taxes
Other accrued expenses
Total
2019
8,730,624
1,423,610
715,658
912,062
639,140
12,421,094
$
$
2018
7,528,003
—
877,180
1,073,649
1,076,081
10,554,913
$
$
F-21
NOTE 8 – NOTES PAYABLE AND LINES OF CREDIT
Notes payable consisted of the following as of December 31, 2019 and 2018:
Notes payable-NextGen dated February 8, 2017. Interest is payable semi-annually at 6.5%
through February 9, 2019 and 8.5% through maturity which is January 31, 2021.
$
1,333,334 $
1,333,334
2019
2018
Notes payable-private placement dated March 31, 2017. Interest is payable semi-annually
at 6.5% through September 30, 2019 and 8.5% through maturity which is January 31,
2021. Unamortized debt discount of $75,601 and $334,998 as of December 31, 2019 and
December 31, 2018, respectively.
667,000
667,000
Line of credit-floor plan Ally dated February 16, 2018. Facility provides up to
$25,000,000 of available credit secured by vehicle inventory and other assets. Interest rate
at December 31, 2019 was 7.05 %. Principal and interest are payable on demand.
8,419,897
8,866,894
Loan Agreement with Hercules Capital Inc. dated April 30, 2018 and as amended for
tranche II on October 30, 2018. Tranche I- Interest only at 10.5% and is payable monthly
through December 1, 2018. Principal and interest payments commence on June 1, 2019
through maturity which is May 1, 2021. Trance II-Interest payable monthly at 11.0%.
Principal payable at maturity on October 1, 2021. Unamortized debt issuance costs as of
December 31, 2018 of $1,547,412.
Line of credit-floor plan NextGear dated October 30, 2018. Secured by vehicle inventory
and other assets. Interest rate at December 31, 2019 was 4.25%. Principal and interest is
payable on demand.
Less: Debt discount
Total notes payable and lines of credit
Less: Current portion
—
10,857,500
50,741,073
47,505,607
(75,601)
61,085,703
59,160,970
(1,882,410)
67,347,925
58,555,006
Long-term portion
$
1,924,733 $
8,792,919
As of December 31, 2019, future principal debt payments are due as follows: 2020 - $59,085,369; 2021 - $2,000,334.
Line of Credit-Floor Plan-NextGear
On October 30, 2018, Wholesale, as borrower, entered into a floorplan vehicle financing credit line (the "NextGear Credit
Line") with NextGear. As of the date of this filing, based on on-going discussions with NextGear, we will limit our advances under
the NextGear Credit Line for Wholesale and Autosport to $55,000,000. Advances under the NextGear Credit Line will bear
interest at an initial per annum rate of 5.25%, based upon a 360-day year, and compounded daily, and the per annum interest rate
will vary based on a base rate, plus the contract rate, which is currently negative 2.0%, until the outstanding liabilities to NextGear
are paid in full. Interest expense on the line of credit-floor plan for the years ended December 31, 2019 and 2018, was $2,697,591
and $513,306, respectively.
Line of Credit-Floor Plan-Ally
On February 16, 2018, the Company, through its wholly-owned subsidiary RMBL MO entered into an Inventory
Financing and Security Agreement (the "Credit Facility") with Ally and Ally Financial, Inc., a Delaware corporation ("Ally"
together with Ally Bank, the "Lender"), pursuant to which the Lender may provide up to $25,000,000 in financing, or such lesser
sum which may be advanced to or on behalf of RMBL MO from time to time, as part of its floorplan vehicle financing program.
Advances under the Credit Facility require that the Company maintain 10.0% of the advance amount as restricted cash. Advances
under the Credit Facility will bear interest at a per annum rate designated from time to time by the Lender and will be determined
using a 365/360 simple interest method of calculation, unless expressly prohibited by law. Advances under the Credit Facility, if
not demanded earlier, are due and payable for each vehicle financed under the Credit Facility as and when such vehicle is sold,
leased, consigned, gifted, exchanged, transferred, or otherwise disposed of. Interest under the Credit Facility is due and payable
upon demand, but, in general, in no event later than 60 days from the date of request for payment. Upon any event of default
(including, without limitation, RMBL MO's obligation to pay upon demand any outstanding liabilities of the Credit Facility), the
Lender may, at its option and without notice to the RMBL MO, exercise its right to demand immediate payment of all liabilities
F-22
and other indebtedness and amounts owed to Lender and its affiliates by RMBL MO and its affiliates. The Credit Facility is
secured by a grant of a security interest in the vehicle inventory and other assets of RMBL MO and payment is guaranteed by the
Company pursuant to a guaranty in favor of the Lender and secured by the Company pursuant to a General Security Agreement.
Interest expense on the Credit Facility for the years ended December 31, 2019 and 2018 was $541,702 and $149,776, respectively.
The Ally Line of Credit ended in February 2020.
Loan Agreement-Hercules Capital Inc.
On May 14, 2019, the Company made a payment to Hercules Capital Inc. ("Hercules") of $11,134,695, representing the
principal, accrued and unpaid interest, fees, costs and expenses outstanding under its Loan and Security Agreement (the "Loan
Agreement") with Hercules dated April 30, 2018 (the "Hercules Indebtedness"). Upon the payment, all outstanding indebtedness
and obligations of the Company owed to Hercules under the Loan Agreement were paid in full, and the Loan Agreement has been
terminated. The Company used a portion of the net proceeds from the Note Offering (described below) to pay the Hercules
Indebtedness. In accordance with the guidance in ASC 470-50, Debt, the Company accounted for the extinguishment of the
Hercules Loan Agreement as an extinguishment and recognized a loss on early extinguishment of debt of $1,499,250 for the year
ended December 31, 2019 in the Consolidated Statements of Operations. The loss on early extinguishment consisted primarily of
the prepayment penalty paid to Hercules and unamortized debt discounts including the remaining portion of warrant values and
debt issuance costs.
Notes Payable
NextGen
On February 8, 2017, in connection with the acquisition of NextGen, the Company issued a subordinated secured
promissory note in favor of NextGen (which note was subsequently assigned to Halcyon in February 2018) in the amount of
$1,333,334. Interest accrues and will be paid semi-annually (i) at a rate of 6.5% annually from the closing date through the second
anniversary of such date and (ii) at a rate of 8.5% annually from the second anniversary of the closing date through the Maturity
Date. Upon the occurrence of any event of default, the outstanding balance under the NextGen Note shall become immediately due
and payable upon election of the holder. The Company's obligations under the NextGen Note are secured by substantially all the
assets of NextGen Pro, pursuant to an Unconditional Guaranty Agreement (the "Guaranty Agreement"), by and among NextGen
and NextGen Pro, and a related Security Agreement between the parties, each dated as of February 8, 2017. Under the terms of the
Guaranty Agreement, NextGen Pro has agreed to guarantee the performance of all the Company's obligations under the NextGen
Note. Interest expense on the Credit Facility for the years ended December 31, 2019 and 2018 was $110,484 and $87,617,
respectively. For additional information see Note 19 – Subsequent Events – Investor Note Exchange.
Private Placement
On March 31, 2017, the Company completed funding of the second tranche of the 2016 Private Placement (as defined
below). The investors were issued 58,096 shares of Class B Common Stock of the Company and promissory notes (the "Private
Placement Notes") in the amount of $667,000, in consideration of cancellation of loan agreements having an aggregate principal
amount committed by the purchasers of $1,350,000. Under the terms of the Private Placement Notes, interest shall accrue on the
outstanding and unpaid principal amounts until paid in full. The Private Placement Notes mature on January 31, 2021. Interest
accrues at a rate of 6.5% annually from the closing date through the second anniversary of such date and at a rate of 8.5% annually
from the second anniversary of the closing date through the maturity date. Upon the occurrence of any event of default, the
outstanding balance under the Private Placement Notes shall become immediately due and payable upon election of the holders.
Based on the relative fair values attributed to the Class B Common Stock and promissory notes issued in the 2016 Private
Placement, the Company recorded a debt discount on the promissory notes of $667,000 with the corresponding amounts recorded
as an addition to paid-in capital. The debt discount is amortized to interest expense until the scheduled maturity of the Private
Placement Notes in January 2021 using the effective interest method. The effective interest rate at December 31, 2019 was 26.0%.
Interest expense on the Private Placement Notes was $316,091 and $259,177, respectively for the years ended December 31, 2019
and 2018, which included debt discount amortization of $70,565 and $205,926, respectively for the years ended December 31,
2019 and 2018.
