2020 ANNUAL REPORT
Letter to Shareholders
Marshall Chesrown,
Co-founder, Chairman &
Chief Executive Officer
Dear Shareholders,
2020 marked another momentous year for RumbleOn in many ways. Our results demonstrated
measurable progress on our objectives to expand our offering, while improving our margin
profile and bottom line. We delivered over $416 million in revenue in 2020, drove significant
improvements to gross margin, and achieved our first net income positive quarter in Q3 of
2020, an objective we set forth in 2019. Despite the devastating tornado that hit our Nashville
facility in March of 2020, the COVID-19 pandemic and unprecedented economic uncertainty, we
accomplished our goals and exited the year in a better financial position than when we entered it.
The prescriptive steps we took to improve margins and expand our offering in 2020 cemented
RumbleOn as a powersports leader in the United States and enabled us to pursue and complete
our business combination with the largest powersports dealer group in the country, RideNow.
Upon completion of the acquisition in August, RumbleOn became the first omnichannel customer
experience in powersports. RideNow’s extensive geographic footprint of 45 full-service locations
across 11 states and strong retail brand, combined with RumbleOn’s technology platform and
access to pre-owned inventory will make powersport vehicles more accessible to both the
enthusiasts and the first time buyers nationwide. Becoming the first omnichannel experience in
powersports enables us to utilize tech-driven nationwide inventory aggregation and leverage our
e-commerce presence and physical locations to drive sales wherever our customers want to shop.
We have come a very long way since launching RumbleOn in 2017. I am very proud of our
accomplishments and I am excited for what lies ahead.
Sincerely,
Marshall Chesrown
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 2020 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.
IN MEMORIAM
STEVEN R. BERRARD
1954 - 2021
Of course so much of the success RumbleOn
has achieved has been made possible through
the tremendous knowledge, experience, and
contributions of our good friend, Co-founder,
Director and Chief Financial Officer Steve Berrard,
who passed unexpectedly in June.
Steve was a true visionary and a larger than
life figure who brought humor, dedication,
and unparalleled business acumen to every
endeavor he undertook.
Steve’s legacy and business prowess is part of
everything we do at RumbleOn. He was, and
always will be, the symbol of RumbleOn’s core
values and dedication to our employees, our
partners, our investors and stockholders, and of
course, to the powersports enthusiasts who
embrace our mission. Thank you Steve for your
service to RumbleOn. You are missed and well
remembered.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to________________
Commission file number 001-38248
RumbleOn, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
901 W Walnut Hill Lane
Irving TX
(Address of Principal Executive Offices)
46-3951329
(I.R.S. Employer
Identification No.)
75038
(Zip Code)
(214) 771-9952
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Trading Symbol(s)
RMBL
Name of exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020, the aggregate market value of shares of common stock held by non-affiliates of the registrant was approximately
$17.5 million.
The number of shares of Class B Common Stock, $0.001 par value, outstanding on March 26, 2021 was 2,286,404 shares. In addition,
50,000 shares of Class A Common Stock, $0.001 par value, were outstanding on March 26, 2021.
RUMBLEON, INC.
Table of Contents to Annual Report on Form 10-K
for the Year Ended December 31, 2020
PART I
Business.
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments.
Item 2.
Item 3.
Item 4. Mine Safety Disclosures.
Properties.
Legal Proceedings.
PART II
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Item 9.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Item 16. Form 10-K Summary.
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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 as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements may appear throughout this Annual Report on Form 10-K, 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.
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.
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 August 2020,
we launched RumbleOn 3.0, bringing traditional brick and mortar powersports dealers across the country online. Then, in
March 2021, we announced a definitive agreement to combine our ecommerce platform with the RideNow powersports group,
the nation's largest powersports retailer. Completion of this transaction is subject to a number of conditions, but we expect to
close the business combination during the second or third quarter of 2021.
Recent Developments
RideNow Transaction
On March 12, 2021, we announced a definitive agreement to combine with the RideNow dealership group, the nation’s
largest powersports retailer, to create the only omnichannel customer experience in powersports and the largest publicly traded
powersports dealership platform (the “RideNow Transaction”). Under the terms of the definitive agreement, we will combine
with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4
million of cash and approximately 5.8 million shares of our Class B Common Stock. We will finance the cash consideration
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through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. We have has
entered into a commitment letter with Oaktree Capital Management, L.P. (“Oaktree”) to provide for the debt financing, subject
to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as
described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity
financing, RumbleOn stockholder approval, manufacturer approval, other federal and state regulatory approvals, and other
customary closing conditions as described in the definitive agreement. We expect to close the RideNow Transaction during the
second or third quarter of 2021. The foregoing description of the definitive agreement and debt financing does not purport to
be complete and is subject to, and qualified in its entirety by, the full text of the Plan of Merger and Equity Purchase Agreement,
dated March 12, 2021, Registration Rights and Lock-Up Agreement, dated March 12, 2021, Commitment Letter, dated March
12, 2021, and Warrant, dated March 12, 2021, copies of which are incorporated by reference to this report as Exhibits 2.4,
10.33, 10.31 and 4.11. See the section titled Subsequent Events in the MD&A included in this report for a discussion of the
RideNow Transaction and Oaktree Financing.
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 APIs 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.
We announced the launch of RumbleOn 3.0 in August of 2020. At that time, we had more than 18,000 powersport listings on
our site, from over 130 dealer locations around the country. We’ve since massively scaled the offering, and currently have
more than 50,000 listings from over 300 dealer locations from coast to coast on our platform.
The business combination with RideNow is a natural evolution of our RumbleOn 3.0 strategy. This combination will
create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership
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platform. With more than 7,000 powersports dealers in the US and 85% of these dealers who own only a single location, this
industry remains ripe for consolidation. Our technology, OEM relationships, winning culture and new financial partners make
us the partner of choice for dealers around the country. Many of them, like RideNow, will get to know us through RumbleOn
3.0.
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.
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
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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.
Wholesale Inc. and GotSpeed (formerly known as 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 Automotive News.
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
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these, 87% of these were on-highway models, our initial targeted segment. According to the Powersports Business 2020 Market
Data Book, pre-owned motorcycle registrations were 1 million units in 2019 with new unit sales of approximately 281,179.
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.
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
“other" 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 “other" 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 “other" 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.
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 the Powersports Business 2020 Market Data Book, approximately 930,000 ATV/UTV/side-by-
sides and 55,000 snowmobiles sold world-wide in 2019, 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 Powersports Business 2020 Market Data
Book, in 2019 there were more than 73,000 new PWCs sold in the United States and there are currently more than 1.2 million
PWCs registered in the United States.
During the third quarter of 2020 we launched RumbleOn.com version 3.0 consistent with our plan to allow dealers to
leverage our marketplace to list their inventory and receive corresponding leads for future fees for things such as cash offers,
pre-qualification for lending and many others both present and future. At the request of many dealers and as part of the 3.0
launch, we also released our highly anticipated B2B powersports dealer only marketplace we call Dealer Direct, which enabled
us to be the first to offer a pure online solution for dealer-to-dealer transactions in powersports. This online dealer platform has
proven to be extremely successful for dealers in the auto segment through a host of providers and, while in the early stages, in
2020 we enrolled in excess of 200 dealers with over 40,000 available listings. Dealer Direct has not only allowed for higher
margins on our owned inventory distribution but in future periods will allow for revenue from multiple transaction fees charged
to dealers. By aggregating inventory on 3.0 from across the country, we are able to offer dealers access to our host of software
solutions to improve their business and put them in a position to participate in pure online transactions and while increase our
reach with valuable content and data from the site.
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 sales 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 web 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 vehicle sales 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 powersports, automobiles and light trucks, 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
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large number of new and used vehicles being sold each year, coupled with the relatively small market share of any single used
vehicle 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
On March 3, 2020, a severe tornado struck the greater Nashville area causing significant damage to our facilities
including contents and inventory held for sale. The Company maintains insurance coverage for damage to its facilities and
inventory, as well as business interruption insurance. The loss 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 $2,783,000; 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. The Company’s inventory claim is subject
to a dispute with the carrier as to the policy limits applicable to the loss; however, the insurer has advanced $5,615,268 against
the final settlement. The building insurer has agreed to pay $2,778,000 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 to the landlord. The loss of business income claim is ongoing and remains in the process
of negotiation, however, the insurer has advanced $250,000 against the final settlement. The Company believes there will be a
recovery of all three loss components, however no assurance can be given regarding the amounts, if any, that will be ultimately
recovered or when any such recoveries will be made.
COVID-19 Pandemic
The rapid spread of COVID-19 since March 2020 has resulted in authorities implementing numerous measures to try
to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures
have impacted and may further impact all or portions of our workforce and operations, the behavior of our customers, and the
operations of our partners, vendors, and suppliers. While the federal and state governments have taken measures to try to
contain the COVID-19 pandemic, there is considerable uncertainty regarding such measures and potential future measures. The
COVID-19 situation has created an unprecedented and challenging time for our Company. Our current focus is on positioning
the Company for a strong recovery when this crisis is over. During 2020 we took 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; however, in April 2020 we laid-off 169 associates.
Future restrictions on our access to and utilization of our logistics and distribution network, our corporate offices, the inspection
and reconditioning centers of our partners, and/or our support operations or workforce, or similar limitations for our partners,
vendors, or suppliers, and restrictions or disruptions of transportation, could further limit our ability to conduct our business
and have a material adverse effect on our business, operating results, financial condition and prospects. There is no certainty
that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and
our ability to perform critical functions could be harmed.
Outlook
The COVID-19 pandemic effect on commercial activity and the significant damage sustained to our wholesale
automotive business from a tornado in early March 2020 had a significant negative impact on the growth in unit volume and
revenue for our powersports, automotive and transportation businesses for the year ended December 31, 2020. Based on the
evolving aspects of COVID-19 and uncertainty surrounding its future development, it may continue to have a negative impact
on unit volumes and revenue in future periods. Since the significant decrease in demand experienced in early March through
mid-April, we have seen monthly unit sales and revenue increase sequentially month-over-month through July 2020. However,
during the six-month period ended December 31, 2020, our average days to sale decreased and average selling prices increased
as dealers saw high industry-wide market prices. The effect of these higher market prices resulted in lower levels of inventory
available to purchase for resale causing a decline in unit sales beginning in September as compared to July and August. This
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supply and demand imbalance continued to impact the historically seasonally adjusted fourth quarter volume, particularly given
the worldwide rise in COVID-19 cases. As the impact of COVID-19 abates over time, we anticipate that unit purchasing levels
and sales will return to or exceed levels experienced in the first quarter of 2020 as we increase penetration in existing markets
and add new dealers, however we can provide no assurance as to when and how quickly COVID-19 impacts will continue to
abate or if spikes in COVID-19 infections will further negatively impact the economy generally or our business.
The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations, financial
condition, and liquidity will depend on the success of the roll out of the vaccines and the efficacy of the vaccines and other
future developments, which are highly uncertain and cannot be predicted. 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.
Intellectual Property and Proprietary Rights
Our brand image and intellectual property are an important element of our business strategy. As of December 31,
2020, we have a trademark registration for "RumbleOn" in the United States as well as with the Madrid Protocol, 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.
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
7
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, 2020, we had approximately 157 full time and two 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").
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.
8
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.
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
9
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, 2020, there have
been no payments earned under the performance thresholds and, as of the date of this filing, the Seller’s right to any earnout
payments has expired.
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
Described below are certain risks to our business and the industry in which we operate. You should carefully consider
the risks described below, together with the financial and other information contained in this Annual Report on Form 10-K
and in our other public disclosures. If any of the following risks actually occurs, our business, financial condition, results of
operations, cash flows and prospects could be materially and adversely affected. As a result, our future results could differ
materially from historical results and from guidance we may provide regarding our expectations of our future financial
performance, and the trading price of our Class B common stock could decline.
Risk Factors Summary
The following is a summary of the principal factors that make an investment in our securities speculative or risky, all
of which are more fully described below in this section. This summary should be read in conjunction with the full description
of "Risk Factors" in this section and should not be relied upon as an exhaustive summary of the material risks facing our
business. In addition to the following summary and the information in this section, you should consider the other information
contained in this Annual Report on Form 10-K before investing in our securities.
Risks Related to Our Business
● We continue to develop and expand our business and these investments may not result in successful growth of our
business.
● The development 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 may require additional capital to pursue our business objectives and respond to business opportunities, challenges
or unforeseen circumstances. If capital is not available on terms acceptable to us or at all, we may not be able to develop
and grow our business as anticipated and our business, operating results and financial condition may be harmed.
● The success of our business relies heavily on our marketing and branding efforts, especially with respect to the
RumbleOn website and our branded mobile applications, and these efforts may not be successful.
● The failure to develop and maintain our brand could harm our ability to grow unique visitor traffic and to expand our
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.
10
● 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 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.
● 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.
● Failure to adequately protect our intellectual property 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 ongoing effects of COVID-19 may have a significant negative impact on our business, sales, results of operations,
financial condition, and liquidity.
Risks Related to the RideNow Transaction
● Completion of the RideNow Transaction is subject to the conditions contained in the RideNow Agreement and if these
conditions are not satisfied, the RideNow Transaction will not be completed.
● Failure to complete the RideNow Transaction could negatively impact our stock price and our future business and
financial results.
● The RideNow Transaction will involve substantial costs.
●
In connection with the RideNow Transaction, we will incur additional indebtedness, which could adversely affect us,
including our business flexibility and will increase our interest expense.
Risks Related to Ownership of our Class B 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 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.
11
●
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.
Risks Related to the Company's 6.75% Convertible Senior Notes due 2025 (the "Notes")
● 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.
● 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.
● Certain provisions in the indenture governing the Notes may delay or make it more expensive for a third party to acquire
us.
Risks Related to Our Business
We continue to develop and expand our business and these investments may not result in successful growth 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 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;
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●
●
future accounting pronouncements or changes in our accounting policies; and
the changing and volatile U.S., European and global economic environments.
If our annual or quarterly operating results fall below the expectations of investors or securities analysts, the price of
our Class B Common Stock could decline substantially. Furthermore, any annual or quarterly fluctuations in our operating
results may, in turn, cause the price of our stock to fluctuate substantially. We believe that annual and quarterly comparisons
of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
The development 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 make investments for future growth and we
expect 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 significant demands on our management and our operational and
financial resources. As we grow, we expect to hire additional personnel. Also, our organizational structure will become more
complex as we add additional staff, and we will need to ensure we adequately develop and maintain operational, financial and
management controls as well as our reporting systems and procedures.
We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or
unforeseen circumstances. If capital is not available on terms acceptable to us or at all, we may not be able to develop and
grow our business as anticipated and our business, operating results and financial condition may be harmed.
We intend to continue to make investments to support the development and growth of our business and, we may
require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen
circumstances. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However,
additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Volatility in the credit
markets may also have an adverse effect on our ability to obtain debt financing. Also, the incurrence of leverage, the debt
service requirements resulting therefrom, and the possibility of a need for financing or any additional financing could have
important and negative consequences, including the following: (a) the Company's ability to obtain additional financing for
working capital, capital expenditures, or general corporate or other purposes may be impaired in the future; (b) certain future
borrowings may be at variable rates of interest, which will expose the Company to the risk of increased interest rates; (c) the
Company may need to use a portion of the money it earns to pay principal and interest on their credit facilities, which will
reduce the amount of money available to finance operations and other business activities, repay other indebtedness, and pay
distributions; and (d) substantial leverage may limit the Company's flexibility to adjust to changing economic or market
13
conditions, reduce their ability to withstand competitive pressures and make them more vulnerable to a downturn in general
economic conditions.
If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders
could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior
to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us,
when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges
or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition and
prospects could be adversely affected.
The success of our business relies heavily on our marketing and branding efforts, especially with respect to the RumbleOn
website and our branded mobile applications, and these efforts may not be successful.
We believe that an important component of our development and growth will be the business derived from the
RumbleOn website and our branded mobile applications. Because RumbleOn is a consumer brand, we rely heavily on
marketing and advertising to increase the visibility of this brand with potential users of our products and services.
Our business model relies on our ability to scale rapidly and to decrease incremental user acquisition costs as we grow.
Some of our methods of marketing and advertising may not be profitable because they may not result in the acquisition of
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 obtain such high, non-paid search result rankings is not within our control. Our competitors' Internet search engine
and social media efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search
engines could revise their methodologies in a way that would adversely affect our search result rankings. If Internet search
engines or social media companies modify their search algorithms or display technologies in ways that are detrimental to us,
or if our competitors' efforts are more successful than ours, overall growth in our user base could slow or our user base could
decline. Internet search engine providers could provide recreation vehicle dealer and pricing information directly in search
results, align with our competitors or choose to develop competing services. Any reduction in the number of users directed to
our website through Internet search engines could harm our business and operating results.
A significant disruption in service on our website or of our mobile applications could damage our reputation and result in
a loss of consumers, which could harm our business, brand, operating results, and financial condition.
Our brand, reputation and ability to attract consumers, affinity groups and advertisers depend on the reliable
performance of our technology infrastructure and content delivery. We may experience significant interruptions with our
systems in the future. Interruptions in these systems, whether due to system failures, computer viruses, or physical or electronic
break-ins, could affect the security or availability of our products on our website and mobile application, and prevent or inhibit
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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 dealers,
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.
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
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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 and dealers 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 both grow the number of regional partners and dealers in our network and increase the average number
of transaction originating from each is an important factor in growing our business. We may be viewed in a negative light by
regional partners and dealers, and there can be no assurance that we will be able to maintain or grow the number of regional
partners or dealers 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.
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,
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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
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.
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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.
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.
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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.
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
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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;
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coordination of technology, research and development and sales and marketing functions;
transition of the acquired company's users to our website and mobile applications;
retention of employees from the acquired company;
cultural challenges associated with integrating employees from the acquired company into our organization;
integration of the acquired company's accounting, management information, human resources, and other
administrative systems;
the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition
may have lacked effective controls, procedures, and policies;
● potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect
on our operating results in a given period;
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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.
The ongoing impact of COVID-19 may have a significant negative impact on our business, sales, results of
operations, financial condition, and liquidity.
The global outbreak of COVID-19 resulted in 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 may continue to significantly negatively impact aspects of our
business. Our business is also dependent on the continued health and productivity of our associates throughout this crisis.
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Individually and collectively, we expect the ultimate consequences of the COVID-19 outbreak may have a significant negative
impact on our business, sales, results of operations, financial condition, and liquidity.
The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations, financial
condition, and liquidity will depend on the success of the roll out of the vaccines and the efficacy of the vaccines and other
future developments, which are highly uncertain and cannot be predicted. 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 RideNow Transaction
Completion of the RideNow Transaction is subject to the conditions contained in the RideNow Agreement and if these
conditions are not satisfied, the RideNow Transaction will not be completed.
The completion of the RideNow Transaction is subject to various closing conditions, including (a) the making of all
filings and other notifications required to be made under any Antitrust Law (as defined in the RideNow Agreement) for the
consummation of the RideNow Transaction, the expiration or termination of all waiting periods relating thereto, and the receipt
of all clearances, authorizations, actions, non-actions, or other consents required from a governmental authority under any
Antitrust Law for the consummation of the RideNow Transaction, (b) performance in all respects by each party of its covenants
and agreements, (c) the Company obtaining stockholder approval of the RideNow Transaction and related matters, (d) the
shares of our Class B Common Stock to be issued as consideration in the RideNow Transaction being approved for listing on
Nasdaq, and (e) the receipt of consent to the RideNow Transaction from certain powersports manufacturers.
Many of the conditions to the closing of the RideNow Transaction are not within our control, and we cannot predict
with certainty when or if these conditions will be satisfied. The failure to satisfy any of the required conditions could delay the
completion of the RideNow Transaction or prevent it from occurring. Any delay in completing the RideNow Transaction could
cause us not to realize some or all of the benefits that we expect to achieve if the RideNow Transaction is successfully completed
within the expected timeframe. There can be no assurance that the conditions to the closing of the RideNow Transaction will
be satisfied or that the RideNow Transaction will be completed or that if completed we will realize the anticipated benefits.
Failure to complete the RideNow Transaction could negatively impact our stock price and our future business and financial
results.
If the RideNow Transaction is not completed for any reason, our ongoing business may be adversely affected and,
without realizing any of the benefits of having completed the RideNow Transaction, we could be subject to a number of negative
consequences, including, among others: (i) we may experience negative reactions from the financial markets, including
negative impacts on our stock price; (ii) we will still be required to pay certain significant costs relating to the RideNow
Transaction, including legal, accounting, and financial advisor costs; and (iii) matters related to the RideNow Transaction
(including integration planning) require substantial commitments of our time and resources, which could result in our inability
to pursue other opportunities that could be beneficial to us. If the RideNow Transaction is not completed or if completion of
the RideNow Transaction is delayed, any of these risks could occur and may adversely affect our business, financial condition,
financial results, and stock price.
The RideNow Transaction will involve substantial costs.
We have incurred, and expect to continue to incur, a number of non-recurring costs associated with the RideNow
Transaction. The substantial majority of the non-recurring expenses will consist of transaction and regulatory costs related to
the RideNow Transaction. We will also incur transaction fees and costs related to formulating and implementing integration
plans, including system consolidation costs and employment-related costs. We continue to assess the magnitude of these costs,
and additional unanticipated costs may be incurred from the RideNow Transaction and integration. Although we anticipate that
the elimination of duplicative costs and the realization of other efficiencies and synergies related to the integration should allow
us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
In connection with the RideNow Transaction, we will incur additional indebtedness, which could adversely affect us,
including our business flexibility and will increase our interest expense.
We will have increased indebtedness following completion of the RideNow Transaction, which could have the effect,
among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our
interest expense. We will also incur various costs and expenses related to the financing of the RideNow Transaction. The
amount of cash required to pay interest on our increased indebtedness following completion of the RideNow Transaction and
thereby the demands on our cash resources will be greater than the amount of cash flow required to service our indebtedness
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prior to the RideNow Transaction. The increased levels of indebtedness following completion of the RideNow Transaction
could also reduce funds available for working capital, capital expenditures, and other general corporate purposes, and may
create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected
synergies and cost savings from the RideNow Transaction, or if our financial performance after the RideNow Transaction does
not meet our current expectations, then our ability to service the indebtedness may be adversely impacted.
Risks Related to Ownership of our Class B 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.
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 own shares of our Class A Common Stock and Class B Common Stock
representing approximately 31.24% in aggregate of our voting power as of March 26, 2021, including approximately 25.28%
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, including
the RideNow Transaction, 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.
22
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.
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 currently 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 currently 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 currently 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.
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
23
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, 2020, excluding operating lease liabilities and the derivative liability, our total consolidated net
indebtedness was $53,108,353, net of unamortized debt discount of $12,045,479. This includes $17,811,626 of secured
indebtedness 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.
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.
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.
24
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.
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.
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
25
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.
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
26
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.
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
27
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.
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, refinancing’s,
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
28
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 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.
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, and we occupy a small
administrative office in Las Vegas to support the development of our RumbleOn Finance business. Aggregate annual rent for
these two facilities is approximately $510,000 plus, in Las Vegas, our proportionate shares of the landlord’s excess operating
costs. The term of the Irving, TX lease expires in Q2 2023; however we can elect to extend the term for up to seven years at a
rate equal to the lesser of (i) prevailing rental rates at the time of renewal or (ii) 105% of the annual Base Rent for the
immediately preceding term. The Las Vegas, NV lease expires in Q3 2022 and we have a single five (5) year renewal option
with a minimum annual increase of 3% each year of the renewal period.
We have a facility in the greater Nashville, TN metropolitan area that we assumed as part of the acquisition of
Wholesale, Inc. It is intended to serve three main purposes: i) as a general office/administrative location, ii) a staging and
reconditioning property, and iii) as a retail sales location where we display vehicles and operate a traditional used car sales
lot. The underlying lease in Nashville expires on Q4 2021 and we have two (2) renewal options, each of which provides for
five (5) additional years with ten percent (10%) increase in the base rent. The total rent for the facility is currently approximately
$25,000 per month. In March 2020, the facility took a direct hit from a tornado and most of the facility was destroyed. Since
that time, we have cleared the property of all but one structure we were able to remediate and we have placed several temporary
trailers on the property to house administrative and salespersons as we work through the rebuilding process with the landlord;
we expect a new retail storefront to be open on the property in 2022. Our use of the property for vehicle staging and
reconditioning resumed in Q3 2020.
