RumbleOn, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 001-38248

RumbleOn, Inc.

(Exact name of registrant as specified in its charter)  

(214) 771-9952

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares of Class B common stock, $0.001 par value, outstanding on November 12, 2021 was 14,882,022 shares. In addition, 50,000 shares of Class A common stock, $0.001 par value, were outstanding on November 12, 2021.

RUMBLEON, INC.

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Table of Contents to Report on Form 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

RumbleOn, Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

See Notes to the Condensed Consolidated Financial Statements.

RumbleOn, Inc.

Condensed Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

(unaudited)

See Notes to the Condensed Consolidated Financial Statements.

RumbleOn, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(dollars in thousands)

(unaudited)

RumbleOn, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(dollars in thousands)

(unaudited)

See Notes to the Condensed Consolidated Financial Statements.

RumbleOn, Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

See Notes to the Condensed Consolidated Financial Statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

(unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Unless the context requires otherwise, references in these financial statements to “RumbleOn,” the “Company,” “we,” “us,” and “our” refer to RumbleOn and its consolidated subsidiaries.

Overview

RumbleOn, Inc. was incorporated in October 2013 under the laws of the State of Nevada. We are the nation’s first Omnichannel marketplace platform in powersports, leveraging proprietary technology to transform the powersports supply chain from acquisition of supply through distribution of retail and wholesale. RumbleOn provides an unparalleled technology suite, national footprint of physical locations, and full line manufacturer representation to transform the entire customer journey and experience worldwide through technology. Headquartered in the Dallas Metroplex, RumbleOn is revolutionizing the customer experience for outdoor enthusiasts across the country and making powersport vehicles accessible to more people, in more places than ever before. On August 31, 2021 (the “Closing Date”), we completed our business combination with the RideNow Powersports group, the nation’s largest powersports retailer group (“RideNow”) (see Note 3 - RideNow Transaction below). 

Basis of Presentation

The accompanying Condensed 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”) for interim information and with the instructions on Form 10-Q and Rule 10-01 of Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Condensed Consolidated financial statements include the accounts of RumbleOn Inc. and its subsidiaries, which are all wholly owned, including RideNow from the Closing Date. In accordance with those rules and regulations, the Company has omitted certain information and notes required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, the Condensed Consolidated financial statements contain all adjustments, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented. The year-end condensed balance sheet data was derived from audited financial statements. These Condensed Consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K (the “2020 Form 10-K”) for the year ended December 31, 2020. The results of operations for the three and nine-months ended September 30, 2021 are not necessarily indicative of the results expected for the entire fiscal year. All intercompany accounts and material intercompany transactions have been eliminated. 

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. Such estimates include certain assumptions related to goodwill and other intangible assets, long-lived assets, assets held for sale, accruals for chargebacks against revenue recognized from the sale of finance and insurance products, and estimated tax liabilities. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates. In particular, the Covid-19 pandemic and the continuing adverse impacts to global economic conditions, as well as the Company’s operations, may impact future estimates including, but not limited to inventory valuations, fair value measurements, asset impairment charges and discount rate assumptions.

Comprehensive Income (Loss)

During the three and nine-month periods ended September 30, 2021, and 2020, the Company did not have any other comprehensive income and, therefore, the net loss and comprehensive income (loss) were the same for all periods presented.

Recent Pronouncements

Adoption of New Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets 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.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 for its fiscal year beginning January 1, 2021, and it did not have a material effect on its consolidated financial statements.

NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Our revenue consists of new vehicles sales, retail and wholesale used vehicle sales, sales of finance and insurance products and sales of parts, service, accessories and apparel. Due to the impact of RideNow’s revenue streams, specifically the additions of parts and service, and finance and insurance revenue, the following information is being provided.