Exchange of Notes Payable
Certain of the Company's investors extended the maturity of currently outstanding promissory notes, and exchanged such
notes for new notes (the "New Investor Notes"), pursuant to that certain Note Exchange Agreement, dated January 14, 2020 (the
"Investor Note Exchange Agreement"), by and between the Company and each investor thereto (the "Investors"), including
Halcyon, an entity affiliated with Kartik Kakarala, a director of the Company, such New Investor Note for an aggregate principal
amount of $833,333 (after taking account of a $500,000 pay down of the previously outstanding Halcyon note), Blue Flame
Capital, LLC ("Blue Flame"), an entity affiliated with Denmar Dixon, a director of the Company, such New Investor Note for an
F-23
aggregate principal amount of $99,114, and Mr. Dixon, individually, such New Investor Note for an aggregate principal amount of
$272,563. The New Investor Notes, having an aggregate principal amount of approximately $1,500,000, will mature on January
31, 2021, and will be convertible at any time at the Investor's option at a price of $60.00 per share. For additional information see
Note 19 – Subsequent Events – Investor Note Exchange.
Convertible Notes
As of December 31, 2019, the outstanding convertible promissory notes net of debt discount and issue costs are
summarized as follows:
Convertible senior notes
Convertible notes-Autosport
$1,536,000 unsecured note
$500,000 unsecured note
$257,933 unsecured note
Less: Current portion
Long-term portion
Convertible Senior Notes
Face
Amount
30,000,000
$
Debt
Discount
10,402,024
$
Carrying
Amount
19,597,976
$
1,536,000
500,000
257,933
32,293,933
(1,461,933)
30,832,000
$
379,616
6,092
6,382
10,794,114
(98,343 )
10,695,771
$
1,156,384
493,908
251,551
21,499,819
(1,363,590 )
20,136,229
$
On May 9, 2019, the Company entered into a purchase agreement (the "Purchase Agreement") with JMP Securities LLC
("JMP Securities") to issue and sell $30,000,000 in aggregate principal amount of its 6.75% Convertible Senior Notes due 2024
(the "Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Note Offering"). The Company paid JMP Securities a fee of 7.0% of the gross proceeds in the Note Offering. The
proceeds for the Note Offering after deducting the initial purchaser's discounts, advisory fees, and related offering expenses, were
$27,385,500.
The Notes were issued on May 14, 2019 pursuant to an Indenture (the "Indenture") by and between the Company and
Wilmington Trust, National Association, as trustee. The Purchase Agreement included customary representations, warranties and
covenants by the Company and customary closing conditions. Under the terms of the Purchase Agreement, the Company agreed to
indemnify JMP Securities against certain liabilities. The Notes bore interest at 6.75% per annum, payable semiannually on May 1
and November 1 of each year, beginning on November 1, 2019. The Notes could bear additional interest under specified
circumstances relating to the Company's failure to comply with its reporting obligations under the Indenture or if the Notes were
not freely tradeable as required by the Indenture. The Notes would have matured on May 1, 2024, unless earlier converted,
redeemed or repurchased pursuant to their terms.
The initial conversion rate of the Notes was 8.6956 shares of Class B Common Stock, per $1,000 principal amount of the
Notes, subject to adjustment (which is equivalent to an initial conversion price of approximately $115.00 per share, subject to
adjustment). The conversion rate was subject to adjustment in some events but would not have been adjusted for any accrued and
unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture), the Company
would, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elected to convert
its Notes in connection with such make-whole fundamental change.
The Notes were not redeemable by the Company prior to the May 6, 2022. The Company could have redeemed for cash
all or any portion of the Notes, at its option, on or after May 6, 2022 if the last reported sale price of the Company's Class B
Common Stock had been at least 150.0% of the conversion price then in effect for at least 20 trading days (whether or not
consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption,
during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which
the Company provides notice of redemption at a redemption price equal to 100.0% of the principal amount of the notes to be
redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund was provided for the Notes. If
redeemed, the Company would have made an interest make-whole payment to the converting holder equal to the sum of the
present values of the scheduled payments of interest that would have been made on the Notes to be converted had such Notes
remained outstanding from the conversion date through the earlier of the date that is two years after the conversion date and June
15, 2022.
In connection with the Note Offering, the Company entered into a registration rights agreement with JMP Securities,
pursuant to which the Company has agreed to file with the SEC an automatic shelf registration statement, if the Company is eligible
F-24
to do so and has not already done so, and, if the Company is not eligible for an automatic shelf registration statement, then in lieu of
the foregoing the Company shall file a shelf registration statement for the registration of, and the sale on a continuous or delayed
basis by the holders of, all of the Notes pursuant to Rule 415 or any similar rule that may be adopted by the Commission, and use its
commercially reasonable efforts to cause the shelf registration statement to become or be declared effective under the Securities Act
on the day that is 120 days after May 9, 2019. The Company filed a Registration Statement on Form S-3, which was declared
effective on August 30, 2019.
As of December 31, 2019, the conditions allowing holders of the Notes to convert have not been met and therefore the
Notes are not yet convertible.
We account for the Notes in accordance with FASB ASC 470, Debt and ASC 815, Derivatives and Hedging, which
required bifurcation of the liability and equity components. We determined the carrying amount of the liability component as the
present value of its cash flows using an implied discount rate of 20.5%. The carrying amount of the equity component representing
the conversion option was $8,500,000 and was calculated by deducting the carrying value of the liability component from the
principal amount of the Notes as a whole. This difference represents a debt discount that is amortized to interest expense over the
term of the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet
the conditions for equity classification. We further valued a derivative liability in connection with the interest make-whole
provision at $1,330,000 at issuance based on a Monte-Carlo Simulation using a volatility of 85.0% and a risk-free rate of 2.3%.
This amount was recorded as a debt discount and is amortized to interest expense over the term of the Notes using the effective
interest rate. The derivative liability is remeasured at each reporting date with the change in value of $1,302,000 being recorded in
other income for the year ended December 31, 2019. The value of the derivative liability as of December 31, 2019 was $27,500.
We allocate transaction costs related to the issuance of the Notes to the liability and equity components using the same
proportions as the initial carrying value of the Notes. Transaction costs attributable to the debt component were $1,790,088 and are
being amortized to interest expense using the effective interest method over the term of the Notes. Transaction costs attributable to
the equity component were $754,375 and are netted with the equity component of the Notes in stockholders' equity. Transactions
costs attributable to the derivative liability were $118,038 and were expensed during the year ended December 31, 2019.
The interest expense recognized related to the Notes for the year ended December 31, 2019 was as follows:
Contractual interest expense
Amortization of debt discounts
Total
$
$
2019
1,305,000
1,218,064
2,523,064
On January 10, 2020, the Company entered into a note exchange and subscription agreement (the "Note Exchange &
Subscription Agreement"), as amended by that certain Joinder and Amendment effective January 13, 2020 (the "Joinder
Agreement," and together with the Note Exchange & Subscription Agreement, the "Note Agreement"), with the investors in the
2019 Note Offering (the "Note Investors"), pursuant to which the Company agreed to complete (i) a note exchange pursuant to
which $30,000,000 of the Old Notes would be cancelled in exchange for a new series of 6.75% Convertible Senior Notes due 2025
(the "New Notes") and (ii) the issuance of additional New Notes in a private placement in reliance on the exemption from
registration provided by Rule 506 of Regulation D of the Securities Act as a sale not involving any public offering (the "2020 Note
Offering"). On January 14, 2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering, after
deducting for payment of accrued interest on the Old Notes and offering-related expenses, were $8,272,375. For additional
information see Note 19 – Subsequent Events – Convertible Note Exchange and Offer.
Convertible Notes-Autosport USA
On February 3, 2019, in connection with the Autosport Acquisition, the Company issued (i) the Promissory Note, and
(ii) the Convertible Note in favor of the Seller. In connection with the Autosport Acquisition, the Buyer also assumed additional
debt of $257,933 pursuant to the Second Convertible Note.
The Promissory Note has a term of fifteen months and will accrue interest at a simple rate of 5.0% per annum. Interest
under the Promissory Note is payable upon maturity. Any interest and principal due under the Promissory Note is convertible, at
the Buyer's option into shares of the Company's Class B Common Stock at a conversion price equal to the weighted average
trading price of the Company's Class B Common Stock on the Nasdaq Stock Exchange for the twenty (20) consecutive trading
days preceding the conversion date. The number of shares of the Company's Class B Common Stock issuable pursuant to the
Promissory Note is indeterminate at this time.
F-25
The Convertible Note has a term of three years and will accrue interest at a rate of 6.5% per annum. Interest under the
Convertible Note is payable monthly for the first 12 months, and thereafter monthly payments of amortized principal and interest
will be due. Any interest and principal due under the Convertible Note is convertible into shares of the Company's Class B Common
Stock at a conversion price of $115.00 per share, (i) at the Seller's option, or (ii) at the Buyer's option, on any day that (a) any portion
of the principal of the Convertible Note remains unpaid and (b) the weighted average trading price of the Company's Class B
Common Stock on Nasdaq for the twenty (20) consecutive trading days preceding such day has exceeded $140.00 per share. The
maximum number of shares issuable pursuant to the Convertible Note is 15,962 shares of the Company's Class B Common Stock.