We lease space in West Palm Beach, FL to support the operations of our GotSpeed retail location; we believe we pay
market rates, the term of this lease run through December 2023, and we have an option to extend the lease for an additional
two years with approximately 5% annual increases in each year.
The Company is a tenant at two facilities that serve as fulfillment centers – one in Arlington, Texas, and another in
Ocoee, Florida. The locations will allow those from whom we purchase vehicles to drop them off as well as serve as pick-up
29
locations for customers who have purchased vehicles from us and elected not to have the vehicle delivered to their home. The
Arlington, TX facility is approximately 7,000 square feet and the Ocoee, FL center is approximately 56,000 square
feet. Aggregate rent on these two facilities is approximately $525,000. We have less than twelve (12) months remaining on
the Arlington, TX but have three one-year renewal options; the Ocoee facility is under lease through mid-2025 with the ability
to lease it for up to five additional years.
In April 2020 we sublet our former corporate headquarters in Coppell, TX to a third party, and in Q2 2020 due to
COVID-19 we ceased operations of a newly opened fulfillment center in Las Vegas. In October 2020 we began marketing the
Las Vegas facility for sublease, and in January 2021 we entered a sublease effective as of the same month. The term of each
sublease encompasses the initial term of the respective primary lease, and the collective monthly rent charged in the subleases
covers all but a de minimis portion of our monthly exposure to these two facilities.
Vehicle Logistics and Transportation Services
The needs of the Vehicle Logistics and Transportation Services segment of our operations are currently serviced out
of a 5,800 sq. ft. facility we lease in Mesa, AZ, as well as a portion of space we have in Nashville, TN. For the majority of
2020 we also had to make rent payment for two facilities we had vacated however those leases have terminated and we have
no remaining obligations on them. Our lease on the Mesa, AZ location runs through Q2 2023 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.
30
Item 5.
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase Of
Equity Securities
PART II
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.
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. The authorized preferred
stock of the Company was not impacted by the Reverse Stock Split. The Company has retrospectively adjusted the per share
and share amounts included in this Annual Report on Form 10-K for the Reverse Stock Split.
Holders of Common Stock
As of March 26, 2021, we had approximately 38 stockholders of record of 2,286,404 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.
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.
31
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 experience. 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 acquisitions of Wholesale, Inc. ("Wholesale") in October
2018 and Autosport USA, Inc. ("Autosport") in February 2019, we have significantly increased our sales of cars and light
trucks ("automotive"). Of the 18,024 vehicles we sold in 2020, 12,741 (70.7%) were automotive and 5,283 (29.3%) were
powersports vehicles. In 2019, we sold 43,143 vehicles of which 29,952 (69.4%) were automotive and 13,191 (30.6%) were
powersports vehicles. In August 2020, we launched RumbleOn 3.0, bringing traditional brick and mortar powersports dealers
across the country online. Then, in March 2021, we announced a definitive agreement to combine our ecommerce platform
with the RideNow powersports group, the nation's largest powersports retailer as discussed further below.
RideNow Transaction
On March 12, 2021, we announced a definitive agreement to combine with the RideNow dealership group, the nation’s
largest powersports retailer, to create the only omnichannel customer experience in powersports and the largest publicly traded
powersports dealership platform (the “RideNow Transaction”). Under the terms of the definitive agreement, we will combine
with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4
million of cash and approximately 5.8 million shares of our Class B Common Stock. We will finance the cash consideration
through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. We have has
entered into a commitment letter with Oaktree Capital Management, L.P. ( “Oaktree”) to provide for the debt financing, subject
to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as
described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity
financing, RumbleOn stockholder approval, manufacturer approval, other federal and state regulatory approvals, and other
customary closing conditions as described in the definitive agreement. We expect to close the RideNow Transaction during the
second or third quarter of 2021. The foregoing description of the definitive agreement and debt financing does not purport to
be complete and is subject to, and qualified in its entirety by, the full text of the Plan of Merger and Equity Purchase Agreement,
dated March 12, 2021, Registration Rights and Lock-Up Agreement, dated March 12, 2021, Commitment Letter, dated March
12, 2021, and Warrant, dated March 12, 2021, copies of which are incorporated by reference to this report as Exhibits 2.4,
10.33, 10.31 and 4.11. See the section titled Subsequent Events in this MD&A for a discussion of the RideNow Transaction
and Oaktree Financing.
COVID-19 Update
The rapid spread of COVID-19 since March 2020 has resulted in authorities implementing numerous measures in an
attempt to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These
measures have impacted and may further impact all or portions of our workforce and operations, the behavior of our customers,
and the operations of our partners, vendors, and suppliers. While the federal and state governments have taken measures to try
to contain the COVID-19 pandemic, there is considerable uncertainty regarding such measures and potential future measures.
The COVID-19 situation has created an unprecedented and challenging time for our Company. Our current focus is on
positioning the Company for a strong recovery when this crisis is over. During 2020 we took 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; however, in April 2020 we laid off 169
associates. Future restrictions on our access to and utilization of our logistics and distribution network, our corporate offices,
the inspection and reconditioning centers of our partners, and/or our support operations or workforce, or similar limitations for
our partners, vendors, or suppliers, and restrictions or disruptions of transportation, could further limit our ability to conduct
our business and have a material adverse effect on our business, operating results, financial condition and prospects. There is
no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the COVID-19
pandemic, and our ability to perform critical functions could be harmed.
Our financial statements reflect estimates and assumptions made by management that affect the carrying values of the
Company's assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenue and
expenses during the reporting period. The judgments, assumptions and estimates used by management are based on historical
experience, management's experience, and other factors, which are believed to be reasonable under the circumstances. Because
of the nature of the judgments and assumptions made by management, actual results could differ materially from these
judgments and estimates, including as a result of the COVID-19 pandemic, which could have a material impact on the carrying
values of the Company's assets and liabilities and the results of operations. We will continue to evaluate the nature and extent
32
of the impact to our business and our results of operations and financial condition as conditions evolve as a result of the COVID-
19 pandemic.
Nashville Tornado
On March 3, 2020, a severe tornado struck the greater Nashville area causing significant damage to the Company's
facilities including contents and inventory held for sale. The Company maintains insurance coverage for damage to its facilities
and inventory, as well as business interruption insurance. The loss comprises three components: (1) inventory loss, currently
assessed by the insurance carrier at approximately $13,000,000; (2) building and personal property loss, currently assessed by
the insurance carrier at $2,783,000; and (3) loss of business income, for which the Company has coverage in the amount of
$6,000,000.
All three components of the Company's loss claim have been submitted to its insurers. The Company's inventory claim
is subject to a dispute with the carrier as to the policy limits applicable to the loss; however, the insurer has advanced $5,615,268
against the final settlement. The insurer has agreed to pay $2,778,000 on the building and personal property loss, reflecting
limits of $2,783,000 net of a $5,000 deductible and has made an interim payment on the building and personal property loss of
$2,269,507 to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation, however,
the insurer has advanced $250,000 against the final settlement. The Company believes there will be a recovery of all three loss
components, however no assurance can be given regarding the amounts, if any, that will be ultimately recovered or when any
such recoveries will be made.
Outlook
The COVID-19 pandemic effect on commercial activity and the significant damage sustained to our wholesale
automotive business from a tornado in early March 2020 had a significant negative impact on the growth in unit volume and
revenue for our powersports, automotive and transportation businesses for the year ended December 31, 2020. Based on the
evolving aspects of COVID-19 and uncertainty surrounding its future development, it may continue to have a negative impact
on unit volumes and revenue in future periods. Since the significant decrease in demand experienced in early March through
mid-April, we have seen monthly unit sales and revenue increase sequentially month-over-month through July 2020. However,
during the six-month period ended December 31, 2020, our average days to sale decreased and average selling prices increased
as dealers saw high industry-wide market prices. The effect of these higher market prices resulted in lower levels of inventory
available to purchase for resale causing a decline in unit sales beginning in September as compared to July and August. This
supply and demand imbalance continued to impact the historically seasonally adjusted fourth quarter volume, particularly given
the worldwide rise in COVID-19 cases. As the impact of COVID-19 abates over time, we anticipate that unit purchasing levels
and sales will return to or exceed levels experienced in the first quarter of 2020 as we increase penetration in existing markets
and add new dealers, however we can provide no assurance as to when and how quickly COVID-19 impacts will continue to
abate or if spikes in COVID-19 infections will further negatively impact the economy generally or our business.
The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations, financial
condition, and liquidity will depend on the success of the roll out of the vaccines and the efficacy of the vaccines and other
future developments, which are highly uncertain and cannot be predicted. 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.
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. In addition, the powersports segment includes the activities of our finance
company operations. Our vehicle logistics and transportation service segment provides nationwide automotive transportation
services primarily between dealerships and auctions. The accounting policies of the segments are the same and are described
in Note 1 – "Description of Business and Significant Accounting Policies" in the accompanying Notes to the Consolidated
Financial Statements.
33
Segment
Powersports
Automotive
Transportation
Subtotal
Impairment loss (1)
For Year Ended December 31, 2020
For the Year Ended December 31, 2019
Revenue
Revenue% Gross Profit GP%
Revenue
Revenue% Gross Profit GP%
$ 47,526,127
337,084,959
31,816,157
416,427,243
-
$ 416,427,243
11.4 % $ 7,465,556
81.0 % 28,284,328
7.6 % 7,615,928
100.0 % 43,365,812
- (11,738,413 )
100.0 % $ 31,627,399
15.7 %
8.4 %
23.9 %
10.4 %
(2.8 )%
7.6 %
$ 101,008,976
717,042,511
22,577,860
840,629,347
-
$ 840,629,347
12.0 % $ 12,335,461 12.2 %
85.3 % 31,728,617 4.4 %
2.7 % 6,553,898 29.0 %
100.0 % 50,617,976 6.0 %
-
-
-
100.0 % $ 50,617,976 6.0 %
_________________________
(1) Impairment Loss resulting from the Nashville Tornado.
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. For the year ended December 31, 2020, the amounts reflected below and in the tables that follow in this section do
not include expenditures of $343,820 and $796,365 for the powersports and automotive segments, respectively, that represent
costs that are not attributed to specific vehicles.
Powersports
Vehicles sold
Average days to sale
Total vehicle revenue
Gross profit
Automotive
Vehicles sold
Average days to sale
Total vehicle revenue
Gross profit
Vehicles Sold
2020
2019
5,283
43
13,191
34
$ 47,526,127 $ 101,008,976
$ 7,809,376 $ 12,335,461
2020
2019
12,741
29,952
23
46
$ 337,084,959 $ 717,042,511
$ 29,080,693 $ 31,728,617
We define vehicles sold as the number of pre-owned vehicles sold to consumers and dealers in each period, net of
returns under our various return policies. We view vehicles sold as a key measure for several reasons. First, vehicles sold is the
primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple complementary revenue streams,
including financing, vehicle service contracts and trade-ins. Second, vehicles sold increases the base of available customers for
referrals and repeat sales. Third, vehicles sold is an indicator of our ability to successfully scale our logistics, fulfillment, and
customer service operations. The uncertainty and continuously evolving aspects of COVID-19 may continue to impact the
number of units sold in future periods.
Average Days to Sale
We define average days to sale as the average number of days between vehicle acquisition by us and delivery to a
customer for all pre-owned vehicles sold in a period. However, this metric does not include any pre-owned vehicles that remain
unsold at period end. We view average days to sale as a useful metric due to its impact on pre-owned vehicle average selling
price. The uncertainty and continuously evolving aspects of COVID-19 may continue to impact the average days to sale in
future periods.
Revenue
Revenue is primarily comprised of pre-owned vehicle sales We sell pre-owned vehicles through consumer and dealer
sales channels. These multiple sales channels provide us the opportunity to maximize profitability through increased sales
volume and lower average days to sale by selling to the channel where the opportunity is the greatest at any given time based
on customer demand, market conditions or inventory availability. The number of pre-owned vehicles sold to any given channel
34
may vary from period to period based on customer demand, market conditions and available inventory. Subject to the impact
of COVID-19 on our results, as discussed elsewhere in this MD&A, we expect pre-owned vehicle sales to increase as we begin
to utilize a combination of brand building as well as direct response channels to efficiently source and scale our addressable
markets while expanding our suite of product offerings to consumers and dealers who may wish to trade-in or to sell us their
vehicle independent of a retail or wholesale sale. Factors primarily affecting pre-owned vehicle sales include the number of
retail pre-owned vehicles sold and the average selling price of these vehicles. The uncertainty and continuously evolving aspects
of COVID-19 may continue to impact our revenue in future periods.
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 are
primarily through dealer sales. Pre-owned vehicles sold through our B2B “Dealer Direct” platform generally have the highest
dollar gross profit since the vehicle is sold directly to the dealer without a third-party auction. Pre-owned vehicles sold to
dealers through third party auctions are sold at market. Gross margin percent is gross profit as a percentage of pre-owned
vehicle sales. Factors affecting gross profit and margin from period to period include the mix of pre-owned vehicles we acquire,
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, which could temporarily lead to average selling prices and gross profits increasing or decreasing in any given
channel. The uncertainty and continuously evolving aspects of COVID-19 may continue to impact our gross profit in future
periods.
Key Operations Metrics – Powersports
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
35
2020
2019
5,283
13,191
$ 47,526,127 $ 101,008,976
$ 7,809,376 $ 12,335,461
935
$
12.2 %
7,657
1,478 $
16.4 %
8,996 $
$
458
955
$ 5,330,008 $ 8,295,615
$ 1,815,239 $ 2,058,743
2,156
$
24.8 %
8,687
3,963 $
34.1 %
11,638 $
$
4,825
12,236
$ 42,196,119 $ 92,713,361
$ 5,994,137 $ 10,276,718
840
$
11.1 %
7,577
1,242 $
14.2 %
8,745 $
$
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
2020
2019 (1)
12,741
29,952
$ 337,084,959 $ 717,042,511
$ 29,080,693 $ 31,728,617
1,059
$
2,282 $
8.6 %
26,457 $
$
4.4 %
23,940
1,336
2,792
$ 39,933,457 $ 75,950,236
$ 4,578,072 $ 9,939,683
3,560
$
13.1 %
3,427 $
11.5 %
29,890 $
27,203
$
11,405
27,160
$ 297,151,502 $ 641,092,275
$ 24,502,621 $ 21,788,934
802
$
3.4 %
2,148 $
8.2 %
26,054 $
23,604
$
(1) Inclusive only of Autosport as of February 3, 2019 (the "Autosport Acquisition Period").
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
Revenue
2020
2019
$ 35,887,132 $ 31,931,488
61,314
77,449
$ 7,615,928 $ 6,553,898
$
124 $
85
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
36
gross. In the normal course of operations, Wholesale Express also provides transportation services to Wholesale. Revenue and
cost of revenue for these services for the year ended December 31, 2020 and December 31, 2019 was $4,070,975 and
$9,353,628, respectively, and was eliminated in the consolidated financial statements for the years ended December 31, 2020
and 2019, 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 and in turn profitability in the vehicle logistics and transportation services segment.
Gross Profit
Gross profit is generated on the difference between the price received from a customer under a freight brokerage
agreement for the transport of a vehicle from a point of origin to a designated destination minus our cost to contract an
independent third-party transporter to fulfill our obligation under the freight brokerage agreement with the customer. We define
gross profit per vehicle delivered as the aggregate gross profit in a given period divided by the number of pre-owned vehicles
delivered in that period. Gross margin percent is gross profit as a percentage of pre-owned vehicle delivered.
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.
The Company recognizes revenue using 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 from 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.
37
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.
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,
and other corporate overhead expenses, including expenses associated with technology development, legal, accounting, finance,
and business development. 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.
38
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, 2020 and 2019, 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 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 Autosport for the periods before the
Autosport Acquisition Date.
For the Year ended December 31, 2020
Powersports Automotive
Elimination(1)
Total
2019(2)
Vehicle
Logistics and
Transportation
Services
Revenue:
Pre-owned vehicle sales
Powersports
Automotive (2)
Transportation and vehicle logistics
Other
Total revenue
Cost of revenue:
Powersports
Automotive (2)
Transportation
Cost of revenue before impairment loss
Impairment loss
Total cost of revenue
$ 46,653,668 $
-
- 337,084,959
-
-
-
872,459
47,526,127 337,084,959
-
-
-
-
-
40,060,571
- 308,800,631
-
-
40,060,571 308,800,631
- 11,738,413
40,060,571 320,539,044
-
-
35,887,132
-
35,887,132
-
-
-
-
28,271,204
28,271,204
-
28,271,204
-
872,459
- $ 46,653,668 $ 101,008,976
- 337,084,959 717,007,436
(4,070,975 ) 31,816,157 22,577,860
35,075
(4,070,975 ) 416,427,243 840,629,347
-
-
-
-
-
-
- 40,060,571 88,673,515
- 308,800,631 685,313,894
(4,070,975 ) 24,200,229 16,023,962
(4,070,975 ) 373,061,431 790,011,371
-
(4,070,975 ) 384,799,844 790,011,371
- 11,738,413
Gross profit
$ 7,465,556 $ 16,545,915 $
7,615,928 $
- $ 31,627,399 $ 50,617,976
(1) Intercompany freight services from Wholesale Express are eliminated in the consolidated financial statements.
(2) Inclusive only of the Autosport Acquisition Period.
Powersports and Automotive Segments
The following table provides our results of operations for the years ended December 31, 2020 and 2019 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 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 Autosport for the periods before the Autosport Acquisition Date.
39
Revenue:
Pre-owned vehicle sales:
Powersports
Automotive (1)
Total vehicle revenue
Cost of revenue:
Powersports
Automotive (1)
Total cost of revenue before impairment loss
Impairment loss on automotive inventory
Total cost of revenue
Gross profit
Selling, general and administrative
Insurance recovery proceeds
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 Autosport Acquisition Period.
2020
2019
$ 47,526,127 $ 101,008,976
337,084,959 717,042,511
384,611,086 818,051,487
40,060,571 88,673,515
308,800,631 685,313,894
348,861,202 773,987,409
11,738,413
-
360,599,615 773,987,409
24,011,471 44,064,078
48,720,614 82,006,331
(5,615,268 )
-
2,136,877 1,779,021
(21,230,752 ) (39,721,274 )
(6,633,260 ) (7,186,418 )
10,806 1,302,500
188,164 (1,499,250 )
(27,665,042 ) (47,104,442 )
-
-
$ (27,665,042 ) $ (47,104,442 )
Total revenue decreased by $433,440,401 to $384,611,086 for the year ended December 31, 2020 compared to
$818,051,487 for the same period of 2019. Total powersports vehicle revenue decreased by $53,482,849 to $47,526,127 for
the year ended December 31, 2020 compared to $101,008,976 for the same period of 2019. Total automotive revenue decreased
by $379,957,552 to $337,084,959 for the year ended December 31, 2020 compared to $717,042,511 for the same period of
2019. The decrease was primarily due to a decrease in the number of pre-owned vehicles sold to 18,024 for the year ended
December 31, 2020 as compared to 43,143 for the same period of 2019, which was partially offset by an increase in the average
selling price per unit to $21,339 for the year ended December 31, 2020 compared to $18,961 for the year ended December 31,
2019. The decrease in vehicles sold resulted from (i) the adverse impact of COVID-19 pandemic on commercial activity
resulting in lower levels of inventory available for purchase causing lower unit sales but higher average selling prices and gross
margins due to the supply and demand imbalance; (ii) a reduction in automotive unit sales resulting from the significant damage
to the Company’s operating facilities and inventory held for sale in Nashville as a result of the March 2020 tornado; (iii) our
continued disciplined approach to sales volume and margin growth as we took prescriptive steps to accelerate profitability; and
(iv) a reduction in per vehicle advertising expenditures. As the impact of COVID-19 abates over time, we anticipate that unit
purchasing levels and sales will return to or exceed levels experienced in the first quarter of 2020 as we increase penetration in
existing markets and add new dealers, however we can provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will further negatively impact the economy generally or our business.
Total cost of revenue before impairment loss decreased $425,126,207 to $348,861,202 for the year ended December
31, 2020 compared to $773,987,409 for the same period of 2019. The decrease was primarily due to the decrease in the number
of pre-owned vehicles sold for the year ended December 31, 2020 as compared to the same period of 2019. Powersports total
cost of revenue decreased by $48,612,944 to $40,060,571 for the year ended December 31, 2020 as compared to the same
40
period of 2019. Automotive total cost of revenue decreased by $376,513,263 to $308,800,631 for the year ended December 31,
2020 as compared to $685,313,894 for the same period of 2019.
Powersports
The following table provides the results of operations for the year ended December 31, 2020 and 2019 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.
Powersports
Vehicle revenue:
Consumer
Dealer
Total vehicle revenue
Vehicle cost of revenue
Consumer
Dealer
Total vehicle cost of 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
2020
2019
$ 5,330,008 $ 8,295,615
42,196,119 92,713,361
$ 47,526,127 $ 101,008,976
$ 3,860,463 $ 6,236,872
36,200,108 82,436,643
$ 40,060,571 $ 88,673,515
$ 1,469,545 $ 2,058,743
5,996,011 10,276,718
$ 7,465,556 $ 12,335,461
458
4,825
5,283
955
12,236
13,191
$
$
$
3,209 $
1,243 $
1,413 $
2,156
840
935
27.6 %
14.2 %
15.7 %
24.8 %
11.1 %
12.2 %
$
$
$
11,638 $
8,745 $
8,996 $
8,687
7,577
7,657
Total powersports vehicle revenue decreased by $53,482,849 to $47,526,127 for the year ended December 31, 2020
compared to $101,008,976 for the same period of 2019. The decrease in powersports revenue was primarily due to a decrease
in the number of pre-owned vehicles sold to 5,283 for the year ended December 31, 2020 as compared to 13,191 for the same
period of 2019, offset by an increase in the average selling price per vehicle to $8,996 for the year ended December 31, 2020
from $7,657 for the same period of 2019. The decrease in vehicles sold and increase in average selling price resulted from (i)
the adverse impact of COVID-19 pandemic on commercial activity resulting in lower levels of inventory available for purchase
causing lower unit sales but higher average selling prices and gross margins due to the supply and demand imbalance; (ii) our
41
continued disciplined approach to sales volume and margin growth as we took prescriptive steps to accelerate profitability; and
(iii) a reduction in per vehicle advertising expenditures. As the impact of COVID-19 abates over time, we anticipate that unit
purchasing levels and sales will return to or exceed levels experienced in the first quarter of 2020 as we increase penetration in
existing markets and add new dealers, however we can provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will further negatively impact the economy generally or our business.
Total powersports vehicle revenue from the sale to consumers decreased by $2,965,607 to $5,330,008 for the year
ended December 31, 2020 compared to $8,295,615 for the same period of 2019. The decline in powersports revenue was
primarily due to the decrease in the number of pre-owned vehicles sold to 458 for the year ended December 31, 2020 compared
to 955 for the same period of 2019, which was partially offset by an increase in the average selling price per vehicle to
$11,638 for the year ended December 31, 2020 from $8,687 for the same period of 2019. The decrease in vehicles sold and
increase in average selling price per unit for the year ended December 31, 2020 as compared to the same period of 2019 resulted
from: (i) the adverse impact of the COVID-19 pandemic on commercial activity resulting in lower levels of inventory available
for purchase causing lower unit sales but higher average selling prices and gross margins due to the supply and demand
imbalance; (ii) our continued disciplined approach to sales volume and margin growth as we took prescriptive steps to
accelerate profitability; and (iii) a reduction in per vehicle advertising expenditures. As the impact of COVID-19 abates over
time, we anticipate that unit purchasing levels and sales will return to or exceed levels experienced in the first quarter of 2020
as we increase penetration in existing markets and add new dealers, however we can provide no assurance as to when and how
quickly COVID-19 impacts will continue to abate or if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
Total powersports vehicle revenue from the sale to dealers decreased by $50,517,242 to $42,196,119 for the year
ended December 31, 2020 compared to $92,713,361 for the same period of 2019. The decline in powersports revenue was
primarily due to the decrease in the number of pre-owned vehicles sold to 4,825 for the year ended December 31, 2020
compared to 12,236 for the same period of 2019, which was partially offset by an increase in the average selling price per
vehicle to $8,745 for the year ended December 31, 2020 from $7,577 for the same period of 2019. The decrease in vehicles
sold and increase in average selling price per unit for the year ended December 31, 2020 as compared to the same period in
2019 resulted from: (i) the adverse impact of the COVID-19 pandemic on commercial activity resulting in lower levels of
inventory available for purchase causing lower unit sales but higher average selling prices and gross margins due to the supply
and demand imbalance; and (ii) our continued disciplined approach to sales volume and margin growth as we took prescriptive
steps to accelerate profitability; and (iii) a reduction in per vehicle advertising expenditures. As the impact of COVID-19 abates
over time, we anticipate that unit purchasing levels and sales will return to or exceed levels experienced in the first quarter of
2020 as we increase penetration in existing markets and add new dealers, however we can provide no assurance as to when and
how quickly COVID-19 impacts will continue to abate or if spikes in COVID-19 infections will further negatively impact the
economy generally or our business.