New and Used Powersports Vehicles

RumbleOn sells new and used powersports vehicles. The transaction price for a powersports vehicle sale is determined with the customer at the time of sale. Customers often trade in their own powersports vehicle to apply toward the purchase of a retail new or used powersports vehicle. The “trade-in” powersports vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific powersports vehicle, and applied as payment of the contract price for the purchased powersports vehicle.

When the Company sells a new or used powersports vehicle, transfer of control typically occurs at a point in time upon delivery of the vehicle to the customer, which is generally at the time of sale, as the customer is able to direct the use of and obtain substantially all benefits from the powersports vehicle at such time. Except for limited circumstances, the Company does not directly finance its customer’s purchases or provide leasing. In many cases, RumbleOn arranges third- party financing for the retail sale or lease of powersports vehicles to customers in exchange for a fee paid to RumbleOn by a third-party financial institution. RumbleOn receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-in-transit) within a short period of time following the sale. The Company establishes provisions, which are not significant, for estimated returns and warranties on the basis of both historical information and current trends.

Parts and Service

RumbleOn sells parts and vehicle services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties and extended service contracts, and collision-related repairs. The Company also sells parts through wholesale and retail counter channels.

Each repair and maintenance service is a single performance obligation that includes both the parts and labor associated with the vehicle service. Payment for each vehicle service work is typically due upon completion of the service, which is generally completed within a short period from contract inception. The transaction price for repair and maintenance services is based on the parts used, the number of labor hours applied, and standardized hourly labor rates. The performance obligation for repair and maintenance service are satisfied over time and create an asset with no alternative use and with an enforceable right to payment for performance completed to date. Revenue is recognized over time based on a direct measurement of labor hours, parts and accessories that are allocated to open service and repair orders at the end of each reporting period. As a practical expedient, the time value of money is not considered since repair and maintenance service contracts have a duration of one year or less. The transaction price for wholesale and retail counter parts sales is determined at the time of sale based on the quantity and price of each product purchased. Payment is typically due at time of sale, or within a short period following the sale. RumbleOn establishes provisions, which are not significant, for estimated parts returns based on historical information and current trends. Delivery method of wholesale and retail counter parts vary.

RumbleOn generally considers control of wholesale and retail counter parts to transfer when the products are shipped, which typically occurs the same day as or within a few days of sale. RumbleOn also offers customer loyalty points for parts and services for select franchises. RumbleOn satisfies its performance obligations and recognizes revenue when the loyalty points are redeemed. Amounts deferred related to the customer loyalty programs are insignificant.

Finance and Insurance

RumbleOn sells and receives commissions on the following types of finance and insurance products: extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, among others. RumbleOn offers products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries.

Pursuant to the arrangements with these third-party providers, RumbleOn sells the products on a commission basis. For the majority of finance and insurance product sales, RumbleOn’s performance obligation is to arrange for the provision of goods and services by another party. RumbleOn’s performance obligation is satisfied when this arrangement is made, which is when the finance and insurance product is delivered to the end customer, generally at the time of the vehicle sale. As agent, RumbleOn recognizes revenue in the amount of any fee or commission to which it expects to be entitled, which is the net amount of consideration that it retains after paying the third-party provider the consideration received in exchange for the goods or services to be fulfilled by that party.

RumbleOn’s customers are concentrated in the Sunbelt region. There are no significant judgements or estimates required in determining the satisfaction of the performance obligations or the transaction price allocated to the performance obligations. As revenue are recognized at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.

Transportation and Vehicle Logistics

Vehicle logistics and transportation services revenue is generated primarily by entering into freight brokerage agreements with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The Company’s subsidiary, Wholesale Express, provides these services. The transaction price is based on the consideration specified in the customer's contract. A performance obligation is created when the customer under a 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.

Disaggregation of Revenue

The significant majority of RumbleOn’s revenue is from contracts with customers. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. We have determined that these categories depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors.