The Second Convertible Note has a term of one year and will accrue interest at a simple rate of 5.0% per annum. Monthly
payments of amortized principal and interest will be due under the Second Convertible Note. Any interest and principal due under
the Second Convertible Note is convertible into shares of the Company's Class B Common Stock at a conversion price of $115.00
per share, (i) at the Seller's option, or (ii) at the Buyer's option, on any day that (a) any portion of the principal of the Second
Convertible Note remains unpaid and (b) the weighted average trading price of the Company's Class B Common Stock on Nasdaq
for the twenty (20) consecutive trading days preceding such day has exceeded $140.00 per share. The maximum number of shares
issuable pursuant to the Second Convertible Note is 2,336 shares of the Company's Class B Common Stock.
NOTE 9 – STOCKHOLDERS' EQUITY
Share-Based Compensation
On June 30, 2017 the Company's shareholders approved a Stock Incentive Plan (the "Plan") reserving for issuance under
the Plan in the form of restricted stock units ("RSUs"), stock options ("Options"), Performance Units, and other equity awards
(collectively "Awards") for our employees, consultants, directors, independent contractors and certain prospective employees who
have committed to become an employee (each an "Eligible Individual") of up to 12.0% of the shares of Class B Common Stock
outstanding from time to time. On June 25, 2018, the Company's shareholders approved an amendment to the Plan to increase the
number of shares authorized for issuance under the Plan from 12.0% of the Company's issued and outstanding shares of Class B
Common Stock from time to time to 100,000 shares of Class B Common Stock (the "First Plan Amendment"). On May 20, 2019,
the Company's stockholders approved another amendment to the Plan to increase the number of shares authorized for issuance
under the Plan from 100,000 shares of Class B Common Stock to 200,000 shares of Class B Common Stock (the "Second Plan
Amendment"). To date, the vesting of RSU and Option awards for most employees is service / time based, however some senior
level employees have been granted awards that include a mix of service based, performance based and market condition-based
vesting. Substantially all service/time based RSU and Option awards issued typically vest over a three-year period approximating
the following vesting schedule: (i) 20.0% vesting anywhere from eight-months to thirteen month after grant date, (ii) an additional
30.0% during the subsequent twelve months of the initial vesting, and (iii) the final 50.0% during the following twelve months.
More specifically, the Company granted to certain members of management an aggregate of (i) 12,213 performance-based awards
that vest after two consecutive quarters of $1.00 or greater operating income and trailing four quarter revenue of $900,000,000 at
any time through September 30, 2020, and (ii) 36,938 market-based awards. These awards were terminated on May 27, 2020. The
Company estimates the fair value of awards granted under the Plan on the date of grant. Stock-based compensation expense is
recognized as an expense on a straight-line basis over the vesting periods described above. The total expense recognized in Selling,
General and Administrative expense was $3,836,518 and $1,657,680, respectively, for the years ended December 31, 2019 and
2018, with 2019.
F-26
Restricted Stock Units
Options
For the Years Ended December 31,
2019
2018
$
3,812,993
$
1,657,680
23,525
—
Total stock-based compensation
$
3,836,518
$
1,657,680
As of December 31, 2019, unrecognized stock-based compensation related to outstanding RSU and stock awards and the
related weighted-average period over which it is expected to be recognized subsequent to December 31, 2019 is presented in the
table below. Total unrecognized equity will be adjusted for actual forfeitures.
Restricted Stock Units
Options
Total Unrecognized stock-based Compensation
Restricted Stock Units
Unrecognized Stock
Based
Compensations
Related to
Outstanding
Awards
$
5,300,737
149,272
$
5,450,009
RSU activity during the years ending December 31, 2019 and December 31, 2018 was as follows:
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Non-qualified Stock Options
Number of RSUs
35,800
51,414
(9,950)
(1,875)
75,389
80,050
(9,000)
(16,501)
129,938
Remaining
Weighted-Average
Amortization
Period (in years)
0.8
1.2
0.8
Weighted -
Average Grant
Date Fair Value
82.82
$
116.63
81.20
124.05
104.63
60.81
86.54
61.45
99.00
$
Non-qualified stock options allow recipients to purchase shares of Class B common stock at a fixed exercise price. The
fixed exercise price is equal to the price of a share of Class B common stock at the time of grant. The options expire ten years after
the grant date and typically vest 20.0% between nine-months and one-year after the grant date and thereafter in quarterly
installments of 7.5% and 12.5% during the 2nd and 3rd vesting years, respectively.
F-27
Outstanding at December 31, 2017
Options Granted
Options exercised
Options forfeited or expires
Outstanding at December 31, 2018
Options Granted
Options exercised
Options forfeited or expires
Outstanding at December 31, 2019
Vested / exercisable at December 31, 2019
Expected to vest as of December 31, 2019
Number of
Options
Weighted
Average Exercise
Price
Weighted-
Average
Remaining
Contractual Life
(in years)
—
—
—
—
—
5,608
—
(521)
5,087
—
3,944
$
$
$
n/a
n/a
n/a
n/a
n/a
34.20
n/a
34.20
34.20
—
34.20
n/a
9.6
n/a
9.6
Aggregate
Intrinsic Value
n/a
n/a
n/a
n/a
n/a
$
$
$
$
$
—
n/a
—
—
—
—
Fair value of all awards is based on the share price of the Class B Common Stock on the date of the award, and in the case
of options, which were only issued in 2019, is calculated using the Black-Scholes option valuation model using the assumptions in
the following table:
Risk-free rate
Expected volatility
Expected life (in years)
Expected dividend yield
Weighted average grant date fair value per option
Security Offerings
2019
2018
1.5%
85.0%
5.75
—
34.20
$
-%
-%
—
—
—
On July 20, 2018, the Company completed an underwritten public offering of 116,438 shares of its Class B Common
Stock at a price of $121.00 per share for net proceeds to the Company of $13,015,825. The completed offering included 15,188
shares of Class B Common Stock issued upon the underwriter's exercise in full of its over-allotment option. The Company will use
the net proceeds from the offering for working capital and general corporate purposes, which may include purchases of additional
inventory held for sale, increased spending on marketing and advertising and capital expenditures necessary to grow the business.
On October 25, 2018, the Company filed the Certificate of Designation, Preferences, and Rights of Series B Non-Voting
Convertible Preferred Stock ("Certificate of Designation") with the Secretary of State for the State of Nevada, designating
2,500,000 shares of the Company's preferred stock, par value $0.001 per share, as Series B Preferred. Shares of Series B Preferred
rank pari passu with the Company's Class B Common Stock, except that holders of Series B Preferred shall not be entitled to vote
on any matters presented to the stockholders of the Company. The Certificate of Designation became effective on October 25,
2018. Each share of Series B Preferred is convertible on a one-for-one basis into shares of the Company's Class B Common Stock.
The Series B Preferred will automatically convert into Class B Common Stock 21 days after the mailing of a definitive information
statement of the type contemplated by and in accordance with Regulation 14C of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to the Company's stockholders, without any further action on the part of the Company or any holder.
On October 30, 2018, the Company completed the private placement of an aggregate of 151,500 shares of its Class B
Common Stock (the "Private Placement"), at a price of $142.00 per share for non-affiliates of the Company, and, with respect to
directors participating in the Private Placement, at a price of $162.00 per share. The gross proceeds for the Private Placement were
$21,553,000. National Securities Corporation, a wholly owned subsidiary of National Holdings Corporation, and Craig-Hallum
Capital Group (together the "Placement Agents") served as the placement agents for the Private Placement. The Company paid the
Placement Agents a fee of 6.5% of the gross proceeds in the Private Placement. Net proceeds from the Private Placement and
$5,000,000 funded under the Tranche II Advance were used to partially fund the cash consideration of the Wholesale Merger and
the Express Acquisition and the balance will be used for working capital purposes.
F-28
Denmar Dixon, a member of the Company's Board of Directors, invested through Blue Flame Capital, LLC (an entity
controlled by Mr. Dixon) $243,000 in the Private Placement for 1,500 shares of Class B Common Stock. Also, Joseph Reece, a
member of the Company's Board of Directors at the time, individually invested $81,000 in the Private Placement for 500 shares of
Class B Common Stock. These purchases were approved by the Company's Board of Directors in accordance with Rule 16b-
3(d)(1) of the Exchange Act. Messrs. Dixon and Reece abstained from the Company's Board of Directors' vote in favor of the
Private Placement.
On February 11, 2019, the Company completed an underwritten public offering of 63,825 shares of its Class B Common
Stock at a price of $111.00 per share for net proceeds to the Company of $6,543,655. The completed offering included 8,325
shares of Class B Common Stock issued upon the underwriter's exercise in full of its over-allotment option.