Powersports Cost of Revenue
Total powersport cost of vehicle revenue decreased by $48,612,944 to $40,060,571 for the year ended December 31,
2020 compared to $88,673,515 for the same period of 2019. The decrease was primarily due to a decrease in the number of
vehicles purchased and sold for the year ended December 31, 2020 compared to the same period of 2019. The decrease in the
number of vehicles purchased and sold resulted from: (i) the adverse impact of the COVID-19 pandemic on commercial activity
resulting in lower levels of inventory available for purchase causing lower unit sales due to the supply and demand
imbalance; (ii) our continued disciplined approach to sales volume and margin growth as we took prescriptive steps to
accelerate profitability; and (iii) a reduction in per vehicle advertising expenditures. Total cost of vehicle revenue for the year
ended December 31, 2020 consisted of: (i) the acquisition cost of vehicles sold to consumers and dealers of $37,745,349 from
the sale of 5,283 pre-owned vehicles at an average acquisition cost of $7,145; (ii) aggregate reconditioning and transportation
costs of $1,971,402; and (iii) other cost not attributed to a specific vehicle of $343,820 which included a $340,268 write down
of vehicle inventory to the lower of cost or net realizable value resulting from the negative impact on our sales channels from
reduced commercial activity stemming from COVID-19. For the year ended December 31, 2019, the $88,673,515 cost of
vehicle revenue 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.
Total powersport cost of vehicle revenue from sales to consumers decreased by $2,376,409 to $3,860,463 for the year
ended December 31, 2020 as compared to $6,236,872 the same period of 2019. The decrease was primarily due to a decrease
in the number of vehicles purchased and sold for the year ended December 31, 2020 compared to the same period of 2019. The
decrease in the number vehicles purchased and sold result from: (i) the adverse impact of the COVID-19 pandemic on
commercial activity resulting in lower levels of inventory available for purchase causing lower unit sales due to the supply and
42
demand imbalance; (ii) our continued disciplined approach to sales volume and margin growth as we took prescriptive steps to
accelerate profitability; and (iii) a reduction in per vehicle advertising expenditures. Total cost of consumer vehicle revenue for
the year ended December 31, 2020 consisted of: (i) the acquisition cost of vehicles sold to consumers of $3,189,739 from the
sale of 458 pre-owned vehicles at an average acquisition cost of $6,964; (ii) aggregate reconditioning and transportation costs
of $325,030; and (iii) other costs of $345,694 not attributed to a specific vehicle. For the year ended December 31, 2019, cost
of vehicle revenue consisted of: (i) the acquisition cost of vehicles sold to consumers of $5,824,586 from the sale of 955 pre-
owned vehicles at an average acquisition cost of $6,099; and (ii) aggregate reconditioning and transportation costs of $412,286.
Powersport cost of vehicle revenue from the sale to dealers decreased by $46,236,535 to $36,200,108 for the year
ended December 31, 2020 as compared to $82,436,643 for the same period in 2019. The decrease was primarily due to a
decrease in the number of vehicles purchased and sold for the year ended December 31, 2020 compared to the same period of
2019. The decrease in the number vehicles purchased and sold resulted from: (i) the adverse impact of the COVID-19 pandemic
on commercial activity resulting in lower levels of inventory available for purchase causing lower unit sales due to the supply
and demand imbalance; (ii) our continued disciplined approach to sales volume and margin growth as we took prescriptive
steps to accelerate profitability; and (iii) a reduction in per vehicle advertising expenditures. Total cost of dealer vehicle revenue
for the year ended December 31, 2020 consisted of: (i) the acquisition cost of vehicles sold to dealers of $34,555,610 from the
sale of 4,825 pre-owned vehicles at an average acquisition cost of $7,162; (ii) aggregate reconditioning and transportation costs
of $1,646,372; and (iii) other costs reimbursements of $(1,874) not attributable to a specific vehicle. Total cost of dealer vehicle
revenue for the year ended December 31, 2019 consisted of: (i) the acquisition cost of vehicles sold to dealers of
$79,318,595 from the sale of 12,236 pre-owned vehicles at an average acquisition cost of $6,482; and (ii) aggregate
reconditioning and transportation costs of $3,118,048.
Automotive
The following table provides the results of operations for the year ended December 31, 2020 and 2019 for the
automotive segment including key financial information relating to the automotive business. 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 Autosport
for the periods before the Autosport Acquisition Date.
43
Automotive
Vehicle revenue:
Consumer
Dealer
Total vehicle revenue
Vehicle cost of revenue
Consumer
Dealer
Total vehicle cost of 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
2020
2019(1)
$
$
39,933,457
297,151,502
337,084,959
$
$
75,950,236
641,092,275
717,042,511
$
$
36,193,470
272,607,161
308,800,631
$
$
66,010,553
619,303,341
685,313,894
$
$
3,739,987
24,544,341
28,284,328
$
$
9,939,683
21,788,934
31,728,617
1,336
11,405
12,741
$
$
$
2,799
2,152
2,220
$
$
$
9.4 %
8.3 %
8.4 %
2,792
27,160
29,952
3,560
802
1,059
13.1 %
3.4 %
4.4 %
$
$
$
29,890
26,054
26,457
$
$
$
27,203
23,604
23,940
(1) Inclusive only of the Autosport Acquisition Period.
Automotive Revenue
Total automotive revenue decreased by $379,957,552 to $337,084,959 for the year ended December 31, 2020
compared to $717,042,511 for the same period of 2019. The decrease in automotive revenue was primarily due to a decrease
in the number of pre-owned vehicles sold to 12,741 for the year ended December 31, 2020 as compared to 29,952 for the same
period of 2019, offset by an increase in the average selling price per vehicle to $26,457 for the year ended December 31, 2020
from $23,940 for the same period of 2019. The decrease in vehicles sold and increase in average selling price resulted from (i)
the adverse impact of COVID-19 pandemic on commercial activity resulting in lower levels of inventory available for purchase
causing lower unit sales but higher average selling prices and gross margins due to the supply and demand imbalance; (ii) a
reduction in units available for sale as a result of the significant damage to the Company’s operating facilities and inventory
held for sale in Nashville resulting from the March 2020 tornado; (iii) our continued disciplined approach to sales volume and
margin growth as we took prescriptive steps to accelerate profitability; (iv) a reduction in per vehicle advertising expenditures;
and (v) a shift in inventory mix available for sale resulting in higher average sales prices. As the impact of COVID-19 abates
over time, we anticipate that unit purchasing levels and sales will return to or exceed levels experienced in the first quarter of
2020 as we increase penetration in existing markets and add new dealers, however we can provide no assurance as to when and
how quickly COVID-19 impacts will continue to abate or if future spikes in COVID-19 infections will further negatively
impact the economy generally or our business.
44
Total automotive revenue from the sale to consumers decreased by $36,016,779 to $39,933,457 for the year ended
December 31, 2020 compared to $75,950,236 for the same period of 2019. The decline in consumer revenue was primarily due
to the decrease in the number of vehicles sold to 1,336 for the year ended December 31, 2020 compared to 2,792 for the same
period of 2019, which was partially offset by an increase in the average selling price per vehicle to $29,890 for the year ended
December 31, 2020 from $27,203 for the same period of 2019. The decrease in vehicles sold and increase in average selling
price per unit for the year ended December 31, 2020 as compared to the same period of 2019 resulted from: (i) the adverse
impact of the COVID-19 pandemic on commercial activity resulting in lower levels of inventory available for purchase causing
lower unit sales but higher average selling prices and gross margins due to the supply and demand imbalance; (ii) a reduction
in units available for sale as a result of the significant damage to the Company’s operating facilities and inventory held for sale
in Nashville resulting from the March 2020 tornado; (iii) our continued disciplined approach to sales volume and margin growth
as we took prescriptive steps to accelerate profitability; (iv) a reduction in per vehicle advertising expenditure; and (v) a shift
in inventory mix available for sale resulting in higher average sales prices.
Total automotive revenue from the sale to dealers decreased by $343,940,773 to $297,151,502 for the year ended
December 31, 2020 compared to $641,092,275 for the same period of 2019. The decline in dealer revenue was primarily due
to the decrease in the number of vehicles sold to 11,405 for the year ended December 31, 2020 compared to 27,160 for the
same period of 2019, which was partially offset by an increase in the average selling price per vehicle to $26,054 for the year
ended December 31, 2020 from $23,604 for the same period of 2019. The decrease in vehicles sold and increase in average
selling price per unit for the year ended December 31, 2020 as compared to the same period in 2019 resulted from: (i) the
adverse impact of the COVID-19 pandemic on commercial activity resulting in lower levels of inventory available for purchase
causing lower unit sales but higher average selling prices and gross margins due to the supply and demand imbalance; (ii) a
reduction in units available for sale as a result of the significant damage to the Company’s operating facilities and inventory
held for sale in Nashville resulting from the March 2020 tornado;; (iii) our continued disciplined approach to sales volume and
margin growth as we took prescriptive steps to accelerate profitability; (iv) a reduction in per vehicle advertising expenditures;
and (v) a shift in inventory mix available for sale resulting in higher average sales prices.
Automotive Cost of Revenue
Total automotive cost of vehicle revenue before impairment loss decreased by $376,513,263 to $308,800,631 for the
year ended December 31, 2020 compared to $685,313,894 for the same period of 2019. The decrease was primarily due to a
decrease in vehicles sold for the year ended December 31, 2020 compared to the same period of 2019. The decrease in vehicles
purchased and sold was a result of: (i) the adverse impact of the COVID-19 pandemic on commercial activity resulting in lower
levels of inventory available for purchase causing lower unit sales due to the supply and demand imbalance; (ii) a reduction in
units available for sale as a result of the significant damage to the Company’s operating facilities and inventory held for sale in
Nashville resulting from the March 2020 tornado; (iii) our continued disciplined approach to sales volume and margin growth
as we took prescriptive steps to accelerate profitability; and (iv) a reduction in per vehicle advertising expenditures. Total cost
of vehicle revenue for the year ended December 31, 2020 consisted of: (i) the acquisition cost of vehicles sold to consumers
the sale of 12,741 pre-owned vehicles at an average acquisition cost of
and dealers of $300,978,562 from
$23,623; (ii) aggregate reconditioning and transportation costs of $7,025,704; and (iii) net other cost not attributed to a specific
vehicle of $796,365 which included a $898,542 write down of vehicle inventory to the lower of cost or net realizable value
resulting from the negative impact on our sales channels from reduced commercial activity stemming from COVID-19. 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. For the year ended December 31, 2019, the $685,313,894 cost of vehicle
revenue consisted of: (i) the acquisition cost of vehicles sold to consumers and dealers of $673,039,189 from the sale of 29,952
pre-owned vehicles at an average acquisition cost of $22,471 and (ii) aggregate reconditioning and transportation costs of
$12,274,705.
Total cost of revenue from the sale to consumers decreased by $29,817,083 to $36,193,470 for the year ended
December 31, 2020 compared to $66,010,553 for 2019. The decrease was primarily due to a decrease in vehicles sold in 2020
compared to 2019. The decrease in vehicles purchased and sold was a result of (i) the adverse impact of COVID-19 pandemic
on commercial activity resulting in lower levels of inventory available for purchase causing lower unit sales due to the supply
and demand imbalance; (ii) a reduction in unit available for as a result of the significant damage to the Company’s operating
facilities and inventory held for sale in Nashville resulting from the March 2020 tornado;; (iii) our continued disciplined
approach to sales volume and margin growth as we took prescriptive steps to accelerate profitability; (iv) a reduction in per
vehicle advertising expenditures. The total cost of consumer vehicle revenue for the year ended December 31, 2020 consisted
of: (1) the acquisition cost of vehicles sold to consumers of $34,326,522 from the sale of 1,336 pre-owned vehicles at an average
acquisition cost of $25,694; (ii) aggregate reconditioning and transportation costs of $1,028,863 and (iii) net other cost not
attributed to a specific vehicle of $838,085. For the year ended December 31, 2019, the $66,010,553 cost of consumer vehicle
45
revenue consisted of: (i) the acquisition cost of vehicles sold to consumers of $64,409,956 from the sale of 2,792 pre-owned
vehicles at an average 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 decreased by $346,696,180 to $272,607,161 for the year ended
December 31, 2020 compared to $619,303,341 for 2019. The decrease was primarily due to a decrease in vehicles sold for the
year ended December 31, 2020 compared to the same period of 2019. The decrease in vehicles purchased and sold was a result
of: (i) the adverse impact of the COVID-19 pandemic on commercial activity resulting in lower levels of inventory available
for purchase causing lower unit sales due to the supply and demand imbalance; (ii) a reduction in units available for sale as a
result of the significant damage to the Company’s operating facilities and inventory held for sale in Nashville resulting from
the March 2020 tornado; (iii) our continued disciplined approach to sales volume and margin growth as we took prescriptive
steps to accelerate profitability; and (iv) a reduction in per vehicle advertising expenditures. The total cost of dealer vehicle
revenue for the year ended December 31, 2020 consisted of: (1) the acquisition cost of vehicles sold to dealers of $266,652,040
from the sale of 11,405 pre-owned vehicles at an average acquisition cost of $23,380; (ii) aggregate reconditioning and
transportation costs of $5,996,841; and (iii) other cost reimbursements of $41,720 not attributed to a specific vehicle. For the
year ended December 31, 2019, the $619,303,341 cost of dealer vehicle revenue consisted of: (i) the acquisition cost of vehicles
sold to dealers of $608,629,233 from the sale of 27,160 pre-owned vehicles at an average acquisition cost of $22,409 and (ii)
aggregate reconditioning and transportation costs of $10,674,108.
Vehicle Logistics and Transportation Services Segment
The following table provides our results of operations for the year ended December 31, 2020 and 2019 for our vehicle
logistics and transportation services segment, including key financial information relating to this segment. 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.
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
2020
2019
$ 35,887,132 $ 31,931,488
28,271,204 25,377,590
7,615,928 6,553,898
4,938,734 4,617,920
6,063
7,405
2,671,131 1,928,573
5,064
1,186
$ 2,666,067 $ 1,927,387
61,314
77,449
$
$
585 $
412
124 $
85
21.2 %
20.5 %
Vehicle Logistics and Transportation Services Revenue
Total logistic and transportation service revenue increased by $3,955,644 to $35,887,132 for the year ended December
31, 2020 compared to $31,931,488 for 2019. The increase in revenue for the year ended December 31, 2020 resulted from the
increased in average revenue per vehicle delivered of $585 compared to $412 for 2019 offset by a decrease in the total vehicles
delivered to 61,314 compared to 77,449 for 2019. The increase in average revenue per vehicle delivered was a result of: (i) our
46
more disciplined approach to sales volume and margin growth as we took prescriptive steps to accelerate profitability; and (ii)
an increase in commercial activity during 2020 as compared to 2019 resulting in a greater demand for transportation services,
as sales channels, marketing activities and supply chains progressed towards normalized activity levels. The greater demand
resulted in a significant increase in the market rates charged per unit delivered; and (iii) increased emphasis on sales through
implementation of sales performance improvement plans. As the impact of COVID-19 abates over time, we anticipate that
vehicles transported, and revenue will return to or exceed levels experienced in the first quarter of 2020 as we increase
penetration in existing markets and add new dealers, distributors, or private party individuals, however we can provide no
assurance as to when and how quickly COVID-19 impacts will continue to abate or if spikes in COVID-19 infections will
further negatively impact the economy generally or our business.
In the normal course of operations, the Company utilizes transportation services of Wholesale Express. For the years
ended December 31, 2020 and 2019, intercompany freight services provided by Wholesale Express was $4,070,975 and
$9,353,628, respectively and was eliminated in the consolidated financial statements.
Vehicle Logistics and Transportation Services Cost of Revenue
Total logistic and transportation service cost of revenue increased by $2,893,614 to $28,271,204 for the year ended
December 31, 2020 compared to $25,377,590 for 2019. The increase in cost of revenue for the year ended December 31, 2020
resulted from the increased in average cost of revenue per vehicle delivered to $461 compared to $328 for 2019 offset by a
decrease in the total vehicles delivered to 61,314 as compared to 77,449 for 2019. The increase in average cost of revenue per
vehicle delivered was a result of an increase in commercial activity during 2020 as compared to 2019 resulting in a greater
demand for transportation services, as sales channels, marketing activities and supply chains began to progress towards
normalized pre-COVID-19 activity levels. The greater demand resulted in a significant increase in the market rates charged per
unit delivered. As the impact of COVID-19 abates over time, we anticipate that vehicles transported, and revenue will return
to or exceed levels experienced in the first quarter of 2020 as we increase penetration in existing markets and add new dealers,
distributors, or private party individuals, however we can provide no assurance as to when and how quickly COVID-19 impacts
will continue to abate or if spikes in COVID-19 infections will further negatively impact the economy generally or our business.
Included in cost of revenue for the year ended December 31, 2020 and 2019, was freight services purchases from Wholesale
Express of $4,070,975 and $9,353,628, respectively and was eliminated in the consolidated financial statements.
Selling, general and administrative
Selling general and administrative:
Compensation and related costs
Advertising and marketing
Professional fees
Technology development
General and administrative
2020
2019
$ 25,734,308 $ 33,502,020
5,287,284 18,228,262
3,148,381 2,542,357
1,421,138 2,408,338
18,068,237 29,943,272
$ 53,659,348 $ 86,624,249
Selling, general and administrative expenses decreased by $32,964,901 to $53,659,348 for the year ended December
31, 2020 compared to $86,624,249 for the same period of 2019. The decrease in selling, general and administrative for the year
ended December 31, 2020 was a result of: (i) our continued disciplined approach to sales volume and margin growth as we
took prescriptive steps to accelerate profitability, which resulted in the sale of fewer vehicles and a corresponding reduction in
related selling expenses, sales related compensation, and marketing spend for the year ended December 31, 2020 as compared
to 2019; (ii) a reduction in automotive vehicle sales resulting from the significant damage to the Company's operating facilities
and inventory held for sale in Nashville as a result of the March 3, 2020 tornado; and (iii) a reduction in staffing levels and
adjusted purchasing levels to align with demand and market conditions and a deferral of discretionary growth expenditures
such as travel, facilities, information technology investments due to the adverse impact of COVID-19 on commercial activity.
Compensation and related costs decreased by $7,767,712 to $25,734,308 for the year ended December 31, 2020
compared to $33,502,020 for the same period of 2019. The decrease was primarily due to a reduction in headcount associated
with our response to the impact of COVID-19 on our business. In early April 2020 we significantly reduced our staffing in an
effort to position our business to be lean and flexible in this period of lower demand and higher uncertainty with the goal of
preparing the Company for a strong recovery when the outbreak is contained. The company had 157 full-time and two part-
time employees at December 31, 2020 as compared to 300 full-time employees on December 31, 2019. As the impact of
COVID-19 abates over time, we anticipate that unit volume levels and sales will return to or exceed levels experienced in the
first quarter of 2020. At that time, we will take a measured approach to increasing our headcount, which will result in an
47
increase in sales related and marketing compensation in absolute dollar terms but a decrease in these expenses as a percentage
of total revenue. However, we can provide no assurance as to when and how quickly COVID-19 impacts will continue to abate
or if spikes in COVID-19 infections will further negatively impact the economy generally or our business.
Advertising and marketing decreased by $12,940,978 to $5,287,284 for the year ended December 31, 2020 compared
to $18,228,262 for the same period of 2019. The decrease was a result of: (i) the adverse impact of the COVID-19 pandemic
resulting in significantly reduced commercial activity, including a decrease in unit purchases and sales of vehicles; (ii) a
reduction in unit sales resulting from the significant damage to the Company's operating facilities and inventory held for sale
in Nashville as a result of the March 3, 2020 tornado; (iii) our continued disciplined approach to sales volume and margin
growth as we took prescriptive steps to accelerate profitability; and (iv) a reduction in per vehicle advertising expenditures. As
the impact of COVID-19 abates over time, we anticipate that unit volume levels and sales will return to or exceed levels
experienced in the first quarter of 2020. At that time, we will take a measured approach to increasing our marketing spend,
which will result in an increase in marketing expenses in absolute dollar terms but a decrease in marketing expense as a
percentage of total revenue. However, we can provide no assurance as to when and how quickly COVID-19 impacts will
continue to abate or if spikes in COVID-19 infections will further negatively impact the economy generally or our business.
Professional fees increased by $606,024 to $3,148,381 for the year ended December 31, 2020 compared to $2,542,357
for the same period of 2019. The increase was primarily a result of professional fees and costs incurred in connection with our
insurance claims and other matters attributed to the Nashville Tornado, and legal, accounting and other professional fees and
expenses incurred in connection with the activities associated with operating the business. Fees and expenses were incurred
for: (i) equity financings; (ii) debt financings; (iii) general corporate matters; (iv) the preparation of quarterly and annual
financial statements; and (v) the preparation and filing of regulatory reports required of the Company for public reporting
purposes. For additional information, see Note 4 - "Acquisitions," Note 8 - "Notes Payable and Lines of Credit" and Note 9 -
"Stockholders' Equity," in the accompanying Notes to the Condensed Consolidated Financial Statements.
Technology development expenses decreased by $987,200 to $1,421,138 for the year ended December 31, 2020
compared to $2,408,338 for the same period of 2019. The decrease was a result of the negative impact of COVID-19 resulting
from sheltering-in-place and significantly reduced commercial activity, resulting in a temporary reduction in discretionary
growth expenditures on information technology spending. Total technology costs and expenses incurred for the year ended
December 31, 2020 were $3,529,743 of which $2,145,055 was capitalized. For the year ended December 31, 2019, total
technology costs and expenses incurred were $5,494,081 of which $3,085,743 was capitalized. For the year ended December
31, 2020, a third-party contractor billed $602,873 of the total technology development costs as compared to $1,028,884 for the
same period of 2019. The amortization of capitalized technology development costs for the year ended December 31, 2020 was
$1,887,305 as compared to $1,436,088 for the same period of 2019. As the impact of COVID-19 abates over time, we anticipate
that unit volume levels and sales will return to or exceed levels experienced in the first quarter of 2020. At that time, we will
take a measured approach to increasing our technology development expenses as we continue to upgrade and enhance our
technology infrastructure, invest in our products, expand the functionality of our platform and provide new product offerings.
We also expect technology development expenses to continue to be affected by variations in the amount of capitalized internally
developed technology.
General and administrative expenses decreased by $11,875,035 to $18,068,237 for the year ended December 31, 2020
compared to $29,943,272 for the same period of 2019. The decrease was primarily due to a decrease in vehicles sold for the
year ended December 31, 2020 compared to the same period of 2019 which resulted in a $7,513,991 reduction in auction and
floor plan fees for the year ended December 31, 2020 as compared to 2019. The decrease in vehicles purchased and sold was
a result of: (i) the adverse impact of the COVID-19 pandemic on commercial activity resulting in lower levels of inventory
available for purchase causing lower unit sales due to the supply and demand imbalance; (ii) a reduction in units available for
sale as a result of the significant damage to the Company’s operating facilities and inventory held for sale in Nashville resulting
from the March 2020 tornado; (iii) our continued disciplined approach to sales volume and margin growth as we took
prescriptive steps to accelerate profitability; and (iv) a reduction in per vehicle advertising expenditures. Additionally, in
connection with the adverse impact of the COVID-19 pandemic on commercial activity we implemented a reduction in
administrative costs and expenses as well as purchasing levels to align with demand and market conditions and deferred
discretionary growth expenditures such as travel, facility cost and other business expenses which resulted in a decrease in these
costs and expenses of $2,511,044, net of a $739,581 increase in rent expense for new facilities for the year ended December
31, 2020 as compared to 2019. Included in General and administrative expenses for the year ended December 31, 2019 is the
recognition of an impairment loss on goodwill of $1,850,000. As the impact of COVID-19 abates over time and commercial
activity increases, we anticipate that unit volume levels and sales will return to or exceed levels experienced in the first quarter
of 2020. At that time, we will take a measured approach to increasing our general and administrative spending, which will
result in an increase in in general and administrative expenses in absolute dollar terms but decrease as a percentage of total
48
revenue. However, we can provide no assurance as to when and how quickly COVID-19 impacts will continue to abate or if
spikes in COVID-19 infections will further negatively impact the economy generally or our business.
Depreciation and Amortization
Depreciation and amortization increased by $356,513 to $2,142,939 for the year ended December 31, 2020 compared
to $1,786,426 for the same period of 2019. The increase in depreciation and amortization is a result of the cumulative
investments made in connection with the development of the business which included capitalized technology acquisition and
development costs of $2,145,055 and $174,786 in additions to property and equipment for the year ended December 31, 2020
as compared to $3,085,743 of capitalized technology acquisition and development costs and $119,748 in additions to property
and equipment for the year ended December 31, 2019. The decrease in capitalized technology acquisition and development
costs for the year ended December 31, 2020 as compared to the same period of 2019 was a result of a temporary reduction in
discretionary growth expenditures on information technology spending due to the negative impact of COVID-19 and the effect
of sheltering-in-place and significantly reduced commercial activity. For the year ended December 31, 2020, amortization of
capitalized technology development was $1,887,305 as compared to $1,436,088 for the same period of 2019. Depreciation and
amortization on vehicle, furniture, equipment and leasehold improvements was $255,634 as compared to $350,338 for the same
period of 2019.
Interest Expense
Interest expense decreased by $549,279 to $6,638,325 for the year ended December 31, 2020 compared to $7,187,604
for the same period of 2019. Interest expense consists of interest on the: (i) Hercules Loan; (ii) Private Placement Notes; (iii)
the subordinated secured promissory note issued to NextGen (the "NextGen Note"); (iv) the Credit Facility and the NextGear
Credit Line (each as defined below) (together, the "Line of Credit-Floor Plans"); (v) PPP Loans; (vi) convertible senior notes;
and (vii) the notes issued in connection with the Autosport Acquisition (the "Convertible Notes-Autosport"). The decrease in
interest expense for the year ended December 31, 2020 as compared to the same period of 2019 was primarily from a reduction
in total indebtedness outstanding which included amounts outstanding under floor plan lines of credit which was a result of a
decrease in the number of vehicles sold to 18,024 compared to 43,143 for 2019, and reductions in principal balances under
various notes. Interest expense on the Private Placement Notes for the year ended December 31, 2020 was $140,136 and
included $75,601 of discount amortization compared to interest expense of $316,091, which included $259,396 of debt discount
amortization for 2019. Interest expense on the NextGen Note the year ended December 31, 2020 was $87,128 compared to
$110,484 for 2019. Interest expense on the Line of Credit-Floor Plans for the year ended December 31, 2020 was $1,712,068
compared to $3,239,293 for 2019. Interest expense for the year ended December 31, 2020, on the PPP Loans was $30,960.
Interest expense for the year ended December 31, 2020 on the convertible senior notes was $4,433,485 and included $1,867,313
of debt discount amortization compared to interest expense of $2,523,064, which included $1,218,064 of debt discount
amortization for 2019. Interest expense for the year ended December 31, 2020 on the Convertible Notes-Autosport USA was
$186,751 and included $84,131 of debt discount amortization compared to interest expense for year ended December 31, 2019
of 228,001, which included $103,095 of debt discount amortization. There was no interest expense on the Hercules Loan in
2020 compared to interest expense for year ended December 31, 2019 of 758,466, which included $342,841 of debt discount
amortization. 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 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.
Loss Contingencies and Insurance Recoveries
On March 3, 2020, a severe tornado struck the greater Nashville area causing significant damage to the Company's
facilities including contents and inventory held for sale. The Company maintains insurance coverage for damage to its facilities
and inventory, as well as business interruption insurance. The loss was comprised of three components: (1) inventory loss,
assessed by the insurance carrier at approximately $13,000,000; (2) building and personal property loss, primarily impacting
49
our leased facilities, assessed by the insurance carrier at $2,783,000; and (3) loss of business income, for which the company
has coverage in the amount of $6,000,000.
All three components of the Company's loss claim have been submitted to its insurers. The Company's inventory claim
is subject to a dispute with the carrier as to the policy limits applicable to the loss; however, the insurer has advanced $5,615,268
against the final settlement. The insurer has agreed to pay $2,778,000 on the building and personal property loss, reflecting
limits of $2,783,000 net of a $5,000 deductible. The insurer has made an interim payment on the building and personal property
loss of $2,269,507 to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation,
however, the insurer has advanced $250,000 against the final settlement. The Company believes there will be a recovery of all
three loss components, however no assurance can be given regarding the amounts, if any, that will be ultimately recovered or
when any such recoveries will be made.
As a result of the damage caused by the tornado the Company concluded that the utility of the inventory damaged by
the storm was impaired as a result of physical damage sustained. Whether the impairment is caused by physical destruction or
an adverse change in the utility of the inventory, entities should assess whether an inventory impairment or write-off is required
in accordance with ASC 330-10-35-1 through 35-11, which address adjustments of inventory balances to the lower of cost or
market and requires that when there is evidence that the utility of goods will be less than cost, the difference is recognized as a
loss of the current period. During the year ended December 31, 2020 the Company recorded an impairment loss on inventory
of $11,738,413 comprised of $4,453,775 for vehicles that were a total loss and $7,284,638 in loss in value for vehicles partially
damaged and subject to repair. The impairment loss is reported in cost of revenue in the consolidated statements of operations.
On July 23, 2020, the insurer made an advance against the final settlement of the damage claim on inventory of $5,615,268.
This recovery has been recorded as a separate component of operating loss in the Consolidated Statement of Operations for the
year ended December 31, 2020.
Derivative Liability
In connection with the Notes, a derivative liability was recorded at issuance with an interest make-whole provision
of $20,673 based on a lattice model using a stock price of $14.60, an estimated volatility of 55.0% and risk-free rate rates over
the entire 10-year yield curve. 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 $10,806 and $1,302,500, respectively being recorded in the Statements of Operations for the year ended December
31, 2020 and 2019. The value of the derivative liability as of December 31, 2020 is $16,694 as compared to $27,500 on
December 31, 2019.
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 goodwill impairment, impairment loss on automotive
inventory, impairment loss on plant & equipment, insurance recovery proceeds, non-cash stock-based compensation, change
in derivative liability, litigation expenses, severance, new business development and other non-recurring 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.
50
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
Impairment loss on automotive inventory
Impairment loss on plant & equipment
Insurance recovery proceeds
Non-cash stock-based compensation
Change in derivative liability
Litigation expenses
Severance
New business development
Other Non-recurring costs
Liquidity and Capital Resources
2020
2019
$ (24,998,975 ) $ (45,177,053 )
6,450,161 8,686,854
2,142,939 1,786,426
(16,405,875 ) (34,703,773 )
- 1,850,000
-
11,738,413
-
177,626
(5,615,268 )
-
2,978,236 3,836,518
(10,806 ) (1,302,500 )
61,446
- 1,079,438
- 1,224,523
51,387 1,578,220
1,295,717
$ (5,790,570 ) $ (26,376,128 )
We generate cash from the sale of used vehicles and providing vehicle logistics and transportation services for used
vehicles. We generate additional cash flows through our financing activities including our short-term revolving inventory floor
plan facilities, the issuance of long-term notes, and new issuances of equity. Historically, cash generated from financing
activities has funded growth and expansion and strategic initiatives and we expect this to continue in the future.
Our ability to service our debt and fund working capital, capital expenditures, and business development efforts will
depend on our ability to generate cash from operating and financing activities, which is subject to our future operating
performance, as well as to general economic, financial, competitive, legislative, regulatory, and other conditions, some of which
may be beyond our control. Our future capital requirements will depend on many factors, including our rate of revenue growth,
our expansion of our various lines of business and the timing and extent of our spending to support our technology and software
development efforts.
In connection with the RideNow Transaction, on March 12, 2021, we executed a secured promissory note with BRF
Finance Co., LLC (“BRF Finance”), an affiliate of B. Riley Securities, Inc., pursuant to which BRF Finance loaned us $2.5
million (the “Bridge Loan”). The Bridge Loan matures on the earlier of September 30, 2021 or upon the issuance of debt or
equity above a threshold. The Bridge Loan is secured by certain intellectual property assets held by our subsidiary, NextGen
Pro, LLC. Interest will accrue on the Bridge Loan until maturity (by acceleration or otherwise) at a rate of 12% annually. The
foregoing description of the Bridge Loan does not purport to be complete and is subject to, and qualified in its entirety by, the
full text of the Secure Promissory Note, dated March 12, 2021, a copy of which is incorporated by reference to this report as
Exhibit 10.31.
The Company's consolidated financial statements have been prepared assuming that the Company will continue as a
going concern, which assumes the continuity of operations, the realization of assets and the satisfaction of liabilities as they
come due in the normal course of business. Management believes that current working capital, results of operations, and
existing financing arrangements are sufficient to fund operations for at least one year from the financial statement date.
51
We had the following liquidity resources available as of December 31, 2020 and December 31, 2019:
Cash and cash equivalents
Restricted cash (1)
Total cash, cash equivalents, and restricted cash
Availability under short-term revolving facilities
Committed liquidity resources available
2020
2019
$ 1,466,831 $
49,660
2,049,056 6,676,622
3,515,887 6,726,282
2,188,374 35,839,030
$ 5,704,261 $ 42,565,312
(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 $10,780,080.
Also on January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by
the Joinder Agreement, with the investors in the 2019 Note Offering (as defined below), pursuant to which the Company agreed
to complete (i) a note exchange pursuant to which $30,000,000 of the Old Notes (as defined below) would be cancelled in
exchange for a new series of 6.75% Convertible Senior Notes due 2025 (the "New Notes"), and (ii) the issuance of additional
New Notes in a private placement in reliance on the exemption from registration provided by Rule 506 of Regulation D of the
Securities Act as a sale not involving any public offering. On January 14, 2020, the Company closed the 2020 Note Offering.
The proceeds for the 2020 Note Offering, after deducting for the payment of accrued interest and offering-related expenses,
but exclusive of company costs were $8,272,375.
On May 9, 2019, the Company entered into a purchase agreement with JMP Securities LLC to issue and sell
$30,000,000 in aggregate principal amount of its 6.75% Convertible Senior Notes due 2024 (the "Old Notes") in a private
placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities
Act") (the "2019 Note Offering"). The proceeds for the 2019 Note Offering after deducting the initial purchaser's discounts,
advisory fees, and related offering expenses, were approximately $27,385,500.
As of December 31, 2020, and 2019, excluding operating lease liabilities and the derivative liability, the outstanding
principal amount of indebtedness was $53,108,353 and $82,585,522, respectively, summarized in the table below. See Note 8
— Notes Payable and Lines of Credit and Note 20 – 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.
Asset-based financing:
Inventory
Total asset-based financing
Secured notes payable
Unsecured senior convertible notes
PPP loans
Total debt
Less: unamortized discount and debt issuance costs
Total debt, net
December 31,
2020
2019
$ 17,811,626 $ 59,160,970
17,811,626 59,160,970
2,391,361 2,000,334
39,774,000 31,901,843
-
5,176,845
65,153,832 93,063,147
(12,045,479 ) (10,477,625 )
$ 53,108,353 $ 82,585,522
The following table sets forth a summary of our cash flows for the year ended December 31, 2020 and 2019:
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Net (decrease) increase in cash
52
2020
2019
$ 17,143,227 $ (39,747,330 )
(2,281,405 ) (3,871,223 )
(18,072,217 ) 34,559,933
$ (3,210,395 ) $ (9,058,620 )
Operating Activities
Our primary sources of operating cash flows result from the sales of used vehicles and ancillary products. Our primary
uses of cash from operating activities are purchases of inventory, cash used to acquire customers, technology development and
personnel-related expenses. For the year ended December 31, 2020, net cash provided by operating activities was $17,143,227,
an increase of $56,890,557 compared to net cash used in operating activities of $39,747,330 for the same period of 2019. The
increase in our net cash provided by operating activities was primarily due to: (i) a $32,094,116 decrease in our net loss, which
excluded aggregate impairment losses on inventory and plant and equipment of $11,916,039. In addition, the Company received
a $5,615,268 insurance recovery due to the Nashville tornado; and (ii) a $19,181,173 of changes in operating assets and
liabilities, primarily vehicle inventory, accounts receivable and accounts payable. The change in net loss was a result of: (i) our
continued disciplined approach to sales volume and margin growth as we took prescriptive steps to accelerate profitability,
which resulted in the sale of fewer vehicles and a corresponding reduction in related selling expenses, sales related
compensation, marketing and general and administrative spend for the year ended December 31, 2020; and (ii) a reduction in
staffing levels, adjusted purchasing levels to align with demand and market conditions and a deferral of discretionary growth
expenditures such as travel, facilities, information technology investments due to the adverse impact of the COVID-19
pandemic on commercial activity
Investing Activities
Our primary use of cash for investing activities is for technology development and acquisitions to expand our
operations. Cash used in investing activities for the year ended December 31, 2020 was $2,281,405, a decrease of $1,589,818
compared to 2019. The decrease results from a reduction in technology spending and no acquisition activities during the year
ended December 31, 2020 as compared to 2019. The decrease in technology spending for the year ended December 31, 2020
as compared to the same period of 2019 was a result of a reduction in staffing levels, adjusted purchasing levels and a deferral
of discretionary growth expenditures due to the adverse impact of the COVID-19 pandemic on commercial activity. The
Company acquired Autosport in February 2019 which included a cash payment of $835,000.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term debt activity and proceeds from equity
issuances which have been used to provide working capital and for general corporate purposes, including paying down our
short-term revolving facilities. Cash used in financing activities was $18,072,217 for the year ended December 31, 2020
compared to net cash provided by financing activities of $34,559,933 for 2019. The $52,632,150 decrease in cash provided by
financing activities for the year ended December 31, 2020 as compared to the same period of 2019 was a result of a: (i)
$43,322,228 increase in repayments on floor plan lines of credit; (ii) a reduction in net proceeds of $4,916,575 received from
notes payable; and (iii) a reduction in net proceeds from equity offerings of $4,393,347 for the year ended December 31, 2020
as compared to the same period of 2019.
Liquidity
The accompanying consolidated financial statements of the Company have been prepared in conformity with U.S.
GAAP, which contemplate continuation of the Company as a going concern. The Company has incurred losses from inception
through December 31, 2020 and may incur additional losses in the future. As the Company continues to expand its business,
build its brand name and awareness and continues technology and software development efforts, it may need access to
additional capital. Historically, the Company has raised additional equity or debt instruments to fund the expansion; refer to
Note 8 — NOTES PAYABLE and Note 9 — STOCKHOLDER'S EQUITY. Management believes that current working
capital, availability of equity under its current shelf registration statement, results of operations, and expected continued
inventory financing are sufficient to fund operations for at least one year from the financial statement issuance date.
The worldwide spread of the COVID-19 outbreak has resulted in a global slowdown of economic activity which
decreased demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and
supply chains for an unknown period of time until the outbreak is contained. This is impacting the Company's business and the
powersport, automotive and transport industries as a whole. The Company has positioned its business today to be lean and
flexible in this period of lower demand and higher uncertainty with the goal of preparing the Company for a strong recovery
as the crisis is contained. The Company believes its online business model allows it to quickly respond to market demand or
changes in the businesses it operates as the COVID-19 pandemic continues.
53
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources that is material to investors.
Subsequent Events
RideNow Definitive Agreement
On March 12, 2021, the Company entered into a Plan of Merger and Equity Purchase Agreement (the “RideNow
Agreement”) with RO Merger Sub I, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub
I”), RO Merger Sub II, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub II”), RO
Merger Sub III, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub III”), RO Merger
Sub IV, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub IV,” and together with
Merger Sub I, Merger Sub II, and Merger Sub III, the “Merger Subs”), C&W Motors, Inc., an Arizona corporation, Metro
Motorcycle, Inc., an Arizona corporation, Tucson Motorcycles, Inc., an Arizona corporation, and Tucson Motorsports, Inc., an
Arizona corporation, William Coulter, an individual (“Coulter”), Mark Tkach, an individual (“Tkach” and together with
Coulter, the “Principal Owners”), and certain other persons who own equity interests in the Acquired Companies (as defined
in the RideNow Agreement) and execute a Seller Joinder (as defined in the RideNow Agreement) (together with the Principal
Owners, the “Sellers” and each, a “Seller”), and Tkach, as the representative of the Sellers (the “Sellers’ Representative”). The
Acquired Companies own and operate powersports retail dealerships under the RideNow brand which include sales, financing,
and parts and service of new and used motorcycles, ATVs, UTVs, scooters, side by sides, sport bikes, cruisers, watercraft, and
other vehicles and ancillary businesses and activities relating thereto.
The RideNow Agreement provides that, upon the terms and subject to the conditions set forth in the RideNow
Agreement, (i) the Company will acquire all of the equity interests (the “Equity Purchases”) in the Transferred Entities (as
defined in the RideNow Agreement), (ii) Merger Sub I will merge with and into C&W Motors, Inc., with C&W Motors, Inc.
continuing as a surviving corporation, (iii) Merger Sub II will merge with and into Metro Motorcycle, Inc., with Metro
Motorcycle, Inc. continuing as a surviving corporation, (iv) Merger Sub III will merge with and into Tucson Motorcycles, Inc.,
with Tucson Motorcycles, Inc. continuing as a surviving corporation, and (v) Merger Sub IV will merge with and into Tucson
Motorsports, Inc., with Tucson Motorsports, Inc. continuing as a surviving corporation, in each case under the laws of the State
of Arizona and each as a wholly-owned subsidiary of the Company (the “Mergers”). The Equity Purchases and the Mergers
will result in the acquisition from the Sellers of up to 46 Acquired Companies (the “RideNow Transaction”). The RideNow
Transaction is expected to close (the “Closing”) in the second or third quarter of 2021. Effective as of the Closing, Tkach and
Coulter will become executive officers and directors of the Company.
The RideNow Agreement provides that the Company will acquire the Acquired Companies in exchange for (i)
$400,400,000 in cash plus or minus any adjustments for net working capital and closing indebtedness, and (ii) shares of the
Company's Class B Common Stock having a value of $175,000,000 (the “Closing Payment Shares”), valued equally, on a per
share basis, based upon the lowest value of (A) $30.00; (B) the VWAP of the Company's Class B Common Stock for the twenty
(20) trading days immediately preceding the Closing, and (C) the value on a per share basis paid for the Class B Common
Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock by any person which
purchases Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common
Stock from the Company from the date of the RideNow Agreement until the Closing not including purchases of Class B
Common Stock underlying currently outstanding options, warrants, convertible notes, or other derivative securities. Ten percent
(10%) of the Closing Payment Shares will be escrowed at Closing and will be released pursuant to the terms of the RideNow
Agreement. The Company will finance the cash consideration through a combination of approximately $280,000,000 of debt
provided by the Initial Lender (as defined below) and through the issuance of new equity for the remainder thereof.
Each of the Company, the Merger Subs, and the Sellers has provided customary representations, warranties and
covenants in the RideNow Agreement. The completion of the RideNow Transaction is subject to various closing conditions,
including (a) the making of all filings and other notifications required to be made under any Antitrust Law (as defined in the
RideNow Agreement) for the consummation of the RideNow Transaction, the expiration or termination of all waiting periods
relating thereto, and the receipt of all clearances, authorizations, actions, non-actions, or other consents required from a
governmental authority under any Antitrust Law for the consummation of the RideNow Transaction, (b) performance in all
respects by each party of its covenants and agreements, (c) the Company obtaining stockholder approval of the RideNow
Transaction and related matters, (d) the Closing Payment Shares being approved for listing on Nasdaq, and (e) the receipt of
consent to the RideNow Transaction from certain powersports manufacturers.
54
Certain RideNow minority equity holders are not initially parties to the RideNow Agreement and some of such
minority holders have rights of first refusal (“ROFR”) with respect to the RideNow entity in which they own a stake. If any of
these equity holders either decide not to sell their interests to the Company or to exercise their ROFR, RumbleOn will not be
able to acquire all of the Equity Interests of the Acquired Companies, or in certain cases any interests in an Acquired Company,
and the consideration payable therefor in the RideNow Transaction will be correspondingly reduced. RideNow anticipates that
all minority owners will participate in the RideNow Transaction and that no minority owners will exercise their ROFR, but
there is no assurance this will occur.
The RideNow Agreement contains certain termination rights for both the Company and the Sellers' Representative.
Both the Company and the Sellers' Representative have the right to terminate the RideNow Agreement if the Closing does not
occur on or before June 30, 2021, subject to certain rights of the parties to extend the termination date to July 31, 2021, as set
forth in the RideNow Agreement.
Commitment Letter
On March 12, 2021, the Company entered into a commitment letter (the “Commitment Letter”) with Oaktree Capital
Management, L.P. ( “Oaktree”). The Commitment Letter provides that, subject to the conditions set forth therein, Oaktree or
certain funds or accounts within its Strategic Credit Strategy (the “Initial Lender”) commits to provide senior secured term loan
facilities in an aggregate principal amount of up to $400,000,000 (the “Credit Facility”), comprised of (i) an initial advance of
$280,000,000 to fund the RideNow Transaction, consummate the Refinancing (as defined in the Commitment Letter) and pay
the RideNow Transaction costs and (ii) a delayed draw term facility of up to $120,000,000 to fund permitted acquisitions and
similar investments and related fees and expenses.
The Credit Facility interest rates will be, at the option of the Company, (a) Adjusted LIBOR (as defined in the
Commitment Letter) plus 8.25%, of which (i) Adjusted LIBOR plus 7.25% shall be paid in cash and (ii) 1.00% shall be payable
in kind or (b) ABR (as defined in the Commitment Letter) plus 7.25%, of which (i) ABR plus 6.25% shall be paid in cash and
(ii) 1.00% shall be payable in kind. The Credit Facility shall mature on the fifth anniversary of the Closing date of the RideNow
Transaction (subject to extension with the consent of only the extending lender).
The Company and its subsidiaries will grant certain security interests to the Initial Lender to secure the Credit Facility,
subject to certain exceptions and permitted liens, all to be more fully set forth in the definitive documentation for the Credit
Facility. The Credit Facility will be subject to prepayment with the proceeds of certain events including 50% of excess cash
flow, 100% of certain asset sales, 100% of proceeds of certain debt issuances, and 50% of certain public or private equity
financings. The Commitment Letter provides that the Credit Facility will contain customary affirmative and negative covenants,
and events of default, subject to certain carve-outs and exceptions as more fully described in the Commitment Letter.
The commitment to provide the Credit Facility is subject to certain conditions, including: the receipt of customary
closing documents, completion of applicable “know your customer” requests and delivery of documentation related thereto, no
material adverse change, delivery of customary financial reporting, specified representations and warranties, perfection of
certain security interests, and delivery of customary legal opinions. The Company will pay certain fees and expenses in
connection with obtaining the Credit Facility.
Warrant
In connection with the Commitment Letter, in lieu of a commitment fee, the Company has agreed to issue to Oaktree
a warrant to purchase a number of shares of Class B Common Stock at an exercise price per share to be determined either at
Closing or at termination of the Commitment Letter (the “Warrant”). If issued at Closing, the Warrant will be for that number
of shares equal to $40,000,000 divided by the lowest price per share at which equity is issued in connection with financing the
RideNow Transaction, which price shall also be the exercise price. If issued in connection with a termination of the
Commitment Letter, the Warrant will be issued to purchase that number of shares equal to five percent (5%) of the Company's
fully diluted market capitalization at the close of business on the day after a termination of the Commitment Letter is publicly
announced divided by the weighted average price of the Company's Class B Common Stock for the five days immediately
preceding such date, which price shall also be the exercise price. The Warrant is immediately exercisable upon the Closing or
five days after the termination of the Commitment Letter and expires eighteen (18) months after the Closing or termination of
the Commitment Letter.