On May 9, 2019, the Company entered into a Securities Purchase Agreement with certain accredited investors (the
"Investors") pursuant to which the Company agreed to sell in a private placement (the "Private Placement") an aggregate of 95,000
shares of its Class B Common Stock, at a purchase price of $100.00 per share. JMP Securities served as the placement agent for
the Private Placement. The Company paid JMP Securities a fee of 7.0% of the gross proceeds in the Private Placement. The
Private Placement closed on May 17, 2019. The proceeds for the Private Placement, after deducting commissions and related
offering expenses, were $8,665,000.
2020 Public Offering
On January 10, 2020, the Company entered into an underwriting agreement (the "Underwriting Agreement") with
National Securities Corporation, as representative to the several underwriters named on Schedule 1-A to the Underwriting
Agreement (the "Underwriters"), relating to the Company's public offering (the "2020 Public Offering") of 900,000 shares of Class
B Common Stock (the "Firm Shares") and an additional 135,000 shares of Class B Common Stock (the "Additional Shares"). The
Underwriters agreed to purchase the Firm Shares at a price of $11.40 per share. The issuance and closing of the Firm Shares took
place on January 14, 2020, and of the Additional Shares on January 17, 2020. For additional information see Note 19 – Subsequent
Events – Public Offering.
NOTE 10 – COMMON STOCK WARRANTS
In connection with the October 23, 2017 public offering of 145,500 shares of Class B common stock the Company issued
to underwriters warrants to purchase 10,913 shares of Class B common stock, which was equal to 7.5% of the aggregate number of
shares of Class B common stock sold in the Offering. The Warrants are exercisable at a per share price of $126.50, which was
equal to 115.0% of the Offering price per share of the shares sold in the Offering and mature on April 20, 2023. In April, 2018,
pursuant to the Loan Agreement by and among Hercules Capital, the Company, and its wholly owned subsidiaries, the Company
issued Hercules a warrant to purchase 4,091 (increasing to 5,455 if a fourth tranche in the principal amount of up to $5,000,000 is
advanced at the parties agreement) shares of the Company's Class B Common Stock (the "Hercules April Warrant") at an exercise
price of $110.00 per share (the "Hercules April Warrant Price"). The Hercules April Warrant is immediately exercisable and
expires on April 30, 2023. In October, 2018, under an amendment to the Loan Agreement, the company issued Hercules a warrant
to purchase 1,048 shares of the Company's Class B Common Stock (the "Hercules October Warrant") at an exercise price of
$143.13 per share (the "Hercules October Warrant Price"). The Hercules October Warrant is immediately exercisable and expires
on October 30, 2023. The Hercules warrants contain anti-dilutive provisions that increase the number of shares covered by the
warrants in the event the Company makes a New Issuance (as defined in the Loan Agreement) for no consideration or
consideration that is less than the Warrant Prices. The following table summarizes the warrants outstanding as of December 31,
2019 and 2018:
Warrants outstanding at the beginning of the year
New warrant issuances to Hercules
Adjustment to the Hercules warrants due to the anti-dilutive provisions
Warrants outstanding at the end of the year
2019
2018
16,051
—
479
16,530
10,913
5,138
—
16,051
F-29
The Company has classified the warrants as equity in accordance with ASC 815. The fair value of the warrants were
valued at issuance using the Black-Scholes option pricing model with the following assumptions:
Warrants exercise price
Fair value price per share of common stock
Volatility
Expected term remaining (years)
Risk-free interest rate
Discount for Lack of Marketability
Dividend yield
Fair value at initial valuation date
Underwriter
Warrants
Hercules April
Warrants
Hercules October
Warrants
$
$
$
126.50
110.00
62.0%
5.0
1.31%
20.0%
—
505,273
$
$
$
110.00
101.40
70.0%
5.0
2.79%
20.0%
—
208,369
$
$
$
143.20
114.60
70.0%
5.0
2.94%
20.0%
—
59,292
NOTE 11 – SELLING, GENERAL AND ADMINISTRATIVE
The following table summarizes the detail of selling, general and administrative expense for the years ended December
31, 2019 and 2018:
Compensation and related costs
Advertising and marketing
Professional fees
Technology development
General and administrative
2019
33,502,020
18,228,262
2,542,357
2,408,338
29,943,272
86,624,249
$
$
2018
10,656,107
11,457,572
1,788,425
1,152,108
10,909,718
35,963,930
$
$
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing activity for
the years ended December 31, 2019 and 2018:
Cash paid for interest
Convertible notes payable issued in acquisition
Issuance of shares for acquisition
2019
4,888,070
2,293,933
—
$
$
$
2018
1,226,292
—
6,652,512
$
$
$
The following table provides a reconciliation of cash and restricted cash reported within the accompanying consolidated
balance sheets that sum to the total of the same amounts shown in the accompanying consolidated statements of cash flows as of
December 31:
Cash and cash equivalents
Restricted cash (1)
Total cash, cash equivalents, and restricted cash
December 31,
2019
49,660
6,676,622
6,726,282
$
$
2018
9,134,902
6,650,000
15,784,902
$
$
(1) Amounts included in restricted cash represent the deposits required under the Company's short-term revolving facilities.
F-30
NOTE 13 – INCOME TAXES
U.S. Tax Reform
On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act, or the Act, was signed in to law. The
Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35.0% to 21.0%, requires taxpayers to pay a one-
time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain
foreign sourced earnings. On December 31, 2019, the Company did not have any foreign subsidiaries and the international aspects
of the Tax Act are not applicable.
In connection with the initial analysis of the impact of the Tax Act, the Company remeasured certain deferred tax assets
and liabilities based on the rates at which they are expected to reverse in the future, which is generally 26.1% including state
income taxes. The remeasurement of the Company's deferred tax balance was primarily offset by application of its valuation
allowance. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted in response to
the novel coronavirus (COVID-19) pandemic. The CARES Act includes numerous provisions relating to, among other things,
refundable payroll tax credits, deferment of employer portion of certain payroll taxes, net operating loss amounts and carryback
periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to
tax depreciation methods for qualified improvement property. Due to the recent enactment of the CARES Act, the Company is
currently analyzing the potential impacts of this legislation on its financial position and results of operations.
Deferred income taxes reflect the net tax effect of temporary difference between amounts recorded for financial reporting
purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating loss and interest limitation carryforward
Stock-based compensation
Accounts receivable allowance
Operating lease liabilities
Goodwill
Inventory reserve
Property and equipment
Total deferred income taxes
Deferred tax liabilities:
Property and equipment
Right-of-use assets
Goodwill
Debt discounts
Total deferred tax liabilities
Net deferred tax asset
Valuation allowance
Net deferred taxes
2019
2018
$
18,025,898
1,287,424
269,403
1,599,651
385,570
151,815
191,259
21,911,020
—
1,572,368
—
28,818
1,601,186
$
8,091,718
564,700
—
—
—
—
—
8,656,418
15,045
—
64,423
464,324
543,792
20,309,834
8,112,626
(20,309,834)
—
$
(8,112,626)
—
$
A reconciliation of the statutory U.S. Federal income tax rate to the Company's effective income tax rate on income tax
rate on continuing operations for the years ended December 31, 2019 and 2018.
U.S. Federal statutory rate
State and local, net of Federal benefit
Permanent difference
Valuation allowance
Effective tax rate
2019
2018
21.0%
5.0%
(1.1)%
(24.9)%
— %
21.0%
5.1%
(0.2)%
(25.9)%
— %
F-31
No current provision for Federal income taxes was recorded for the years ended December 31, 2019 and 2018 due to the
Company's operating losses. At December 31, 2019 and 2018, the Company has operating loss carryforwards of $66,717,013 and
$30,961,231, respectively, a portion of which begin to expire in 2033. We have provided a valuation allowance on the deferred tax
assets of $20,309,834 and $8,112,626 for the periods ended December 31, 2019 and 2018, respectively. In assessing the recovery
of the deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the
periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred
tax assets, projected future taxable income, and tax planning strategies in making this assessment.
NOTE 14 – LOSS PER SHARE
The Company computes basic and diluted net loss per share attributable to common stockholders in conformity with the
two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common
stockholders is calculated by dividing the net loss attributable to common stockholders by the weighed-average number of shares
of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed
giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation,
129,938 of RSUs, 5,087 of stock options, 16,530 of warrants to purchase shares of Class B Common Stock and 279,182 shares of
Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but have been
excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.