Bridge Loan
Also in connection with the RideNow Transaction, on March 12, 2021, the Company and its subsidiary, NextGen Pro,
LLC (“NextGen Pro”), executed a secured promissory note with BRF Finance Co., LLC (“BRF Finance”), an affiliate of B.
Riley Securities, Inc., pursuant to which BRF Finance has loaned the Company $2,500,000 (the “Bridge Loan”). The Bridge
55
Loan matures on the earlier of September 30, 2021 or upon the issuance of debt or equity above a threshold. The Bridge Loan
is secured by certain intellectual property assets held by NextGen Pro as set forth in Exhibit A to the secured promissory note.
Interest will accrue on the Bridge Loan until maturity (by acceleration or otherwise) at a rate of 12% annually.
Certificate of Amendment and Changes to Incentive Plan
In contemplation of the RideNow Transaction, on March 9, 2021, the Board of Directors (the "Board") approved,
subject to stockholder approval, (i) an amendment to the Articles of Incorporation of the Company to increase the number of
shares of authorized Class B Common Stock to 100,000,000 (the “Certificate of Amendment”), and (ii) an amendment to the
RumbleOn, Inc. 2017 Stock Incentive Plan (the “Incentive Plan”) to increase the authorized shares of Class B Common Stock
available under the Incentive Plan from 700,000 shares to 2,700,000 shares and extend the term of the Incentive Plan for an
additional ten years.
Registration Rights and Lock-Up Agreement
In connection with the RideNow Transaction, on March 12, 2021, the Company entered into a registration rights and
lock-up agreement, by and among the Company and certain equity holders of the Acquired Companies (the “Registration Rights
Agreement”). Pursuant to the Registration Rights Agreement (i) the Company agreed to file a resale registration statement for
the Registrable Securities (as defined in the Registration Rights Agreement) no later than thirty (30) days following the Closing,
and to use commercially reasonable efforts to cause it to become effective as promptly as practicable following such filing, (ii)
the equity holders were granted certain piggyback registration rights with respect to registration statements filed subsequent to
the Closing, and (iii) the Lock-Up Holders (as defined in the Registration Rights Agreement) agreed, subject to certain
customary exceptions, not to sell, transfer or dispose of any Company common stock for a period of one hundred and eighty
(180) days from the Closing.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with United States generally accepted accounting principles
("GAAP"). The preparation of these financial statements requires management to make estimates and judgments that affect the
reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at
the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions,
impacting our reported results of operations and financial condition.
Certain accounting policies involve significant judgments and assumptions by management, which have a material
impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these
accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on
historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting
policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial
results are described below. Refer to Note 1 — Description of Business and Summary of Significant Accounting Policies of
the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K, for more detailed information regarding our critical accounting policies.
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
56
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.
Goodwill
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired
and liabilities assumed in business combinations. Goodwill is tested for impairment annually as of December 31, or whenever
events or changes in circumstances indicate that an impairment may exist.
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. Each of these segments are considered separate
reporting units for purposes of goodwill testing. In performing our annual goodwill impairment test, we first review qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If,
after assessing qualitative factors, we determine that it is not more likely than not that the fair value of a reporting unit is less
than its carrying amount, then performing the quantitative test is unnecessary and our goodwill is not considered to be impaired.
However, if based on the qualitative assessment we conclude that it is more likely than not that the fair value of the reporting
unit is less than its carrying amount, or if we elect to bypass the optional qualitative assessment as provided for under GAAP,
we proceed with performing the quantitative impairment test.
Due to the significant decline in the Company’s stock price and the economic effect of COVID-19, the Company
determined a triggering event for Goodwill impairment existed as of March 31, 2020. As a result, the Company performed a
quantitative impairment analysis for the Automotive segment. The Company’s impairment test indicated no impairment existed
as the estimated fair value of the reporting unit exceeded its carrying value at March 31, 2020. In connection with its annual
goodwill impairment test as of December 31, 2020, the Company performed impairment assessments by reviewing qualitative
factors for each of its reporting units. The results of the assessments indicated that it was not more likely than not that the fair
57
value of the reporting units were greater than the carrying values and no goodwill impairment was determined to exist for the
years ended December 31, 2020.
In connection with its annual goodwill impairment test as of December 31, 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.
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 within those fiscal years, beginning after December 15, 2018. We adopted the new standard for our fiscal year beginning
January 1, 2019.
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, 2020. We maintain disclosure controls and procedures that are designed to provide
reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such
information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
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, 2020.
58
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 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, 2020.
This annual report does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm
pursuant to the temporary rules of the Securities and Exchange Commission that permit the company to provide only the
management's report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal
quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information.
None.
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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
Adam Alexander
Denmar Dixon
Richard A. Gray, Jr.
Peter Levy
Michael Marchlik
Kevin Westfall
Age
63
66
49
59
73
50
48
65
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 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 has served as a director of BurgerFi International, Inc. (“BurgerFi”) since December 15, 2020,
and serves as Chair of the Audit Committee and a member of the Compensation Committee and Nominating Committee of
BurgerFi. Mr. Berrard serves as a director of Lionheart Acquisition Corp. II (“Lionheart”) since August 13, 2020, and serves
as Chair of the Audit Committee and a member of the Compensation Committee of Lionheart. 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.
Adam Alexander has served on our Board since July 15, 2020. Mr. Alexander co-founded CA Global Partners, a
full-service auction and liquidation company in 1997. Since 2010, CA Global Partners has expanded globally managing
hundreds of auction and liquidation projects in the UK, Europe, Asia, Australia, and Africa as well as all across North America.
60
Mr. Alexander attended Pepperdine University where he received a BS in Business Management, and subsequently received
an MBA in Global Business which was jointly conferred by NYU Stern, HEC School of Management in Paris, and the London
School of Economics and Political Science.
We believe that Mr. Alexander possesses attributes that qualify him to serve as a member of our Board, including his
extensive understanding of auction projects and business operations.
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. 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.
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.
Peter Levy has served as our Chief Operating Officer since May 20, 2019. From November 2017 to May 2019, 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. 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 Co-Chief Executive
Officer of the Advisory Services division of B. Riley Financial, Inc., formally known as 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
decades of experience in all segments of the asset disposition and valuation industries, he has a deep 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 has served as Chairman of Prime
Automotive Group since January 2020. 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
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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 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 four actions by unanimous written consent during the year ended December
31, 2020. In 2020, 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.
During 2020, the Board established a Special Committee of independent directors to review strategic alternatives. The
members of the Special Committee are Denmar Dixon (Chair), Adam Alexander, Richard Gray, and Kevin Westfall. The
Special Committee held five meetings and took one action by unanimous written consent during the year ended December 31,
2020.
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 2020 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. 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. Marchlik (chair), Dixon, and Westfall.
Also, Messrs. Alexander and Gray served on the Audit Committee through January 5, 2021. The Board has determined that
Mr. Marchlik is an "audit committee financial expert," as defined in Item 407 of Regulation S-K.
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),
62
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 four meetings and took one
action by unanimous written consent during the year ended December 31, 2020.
Compensation Committee. The current members of the Compensation Committee are Messrs. Alexander (chair), Gray,
and Marchlik. Also, Messrs. Westfall (chair) and Dixon served on the Compensation Committee through January 5, 2021. 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 two meetings and took one action by unanimous written consent during the year
ended December 31, 2020.
Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate
Governance Committee are Messrs. Dixon (chair), Alexander, and Marchlik. Also, Mr. Gray served on the Nominating and
Corporate Governance Committee through January 5, 2021. The Nominating Committee is responsible for identifying
individuals qualified to become members of the Board or any committee thereof; recommending nominees for election as
directors at each annual stockholder meeting; recommending candidates to fill any vacancies on the Board or any committee
thereof; and overseeing the evaluation of the Board. For a complete description of the Nominating and Corporate Governance
Committee's responsibilities, you should refer to the Nominating and Corporate Governance Committee Charter. The
Nominating and Corporate Governance Committees held two meetings and took one action by unanimous written consent
during the year ended December 31, 2020.
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, 2020 and December 31, 2019.
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
Chief Operating Officer
2020
2019
$ 366,923 $ 90,000
$ 360,000 $ 200,000
394,027 $ 850,950
- $ 560,000
2020
2019
$ 366,923 $ 90,000
$ 360,000 $ 200,000
394,024 $ 850,947
- $ 560,000
2020
2019
$ 305,769 $ 162,500
$ 280,273 $ 50,500
364,060 $ 832,329
204,000 $ 534,773
(1) Stock awards reflect the grant date fair value of restricted stock units determined pursuant to FASB ASC Topic 718
awarded during the calendar year, excepting that 2019 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.
63
Executive Employment Arrangement
At no time has the Company entered into employment agreements or arrangements with Messrs. Chesrown, Berrard
or Levy. Accordingly, Messrs. Chesrown, Berrard and Levy are employees as the Company’s Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer, respectively, on an at-will basis.
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 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 August 22, 2019, the Compensation Committee approved two separate RSU grants to Mr. Levy.
● First, 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.
● Second, 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 September 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 September 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
September 30, 2020 (the “COO RSUs”, collectively with the CEO and CFO RSUs, the “Executive RSUs”)
On May 27, 2020, the Committee terminated the Executive RSUs.
On July 15, 2020, the Committee approved the 2020 cash bonus incentive plan. The Committee established a target
bonus ranging from approximately 70% to 115% of base salary for each executive officer, including Messrs. Chesrown, Berrard
and Levy, with a payout based on achievement of specific financial and operational performance objectives. The current base
salaries for the executive officers are as follows: Marshall Chesrown - $360,000; Steven Berrard - $360,000; and Peter Levy -
$300,000.
Also, on July 15, 2020, the Committee approved grants of RSUs pursuant to the Plan for Messrs. Chesrown, Berrard
and Levy as follows: Mr. Chesrown – 19,544 RSUs, Mr. Berrard – 19,544 RSUs and Mr. Levy – 16,287. These RSUs vest (i)
20.0% on the thirteenth month after the grant date, (ii) an additional 30.0% during the subsequent twelve months, and (iii) the
final 50.0% during the following twelve months.
Also, on July 15, 2020, the Committee approved grants of RSUs pursuant to the Plan for Messrs. Chesrown, Berrard
and Levy as follows: Mr. Chesrown – 66,668 RSUs, Mr. Berrard – 66, 666 RSUs, and Mr. Levy – 66,666. These RSUs vest as
follows: one third shall vest on the first trading day after the Company’s Class B Common Stock closes at a stock price of $50
per share or greater for 30 consecutive trading days; one third shall vest on the first trading day after the Company’s Class B
64
Common Stock closes at a stock price of $100 per share or greater for 30 consecutive trading days; and one third shall vest on
the first trading day after the Company’s Class B Common stock closes at a stock price of $200 per share or greater for 30
consecutive trading days. These RSUs have a term of 30 months.
Also, in March 2021, the Committee completed its annual grant of RSUs to company employees, including the grant
of 38,521 RSUs to each of Messrs. Chesrown, Berrard and Levy, subject to shareholder approval of the Plan Increase (as
defined below). These RSUs vest (i) 20.0% on the thirteenth month after the grant date, (ii) an additional 30.0% during the
subsequent twelve months, and (iii) the final 50.0% during the following twelve months.
Non-Employee Director Compensation
The only method of non-employee director compensation is the grant of RSUs. The Company does not pay a cash
retainer, meeting fee, committee membership fee or other such stipend, however the Company does reimburse each non-
employee director for fees travel and expenses related to their attendance, if and when incurred.
On July 15, 2020, the Committee approved the annual compensation for the Company’s non-employee directors of
$150,000 of RSUs to be granted upon a director’s initial appointment or election to the Board of Directors and thereafter at the
beginning of each calendar year. These RSUs vest quarterly, and are subject to prorata vesting if a director leaves the Board of
Directors before the end of each quarterly vesting period. On July 15, 2020, the Committee approved the 2020 calendar year
grants of RSUs for each non-employee directors in the amount of $150,000, except Messrs. Alexander and Marchlik received
grants of RSUs in the amount of $69,451 and $117,436, respectively.
The following table summarizes the compensation paid to our non-employee directors for the year ended December
31, 2020.
Adam Alexander (2)
Denmar Dixon
Richard Gray
Kartik Kakarala (3)
Mike Marchlik (4)
Kevin Westfall
Name
Stock
Awards (1)
Total
69,451 $
$
69,451
$ 150,000 $ 150,000
$ 150,000 $ 150,000
$
-
- $
$ 117,436 $ 117,436
$ 150,000 $ 150,000
(1) Stock awards reflect the grant date fair value of restricted stock units determined pursuant to FASB ASC Topic 718
awarded during the calendar year.
(2) Mr. Alexander joined the Board of Directors on July 15, 2020.
(3) Mr. Kakarala resigned effective July 15, 2020.
(4) Mr. Marchlik joined the Board of Directors on May 6, 2020.
65
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 March 26, 2021, 50,000 shares of Class A Common Stock and 2,286,404 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 March 26, 2021, 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
Adam Alexander
Peter Levy
Richard Gray
Michael Marchlik
All executive officers and directors as a group (8 persons)(6)
Percentage
of Class A
Common
Stock
Beneficially
Owned
(%)(1)
Class A
Common
Stock
Beneficially
Owned
Class B
Common
Stock
Beneficially
Owned
Percentage
of Class B
Common
Stock
Beneficially
Owned
(%)(2)
43,750
6,250
-
-
-
-
-
-
-
95,750 (7)
87.5 %
12.5 % 108,500 (7)
98,110 (8)
-
23,088 (9)
-
9,781 (10)
-
9,943 (7)(11)
-
23,818 (12)
-
11,908 (13)
-
- 380,989 (14)
4.19 %
4.75 %
4.29 %
1.01 %
* %
* %
1.04 %
* %
16.59 %
*Represents beneficial ownership of less than 1%.
(1) Based on 50,000 shares of Class A Common Stock issued and outstanding as of March 26, 2021. The Class A Common
Stock has ten votes for each share.
(2) Based on 2,286,404 shares of Class B Common Stock issued and outstanding as of March 26, 2021. The Class B
Common Stock has one vote for each share.
(3) As of March 26, 2021, Mr. Chesrown has voting power representing approximately 19.14% 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 March 26, 2021, Mr. Berrard has voting power representing approximately 6.14%
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 31,930 shares are directly held by Mr. Dixon
(including 2,641 shares held in a joint account with Mr. Dixon's spouse). Mr. Dixon has the sole power to vote and the
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sole power to dispose of each of the shares of common stock which he may be deemed to beneficially own. As of March
26, 2021, Mr. Dixon has voting power representing 3.42% of our outstanding common stock.
(6) As of March 26, 2021, all directors and executive officers as a group have voting power representing approximately
31.24% of our outstanding common stock.
(7) Does not include the following performance based restricted stock units for Messrs. Chesrown, Berrard and Levy: Mr.
Chesrown – 66,668 restricted stock units, Mr. Berrard – 66, 666 restricted stock units, and Mr. Levy – 66,666. These
restricted stock units vest as follows: one third shall vest on the first trading day after the Company’s Class B Common
Stock closes at a stock price of $50 per share or greater for 30 consecutive trading days; one third shall vest on the first
trading day after the Company’s Class B Common Stock closes at a stock price of $100 per share or greater for 30
consecutive trading days; and one third shall vest on the first trading day after the Company’s Class B Common stock
closes at a stock price of $200 per share or greater for 30 consecutive trading days.
(8)
Includes 1,239 restricted stock units that have vested and are pending delivery and 1,586 restricted stock units that will
vest within 60 days.
(9)
Includes 510 restricted stock units that have vested and are pending delivery and 1,378 restricted stock units that will
vest within 60 days.
(10) Includes 1,232 restricted stock units that will vest within 60 days.
(11) Includes 1,042 restricted stock units that have vested and are pending delivery and 396 restricted stock units that will
vest within 60 days.
(12) Includes 510 restricted stock units that have vested and are pending delivery and 1,378 restricted stock units that will
vest within 60 days.
(13) Includes 1,232 restricted stock units that will vest within 60 days.
(14) Includes 3,301 restricted stock units that have vested and are pending delivery and 7,202 restricted stock units that will
vest within 60 days.
In connection with the RideNow Transaction, we will issue approximately 5.8 million shares of our Class B Common
Stock to the Sellers and additional shares of our Class B Common Stock in connection with the anticipated issuance of new
equity to finance the cash consideration. These issuances of our Class B Common Stock may be deemed a change in control.
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. On August 25,
2020 the Company's stockholders approved another amendment to the Plan to increase the number of shares authorized for
issuance under the Plan from 200,000 to 700,000 shares of Class B Common Stock. In contemplation of the RideNow
Transaction, on March 9, 2021, the Board approved, upon the recommendation of the Compensation Committee, subject to
stockholder approval, an amendment to the Incentive Plan to increase the authorized shares of Class B Common Stock available
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under the Incentive Plan from 700,000 shares to 2,700,000 shares and extend the terms of the Incentive Plan for an additional
ten years (the “Plan Increase”). We have not maintained any other equity compensation plans since our inception.
The following table provides information as of December 31, 2020, with respect to all of our compensation plans
under which equity securities are authorized for issuance:
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Number of
securities
to be issued
upon
exerciseof
outstanding
options,
warrants
and rights
Number of
securities
remaining
available for
future
issuance
446,594 (1) 195,507 (2)
-
-
(1) Represents restricted stock units or options outstanding under the Incentive Plan.
(2) Represents securities remaining available for future issuance under the Incentive Plan.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
We have been a party to the following transactions since January 1, 2019, 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 and Mr. Dixon received
32,276 shares of Class B Common Stock and promissory notes in the aggregate principal amount of $370,556 (the "Blue Flame
Notes").
Halcyon Acquisition Note
On February 8, 2017, in connection with the acquisition of NextGen, the Company issued the Acquisition Note in
favor of NextGen (which note was subsequently assigned to Halcyon Consulting, LLC ("Halcyon"), an entity affiliated with
Kartik Kakarala, a former director of the Company in February 2018) in the amount of $1,333,334. Interest accrued and was
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 Acquisition Note would become immediately due and payable upon election
of the holder. The Company's obligations under the Acquisition Note were 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 agreed to guarantee the performance of all the Company's obligations under the Acquisition Note.
68
2020 Note Exchange
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 Acquisition Note, and certain of the Company's investors extended the maturity of currently
outstanding promissory notes, including the Blue Flame Notes and the Acquisition Note, 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,
such New Investor Note for an aggregate principal amount of $833,333, Blue Flame, 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 $1.5 million, matured on January
31, 2021, and were 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.
On January 31, 2021, the Company paid $837,672 and $384,292, representing the total outstanding principal plus
accrued interest on the New Investor Notes held by (1) Halcyon and (2) Blue Flame and Mr. Dixon, respectively.
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. One of the leases was terminated in
2019. The other location has a lease term expiring on October 30, 2021, for which 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 rent for the current location
is approximately $25,000 per month, and is further described in Item 2 - Properties.
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, and Berrard 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.
69
Item 14.
Principal Accounting Fees and Services.
The following table sets forth Grant Thornton's fees for the years ended December 31, 2020 and 2019.
Audit fees(1)
Tax fees
All other fees
Total
2020
2019
$ 475,200 $ 340,000
-
-
-
-
$ 475,200 $ 340,000
(1) Includes fees for audits of our annual financial statements, reviews of the related quarterly financial statements and services
that are normally provided by the independent accountants in connection with statutory and regulatory filings or
engagements, including reviews of documents filed with the SEC.
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 during the fiscal year ended December 31, 2020 and 2019 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.
70
Item 15.
Exhibits, Financial Statement Schedules.
PART IV
(a) We have filed the following documents as part of this Annual Report on Form 10-K:
1.
2.
3.
The financial statements listed in the "Index to Financial Statements" on page F-1 are filed as part of this
report.
Financial statement schedules are omitted because they are not applicable, or the required information is
shown in the financial statements or notes thereto.
Exhibits included or incorporated herein: See below.
Exhibit
Number 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
2.3
2.4
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
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).
Plan of Merger and Equity Purchase Agreement, dated March 12, 2021 (Incorporated by reference to Exhibit 2.1
in the Company's Current Report on Form 8-K, filed on March 15, 2021).
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).
Certificate of Change (Incorporated by reference to Exhibit 3.1 in the Company's Current Report on Form 8-K,
filed on May 19, 2020).
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 January 14, 2020, 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 January 16,
2020).
Form of 6.75% Convertible Senior Note due 2025 (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).
71
4.9
4.10
4.11
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Form of Registration Rights Agreement, dated January 14, 2020 (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 (Incorporated by reference to Exhibit 4.11 in the Company's Annual Report
on Form 10-K, filed on May 29, 2020).
Warrant, dated March 12, 2021 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on
Form 8-K, filed on March 15, 2021).
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).
Unconditional Guaranty Agreement (Incorporated by reference to Exhibit 10.12 in the Company's Annual Report
on Form 10-K, filed on February 14, 2017).
Security Agreement (Incorporated by reference to Exhibit 10.13 the Company's Annual Report on Form 10-K,
filed on February 14, 2017).
NextGen Promissory Note, dated February 8, 2017 (Incorporated by reference to Exhibit 10.1 in the Company's
Quarterly Report on Form 10-Q, filed on May 15, 2017).
RumbleOn, Inc. Form of Promissory Note (Incorporated by reference to Exhibit 10.1 in the Company's Current
Report on Form 8-K, filed on April 5, 2017).
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).
10.10
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).
10.11
10.12
10.13
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).
10.14
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).
10.15
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).
10.16
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).
10.17
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).
10.18
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).
10.19
Form of Note Exchange & Subscription Agreement, dated January 10, 2020 (Incorporated by reference to Exhibit
10.1 in the Company's Current Report on Form 8-K, filed on January 16, 2020).
10.20
Form of Joinder & Amendment, dated January 10, 2020 (Incorporated by reference to Exhibit 10.2 in the
Company's Current Report on Form 8-K, filed on January 16, 2020).
10.21
Form of Investor Note Exchange Agreement, dated January 10, 2020 (Incorporated by reference to Exhibit 10.3
in the Company's Current Report on Form 8-K, filed on January 16, 2020).
10.22
Form of New Investor Note, dated January 10, 2020 (Incorporated by reference to Exhibit 10.4 in the Company's
Current Report on Form 8-K, filed on January 16, 2020).
72
10.23
Form of Security Agreement, dated January 14, 2020 (Incorporated by reference to Exhibit 10.5 in the Company's
Current Report on Form 8-K, filed on January 16, 2020).
10.24
10.25
10.26
COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and
RumbleOn, Inc. (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed
on May 7, 2020).
COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and
Wholesale, Inc. (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K, filed
on May 7, 2020).
COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and
Wholesale Express, LLC. (Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-
K, filed on May 7, 2020).
10.27
Paycheck Protection Program Note, dated May 1, 2020, executed by RumbleOn, Inc. (Incorporated by reference
to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.28
Paycheck Protection Program Note, dated May 1, 2020, executed by Wholesale, Inc. (Incorporated by reference
to Exhibit 10.5 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.29
Paycheck Protection Program Note, dated May 1, 2020, executed by Wholesale Express, LLC (Incorporated by
reference to Exhibit 10.6 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.30
Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. + (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on August 26, 2020).
10.31
Commitment Letter, dated March 12, 2021 (Incorporated by reference to Exhibit 10.1 in the Company's Current
Report on Form 8-K, filed on March 15, 2021).
10.32
Secured Promissory Note, dated March 12, 2021 (Incorporated by reference to Exhibit 10.2 in the Company's
Current Report on Form 8-K, filed on March 15, 2021).
10.33
Registration Rights and Lock-Up Agreement, dated March 12, 2021 (Incorporated by reference to Exhibit 10.3 in
the Company's Current Report on Form 8-K, filed on March 15, 2021).
Subsidiaries
Consent of Grant Thornton LLP
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
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.
104
__________________
* Furnished herewith
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
+ 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.
73
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 31, 2021
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
/s/ Marshall Chesrown
Marshall Chesrown
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
Date
March 31, 2021
/s/ Steven R. Berrard
Steven R. Berrard
Director and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
March 31, 2021
/s/ Adam Alexander
Adam Alexander
/s/ Denmar Dixon
Denmar Dixon
Director
Director
/s/ Richard A. Gray, Jr.