In connection with the Company's acquisition of Wholesale, the Company issued 1,317,329 shares of Series B Non-
Voting Convertible Preferred Stock. The rights of the holder of the Series B Preferred and Class A and Class B Common Stock are
identical, except with respect to voting. The Series B Preferred automatically converts to Class B Common Stock 21 days after the
mailing of a definitive information statement prepared in accordance with Regulation 14C of the Exchange Act, without further
action on the part of the Company, to the holders of Series B Preferred and has no expiration date. The conversion of Series B
Preferred to Class B Common was effected on March 4, 2019. The Company applies the two-class method of calculating earnings
per share, but as the rights of the Series B Non-Voting Convertible Preferred Stock and Class A and Class B Common Stock are
identical, except in respect of voting, basic and diluted earnings per share are the same for all classes. Weighted average number of
shares outstanding of Class A Common Stock, Class B Common Stock, and Series B Preferred Stock at December 31, 2019 were
50,000, 1,114,714, and 0, respectively.
NOTE 15 – RELATED PARTY TRANSACTIONS
A key component of the Company's business model is to use regional partners in the acquisition of pre-owned vehicles as
well as utilize these regional partners to provide inspection, reconditioning and distribution services. Correspondingly, the
Company will earn fees and transaction income, and the regional partner may earn incremental revenue and enhance profitability
through fees from inspection, reconditioning and distribution programs. In connection with the development of the regional partner
program, the Company tested various aspects of the program by utilizing a dealership to which Mr. Chesrown, the Company's
Chief Executive Officer has provided financing in the form of a $400,000 convertible promissory note. The note, which could be
converted into a 25.0% ownership interest in the Dealer at any time, was to mature on May 1, 2019, with interest payable monthly
at 5.0% per annum. This financing arrangement was terminated in April 2018. Revenue recognized by the Company from the
Dealer for the year ended December 31, 2018 was $619,193 or .04% of total revenue. Cost of revenue for the Company at
December 31, 2018 includes $549,813 or .04% of total cost of revenue. Included in accounts receivable at December 31, 2018 was
$40,176 owed to the Company by the Dealer.
In addition, the Company previously subleased warehouse space from the Dealer that is separate and distinct from the
location of the dealership, on the same terms as paid by the Dealer. This subleased facility serves as the northwestern regional
distribution center for the Company. The lease was terminated on June 30, 2018. For the year ended December 31, 2018, the
Company paid $90,000 in rent under the sublease.
In connection with the NextGen acquisition, the Company entered into a Services Agreement (the "Services Agreement")
with Halcyon Consulting, LLC ("Halcyon"), to provide development and support services to the Company. Mr. Kakarala currently
serves as the Chief Executive Officer of Halcyon. Pursuant to the Services Agreement, the Company paid Halcyon hourly fees for
specific services, set forth in the Services Agreement, and such fees may increase on an annual basis, provided that the rates were
not higher than 110.0% of the immediately preceding year's rates. The Company reimbursed Halcyon for any reasonable travel and
pre-approved out-of-pocket expenses in connection with its services to the Company. The Services Agreement was terminated on
March 31, 2018. For the year ended December 31, 2018 the Company paid $54,159 under the Services Agreement.
F-32
As of December 31, 2019 and 2018, the Company had promissory notes of $370,556 and accrued interest of $23,731 and
$7,939, respectively, due to Blue Flame, an entity controlled by a Denmar Dixon, a director of the Company. The promissory notes
were issued in connection with the completion of the 2016 Private Placement on March 31, 2017. Interest expense on the
promissory notes due to Blue Flame, for the years ended December 31, 2019 and 2018 was $183,286 and $143,987, respectively,
which included debt discount amortization of $144,409 and $114,404, respectively. The interest was charged to interest expense in
the Consolidated Statements of Operations. On October 30, 2018, an entity controlled by Mr. Dixon invested $243,000 in the
Private Placement for 1,500 shares of Class B Common Stock. Joseph Reece, a member of the Company's Board of Directors at
the time, individually invested $81,000 in the Private Placement for 500 shares of Class B Common Stock. These purchases were
approved by the Company's Board of Directors in accordance with Rule 16b-3(d)(1) of the Exchange Act. Messrs. Dixon and
Reece abstained from the Company's Board of Directors' vote in favor of the Private Placement.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
We determine whether an arrangement is a lease at inception and whether such leases are operating or financing leases.
For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to
extend or terminate the lease when it is reasonably certain that it will exercise that option. We use these options in determining our
right-of-use assets and lease liabilities. Our lease agreements do not contain any material residual value guarantees or material
restrictive covenants. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the
information available at commencement date in determine the present value of the lease payments.
Operating lease expense is recognized on a straight-line basis over the lease term. Total operating lease expenses for the
year ended December 31, 2019 and 2018 was $1,661,649 and $414,238, respectively. The current portion of our operating lease
liabilities as of December 31, 2019 is $1,423,610 and is included in accounts payable and accrued liabilities. The long-term portion
of our operating lease liabilities as of December 31, 2019 is $4,722,101.
The weighted-average remaining lease term and discount rate for our operating leases are as follows:
Weighted-average remaining lease term
Weighted-average discount rate
2019
4 Years
7.0%
Supplemental cash flow information related to operating leases for the year ended December 31, 2019 was as follows:
Cash payments for operating leases
New operating lease assets obtained in exchange for operating lease liabilities
$
$
2019
1,019,027
6,040,287
The following table summarizes the future minimum payments for operating leases at December 31, 2019 due in each
year ending December 31,
2020
2021
2022
2023
2024
thereafter
Total lease payments
Less imputed interest
Present value of lease liabilities
Legal Matters
$
$
1,805,899
1,785,519
1,920,543
744,370
310,200
568,700
7,135,231
(989,520)
6,145,711
From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of
business. Although the results of litigation and claims cannot be predicted with certainty, as of December 31, 2019 and 2018, the
Company does not believe that the ultimate resolution of any legal actions, either individually or in the aggregate, will have a
material adverse effect on its financial position, results of operations, liquidity, and capital resources.
F-33 Future litigation may be necessary to defend the Company by determining the scope, enforceability and validity of third-
party proprietary rights or to establish its own proprietary rights. The results of any current or future litigation cannot be predicted
with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and
settlement costs, diversion of management resources, and other factors.
NOTE 17 – CONCENTRATIONS
The Company is dependent on third-party providers of wholesale vehicle auctions. The Company is dependent on their
ability to provide services on a timely basis and at favorable pricing terms. The loss of these principal providers or a significant
reduction in service availability could have a material adverse effect on the Company. The Company believes that its relationships
with these providers are satisfactory.
NOTE 18 - SEGMENT REPORTING
Business segments are defined as components of an enterprise about which discrete financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating
performance. Our operations are organized by management into operating segments by line of business. We have determined that
we have three reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports,
(2) automotive and (3) vehicle logistics and transportation. Our powersports and automotive segments consist of the distribution of
pre-owned vehicles. The powersports segment consists of the distribution principally of motorcycles, while the automotive
segment distributes cars and trucks. Our vehicle logistics and transportation service segment provides nationwide automotive
transportation services between dealerships and auctions. Our vehicle logistics and transportation service reportable segment has
been determined to represent one operating segment and reporting unit. The accounting policies of the segments are the same and
are described in Note 1.
The following table summarizes revenue, operating income (loss), Depreciation and Amortization and interest expense
which are the measure by which management allocates resources to its segments to each of our reportable segments.
Powersports
Automotive
Vehicle
Logistics and
Transportation Eliminations(1)
Total
Year Ended
December 31, 2019
Total assets
Revenue
Operating income (loss)
Depreciation and amortization
Interest expense
Loss on early extinguishment of debt
Year Ended
December 31, 2018
Total assets
Revenue
Operating income (loss)
Depreciation and amortization
Interest expense
$ 55,992,165 $ 77,033,326 $
$ 101,008,976 $ 717,042,511
$ (34,402,724) $
1,543,023 $
$
4,453,549 $
$
(1,499,250) $
$
(5,318,549) $
235,998 $
2,732,869 $
— $
7,921,578 $ (27,553,978) $ 113,393,091
(9,353,628) $ 840,629,347
— $ (37,792,699 )
1,786,426
— $
7,187,604
— $
(1,499,250 )
— $
31,931,488 $
1,928,574 $
7,405 $
1,186 $
— $
$ 55,825,600 $ 73,642,034 $
$ 61,204,416 $ 91,369,996 $
(892,306) $
$ (22,546,622) $
24,490 $
958,282 $
$
513,306 $
1,267,379 $
$
5,555,397 $ (26,096,650) $ 108,926,381
(1,107,739) $ 156,398,231
4,931,558 $
— $ (23,401,132 )
37,796 $
984,006
— $
1,234 $
1,780,685
— $
— $
(1) Intercompany investment balances related to the acquisitions of Wholesale, Inc. and Wholesale Express, and receivables and
other balances related intercompany freight services of Wholesale Express are eliminated in the Consolidated Balance Sheets.