Richard A. Gray, Jr.
Director
/s/ Michael Marchlik
Michael Marchlik
/s/ Kevin Westfall
Kevin Westfall
Director
Director
March 31, 2021
March 31, 2021
March 31, 2021
March 31, 2021
March 31, 2021
74
Index to Financial Statements
F-2
Report of Independent Registered Public Accounting Firm
F-4
RumbleOn, Inc. Consolidated Balance Sheets as of December 31, 2020 and 2019
RumbleOn, Inc. Consolidated Statements of Operations For the Two Years Ended December 31, 2020 and 2019
F-5
RumbleOn, Inc. Consolidated Statement of Stockholders' Equity For the Two Years Ended December 31, 2020 and 2019 F-6
F-7
RumbleOn, Inc. Consolidated Statements of Cash Flows For the Two Years Ended December 31, 2020 and 2019
F-8
RumbleOn, Inc. Notes to Financial Statements
F
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
RumbleOn Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of RumbleOn, Inc. (a Nevada corporation) and subsidiaries
(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity,
and cash flows for each of the two years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United
States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Quantitative goodwill impairment assessment of the Automotive reporting unit
As described in Note 1 to the consolidated financial statements, management performs its annual goodwill impairment test on
December 31 or earlier upon occurrence of an indicator of potential impairment. During the first quarter of 2020, management
determined indicators of potential impairment existed and as a result performed a quantitative impairment test of its Automotive
reporting unit as of March 31, 2020. The Company’s impairment test indicated no impairment existed as the estimated fair
value of the reporting unit exceeded its carrying value as of March 31, 2020. We identified the goodwill valuation impairment
assessment of the Automotive reporting unit performed during the first quarter of 2020 to be a critical audit matter.
The principal considerations for our determination that the goodwill impairment assessment performed during the first quarter
of 2020 is a critical audit matter include the significant judgments and assumptions management makes when estimating the
fair value measurement of the Automotive reporting unit. Estimates of future performance and market conditions used to arrive
at the net present value of future cash flows, which is used within the goodwill impairment analysis, are subjective in nature.
In particular, the Company’s fair value estimate was sensitive to assumptions including the discount rate and revenue growth
rates, which are affected by expectations about future market or economic conditions. Auditing the fair value measurement
F-2
involved a high degree of auditor judgment, subjectivity, and audit effort in evaluating management’s significant assumptions.
In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Our audit procedures related to the goodwill impairment assessment during first quarter of 2020 for the Automotive reporting
unit included the following, among others. We evaluated management’s ability to accurately forecast revenues and cash flows
by comparing actual results to management’s historical forecasts. With the assistance of a valuation specialist we assessed the
methodologies and underlying assumptions used including the application of the discount rate by the Company.
Fair value determination used in the Convertible Note Exchange
As described further in Note 8 to the consolidated financial statements, the Company entered into a Note Exchange and
Subscription Agreement to exchange the previous $30 million in convertible notes (“Old Note”) issued in 2019 for a new series
of $38 million Convertible Senior Notes (“New Note”) issued in 2020 which was determined as an extinguishment of debt. To
determine the gain on extinguishment of the Old Note, the Company measured the fair value of the Old Note and New Note.
The debt agreement contains an equity conversion feature and a make-whole interest provision, which were bifurcated into
liability and equity components. The fair value of the liability and equity components at inception are deducted from the
carrying value of the Notes and amortized to interest expense using the effective interest method over the life of the Notes. We
identified the determination of the fair value measurements of the debt instruments and allocation of proceeds between equity
and liability components, at the date of the exchange to be a critical audit matter.
The principal considerations for the determination that the fair value measurement of the convertible debt instruments and
allocation of proceeds between equity and liability components is a critical audit matter are the requirements of significant
auditor judgment and effort. A high degree of auditor judgment and subjectivity was required in assessing the reasonableness
of the significant assumptions utilized in the determination of the respective fair values which included the discount rate and
stock price volatility. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Our audit procedures related to the fair value determination of the convertible debt instruments and allocation of proceeds
between liability and equity components included the following, among others. We traced significant key terms including the
stated interest rate and conversion price to the respective agreements. With the assistance of a valuation specialist we developed
an independent expectation related to the fair values and assessed the reasonableness of the methodology and underlying
assumptions, including the discount rate and stock price volatility used by the Company.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2019.
Dallas, Texas
March 31, 2021
F-3
RumbleOn, Inc.
Consolidated Balance Sheets
as of December 31, 2020 and 2019
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 liabilities and other long-term liabilities
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 0 shares
issued and outstanding as of December 31, 2020 and 2019, respectively
Common A stock, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and
outstanding as of December 31, 2020 and 2019, respectively
Common B stock, $0.001 par value, 4,950,000 shares authorized, 2,191,633 and
1,111,681 shares issued and outstanding as of December 31, 2020 and 2019, respectively
Additional paid in capital
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
See Accompanying Notes to Financial Statements.
F-4
2020
2019
$
1,466,831 $
49,660
2,049,056 6,676,622
9,407,960 8,482,707
21,360,441 57,381,281
3,446,225 1,210,474
37,730,513 73,800,744
6,521,446 6,427,674
5,689,637 6,040,287
26,886,563 26,886,563
237,823
$ 76,979,235 $ 113,393,091
151,076
1,485,854
$ 12,707,448 $ 12,421,094
749,305
562,502 1,363,590
20,688,651 59,160,970
35,444,455 73,694,959
16,694
4,691,181 1,924,733
27,166,019 20,136,229
27,500
5,090,221 4,722,101
36,964,115 26,810,563
72,408,570 100,505,522
-
50
-
50
2,192
1,112
108,949,204 92,268,213
(104,380,781 ) (79,381,806 )
4,570,665 12,887,569
$ 76,979,235 $ 113,393,091
RumbleOn, Inc.
Consolidated Statements of Operations
For the Two Years Ended December 31, 2020 and 2019
Revenue:
Pre-owned vehicle sales:
Powersports
Automotive
Transportation and vehicle logistics
Other
Total revenue
Cost of revenue:
Powersports
Automotive
Transportation and vehicle logistics
Cost of revenue before impairment loss
Impairment loss on automotive inventory
Total cost of revenue
Gross profit
Selling, general and administrative
Insurance recovery proceeds
Depreciation and amortization
Operating loss
Interest expense
Decrease in derivative liability
Gain (loss) on early extinguishment of debt
Net loss before provision for income taxes
Benefit for income taxes
Net loss
2020
2019
$ 46,653,668 $ 101,008,976
337,084,959 717,042,511
31,816,157 22,577,860
872,459
416,427,243 840,629,347
40,060,571 88,673,515
308,800,631 685,313,894
24,200,229 16,023,962
373,061,431 790,011,371
-
11,738,413
384,799,844 790,011,371
31,627,399 50,617,976
53,659,348 86,624,249
(5,615,268 )
-
2,142,939 1,786,426
(18,559,620 ) (37,792,699 )
(6,638,325 ) (7,187,604 )
10,806 1,302,500
188,164 (1,499,250 )
(24,998,975 ) (45,177,053 )
-
-
$ (24,998,975 ) $ (45,177,053 )
Weighted average number of common shares outstanding - basic and fully diluted
2,184,441 1,114,714
Net loss per share - basic and fully diluted
$
(11.44 ) $
(40.53 )
See Accompanying Notes to Financial Statements.
F-5
RumbleOn, Inc.
Consolidated Statement of Stockholders' Equity
For the Two Years Ended December 31, 2020 and 2019
Preferred Shares
Shares
Amount
Common A
Shares
Shares Amount Shares
Common B Shares
Amount
Additional
Paid in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity
(Deficit)
-
-
-
-
Balance, December 31, 2018 1,317,329 $
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
Balance, December 31, 2019
Issuance of common stock,
net of issuance cost
Issuance of common stock
for restricted stock units
Adjustment for fractional
shares in reverse stock split
Convertible note exchange
Stock-based compensation
Net loss
Balance, December 31, 2020
(1,317,329 )
-
-
-
-
-
-
-
-
-
-
-
1,317 50,000 $
50 874,315 $
874 $ 65,016,379 $ (34,201,114 ) $ 30,817,506
-
-
-
-
-
-
(3,639 )
(3,639 )
-
-
-
-
-
-
-
-
-
7,745,625
-
7,745,625
-
12,675
13
(13 )
-
-
-
-
-
495,185
-
495,185
-
(1,317 )
-
-
-
-
-
-
- 50,000 $
-
65,866
- 158,825
-
-
-
-
50 1,111,681 $
66
1,251
159 15,173,268
3,836,518
-
-
- 15,173,427
3,836,518
-
- (45,177,053 ) (45,177,053 )
1,112 $ 92,268,213 $ (79,381,806 ) $ 12,887,569
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 50,000 $
- 1,035,000
1,035 10,779,045
- 10,780,080
-
37,821
38
(38 )
-
-
-
-
-
-
7,131
-
-
-
50 2,191,633
7
-
-
-
(7 )
2,923,755
2,978,236
-
-
2,923,755
-
2,978,236
-
- (24,998,975 ) (24,988,975 )
4,570,655
2,192 $ 108,949,204 $ (104,380,781 ) $
See Accompanying Notes to Financial Statements.
F-6
RumbleOn, Inc.
Consolidated Statements of Cash Flows
For the Two Years Ended December 31, 2020 and 2019
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
Impairment loss on inventory
Impairment loss on property and equipment
Gain from change in value of derivatives
Loss from extinguishment of debt
Goodwill impairment
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
(Increase) decrease in inventory
(Increase) in prepaid expenses and other current assets
(Increase) decrease in other assets
Increase in other liabilities
(Decrease) increase in accounts payable and accrued liabilities
Increase in accrued interest payable
Net cash provided by (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 (payments on) lines of credit
Proceeds from PPP Loan
Proceeds from sale of common stock
Net cash (used in) provided by financing activities
NET CHANGE IN CASH
2020
2019
$ (24,998,975 ) $ (45,177,053 )
2,142,939 1,786,426
2,027,046 1,664,000
310,721 1,123,739
2,978,236 3,836,518
-
11,738,413
177,626
-
(10,806 ) (1,302,500 )
(188,164 ) 1,499,250
- 1,850,000
(1,235,974 ) 2,037,023
24,282,427 (2,327,754 )
(113,529 )
(2,235,751 )
(135,645 )
86,747
720,067
-
152,126 (5,031,073 )
1,196,549
543,268
17,143,227 (39,747,330 )
-
38,436
(835,000 )
169,268
(2,145,055 ) (3,085,743 )
(119,748 )
(2,281,405 ) (3,871,223 )
(174,786 )
8,272,375 27,455,537
(1,767,758 ) (10,857,500 )
(40,533,759 ) 2,788,469
5,176,845
-
10,780,080 15,173,427
(18,072,217 ) 34,559,933
(3,210,395 ) (9,058,620 )
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD
6,726,282 15,784,902
CASH AND RESTRICTED CASH AT END OF PERIOD
$ 3,515,887 $ 6,726,282
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 was 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 wanted to make 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 both dealers and regional
partners, which are primarily auctions. The Company utilizes regional partners in the acquisition of pre-owned vehicles to
F-8
provide inspection, reconditioning and distribution services. These regional partners earn incremental revenue and enhance
profitability through fees from inspection, reconditioning and distribution programs.
Our business model is driven by our proprietary technology platform. Our initial platform was acquired in February
2017, through our acquisition of substantially all of the assets of NextGen Dealer Solutions, LLC ("NextGen"). Since that time,
we have expanded the functionality of that platform through a significant number of high-quality technology development
projects and initiatives. Included in these new technology development projects and initiatives are modules or significant
upgrades to the existing platforms for: (i) Retail and dealer online auctions; (ii) native IOS and Android apps; (iii) new
architecture on website design and functionality; (iv) RumbleOn Marketplace; (v) redesigned cash offer tool;(vi) deal-jacket
tracking tool; (vii) inventory tracking tool; (viii) CRM and multiple third-party integrations; (ix) new analytics and machine
learning initiatives; and (x) IT monitoring infrastructure.
The rapid spread of COVID-19 since March 2020 has resulted in authorities implementing numerous measures to try
to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures
have impacted and may further impact all or portions of our workforce and operations, the behavior of our customers, and the
operations of our partners, vendors, and suppliers. While the federal and state governments have taken measures to try to
contain the COVID-19 pandemic, there is considerable uncertainty regarding such measures and potential future measures. The
COVID-19 situation has created an unprecedented and challenging time for our Company. Our current focus is on positioning
the Company for a strong recovery when this crisis is over. During 2020 we took 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; however, in April 2020 we laid-off 169 associates.
Future restrictions on our access to and utilization of our logistics and distribution network, our corporate offices, the inspection
and reconditioning centers of our partners, and/or our support operations or workforce, or similar limitations for our partners,
vendors, or suppliers, and restrictions or disruptions of transportation, could further limit our ability to conduct our business
and have a material adverse effect on our business, operating results, financial condition and prospects. There is no certainty
that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and
our ability to perform critical functions could be harmed.
The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations, financial
condition, and liquidity will depend on the success of the roll out of the vaccines and the efficacy of the vaccines and other
future developments, which are highly uncertain and cannot be predicted. 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.
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
The accompanying consolidated financial statements of the Company have been prepared in conformity with U.S.
GAAP, which contemplate continuation of the Company as a going concern. The Company has incurred losses from inception
through December 31, 2020 and may incur additional losses in the future. As the Company continues to expand its business,
build its brand name and awareness and continues technology and software development efforts, it may need access to
additional capital. Historically, the Company has raised additional equity or debt instruments to fund the expansion; refer to
Note 8 — NOTES PAYABLE and Note 9 — STOCKHOLDER'S EQUITY. Management believes that current working
capital, availability of equity under its current shelf registration statement, results of operations, and expected continued
inventory financing are sufficient to fund operations for at least one year from the financial statement issuance date.
The worldwide spread of the COVID-19 outbreak has resulted in a global slowdown of economic activity which
decreased demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and
supply chains for an unknown period of time until the outbreak is contained. This is impacting the Company's business and the
powersport, automotive and transport industries as a whole. The Company has positioned its business today to be lean and
flexible in this period of lower demand and higher uncertainty with the goal of preparing the Company for a strong recovery
as the crisis is contained. The Company believes its online business model allows it to quickly respond to market demand or
changes in the businesses it operates as the COVID-19 pandemic continues.
F-9
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions. Certain accounting estimates involve significant judgments, assumptions and
estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of
contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period, which
management considers to be critical accounting estimates. The judgments, assumptions and estimates used by management are
based on historical experience, management's experience, and other factors, which are believed to be reasonable under the
circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ
materially from these judgments and estimates. In particular, the novel COVID-19 pandemic and the resulting adverse impacts
to global economic conditions, as well as the Company's operations, may impact future estimates including, but not limited to
inventory valuations, fair value measurements, asset impairment charges and discount rate assumptions.
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.
F-10
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 of the consideration transferred over the fair value of the identifiable assets acquired
and liabilities assumed in business combinations. Goodwill is tested for impairment annually as of December 31, or whenever
events or changes in circumstances indicate that an impairment may exist. 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. In performing our annual goodwill impairment test, we first review qualitative factors to determine whether it
is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing qualitative
factors, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount,
then performing the quantitative test is unnecessary and our goodwill is not considered to be impaired. However, if based on
the qualitative assessment we conclude that it is more likely than not that the fair value of the reporting unit is less than its
carrying amount, or if we elect to bypass the optional qualitative assessment as provided for under GAAP, we proceed with
performing the quantitative impairment test.
Due to the significant decline in the Company’s stock price and the economic effect of COVID-19, the Company
determined a triggering event for Goodwill impairment existed as of March 31, 2020. As a result, the Company performed a
quantitative impairment analysis for the Automotive segment. The Company’s impairment test indicated no impairment existed
as the estimated fair value of the reporting unit exceeded its carrying value at March 31, 2020. In connection with its annual
goodwill impairment test as of December 31, 2020, the Company performed impairment assessments by reviewing qualitative
factors for each of its reporting units. The results of the assessments indicated that it was not more likely than not that the fair
value of the reporting units were less than the carrying values and no goodwill impairment was determined to exist for the years
ended December 31, 2020.
In connection with its annual goodwill impairment test as of December 31, 2019 for the three reportable segments 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
F-11
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.
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 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,
2020 and 2019.
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. For the year ended December 31, 2020, the Company recorded
an impairment loss on property and equipment of $177,626 due to the Nashville Tornado. No impairment charges on property
and equipment were recorded during the year ended December 31, 2019. 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
F-12
to
expenses, and (iii) costs of Company employees devoted
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 5 years. The Company will perform periodic assessment of
the useful lives assigned to capitalized software applications. Additionally, the Company from time-to-time may abandon
additional development activities relating to specific software projects or applications and charge accumulated costs to
technology development expense in the period such determination is made.
Vehicle Inventory
Vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of the cost to acquire and recondition
a pre-owned vehicle. Reconditioning costs are billed by third-party providers and includes parts, labor, and other repair
expenses directly attributable to a specific vehicle. 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 $1,569,086 and $1,034,919 as of December 31, 2020 and 2019,
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, 2020, and 2019, 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 agreed 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. The Credit Facility ended in February 2020.
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, as borrower, entered into a $70,000,000 floorplan vehicle financing credit line (the "NextGear Credit Line") with
NextGear Capital, Inc. ("NextGear"). During the quarter ended September 30, 2020 the Company and NextGear agreed to
reduce the credit line to $55,000,000 with Wholesale and Autosport limiting the aggregate amount of advances under the credit
line to $20,000,000 through June 30, 2021, at which time the credit line will be repaid in full. Advances under the NextGear
Credit Line require Wholesale to maintain at least $2,000,000 cash collateral in a reserve account in favor of NextGear, which
amount is subject to change in NextGear's sole discretion.
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.
F-13
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, 2020 and December 31, 2019. The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts
payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature
and their carrying amounts approximate fair values or they are payable on demand.
ASC Topic 820-10-30-2-Fair Value Measurement establishes a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most
observable inputs be used when available. Observable inputs are from sources independent of the Company, whereas
unobservable inputs reflect the Company's assumptions about the inputs market participants would use in pricing the asset or
liability developed on the best information available in the circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1: The preferred inputs to valuation efforts are "quoted prices in active markets for identical assets or liabilities,"
with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations
of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However,
relatively few items, especially physical assets, actually trade in active markets.
Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and,
even when they do exist, they may be too thin to provide reliable information. Inputs other than quoted market prices included
in Level 1, that are observable for the asset or liability, either directly or indirectly, are Level 2 inputs.
Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets
and liabilities are less precise. The board describes Level 3 inputs as "unobservable," and limits their use by saying they "shall
be used to measure fair value to the extent that observable inputs are not available." This category allows "for situations in
which there is little, if any, market activity for the asset or liability at the measurement date". Earlier in the standard, FASB
explains that "observable inputs" are gathered from sources other than the reporting company and that they are expected to
reflect assumptions made by market participants.
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
F-14
either a) the Black Scholes valuation model or b) an open-form binomial option pricing model (“lattice model”) that simulates,
in a non-linear, risk-neutral framework, the stock price of the Company’s common stock.
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, 2020
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.
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 $5,287,284
and $18,228,262 for the years ended December 31, 2020 and 2019, respectively.
F-15
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 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"). On August 25, 2020, the Company's stockholders approved another
amendment to the Plan to increase the number of shares authorized for issuance under the Plan from 200,000 shares of Class
B Common Stock to 700,000 shares of Class B Common Stock (the "Third Plan Amendment"). To date, the vesting of RSU
and Option awards is service / time based. 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 months 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. Performance-based awards and market condition-based awards granted to
date have vesting schedules that are typically dependent on achieving a particular objective within thirty (30) months.
The Company estimates the fair value of awards granted under the Plan on the date of grant. In the case of time or
service based RSU awards, the fair value based on the share price of the Class B Common Stock on the date of the award.
Performance Awards use the share prices of the Class B Common Stock but the Company, both at grant and each subsequent
quarter, considers whether to a apply discount to the fair in situations where the Company believes there is risk that the relevant
performance metrics may not be met. Options are calculated using the Black-Scholes option valuation model while market-
condition based awards are estimated using a Monte Carlo simulation model as these awards are tied to a market condition.
Both the Black-Sholes and Monte-Carlo simulations utilize multiple input variables to determine the probability of the
Company’s Class B stock price being at certain prices over certain time periods, resulting in an implied value to the holder; the
2020 market-condition based awards assumed expected volatility to be 125% and a risk-free interest rate of 1.0%. We generally
expense the grant-date fair value of all awards on a straight-line basis over the vesting period.
During the year ended December 31, 2020, the Company granted 416,685 RSUs and 250 Options under the Plan to
members of the Board of Directors, officers and employees. Compensation expense for the years ended December 31, 2020
and 2019 was $2,978,236 and $3,836,518, respectively, and is included in selling, general and administrative expenses in the
consolidated statements of operations. At December 31, 2020, total unrecognized compensation cost related to awards issued
under the Plan and still outstanding and unvested was $3,258,746 and the weighted average period over which this cost is
expected to be recognized is approximately 1.04 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, 2020, 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.
F-16
Recent Pronouncements
Adoption of New Accounting Standards.
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, 2020. The standard did not have a material
impact on the Company's consolidated statements of operations or statements of cash flows.
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. In November 2019, the FASB issued ASU No. 2019-
10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective
Dates ("ASU 2019-10"). The purpose of this amendment is to create a two tier rollout of major updates, staggering the effective
dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller
Reporting Companies ("SRCs"), additional time to implement major FASB standards, including ASU 2016-13. Larger public
companies will still have an effective date for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until the
earlier of fiscal periods beginning after December 15, 2022. Under the current SEC definitions, the Company meets the
definition of an SRC as of the ASU 2019-10 issuance date and is adopting the deferral period for ASU 2016-13. Finance
receivables originated in connection with the Company's vehicle sales are held for sale and are subsequently sold. At December
31, 2020 and 2019, finance receivables were $2,117,809 and $147,893, respectively.
NOTE 2 –ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following as of December 31,
Trade
Finance
Less: allowance for doubtful accounts
2020
2019
$ 8,859,237 $ 9,369,733
2,117,809
147,893
10,977,046 9,517,626
1,569,086 1,034,919
$ 9,407,960 $ 8,482,707
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
2020
2019
$ 1,869,830 $ 10,365,050
19,592,896 47,599,433
21,462,726 57,964,483
583,202
102,285
$ 21,360,441 $ 57,381,281
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, 2020, there have been no payments
earned under the performance threshold. See Note 1 – Description of Business and Significant Accounting Policies for
additional information on the Autosport Acquisition.
The following table summarizes the final allocation of the purchase price based on the estimated fair value of the
acquired assets and assumed liabilities of Autosport as of December 31, 2019.
Purchase price consideration:
Cash
$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
F-18
$ 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
Supplemental pro forma unaudited information (unaudited)
There were no acquisitions in 2020. Pro forma adjustments for the year ended December 31, 2019 related to the
Autosport Acquisition primarily include adjustments to reflect the: (i) amortization of stock compensation expense of $18,351;
and (ii) interest expense of $20,174.
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 )
$
$
$
1,122,058
The following table summarizes property and equipment, net of accumulated depreciation and amortization as of
December 31,
2020
2019
Vehicles
Furniture and equipment
Technology development and software
Leasehold improvements
Total property and equipment
Less: accumulated depreciation and amortization
Total
191,047
$ 240,603 $ 158,327
448,074
11,008,302 8,863,247
246,135
11,761,035 9,715,783
5,239,589 3,288,109
$ 6,521,446 $ 6,427,674
321,082
Amortization and depreciation on Property and Equipment is determined on a straight-line basis over the estimated
useful lives ranging from 3 to 5 years.
On December 31, 2020, capitalized technology development costs were $10,800,292 which includes $2,900,000 of
software acquired in the NextGen transaction. Total technology development costs incurred was $3,529,743 for the year ended
December 31, 2020 of which $2,145,055, was capitalized and $1,384,688, was charged to expense in the accompanying
Consolidated Statements of Operations. Depreciation expense for the year ended December 31, 2020 was $2,142,939, which
included the amortization of capitalized technology costs of $1,887,305. Total technology development costs incurred was
$5,494,082 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.