Revenue and costs for these intercompany freight services have been eliminated in the Consolidated Statements of Operations.
F-34
NOTE 19 – SUBSEQUENT EVENTS
Public Offering
On January 10, 2020, the Company entered into the Underwriting Agreement with the Underwriters relating to the
Company's 2020 Public Offering of the 900,000 Firm Shares and the 135,000 Additional Shares.
The Underwriters agreed to purchase the Firm Shares at a price of $11.40 per share. The Firm Shares were offered,
issued, and sold pursuant to a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective
shelf registration statement filed with the SEC on Form S-3 (Registration No. 333-234340) under the Securities Act.
On January 14, 2020, the Company issued the Firm Shares and closed the 2020 Public Offering at a public price of
$11.40 per share. On January 16, 2020, the Company received notice of the Underwriters' intent to exercise the over-allotment
option in full (the "Over-allotment Exercise"). On January 17, 2020, the Company issued the Additional Shares and closed the
Over-allotment Exercise. The Over-allotment Exercise increased the aggregate number of shares sold in the 2020 Public Offering
to 1,035,000. Including the Over-allotment Exercise, net proceeds from the 2020 Public Offering, after deducting the 7.0%
underwriter’s commission and $75,000 for underwriter expenses, were $10,898,070. Certain of the Company's officers and
directors participated in the 2020 Public Offering.
The Company intends to use the net proceeds of the 2020 Public Offering for working capital and general corporate
purposes, which may include further technology development, increased spending on marketing and advertising and capital
expenditures necessary to grow the business. Pending these uses, the Company may invest the net proceeds in short-term interest-
bearing investment grade instruments.
Convertible Note Exchange and Offer
Also on January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by the
Joinder Agreement, with the investors in the 2019 Note Offering, pursuant to which the Company agreed to complete (i) a note
exchange pursuant to which $30,000,000 of the Old Notes would be cancelled in exchange for a new series of 6.75% Convertible
Senior Notes due 2025 and (ii) the issuance of additional New Notes in a private placement in reliance on the exemption from
registration provided by Rule 506 of Regulation D of the Securities Act as a sale not involving any public offering. On January 14,
2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering after deducting for payment of
accrued interest on the Old Notes and offering-related expenses were approximately $8,272,375.
The New Notes were issued on January 14, 2020 pursuant to an Indenture (the "New Indenture"), by and between the
Company and Wilmington Trust, National Association, as trustee (the "Trustee"). The Note Agreement includes customary
representations, warranties and covenants by the Company and customary closing conditions. The New Notes bear interest at
6.75% per annum, payable semiannually on January 1 and July 1 of each year, beginning on July 1, 2020. The New Notes may
bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting obligations
under the New Indenture or if the New Notes are not freely tradeable as required by the New Indenture. The New Notes will
mature on January 1, 2025, unless earlier converted, redeemed or repurchased pursuant to their terms.
The initial conversion rate of the New Notes is 25 shares of Class B Common Stock per $1,000 principal amount of New
Notes, which is equal to an initial conversion price of $40.00 per share. The conversion rate is subject to adjustment in certain
events as set forth in the New Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the
occurrence of a "make-whole fundamental change" (as defined in the New Indenture), the Company will, in certain circumstances,
increase the conversion rate by a number of additional shares for a holder that elects to convert its New Notes in connection with
such make-whole fundamental change. Before July 1, 2024, the New Notes will be convertible only under circumstances as
described in the New Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental
change adjustment will result in a conversion rate greater than 62.0 shares per $1,000 in principal amount.
The New Indenture contains a "blocker provision" which provides that no holder (other than the depositary with respect
to the notes) or beneficial owner of a New Note shall have the right to receive shares of the Class B Common Stock upon
conversion to the extent that, following receipt of such shares, such holder or beneficial owner would be the beneficial owner of
more than 4.99% of the outstanding shares of the Class B Common Stock.
The New Notes are not redeemable by the Company before the January 14, 2023. The Company may redeem for cash all
or any portion of the New Notes, at its option, on or after January 14, 2023 if the last reported sale price of the Class B Common
Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive),
including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30
consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company
F-35
provides notice of redemption at a redemption price equal to 100.0% of the principal amount of the notes to be redeemed, plus
accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.
The New Notes rank senior in right of payment to any of the Company's indebtedness that is expressly subordinated in
right of payment to the New Notes; equal in right of payment to any of the Company's unsecured indebtedness that is not so
subordinated; effectively junior in right of payment to any of the Company's secured indebtedness to the extent of the value of the
assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future subsidiaries of
the Company (including trade payables).
The New Notes are subject to events of default typical for this type of instrument. If an event of default, other than an
event of default in connection with certain events of bankruptcy, insolvency or reorganization of the Company or any significant
subsidiary, occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of
the outstanding New Notes by notice to the Company and the Trustee, may declare 100.0% of the principal of and accrued and
unpaid interest, if any, on all the New Notes then outstanding to be due and payable.
In connection with the 2020 Note Offering, on January 14, 2020, the Company entered into a registration rights
agreement with the Note Investors, pursuant to which the Company has agreed to file with the SEC a shelf registration statement
registering the sale, on a continuous or delayed basis, of all of the New Notes and to use its commercially reasonable efforts to
cause the shelf registration statement to become or be declared effective under the Securities Act no later than the day that is 120
days after January 14, 2020.
Investor Note Exchange
Also, in connection with the closing of the 2020 Public Offering and the 2020 Note Offering, the Company repaid
$500,000 plus accrued interest related to the note payable to Halcyon, and certain of the Company's investors extended the
maturity of currently outstanding promissory notes, and exchanged such notes for the New Investor Notes, pursuant to the Investor
Note Exchange Agreement, by and between the Company and each Investor, including Halcyon, an entity affiliated with Kartik
Kakarala, a director of the Company, such New Investor Note for an aggregate principal amount of $833,333, Blue Flame, an
entity affiliated with Denmar Dixon, a director of the Company, such New Investor Note for an aggregate principal amount of
$99,114 and Mr. Dixon, individually, such New Investor Note for an aggregate principal amount of $272,563. The New Investor
Notes, having an aggregate principal amount of approximately $1,502,352, will mature on January 31, 2021, and will be
convertible at any time at the Investor's option at a price of $60.00 per share. In connection with the issuance of the New Investor
Notes, the Company also entered into a Security Agreement, dated as of January 14, 2020 with the Investors, pursuant to which the
Company granted to the Investors a security interest in certain collateral to secure, on a pro rata basis based on the percentage
equal to the amount of principal outstanding on each New Investor Note divided by the amount of principal outstanding on all of
the New Investor Notes to each Investor.
The New Investor Notes and the New Notes were sold to the investors pursuant to the Investor Note Exchange Agreement
and the Note Agreement, respectively, in a private placement in reliance on the exemption from registration provided by Rule 506
of Regulation D of the Securities Act as a sale not involving any public offering. To the extent that any shares of Class B Common
Stock are issued upon conversion of the New Investor Notes and the New Notes, they will be issued in transactions anticipated to
be exempt from registration under the Securities Act by virtue of Section 3(a)(9) thereof, because no commission or other
remuneration is expected to be paid in connection with conversion of the New Investor Notes and the New Notes, and any
resulting issuance of shares of Class B Common Stock.
Nasdaq Notices
On January 17, 2020, the Company received a notice from the Listing Qualifications department of the Nasdaq Stock
Market ("Nasdaq") indicating that the Company is not in compliance with the minimum bid price requirement of $1.00 per share
set forth in Nasdaq Listing Rule 5450(a)(1) based upon the closing bid price for the 30 consecutive business days ended January
16, 2020. The Nasdaq notice does not impact the Company's listing at this time and the Company's stock will continue to trade on
Nasdaq while the Company works to regain compliance with the Nasdaq.
As a result of the Reverse Stock Split, as defined below, the Company believes it has regained compliance with Rule
5450(a)(1).
F-36
Nashville Tornado
In the early morning hours of March 3, 2020, a severe tornado struck the greater Nashville area causing significant
damage to the Company's facilities in Nashville. The Company maintains insurance coverage for damage to its facilities and
inventory, as well as business interruption insurance. The Company continues in the process of reviewing damages and coverages
with its insurance carriers. The loss comprises three components: (1) inventory loss, currently assessed by the insurance carrier at
approximately $13,000,000; (2) building and personal property loss, primarily impacting our leased facilities, currently assessed
by the insurance carrier at $3,369,087; and (3) loss of business income, for which the company has coverage in the amount of
$6,000,000.
All three components of the Company's loss claim have been submitted to its insurers. The Company's inventory claim is
subject to a dispute with the carrier as to the policy limits applicable to the loss. The building insurer has agreed to pay $3,369,087
on the building and personal property loss, reflecting a complete recovery, net of $5,000 reflecting the Company's deductible. The
insurer has made an interim payment on the building and personal property loss of $2,269,507 and has an outstanding balance of
$1,094,580 which is expected to be paid during the second quarter of 2020. The loss of business income claim is ongoing and
remains in the process of negotiation, however, the insurer has advanced $250,000 against the final settlement. The Company
believes there will be a full recovery of all three loss components, however no assurance can be given regarding the amounts, if
any, that will be ultimately recovered.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and
recommended containment and mitigation measures worldwide. The global outbreak of COVID-19 has led to severe disruptions in
general economic activities, particularly retail operations, as businesses and federal, state, and local governments take increasingly
broad actions to mitigate this public health crisis. The Company has experienced significant disruption to its business, both in
terms of disruption of its operations and the adverse effect on overall economic conditions. These conditions will significantly
negatively impact all aspects of the Company’s business. The Company’s business is also dependent on the continued health and
productivity of its associates throughout this crisis. Individually and collectively, the Company expects the consequences of the
COVID-19 outbreak will likely have a significant negative impact on its business, sales, results of operations, financial condition,
and liquidity.
The COVID-19 situation has created an unprecedented and challenging time. The Company’s current focus is on
positioning the Company for a strong recovery when this crisis is over. The Company has taken steps to reduce its inventory and
align its operating expenses to the state of the business. The Company plans to continue to operate as permitted to support its
customers’ needs for reliable vehicles and to provide as many jobs as possible for its associates. Effective April 9, 2020, 169
associates were temporarily laid-off, however the Company’s receipt of PPP funds, as discussed below will allow it to gradually
recall these associates over time. All ongoing employment determinations are subject to change due to the COVID-19 situation
future government mandates, as well as future business conditions. The Company will continue to monitor the COVID-19
situation and look for ways to preserve cash and reduce its operating expenses as the Company is able, however, the Company
expects the consequences of the COVID-19 outbreak will likely have a significant negative impact on its business, sales, results of
operations, financial condition, and liquidity.
PPP Loan
On May 1, 2020, the Company, and its wholly-owned subsidiaries Wholesale, Inc. and Wholesale Express, LLC
(together, the “Subsidiaries,” and with the Company, the “Borrowers”), each entered into loan agreements and related promissory
notes (the “SBA Loan Documents”) to receive U.S. Small Business Administration Loans (the “SBA Loans”) pursuant to the
Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”), in the aggregate amount of $5,176,845 (the “Loan Proceeds”). The Borrowers received the Loan Proceeds on May
1, 2020. Under the SBA Loan Documents, the SBA Loans have a fixed interest rate of 1%, repayment begins six months from the
date of disbursement of each SBA Loan, and the SBA Loans mature two years from the date of first disbursement. There is no
prepayment penalty.
Pursuant to the terms of the SBA Loan Documents, the Borrowers may apply for forgiveness of the amount due on the
SBA Loans in an amount equal to the sum of the following costs incurred by the Borrowers during the eight-week period (or any
other period that may be authorized by the U.S. Small Business Administration) beginning on the date of first disbursement of the
SBA Loans: payroll costs, any payment of interest on a covered mortgage obligation, payment on a covered rent obligation, and
any covered utility payment. The amount of SBA Loan forgiveness shall be calculated in accordance with the requirements of the
PPP, including the provisions of Section 1106 of the CARES Act, although no more than 25% of the amount forgiven can be
attributable to non-payroll costs. No assurance is provided that forgiveness for any portion of the SBA Loans will be obtained.
F-37 The promissory notes evidencing the SBA Loans contain customary events of default relating to, among other things,
payment defaults, breach of representations and warranties, or provisions of the promissory notes. The occurrence of an event of
default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Borrowers, and/or filing
suit and obtaining judgment against the Borrowers.
Reverse Stock Split
On May 18, 2020, the Company filed a Certificate of Change to the Company’s Articles of Incorporation with the
Secretary of State of the State of Nevada to effect a one-for-twenty reverse stock split of its issued and outstanding Class A
Common Stock and Class B Common Stock (the “Reverse Stock Split”). The Reverse Stock Split was effective at 12:01 a.m.,
Eastern Time, on May 20, 2020. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that
would have resulted from the Reverse Stock Split were rounded up to the nearest whole share. The authorized preferred stock of
the Company was not impacted by the Reverse Stock Split. Following the Reverse Stock Split, the Company has outstanding
50,000 shares of Class A Common Stock and approximately 2,162,696 shares of Class B Common Stock. On May 20, 2020, the
Company’s Class B Common Stock commenced trading on the Nasdaq Capital Market on a split-adjusted basis. The Company has
retrospectively adjusted the 2018 and 2019 financial statements for loss per share and share amounts as a result of the reverse stock
split.
F-38 CERTIFICATION
Exhibit 31.1
I, Marshall Chesrown, certify that:
(1) I have reviewed this Annual Report on Form 10-K of RumbleOn, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
May 29, 2020
By:
/s/ Marshall Chesrown
Marshall Chesrown
Chairman and Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Steven R. Berrard, certify that:
(1) I have reviewed this Annual Report on Form 10-K of RumbleOn, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
May 29, 2020
By:
/s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
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, 2019, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge and
belief, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
May 29, 2020
By:
/s/ Marshall Chesrown
Marshall Chesrown
Chairman and Chief Executive Officer
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, 2019, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge and
belief, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
May 29, 2020
By: /s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
(cid:3)
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(cid:36)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:7)(cid:25)(cid:28)(cid:17)(cid:23)(cid:3)
(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
(cid:3)(cid:3)
(cid:55)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3)(cid:37)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:7)(cid:19)(cid:17)(cid:19)(cid:19)(cid:20)(cid:3)(cid:83)(cid:68)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:15)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:68)(cid:92)(cid:3)(cid:21)(cid:25)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:21)(cid:15)(cid:20)(cid:25)(cid:21)(cid:15)(cid:26)(cid:20)(cid:25)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:24)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3)(cid:36)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:7)(cid:19)(cid:17)(cid:19)(cid:19)(cid:20)(cid:3)(cid:83)(cid:68)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:48)(cid:68)(cid:92)(cid:3)(cid:21)(cid:25)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)
(cid:3)
EXPLANATORY NOTE
RumbleOn, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (this “Form 10-K/A”) to its original
Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission’s
(“SEC”) on May 29, 2020 (the “Form 10-K”) solely to disclose that the Company filed the Form 10-K after the March 30, 2020
deadline in reliance on the Commission’s Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions
from the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) (the
“Order”) to delay the filing of the Form 10-K due to circumstances related to the coronavirus (COVID-19) pandemic.
This Form 10-K/A is being filed to include the disclosure below in accordance with the Order and to include updated
certifications.
On March 30, 2020, the Company filed a Current Report on Form 8-K to announce that the Company’s operations and
business have experienced disruption due to the unprecedented conditions surrounding the coronavirus (COVID-19) pandemic
spreading throughout the United States, and management was unable to timely review and prepare the Annual Report. As a result,
the Company indicated its intent to delay the filing of the Annual Report in reliance on the SEC March 25, 2020 Order (which
extended and superseded a prior order issued on March 4, 2020), pursuant to the Order, which allows for the delay of certain filings
required under the Exchange Act. Also, on May 14, 2020, the Company filed a Form 12b-25 indicating that it was unable to timely
file the Form 10-K by May 14, 2020 and that it anticipated filing the Form 10-K within the fifteen day extension period covered by
Rule 12b-25. The Company relied on the Order and Rule 12b-25 for the filing of the Form 10-K.
Except as described above, this Form 10-K/A does not amend, update or change any other items or disclosure in the Form
10-K or reflect events that occurred after the date of the Form 10-K. Therefore, this Form 10-K/A should be read in conjunction with
the Form 10-K and the Company’s other filings made with the SEC subsequent to the filing of the Form 10-K.
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. The financial statements listed in the "Index to Financial Statements" on page F-1 are filed as part of this report.
2. Financial statement schedules are omitted because they are not applicable, or the required information is shown in the
financial statements or notes thereto.
3. Exhibits included or incorporated herein: See below.
Exhibit
Number Description
2.1
Agreement and Plan of Merger, dated October 26, 2018, by and among RumbleOn, Inc., RMBL Tennessee, LLC,
Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster as representative,
and for limited purposes, Marshall Chesrown and Steven R. Berrard.
(Incorporated by reference to Exhibit 2.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
2.2
Amendment to the Agreement and Plan of Merger, dated October 29, 2018, by and among RumbleOn, Inc., RMBL
Tennessee, LLC, Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster
as representative (Incorporated by reference to Exhibit 2.2 in the Company's Current Report on Form 8-K, filed on
October 31, 2018).