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, 2020 and 2019.
Balance at December 31, 2018
Acquisitions
Impairment
Measurement period adjustment
Balance at December 31, 2019
Acquisitions
Impairment
Balance at December 31, 2020
F-19
Indefinite
Lived
Intangible
Assets
45,515
-
-
-
45,515
-
-
45,515
Goodwill
$ 26,107,146 $
2,964,278
(1,850,000 )
(334,861 )
26,886,563
-
-
$ 26,886,563 $
The following is a summary of the changes in the carrying amount of goodwill by reportable segment during the years
ended December 31, 2020 and 2019.
Balance at December 31, 2018
Acquisitions
Impairment
Measurement period adjustment
Balance at December 31, 2019
Acquisitions
Impairment
Balance at December 31, 2020
Vehicle
Logistics
Total
Powersports Automotive
$ 1,850,000 $ 23,074,775 $ 1,182,371 $ 26,107,146
- 2,964,278
- 2,964,278
- (1,850,000 )
-
(1,850,000 )
(334,861 )
(334,861 )
-
-
847,510 26,886,563
- 26,039,053
-
-
-
-
-
-
- $ 26,039,053 $ 847,510 $ 26,886,563
-
-
$
We test for impairment of our intangible assets at least annually. During the year ended December 31, 2020, we did
not recognize any impairment loss on goodwill. 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. 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, 2020 and 2019:
Accounts payable
Operating lease liability-current portion
Accrued payroll
State and local taxes
Other accrued expenses
Total
2020
2019
$ 8,167,957 $ 8,730,624
1,630,002 1,423,610
715,658
1,079,771
912,062
856,341
639,140
973,377
$ 12,707,448 $ 12,421,094
F-20
NOTE 8 – NOTES PAYABLE AND LINES OF CREDIT
Notes payable consisted of the following as of December 31,
Notes payable-NextGen dated February 8, 2017. Interest is payable semi-annually at 6.5%
through February 9, 2019 and 8.5% through February 10, 2020 and 10.0% thereafter through
maturity, which is January 31, 2021.
$ 833,334 $ 1,333,334
2020
2019
Notes payable-private placement dated March 31, 2017. Interest is payable semi-annually at
8.5% through March 31, 2020 and 10.0% thereafter through maturity which is June 30, 2021.
Unamortized debt discount was $0 and $75,601 as of December 31, 2020 and December 31,
2019, respectively.
669,175
667,000
Line of credit-floor plan Ally dated February 16, 2018. Facility provides up to $25,000,000 of
available credit secured by vehicle inventory and other assets. Interest rate at December 31,
2019 was 7.05%. Principal and interest are payable on demand.
- 8,419,897
Line of credit-floor plan NextGear dated October 30, 2018. Secured by vehicle inventory and
other assets. Interest rate at December 31, 2020 was 4.75%. Principal and interest is payable on
demand.
17,811,626 50,741,073
Revolving Line of Credit note secured by the loans and other assets of RumbleOn Finance,
LLC. Interest rate at December 31, 2020 was 7.25%
888,852
PPP Loans dated May 1, 2020. Payments of principal and interest were deferred until
September 1, 2021, at which time the Company will make equal payments of principal and
interest through maturity, which is April 1, 2025.
5,176,845
-
-
Less: Debt discount
Total notes payable and lines of credit
Less: Current portion
Long-term portion
As of December 31, 2020, future principal debt payments are due as follows:
2021
2022
2023
2024
2025
Total debt payments
Line of Credit-Floor Plan-NextGear
(75,601 )
-
25,379,832 61,085,703
20,688,651 59,160,970
$ 4,691,181 $ 1,924,733
$ 485,664
1,391,145
1,405,367
1,419,732
474,936
$ 5,176,845
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 with Wholesale and Autosport limiting
the aggregate amount of advances under the credit line to $20,000,000 through June 30, 2021, at which time the credit line will
be repaid in full. 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, 2020 and 2019, was $1,634,802 and $2,697,591, respectively.
F-21
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 could provide up to $25,000,000 in financing, or such
lesser sum which may be advanced to or on behalf of RMBL MO from time to time, as part of its floorplan vehicle financing
program. Advances under the Credit Facility required that the Company maintain 10.0% of the advance amount as restricted
cash. Advances under the Credit Facility bore interest at a per annum rate designated from time to time by the Lender and were
determined using a 365/360 simple interest method of calculation, unless expressly prohibited by law. Interest expense on the
Credit Facility for the years ended December 31, 2020 and 2019 was $77,266 and $541,702, 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; (ii) at a rate of 8.5% annually from the second anniversary of the closing date through February
10, 2020; and 10.0% thereafter through the Maturity Date. Upon the occurrence of any event of default, the outstanding balance
under the NextGen Note shall become immediately due and payable upon election of the holder. The Company's obligations
under the NextGen Note are secured by substantially all the assets of NextGen Pro, pursuant to an Unconditional Guaranty
Agreement (the "Guaranty Agreement"), by and among NextGen and NextGen Pro, and a related Security Agreement between
the parties, each dated as of February 8, 2017. 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. As discussed below the note was
exchanged for a new note in January 2020 which extended the maturity date of the note until January 31, 2021. Interest expense
on the Credit Facility for the years ended December 31, 2020 and 2019 was $87,128 and $110,484, respectively. The NextGen
Note plus accrued interest was paid in full on January 31, 2021.
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; at a rate of 8.5%
annually from the second anniversary of the closing date through March 31, 2020; and at a rate of 10% thereafter through the
Maturity Date. Upon the occurrence of any event of default, the outstanding balance under the Private Placement Notes shall
become immediately due and payable upon election of the holders. Based on the relative fair values attributed to the Class B
Common Stock and promissory notes issued in the 2016 Private Placement, the Company recorded a debt discount on the
promissory notes of $667,000 with the corresponding amounts recorded as an addition to paid-in capital. The debt discount
was amortized to interest expense until the scheduled maturity of the Private Placement Notes in January 2021 using the
effective interest method. The effective interest rate at December 31, 2020 was 26.0%. Interest expense on the Private
Placement Notes was $140,136 and $316,091, respectively for the years ended December 31, 2020 and 2019, which included
debt discount amortization of $75,601 and $70,565, respectively for the years ended December 31, 2020 and 2019. On January
F-22
31, 2021, a payment of $371,000 was made on the Private Placement Note and the remaining balance of $297,411 was extended
through June 30, 2021.
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 former director of the Company, such New Investor Note for an
aggregate principal amount of $833,333 (after taking account of a $500,000 pay down of the previously outstanding Halcyon
note), Blue Flame Capital, LLC ("Blue Flame"), an entity affiliated with Denmar Dixon, a director of the Company, such New
Investor Note for an aggregate principal amount of $99,114, and Mr. Dixon, individually, such New Investor Note for an
aggregate principal amount of $272,563. The Halcyon and Blue Flame outstanding principal plus accrued interest were paid in
full on January 31, 2021.
PPP Loans
On May 1, 2020, the Company, and its wholly owned subsidiaries Wholesale and Wholesale Express (together, the
"Subsidiaries," and with the Company, the "Borrowers"), each entered into loan agreements and related promissory notes (the
"SBA Loan Documents") to receive U.S. Small Business Administration Loans (the "SBA Loans") pursuant to the Paycheck
Protection Program (the "PPP") established under the CARES Act, in the aggregate amount of $5,176,845 (the "Loan
Proceeds"). The Borrowers received the Loan Proceeds on May 1, 2020, and under the SBA Loan Documents, the SBA Loans
had an initial maturity date of April 30, 2022 and an annual interest rate of 1.0%. Payment of principal and interest, to be paid
monthly, on the PPP Loans can be prepaid by the Company at any time and was originally deferred through October 30, 2020.
On October 7, 2020, the Small Business Administration published guidance of its interpretation of the CARES ACT and of the
Paycheck Protection Program Interim Final Rules that indicates, pursuant to the PPP Flexibility Act of 2020, the deferral period
for borrow payments of principal, interest and fees on all PPP was extended 10 months after the borrower’s loan forgiveness
period. Additionally, the SBA lender agreed to extend the maturity pursuant to the Interim Final Rules. As a result, monthly
equal payments of principal and interest will begin September 1, 2021, with the last payment due April 1, 2025.
Pursuant to the terms of the SBA Loan Documents, the Borrowers can apply for and receive forgiveness for all, or a
portion of the loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of
loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage
interest, rent or utility costs (collectively, "Qualifying Expenses"), and on the maintenance of employee and compensation
levels during a certain time period following the funding of the PPP Loans. The Company used a portion of the proceeds of the
PPP Loans for Qualifying Expenses. However, no assurance is provided that the Company will be able to obtain forgiveness
of the PPP Loans in whole or in part. The Company and its PPP lender have not yet discussed extending the maturity, nor has
the Company applied for loan forgiveness. Interest expense on the PPP Notes for the year ended December 31, 2020 as
$30,960.
Convertible Notes
As of December 31, 2020, 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
December 31, 2020
Debt
Discount
Carrying
Amount
Face
Amount
December 31, 2019
Debt
Discount
Carrying
Amount
Face
Amount
$ 38,750,000 $ 11,737,521 $ 27,012,479
$ 30,000,000 $ 10,402,024 $ 19,597,976
307,958
-
-
1,024,000
-
-
716,042
-
-
39,774,000 12,045,479 27,728,521
(562,502 )
$ 39,006,000 $ 11,839,981 $ 27,166,019
(768,000 )
(205,498 )
1,536,000
500,000
257,933
379,616 1,156,384
493,908
251,551
32,293,933 10,794,114 21,499,819
(1,461,933 )
(98,343 ) (1,363,590 )
$ 30,832,000 $ 10,695,771 $ 20,136,229
6,092
6,382
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
F-23
2024 (the "Old Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the "Securities Act") (the "2019 Note Offering"). The Company paid JMP Securities a fee of 7.0% of the
gross proceeds in the 2019 Note Offering. The proceeds for the 2019 Note Offering after deducting the initial purchaser's
discounts, advisory fees, and related offering expenses, were approximately $27,385,500.
The Old Notes were issued on May 14, 2019 pursuant to an Indenture (the "Old Indenture") by and between the
Company and Wilmington Trust, National Association, as trustee (the "Trustee"). The Purchase Agreement included customary
representations, warranties and covenants by the Company and customary closing conditions. Under the terms of the Purchase
Agreement, the Company agreed to indemnify JMP Securities against certain liabilities. The Old Notes bore interest at 6.75%
per annum, payable semiannually on May 1 and November 1 of each year, beginning on November 1, 2019. The Old Notes
could bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting
obligations under the Old Indenture or if the Old Notes were not freely tradeable as required by the Old Indenture. The Old
Notes would have matured on May 1, 2024, unless earlier converted, redeemed or repurchased pursuant to their terms.
The initial conversion rate of the Old Notes was 8.6956 shares of Class B Common Stock, per $1,000 principal amount
of the Old Notes, subject to adjustment (which is equivalent to an initial conversion price of approximately $115.00 per share,
subject to adjustment). The conversion rate was subject to adjustment in some events but would not have been adjusted for any
accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Old
Indenture), the Company would, in certain circumstances, increase the conversion rate by a number of additional shares for a
holder that elected to convert its Old Notes in connection with such make-whole fundamental change.
The Old Notes were not redeemable by the Company prior to the May 6, 2022. The Company could have redeemed
for cash all or any portion of the Old Notes, at its option, on or after May 6, 2022 if the last reported sale price of the Company's
Class B Common Stock had been at least 150.0% of the conversion price then in effect for at least 20 trading days (whether or
not consecutive), including the trading day immediately preceding the date on which the Company provides notice of
redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the
date on which the Company provides notice of redemption at a redemption price equal to 100.0% of the principal amount of
the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund was provided
for the Old Notes. If redeemed, the Company would have made an interest make-whole payment to the converting holder equal
to the sum of the present values of the scheduled payments of interest that would have been made on the Old Notes to be
converted had such Old Notes remained outstanding from the conversion date through the earlier of the date that is two years
after the conversion date and June 15, 2022.
In connection with the 2019 Note Offering, the Company entered into a registration rights agreement with JMP
Securities, pursuant to which the Company agreed to file with the SEC a resale shelf registration statement providing for the
resale of the Old Notes and the shares of Class B Common Stock issuable upon conversion of the Old Notes. This resale
registration statement was filed on August 22, 2019 and declared effective on August 30, 2019.
On January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by a
Joinder Agreement (together, the "New Note Agreement"), with the investors in the 2019 Note Offering, pursuant to which the
Company agreed to complete (i) a note exchange pursuant to which $30,000,000 of the Old Notes would be cancelled in
exchange for a new series of 6.75% Convertible Senior Notes due 2025 (the "New Notes," and together with the Old Notes,
the "Notes") and (ii) the issuance of additional New Notes in a private placement in reliance on the exemption from registration
provided by Rule 506 of Regulation D of the Securities Act as a sale not involving any public offering (the "2020 Note
Offering"). On January 14, 2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering after
deducting for payment of accrued interest on the Old Notes and offering-related expenses were approximately $8,272,375.
The New Notes were issued on January 14, 2020 pursuant to an Indenture (the "New Indenture"), by and between the
Company and the Trustee. The New Note Agreement includes customary representations, warranties and covenants by the
Company and customary closing conditions. The New Notes bear interest at 6.75% per annum, payable semiannually on
January 1 and July 1 of each year, beginning on July 1, 2020. The New Notes may bear additional interest under specified
circumstances relating to the Company's failure to comply with its reporting obligations under the New Indenture or if the New
Notes are not freely tradeable as required by the New Indenture. The New Notes mature on January 1, 2025, unless earlier
converted, redeemed or repurchased pursuant to their terms.
The initial conversion rate of the New Notes is 25 shares of Class B Common Stock per $1,000 principal amount of
New Notes, which is equal to an initial conversion price of $40.00 per share. The conversion rate is subject to adjustment in
certain events as set forth in the New Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon
the occurrence of a "make-whole fundamental change" (as defined in the New Indenture), the Company will, in certain
circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its New Notes
F-24
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 provides notice of redemption at a redemption price equal to 100.0% of the principal amount of the notes
to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the
New Notes.
The New Notes rank senior in right of payment to any of the Company's indebtedness that is expressly subordinated
in right of payment to the New Notes; equal in right of payment to any of the Company's unsecured indebtedness that is not so
subordinated; effectively junior in right of payment to any of the Company's secured indebtedness to the extent of the value of
the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future
subsidiaries of the Company (including trade payables).
The New Notes are subject to events of default typical for this type of instrument. If an event of default, other than an
event of default in connection with certain events of bankruptcy, insolvency or reorganization of the Company or any significant
subsidiary, occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount
of the outstanding New Notes by notice to the Company and the Trustee, may declare 100.0% of the principal of and accrued
and unpaid interest, if any, on all the New Notes then outstanding to be due and payable.
In connection with the 2020 Note Offering, on January 14, 2020, the Company entered into a registration rights
agreement with the Note Investors, pursuant to which the Company has agreed to file with the SEC a shelf registration statement
registering the sale, on a continuous or delayed basis, of all of the New Notes and to use its commercially reasonable efforts to
cause the shelf registration statement to become or be declared effective under the Securities Act no later than May 29, 2020
(which date was adjusted for certain intervening events, including the COVID-19 pandemic). The registration statement was
filed on June 19, 2020 and declared effective on June 30, 2020. In connection with the filing of the registration statement, the
Company deregistered the Old Notes previously registered for resale.
As of December 31, 2020, the conditions allowing holders of the New Notes to convert have not been met and therefore
the New Notes are not yet convertible.
The Company accounted for the exchange of the Old Notes and the issuance of the New Notes in accordance with the
conversion guidance in ASC 470-20 "Debt – Debt with Conversion and Other Option" (ASC 470-20) and determined that the
exchange of the Old Notes for the New Notes required derecognition of the Old Notes given that the difference in the fair value
of the embedded the conversion feature of the New Notes relative to the Old Notes was in excess of 10 percent of the Old Notes
conversion feature fair value. In derecognizing the Old Notes, the Company recognized a gain of $188,164 equal to difference
between the fair value of the Old Notes liability immediately prior to extinguishment and the carry amount of the liability
component of the Old Notes, including any all-unamortized debt issuance costs. The remaining consideration of $2,593,163
was allocated to the reacquisition of the equity component and recognized as a reduction of stockholder's equity.
The New Notes were accounted for in accordance with FASB ASC 470, Debt and ASC 815, Derivatives and Hedging,
which required bifurcation of the liability and equity components. The Company determined the carrying amount of the liability
component was $25,280,430 and represents the present value of the New Notes cash flows using an implied discount rate of
18.7%, which is a yield applicable to similar debt instruments that do not have the conversion feature. After allocation of the
initial proceeds to the liability components, the remaining amount was allocated to the equity component and recorded as
additional paid in capital. The Company recorded $13,529,141 in total debt discount related to the New Notes which included
$59,571 of debt issuance costs. The Company allocates transaction costs related to the issuance of the New Notes to the liability
and equity components using the same proportions as the initial carrying value of the New Notes. The $59,571 of transaction
costs attributable to the debt component are being amortized to interest expense using the effective interest method over the
term of the New Notes. Transaction costs attributable to the equity component were $40,669 and are netted with the equity
F-25
component of the New Notes in stockholders' equity. The equity component is not remeasured as long as it continues to meet
the conditions for equity classification The Company further valued a derivative liability in connection with the interest make-
whole provision at $20,673 on the issuance date based on a lattice model. This amount was recorded as a debt discount and is
amortized to interest expense over the term of the New Notes using the effective interest rate. The value of the derivative
liability increased to $137,488 as of March 31, 2020. The derivative liability is remeasured at each reporting date with an
increase in value of $10,806 being recorded in other income for the year ended December 31, 2020. The value of the derivative
liability as of December 31, 2020 was $16,694.
The interest expense recognized with respect to the Convertible Senior Notes for the years ended December 31, 2020
and 2019 were as follows:
Contractual interest expense
Amortization of debt discounts
Total
Convertible Notes-Autosport USA
2020
2019
$ 2,566,171 $ 1,305,000
1,867,313 1,218,064
$ 4,433,485 $ 2,523,064
On February 3, 2019, in connection with the Autosport Acquisition, the Company issued (i) the Promissory Note, and
(ii) the Convertible Note in favor of the Seller. In connection with the Autosport Acquisition, the Buyer also assumed additional
debt of $257,933 pursuant to the Second Convertible Note.
The $500,000 Promissory Note had a term of fifteen months and accrued interest at a simple rate of 5.0% per annum.
Interest under the Promissory Note was payable upon maturity. In June 2020, principal payments of $122,000 were made and
the promissory note maturity date was extended to October 1, 2020. Any interest and principal due under the Promissory Note
was convertible, at the Buyer's option into shares of the Company's Class B Common Stock at a conversion price equal to the
weighted average trading price of the Company's Class B Common Stock on the Nasdaq Stock Exchange for the twenty (20)
consecutive trading days preceding the conversion date. The Buyer elected not to convert any principal or interest and the loan
has been repaid in full.
The $1,536,000 Convertible Note matures on January 31, 2022 accrues interest at a rate of 6.5% per annum. Interest
under the Convertible Note is payable monthly for the first 12 months, and thereafter monthly payments of amortized principal
and interest will be due. Any interest and principal due under the Convertible Note is convertible into shares of the Company's
Class B Common Stock at a conversion price of $115.00 per share, (i) at the Seller's option, or (ii) at the Buyer's option, on any
day that (a) any portion of the principal of the Convertible Note remains unpaid and (b) the weighted average trading price of
the Company's Class B Common Stock on Nasdaq for the twenty (20) consecutive trading days preceding such day has
exceeded $140.00 per share. The maximum number of shares issuable pursuant to the Convertible Note is 15,962 shares of the
Company's Class B Common Stock.
The Second Convertible Note had a term of one year and accrued interest at a simple rate of 5.0% per annum. The
Note was repaid in full during the year ended December 31, 2020.
For the years ended December 31, 2020 and 2019, interest expense on the convertible notes was $187,751 and
$228,001, respectively, and included $84,131 and $103,095, respectively of debt discount amortization.
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"). On August 25, 2020, the Company's stockholders approved another
amendment to the Plan to increase the number of shares authorized for issuance under the Plan from 200,000 shares of Class
F-26
B Common Stock to 700,000 shares of Class B Common Stock (the "Third Plan Amendment"). To date, the vesting of RSU
and Option awards is service / time based. 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 months 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. Performance-based awards and market condition-based awards granted to
date have vesting schedules that are typically dependent on achieving a particular objective within thirty (30) months. The
Company estimates the fair value of awards granted under the Plan on the date of grant.
The Company estimates the fair value of awards granted under the Plan on the date of grant. In the case of time or
service based RSU awards, the fair value based on the share price of the Class B Common Stock on the date of the award.
Performance Awards use the share prices of the Class B Common Stock but the Company, both at grant and each subsequent
quarter, considers whether to a apply discount to the fair in situations where the Company believes there is risk that the relevant
performance metrics may not be met. Options are calculated using the Black-Scholes option valuation model while market-
condition based awards are estimated using a Monte Carlo simulation model as these awards are tied to a market condition.
Both the Black-Sholes and Monte-Carlo simulations utilize multiple input variables to determine the probability of the
Company’s Class B stock price being at certain prices over certain time periods, resulting in an implied value to the holder; the
2020 market-condition based awards assumed expected volatility to be 125% and a risk-free interest rate of 1.0%. We generally
expense the grant-date fair value of all awards on a straight-line basis over the vesting period.
Restricted stock units
Options
Total stock-based compensation
For the Years Ended
December 31,
2020
2019
$ 2,957,415 $ 3,812,993
20,821
23,525
$ 2,978,236 $ 3,836,518
As of December 31, 2020, unrecognized stock-based amortization 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, 2020 is presented
in the table below. Total unrecognized equity will be adjusted for actual forfeitures.
Restricted stock units
Options
Total unrecognized stock-based amortization
Unrecognized
Stock Based
Compensations
Related to
Outstanding
Awards
Remaining
Weighted-
Average
Amortization
Period (in
years)
$ 3,210,906
1.08
47,840
.83
$ 3,258,746
1.91
F-27
Restricted Stock Units
RSU activity during the years ending December 31, 2020 and December 31, 2019 was as follows:
Number of
RSUs
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Expected to vest
Non-qualified Stock Options
Weighted -
Average
Grant Date
Fair Value
104.63
60.81
86.54
61.45
99.00
6.60
87.91
98.53
13.26
75,389 $
80,050 $
(9,000 ) $
(16,501 ) $
129,938 $
416,435 $
(35,274 ) $
(67,256 ) $
443,843 $
443,843 $
13.26
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% 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.
Outstanding at December 31, 2018
Options granted
Options exercised
Options forfeited or expires
Outstanding at December 31, 2019
Options granted
Options exercised
Options forfeited or expires
Outstanding at December 31, 2020
Vested / exercisable at December 31, 2020
Expected to vest as of December 31, 2020
Number of
Options
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (in
years)
Aggregate
Intrinsic
Value
-
5,608
-
(521 )
5,087
250 $
-
(2,586 )
2,751 $
n/a
78.10
n/a
81.60
78.10
61.40
n/a
74.72
79.76
937
2,751
80.13
79.57
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
9.6
$
$
8.7 $
8.7 $
8.7 $
Fair value of all option awards is based on the share price of the Class B Common Stock on the date of the award and
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
2020
2019
0.3 %
194.75 %
5.48
-
29.66 $
1.5 %
85.0 %
5.75
-
34.20
$
F-28
Security Offerings
On February 11, 2019, the Company completed an underwritten public offering of 63,825 shares of its Class B
Common Stock at a price of $111.00 per share for net proceeds to the Company of $6,543,655. The completed offering included
8,325 shares of Class B Common Stock issued upon the underwriter's exercise in full of its over-allotment option.
On May 9, 2019, the Company entered into a Securities Purchase Agreement with certain accredited investors (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 14, 2020, pursuant to an underwritten public offering, the Company issued 900,000 shares of Class B
Common Stock at a public price of $11.40 per share (the "2020 Public Offering"). On January 16, 2020, the Company received
notice of the Underwriters' intent to exercise the over-allotment option in full (the "Over-allotment Exercise"). On January 17,
2020, the Company issued an additional 135,000 shares of Class B Common Stock and closed the Over-allotment Exercise.