Membership Interest Purchase Agreement, dated October 26, 2018, by and among RumbleOn, Inc. Steven Brewster,
Justin Becker, and Steven Brewster as representative. (Incorporated by reference to Exhibit 2.3 in the Company's
Current Report on Form 8-K, filed on October 31, 2018).
Articles of Incorporation filed on October 24, 2013 (Incorporated by reference to Exhibit 3(i)(a) in the Company's
Registration Statement on Form S-1/A, filed on March 20, 2014).
By-Laws, as Amended (Incorporated by reference to Exhibit 3.2 in the Company's Annual Report on Form 10-K, filed
on February 14, 2017).
Certificate of Amendment to Articles of Incorporation, filed on February 13, 2017 (Incorporated by reference to Exhibit
3.3 in the Company's Annual Report on Form 10-K, filed on February 14, 2017).
Certificate of Amendment to Articles of Incorporation, filed on June 25, 2018 (Incorporated by reference to Exhibit 3.1
in the Company's Current Report on Form 8-K, filed on June 28, 2018).
Certificate of Designation for the Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 in the Company's
Current Report on Form 8-K, filed on October 31, 2018).
Amended and Restated Stockholders Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.1 in
the Company's Annual Report on Form 10-K, filed on February 14, 2017).
Registration Rights Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.2 in the Company's
Annual Report on Form 10-K, filed on February 14, 2017).
Stockholder's Agreement, dated October 24, 2016 (Incorporated by reference to Exhibit 10.1 in the Company's Current
Report on Form 8-K, filed on October 28, 2016).
Sample Stock Certificate – Class B Common Stock (Incorporated by reference to Exhibit 4.4 in the Company's
Registration Statement on Form S-1/A filed on September 27, 2017).
Form of Warrant to Purchase Class B Common Stock, dated October 18, 2017 (Incorporated by reference to Exhibit 4.1
in the Company's Current Report on Form 8-K, filed October 24, 2017).
Warrant, dated April 30, 2018 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K,
filed on May 1, 2018).
Warrant to Purchase Class B Common Stock, dated October 30, 2018 (Incorporated by reference to Exhibit 4.1 in the
Company's Current Report on Form 8-K, filed on October 31, 2018).
Indenture, dated May 14, 2019, between RumbleOn, Inc. and Wilmington Trust National Association (Incorporated by
reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
Form of 6.75% Convertible Senior Note due 2024 (included as Exhibit A to the Indenture filed as Exhibit 4.8)
(Incorporated by reference to Exhibit 4.2 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
2.3
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Registration Rights Agreement, dated May 14, 2019, between the Company and JMP Securities LLC (Incorporated by
reference to Exhibit 4.3 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
4.11*
10.1
Description of Registrant's Securities.
2017 RumbleOn, Inc. Stock Incentive Plan + (Incorporated by reference to Exhibit 10.1 in the Company's Current
Report on Form 8-K, filed on January 9, 2017).
10.2
Unconditional Guaranty Agreement (Incorporated by reference to Exhibit 10.12 in the Company's Annual Report on
Form 10-K, filed on February 14, 2017).
10.3
Security Agreement (Incorporated by reference to Exhibit 10.13 the Company's Annual Report on Form 10-K, filed on
February 14, 2017).
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
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).
Inventory Financing and Security Agreement, by and among RMBL Missouri, LLC, Ally Bank and Ally Financial, Inc.,
dated February 16, 2018 (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed
on February 23, 2018).
Addendum to Inventory Financing and Security Agreement, by and among RMBL Missouri, LLC, Ally Bank and Ally
Financial, Inc., dated February 16, 2018 (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on
Form 8-K, filed on February 23, 2018).
Cross Collateral, Cross Default and Guaranty Agreement, by and among Ally Bank, Ally Financial, Inc., RumbleOn,
Inc., and RMBL Missouri, LLC, dated February 16, 2018 (Incorporated by reference to Exhibit 10.3 in the Company's
Current Report on Form 8-K, filed on February 23, 2018).
General Security Agreement, by and among RumbleOn, Inc., Ally Bank and Ally Financial, Inc., dated February 16,
2018 (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on February 23,
2018).
Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. + (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on June 28, 2018).
Registration Rights Agreement, dated October 30, 2018, by and among RumbleOn, Inc., Steven Brewster and Janet
Brewster, and Steven Brewster as representative (Incorporated by reference to Exhibit 10.1 in the Company's Current
Report on Form 8-K, filed on October 31, 2018).
Escrow Agreement, dated October 30, 2018, by and among RumbleOn, Inc., Steven Brewster as representative, and
Continental Stock Transfer and Trust Company (Incorporated by reference to Exhibit 10.2 in the Company's Current
Report on Form 8-K, filed on October 31, 2018).
Demand Promissory Note and Loan and Security Agreement, dated October 30, 2018, by and between NextGear
Capital, Inc. and Wholesale, LLC (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form
8-K, filed on October 31, 2018).
Corporate Guaranty, in favor of NextGear Capital, Inc., dated October 30, 2018 (Incorporated by reference to Exhibit
10.5 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
Form of Securities Purchase Agreement, dated October 25, 2018(Incorporated by reference to Exhibit 10.6 in the
Company's Current Report on Form 8-K, filed on October 31, 2018).
Purchase Agreement, dated May 9, 2019, between the Company and JMP Securities LLC (Incorporated by reference to
Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
Form of Securities Purchase Agreement, dated May 9, 2019 (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on May 15, 2019).
Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. + (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on May 22, 2019).
Subsidiaries
Consent of Grant Thornton LLP
Consent of Scharf Pera & Co., PLLC
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
21.1*
23.1*
23.2 *
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.
* Previously filed with the Form 10-K filed on May 29, 2020.
** Furnished herewith
+ Management Compensatory Plan
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: June 2, 2020
RumbleOn, Inc.
By:
/s/ Steven R. Berrard
Steven R. Berrard
Director and Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
CERTIFICATION
Exhibit 31.1
I, Marshall Chesrown, certify that:
(1) I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of RumbleOn, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
June 2, 2020
By:
/s/ Marshall Chesrown
Marshall Chesrown
Chairman and Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Steven R. Berrard, certify that:
(1) I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of RumbleOn, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
June 2, 2020
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 this Amendment No. 1 to the Annual Report on Form 10-K of RumbleOn, Inc. (the "Company") for the
year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge and belief, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
June 2, 2020
By:
/s/ Marshall Chesrown
Marshall Chesrown
Chairman and Chief Executive
Officer
Exhibit 32.2
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Amendment No. 1 to the Annual Report on Form 10-K of RumbleOn, Inc. (the "Company") for the
year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge and belief, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
June 2, 2020
By:
/s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
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BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS
Marshall Chesrown
Chairman of the Board and Founder
Co-Founder and COO of Vroom, Inc; SVP of Retail
Operations for AutoNation; President - Chesrown
Automotive Group.
Steven R. Berrard
Founder
CEO and Board Member of multiple public
and private companies, including AutoNation,
Blockbuster, Viacom, and Jamba.
Adam Alexander
Co-Founder, CA Global Partners
Full-service auction and liquidation company
managing auction and liquidation projects
globally.
Denmar Dixon
Managing Partner, Blue Flame Capital, LLC
CEO & Vice-Chairman of the Board, Walter
Investment; Twenty plus years in Investment
Banking, including Global Head of Basic
Industries with Banc of America Securities
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EXECUTIVE OFFICERS
Marshall Chesrown
Chief Executive Officer
Steven R. Berrard
Chief Financial Officer
Peter Levy
Chief Operating Officer
ANNUAL MEETING
The annual meeting will be held on Tuesday, August 25,
2020 at 9:00 AM Eastern Time, at 4521 Sharon Road,
Suite 370, Charlotte, North Carolina 28211.
INVESTOR RELATIONS
Shareholders are advised to review financial information
and other disclosures about RumbleOn contained in its
2019 Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Proxy Statement and other SEC filings, as
well as press releases and earnings announcements by
accessing the Company's website at https://investors.
rumbleon.com or at www.sec.gov.
Richard A. Gray Jr.
President, Gray & Co. Realtors, Inc.
Commercial real estate investment, development
and management; fund raising for technology
companies, and land brokerage.
Michael Marchlik
CEO of Advisory & Valuations division of Great American Group
Nearly two and a half decades of experience in all
segments of the asset disposition and
valuation industries.
Kevin Westfall
Independent Consultant
Co-Founder and CEO of Vroom, Inc.; SVP of Sales
and Finance at AutoNation; Founder and President
BMW Financial Services.
*Italics represent prior experience.
INVESTOR INQUIRIES SHOULD BE DIRECTED TO
INDEPENDENT AUDITORS
The Blueshirt Group:
Whitney Kukulka
investors@rumbleon.com
Grant Thornton, LLP
TRANSFER AGENT
West Coast Stock Transfer, Inc.