The Over-allotment Exercise increased the aggregate number of shares sold in the 2020 Public Offering to 1,035,000. Including
the Over-allotment Exercise, net proceeds from the 2020 Public Offering, after deducting the 8.0% underwriter's commission
and $75,000 for underwriter expenses, were $10,780,080. Certain of the Company's officers and directors participated in the
2020 Public Offering.
The Company used the net proceeds of the 2020 Public Offering for working capital and general corporate purposes,
which included further technology development, increased spending on marketing and advertising and capital expenditures
necessary to grow the business.
Reverse Stock Split
On May 18, 2020, the Company filed a Certificate of Change to the Company’s Articles of Incorporation with the
Secretary of State of the State of Nevada to effect a one-for-twenty reverse stock split of its issued and outstanding Class A
Common Stock and Class B Common Stock (the “Reverse Stock Split”). The Reverse Stock Split was effective at 12:01 a.m.,
Eastern Time, on May 20, 2020. No fractional shares were issued as a result of the Reverse Stock Split. There was a 7,131
fractional share adjustment as a result of rounding up to the nearest whole share in connection with the Reverse Stock Split.
The authorized preferred stock of the Company was not impacted by the Reverse Stock Split. The Company has retrospectively
adjusted the per share and share amounts included in this Annual Report on Form 10-K for the Reverse Stock Split.
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, 2020 and 2019:
F-29
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
2020
16,530
-
-
16,530
2019
16,051
-
479
16,530
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
Hercules
April
$
$
Underwriter
Warrants
126.50 $
110.00 $
62.0 %
5.0
1.31 %
20.0 %
-
Warrants
110.00 $
101.40 $
70.0 %
5.0
2.79 %
20.0 %
-
$ 505,273 $ 208,369 $
Hercules
October
Warrants
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,
Compensation and related costs
Advertising and marketing
Professional fees
Technology development
General and administrative
2020
2019
$ 25,734,308 $ 33,502,020
5,287,284 18,228,262
3,148,381 2,542,357
1,421,138 2,408,338
18,068,237 29,943,272
$ 53,659,348 $ 86,624,249
NOTE 12 – LOSS CONTINGENCIES AND INSURANCE RECOVERIES
On March 3, 2020, a severe tornado struck the greater Nashville area causing significant damage to the Company's
facilities including contents and inventory held for sale. The Company maintains insurance coverage for damage to its facilities
and inventory, as well as business interruption insurance. The loss was comprised of three components: (1) inventory loss,
assessed by the insurance carrier at approximately $13,000,000; (2) building and personal property loss, primarily impacting
our leased facilities, assessed by the insurance carrier at $2,783,000; and (3) loss of business income, for which the company
has coverage in the amount of $6,000,000.
All three components of the Company's loss claim have been submitted to its insurers. The Company's inventory claim
is subject to a dispute with the carrier as to the policy limits applicable to the loss; however, the insurer has advanced $5,615,268
against the final settlement. The insurer has agreed to pay $2,778,000 on the building and personal property loss, reflecting
limits of $2,783,000 net of a $5,000 deductible. The insurer has made an interim payment on the building and personal property
loss of $2,269,507 to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation,
however, the insurer has advanced $250,000 against the final settlement. The Company believes there will be a recovery of all
three loss components, however no assurance can be given regarding the amounts, if any, that will be ultimately recovered or
when any such recoveries will be made.
As a result of the damage caused by the tornado the Company concluded that the utility of the inventory damaged by
the storm was impaired as a result of physical damage sustained. Whether the impairment is caused by physical destruction or
an adverse change in the utility of the inventory, entities should assess whether an inventory impairment or write-off is required
in accordance with ASC 330-10-35-1 through 35-11, which address adjustments of inventory balances to the lower of cost or
market and requires that when there is evidence that the utility of goods will be less than cost, the difference is recognized as a
loss of the current period. During the year ended December 31, 2020 the Company recorded an impairment loss on inventory
of $11,738,413 comprised of $4,453,775 for vehicles that were a total loss and $7,284,638 in loss in value for vehicles partially
F-30
damaged and subject to repair. The impairment loss is reported in cost of revenue in the consolidated statements of operations.
On July 23, 2020, the insurer made an advance against the final settlement of the damage claim on inventory of $5,615,268.
This recovery has been recorded as a separate component of operating loss for the year ended December 31, 2020.
NOTE 13 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing activity
for the years ended December 31, 2020 and 2019:
Cash paid for interest
Convertible notes payable issued in acquisition
2020
2019
$ 3,834,758 $ 4,888,070
$
- $ 2,293,933
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
2020
$ 1,466,831 $
49,660
2,049,056 6,676,622
$ 3,515,887 $ 6,726,282
(1) Amounts included in restricted cash represent the deposits required under the Company's short-term revolving facilities.
NOTE 14 – 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 into law.
The Tax Act, among other changes, reduced the U.S. federal corporate tax rate from 35.0% to 21.0%, required taxpayers to
pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes
on certain foreign sourced earnings. For the two years ended December 31, 2020, 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 26.0% 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.
F-31
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
as of December 31,
Deferred tax assets:
Net operating loss carryforward
Business interest carryforward
Stock-based compensation
Accounts receivable allowance
Lease liabilities
Inventory reserve
Basis difference in goodwill
Accrued liabilities
Property and equipment
Total deferred income tax assets
Deferred tax liabilities:
Right-of-use assets
Debt issuance costs amortization
Total deferred tax liabilities
Net deferred tax asset before valuation allowance
Valuation allowance
Net deferred taxes
2020
2019
$ 21,494,873 $ 17,380,733
645,165
1,651,179
518,320 1,287,424
269,403
361,606
1,568,773 1,599,651
151,815
385,570
-
191,259
26,468,858 21,911,020
26,574
351,993
122,644
372,896
1,478,224 1,572,368
1,248,455
28,818
2,726,679 1,601,186
23,742,179 20,309,834
(23,742,179 ) (20,309,834 )
-
- $
$
A reconciliation of the statutory U.S. Federal income tax rate to the Company's effective income tax rate for the years
ended December 31, 2020 and 2019.
U.S. Federal statutory rate
State and local, net of federal benefit
Permanent difference
Valuation allowance
Effective tax rate
2020
2019
21.0 %
5.0 %
(1.4 )%
(24.6 )%
- %
21.0 %
5.0 %
(1.1 )%
(24.9 )%
- %
No current provision for Federal income taxes was recorded for the years ended December 31, 2020 and 2019 due to
the Company's operating losses. As of December 31, 2020 and 2019, the Company has operating loss carryforwards of
$82,733,046 and $66,717,013, respectively, a portion of which begin to expire in 2033. We have provided a valuation allowance
on the deferred tax assets of $23,742,179 and $20,309,834 for the periods ended December 31, 2020 and 2019, 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 15 – 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, 443,843 of RSUs, 2,751 of stock options, 16,530 of warrants to purchase shares of Class B
Common Stock and 982,107 shares of Class B Common Stock issuable in connection with convertible debt are considered
common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common
stockholders as the effect is antidilutive.
F-32
In connection with the Company's acquisition of Wholesale, the Company issued 1,317,329 shares of Series B Non-
Voting Convertible Preferred Stock. The rights of the holder of the Series B Preferred and Class A and Class B Common Stock
are identical, except with respect to voting. The Series B Preferred automatically converted to Class B Common Stock 21 days
after the mailing of 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. 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, 2020
were 50,000, 2,191,633, and 0, respectively.
NOTE 16 – RELATED PARTY TRANSACTIONS
As of December 31, 2020 and 2019, the Company had promissory notes of $370,556 and $370,556 and accrued
interest of $9,370 and $23,731, 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, 2020 and 2019 was
$77,853 and $183,286, respectively, which included debt discount amortization of $42,001 and $144,409, respectively. The
interest was charged to interest expense in the Consolidated Statements of Operations. The Blue Flame Notes plus accrued
interest were paid in full on January 31, 2021.
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. One of the leases was terminated in
2019. The other location has a lease term expiring on October 30, 2021, for which 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 rent for the current location
is approximately $25,000 per month.
NOTE 17 – 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, 2020 and 2019 was $2,200,288 and $1,661,649, respectively. The current portion of our operating
lease liabilities as of December 31, 2020 is $1,630,002 and is included in accounts payable and accrued liabilities. The long-
term portion of our operating lease liabilities as of December 31, 2020 is $4,370,154.
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
2020
3.7
6.2 %
Supplemental cash flow information related to operating leases for the year ended December 31, 2020 was as
follows:
Cash payments for operating leases
New operating lease assets obtained in exchange for operating lease liabilities
2020
$ 1,691,637
$ 2,901,318
F-33
The following table summarizes the future minimum payments for operating leases at December 31, 2020 due in
each year ending December 31,
2021
2022
2023
2024
2025
thereafter
Total lease payments
Less imputed interest
Present value of lease liabilities
Legal Matters
$ 1,957,188
1,955,037
1,222,866
835,309
553,334
285,500
6,809,234
(809,078 )
$ 6,000,156
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, 2020 and 2019,
the Company does not believe that the ultimate resolution of any legal actions, either individually or in the aggregate, will have
a material adverse effect on its financial position, results of operations, liquidity, and capital resources.
Future litigation may be necessary to defend the Company by determining the scope, enforceability and validity of
third-party proprietary rights or to establish its own proprietary rights. The results of any current or future litigation cannot be
predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of
defense and settlement costs, diversion of management resources, and other factors.
NOTE 18 – 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 19 - SEGMENT REPORTING
Business segments are defined as components of an enterprise about which discrete financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating
performance. Our operations are organized by management into operating segments by line of business. We have determined
that we have 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 and
other powersports vehicles, while the automotive segment distributes cars and trucks. Our vehicle logistics and transportation
service segment provides nationwide automotive transportation services between dealerships and auctions. Our vehicle logistics
and transportation service reportable segment has been determined to represent one operating segment and reporting unit. The
accounting policies of the segments are the same and are described in Note 1.
F-34
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.
Year Ended
December 31, 2020
Total assets
Revenue
Operating income (loss)
Depreciation and amortization
Interest expense
Gain on early extinguishment of debt
Year Ended
December 31, 2019
Total assets
Revenue
Operating income (loss)
Depreciation and amortization
Interest expense
Loss on early extinguishment of debt
Powersports Automotive
Vehicle
Logistics and
Transportation Eliminations(1)
Total
$ 45,694,127 $ 47,841,306 $
$ 47,526,127 $ 337,084,959 $
$ (19,865,965 ) $ (1,364,786 ) $
$ 1,997,142 $
139,734 $
$ (4,793,732 ) $ (1,839,529 ) $
- $
$
188,164 $
10,535,065 $
35,887,132 $
2,671,131 $
6,063 $
(5,064 ) $
- $
(27,091,263 ) 76,979,235
(4,070,975 ) 416,427,243
- (18,559,620 )
- 2,142,939
- (6,638,325 )
188,164
-
$ 55,992,165 $ 77,033,326 $
$ 101,008,976 $ 717,042,511 $
$ (34,402,724 ) $ (5,318,549 ) $
$ 1,543,023 $
235,998 $
$ (4,453,549 ) $ (2,732,869 ) $
- $
$ (1,499,250 ) $
7,921,578 $
31,931,488 $
1,928,574 $
7,405 $
(1,186 ) $
- $
(27,553,978 ) 113,393,091
(9,353,628 ) 840,629,347
- (37,792,699 )
- 1,786,426
- (7,187,604 )
- (1,499,250 )
(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.
NOTE 20 – SUBSEQUENT EVENTS
RideNow Definitive Agreement
On March 12, 2021, the Company entered into a Plan of Merger and Equity Purchase Agreement (the “RideNow
Agreement”) with RO Merger Sub I, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub
I”), RO Merger Sub II, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub II”), RO
Merger Sub III, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub III”), RO Merger
Sub IV, Inc., an Arizona corporation and wholly owned subsidiary of the Company (“Merger Sub IV,” and together with
Merger Sub I, Merger Sub II, and Merger Sub III, the “Merger Subs”), C&W Motors, Inc., an Arizona corporation, Metro
Motorcycle, Inc., an Arizona corporation, Tucson Motorcycles, Inc., an Arizona corporation, and Tucson Motorsports, Inc., an
Arizona corporation, William Coulter, an individual (“Coulter”), Mark Tkach, an individual (“Tkach” and together with
Coulter, the “Principal Owners”), and certain other persons who own equity interests in the Acquired Companies (as defined
in the RideNow Agreement) and execute a Seller Joinder (as defined in the RideNow Agreement) (together with the Principal
Owners, the “Sellers” and each, a “Seller”), and Tkach, as the representative of the Sellers (the “Sellers’ Representative”). The
Acquired Companies own and operate powersports retail dealerships under the RideNow brand which include sales, financing,
and parts and service of new and used motorcycles, ATVs, UTVs, scooters, side by sides, sport bikes, cruisers, watercraft, and
other vehicles and ancillary businesses and activities relating thereto.
The RideNow Agreement provides that, upon the terms and subject to the conditions set forth in the RideNow
Agreement, (i) the Company will acquire all of the equity interests (the “Equity Purchases”) in the Transferred Entities (as
defined in the RideNow Agreement), (ii) Merger Sub I will merge with and into C&W Motors, Inc., with C&W Motors, Inc.
continuing as a surviving corporation, (iii) Merger Sub II will merge with and into Metro Motorcycle, Inc., with Metro
Motorcycle, Inc. continuing as a surviving corporation, (iv) Merger Sub III will merge with and into Tucson Motorcycles, Inc.,
with Tucson Motorcycles, Inc. continuing as a surviving corporation, and (v) Merger Sub IV will merge with and into Tucson
Motorsports, Inc., with Tucson Motorsports, Inc. continuing as a surviving corporation, in each case under the laws of the State
of Arizona and each as a wholly-owned subsidiary of the Company (the “Mergers”). The Equity Purchases and the Mergers
will result in the acquisition from the Sellers of up to 46 Acquired Companies (the “RideNow Transaction”). The RideNow
Transaction is expected to close (the “Closing”) in the second or third quarter of 2021. Effective as of the Closing, Tkach and
Coulter will become executive officers and directors of the Company.
The RideNow Agreement provides that the Company will acquire the Acquired Companies in exchange for (i)
$400,400,000 in cash plus or minus any adjustments for net working capital and closing indebtedness, and (ii) shares of the
Company's Class B Common Stock having a value of $175,000,000 (the “Closing Payment Shares”), valued equally, on a per
F-35
share basis, based upon the lowest value of (A) $30.00; (B) the VWAP of the Company's Class B Common Stock for the twenty
(20) trading days immediately preceding the Closing, and (C) the value on a per share basis paid for the Class B Common
Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock by any person which
purchases Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common
Stock from the Company from the date of the RideNow Agreement until the Closing not including purchases of Class B
Common Stock underlying currently outstanding options, warrants, convertible notes, or other derivative securities. Ten percent
(10%) of the Closing Payment Shares will be escrowed at Closing and will be released pursuant to the terms of the RideNow
Agreement. The Company will finance the cash consideration through a combination of approximately $280,000,000 of debt
provided by the Initial Lender (as defined below) and through the issuance of new equity for the remainder thereof.
Each of the Company, the Merger Subs, and the Sellers has provided customary representations, warranties and
covenants in the RideNow Agreement. The completion of the RideNow Transaction is subject to various closing conditions,
including (a) the making of all filings and other notifications required to be made under any Antitrust Law (as defined in the
RideNow Agreement) for the consummation of the RideNow Transaction, the expiration or termination of all waiting periods
relating thereto, and the receipt of all clearances, authorizations, actions, non-actions, or other consents required from a
governmental authority under any Antitrust Law for the consummation of the RideNow Transaction, (b) performance in all
respects by each party of its covenants and agreements, (c) the Company obtaining stockholder approval of the RideNow
Transaction and related matters, (d) the Closing Payment Shares being approved for listing on Nasdaq, and (e) the receipt of
consent to the RideNow Transaction from certain powersports manufacturers.
Certain RideNow minority equity holders are not initially parties to the RideNow Agreement and some of such
minority holders have rights of first refusal (“ROFR”) with respect to the RideNow entity in which they own a stake. If any of
these equity holders either decide not to sell their interests to the Company or to exercise their ROFR, RumbleOn will not be
able to acquire all of the Equity Interests of the Acquired Companies, or in certain cases any interests in an Acquired Company,
and the consideration payable therefor in the RideNow Transaction will be correspondingly reduced. RideNow anticipates that
all minority owners will participate in the RideNow Transaction and that no minority owners will exercise their ROFR, but
there is no assurance this will occur.
The RideNow Agreement contains certain termination rights for both the Company and the Sellers' Representative.
Both the Company and the Sellers' Representative have the right to terminate the RideNow Agreement if the Closing does not
occur on or before June 30, 2021, subject to certain rights of the parties to extend the termination date to July 31, 2021, as set
forth in the RideNow Agreement.
Commitment Letter
On March 12, 2021, the Company entered into a commitment letter (the “Commitment Letter”) with Oaktree Capital
Management, L.P. ( “Oaktree”). The Commitment Letter provides that, subject to the conditions set forth therein, Oaktree or
certain funds or accounts within its Strategic Credit Strategy (the “Initial Lender”) commits to provide senior secured term loan
facilities in an aggregate principal amount of up to $400,000,000 (the “Credit Facility”), comprised of (i) an initial advance of
$280,000,000 to fund the RideNow Transaction, consummate the Refinancing (as defined in the Commitment Letter) and pay
the RideNow Transaction costs and (ii) a delayed draw term facility of up to $120,000,000 to fund permitted acquisitions and
similar investments and related fees and expenses.
The Credit Facility interest rates will be, at the option of the Company, (a) Adjusted LIBOR (as defined in the
Commitment Letter) plus 8.25%, of which (i) Adjusted LIBOR plus 7.25% shall be paid in cash and (ii) 1.00% shall be payable
in kind or (b) ABR (as defined in the Commitment Letter) plus 7.25%, of which (i) ABR plus 6.25% shall be paid in cash and
(ii) 1.00% shall be payable in kind. The Credit Facility shall mature on the fifth anniversary of the Closing date of the RideNow
Transaction (subject to extension with the consent of only the extending lender).
The Company and its subsidiaries will grant certain security interests to the Initial Lender to secure the Credit Facility,
subject to certain exceptions and permitted liens, all to be more fully set forth in the definitive documentation for the Credit
Facility. The Credit Facility will be subject to prepayment with the proceeds of certain events including 50% of excess cash
flow, 100% of certain asset sales, 100% of proceeds of certain debt issuances, and 50% of certain public or private equity
financings. The Commitment Letter provides that the Credit Facility will contain customary affirmative and negative covenants,
and events of default, subject to certain carve-outs and exceptions as more fully described in the Commitment Letter.
The commitment to provide the Credit Facility is subject to certain conditions, including: the receipt of customary
closing documents, completion of applicable “know your customer” requests and delivery of documentation related thereto, no
material adverse change, delivery of customary financial reporting, specified representations and warranties, perfection of
F-36
certain security interests, and delivery of customary legal opinions. The Company will pay certain fees and expenses in
connection with obtaining the Credit Facility.
Warrant
In connection with the Commitment Letter, in lieu of a commitment fee, the Company has agreed to issue to Oaktree
a warrant to purchase a number of shares of Class B Common Stock at an exercise price per share to be determined either at
Closing or at termination of the Commitment Letter (the “Warrant”). If issued at Closing, the Warrant will be for that number
of shares equal to $40,000,000 divided by the lowest price per share at which equity is issued in connection with financing the
RideNow Transaction, which price shall also be the exercise price. If issued in connection with a termination of the
Commitment Letter, the Warrant will be issued to purchase that number of shares equal to five percent (5%) of the Company's
fully diluted market capitalization at the close of business on the day after a termination of the Commitment Letter is publicly
announced divided by the weighted average price of the Company's Class B Common Stock for the five days immediately
preceding such date, which price shall also be the exercise price. The Warrant is immediately exercisable upon the Closing or
five days after the termination of the Commitment Letter and expires eighteen (18) months after the Closing or termination of
the Commitment Letter.
Bridge Loan
Also in connection with the RideNow Transaction, on March 12, 2021, the Company and its subsidiary, NextGen Pro,
LLC (“NextGen Pro”), executed a secured promissory note with BRF Finance Co., LLC (“BRF Finance”), an affiliate of B.
Riley Securities, Inc., pursuant to which BRF Finance has loaned the Company $2,500,000 (the “Bridge Loan”). The Bridge
Loan matures on the earlier of September 30, 2021 or upon the issuance of debt or equity above a threshold. The Bridge Loan
is secured by certain intellectual property assets held by NextGen Pro as set forth in Exhibit A to the secured promissory note.
Interest will accrue on the Bridge Loan until maturity (by acceleration or otherwise) at a rate of 12% annually.
Certificate of Amendment and Changes to Incentive Plan
In contemplation of the RideNow Transaction, on March 9, 2021, the Board of Directors (the "Board") approved,
subject to stockholder approval, (i) an amendment to the Articles of Incorporation of the Company to increase the number of
shares of authorized Class B Common Stock to 100,000,000 (the “Certificate of Amendment”), and (ii) an amendment to the
RumbleOn, Inc. 2017 Stock Incentive Plan (the “Incentive Plan”) to increase the authorized shares of Class B Common Stock
available under the Incentive Plan from 700,000 shares to 2,700,000 shares and extend the term of the Incentive Plan for an
additional ten years.
Registration Rights and Lock-Up Agreement
In connection with the RideNow Transaction, on March 12, 2021, the Company entered into a registration rights and
lock-up agreement, by and among the Company and certain equity holders of the Acquired Companies (the “Registration Rights
Agreement”). Pursuant to the Registration Rights Agreement (i) the Company agreed to file a resale registration statement for
the Registrable Securities (as defined in the Registration Rights Agreement) no later than thirty (30) days following the Closing,
and to use commercially reasonable efforts to cause it to become effective as promptly as practicable following such filing, (ii)
the equity holders were granted certain piggyback registration rights with respect to registration statements filed subsequent to
the Closing, and (iii) the Lock-Up Holders (as defined in the Registration Rights Agreement) agreed, subject to certain
customary exceptions, not to sell, transfer or dispose of any Company common stock for a period of one hundred and eighty
(180) days from the Closing.
F-37
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.
March 31, 2021
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.
March 31, 2021
By:
/s/ Steven R. Berrard
Steven R. Berrard
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, 2020, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge and belief, that:
(1)
(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.
March 31, 2021
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, 2020, as filed with the U.S. Securities and Exchange Commission (the “Report”), the undersigned hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge and belief, that:
(1)
(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.
March 31, 2021
By: /s/ Steven R. Berrard
Steven R. Berrard
Chief Financial Officer
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Marshall Chesrown
Co-Founder, Chairman & Chief Executive Officer,
RumbleOn, Inc.
William Coulter
Executive Vice Chairman, RumbleOn, Inc.
Mark Tkach
Chief Operating Officer, RumbleOn, Inc.
Peter Levy
President, RumbleOn, Inc.
Adam Alexander
Co-Founder, CA Global Partners
Denmar Dixon
Managing Partner, Blue Flame Capital, LLC
Richard A. Gray Jr.
President, Gray & Co. Realtors, Inc.
Michael Marchlik
Co-Chief Executive Officer, Advisory Services division of
B. Riley Financial Inc.
Kevin Westfall
Chairman, Prime Automotive Group
Marshall Chesrown
Co-Founder, Chairman and Chief Executive Officer
William Coulter
Executive Vice Chairman
Mark Tkach
Chief Operating Officer
Peter Levy
President
Beverley Rath
Interim Chief Financial Officer & Controller
ANNUAL MEETING
The annual meeting will be held on Thursday, November 18,
2021 at 8:00 am Central Time, at 901 W. Walnut Hill Lane,
Irving, Texas 75038, Conference Room A.
INVESTOR RELATIONS
Shareholders are advised to review financial information
and other disclosures about RumbleOn contained in its 2020
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 investors.rumbleon.com or at sec.gov.
INVESTOR INQUIRIES SHOULD BE DIRECTED TO
The Blueshirt Group:
Whitney Kukulka
investors@rumbleon.com
INDEPENDENT AUDITORS
Dixon Hughes Goodman, LLP
TRANSFER AGENT
West Coast Stock Transfer, Inc.