Revenue from contracts with customers consists of the following:

NOTE 3 – RIDENOW TRANSACTION

On the Closing Date, RumbleOn completed its business combination with RideNow (the “RideNow Transaction”). Pursuant to the Plan of Merger and Equity Purchase Agreement, as amended (the “RideNow Agreement”), on the Closing Date, there were both mergers and transfers of ownership interest comprising in aggregate the RideNow Transaction. For the mergers, five newly-created RumbleOn subsidiaries were merged with and into five RideNow entities (“Merged RideNow Entities”) with the Merged RideNow Entities continuing as the surviving corporations and with the Company obtaining ownership of these entities through these mergers and the transfers noted below. Merged RideNow Entities owned powersports retail locations representing approximately 30% of RideNow retail locations. For the transfers of ownership interest, the Company acquired all the outstanding equity interests of 21 entities comprising the remaining 70% of the RideNow’s retail locations (“Acquired RideNow Entities,” and together with the Merged RideNow Entities, the “RideNow Entities”) that directly or indirectly operate the remaining RideNow powersports retail locations.

Pursuant to the RideNow Agreement, on the Closing Date, the RideNow equity holders received cash in the aggregate amount of $400,400 and 5,833,333 shares of RumbleOn’s Class B common stock. The cash consideration for the RideNow Transaction was funded from (i) the Company’s underwritten public offering of 5,053,029 shares of Class B common stock, which resulted in net proceeds of approximately $154,438 (the “August 2021 Offering”), and (ii) net proceeds of approximately $261,451 pursuant to the Oaktree Credit Facility entered into on the Closing Date (as further described in Note 9, the “Oaktree Credit Agreement”). The remaining funds received from these financing transactions were used for working capital purposes.

The following table summarizes the consideration paid in cash and equity securities for the acquisitions:

The following amounts represent the preliminary determination of the fair value of the identifiable assets acquired and liabilities assumed from RideNow. RideNow is included in the Powersports reporting segment, including goodwill, as the RideNow business is entirely within the Company’s Powersports segment. As of September 30, 2021, we have performed an initial valuation of the amounts below; however, our assessment of these amounts remains open for completion. We expect to finalize the purchase price allocation process in 2022 as we complete our review of valuations. We are required to finalize our purchase price allocations within one year after the Closing Date. Any potential adjustments made could be material in relation to the preliminary values presented below.

The results of operations of RideNow from the Closing Date are included in the accompanying Condensed Consolidated Financial Statements. Acquisition related costs of $1,558 and $3,515 were incurred during the three and nine-months ended September 30, 2021, respectively, and are included in Selling, General and Administrative expenses in the Condensed Consolidated Statements of Operations. In addition, the Company elected to accelerate the vesting of restricted stock units (“RSUs”) and grant other stock awards in connection with the RideNow Transaction. The total value of these awards is $23,943 and is reported as stock-based compensation and other issuances in the Condensed Consolidated Statement of Operations.

Supplemental Pro Forma Information

The following supplemental pro forma information presents the financial results as if the RideNow Transaction was completed as of January 1, 2020 for the three and nine-months ended September 30, 2021 and September 30, 2020. Pro forma net income for the three and nine-months ended September 30, 2021, includes the tax benefit of $10,681 reported in the Condensed Consolidated Statements of Operations.

Pro forma adjustments for the three and nine-months ended September 30, 2021, primarily include:

NOTE 4 – ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consists of the following as of September 30, 2021 and December 31, 2020:

NOTE 5 – INVENTORY

Inventory consists of the following as of September 30, 2021 and December 31, 2020:

Floor plan notes payable as of September 30, 2021 and December 31, 2020 were as follows:

Floor plan notes payable-trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventory with corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Floor plan payable-non-trade represents amounts borrowed to finance the purchase of specific new and used vehicle inventories with non-trade lenders. Changes in floor plan notes payable-trade are reported as operating cash flows and changes in floor plan payable-non-trade are reported as financing cash flows in the accompanying Combined Statements of Cash Flows.

New inventory costs are generally reduced by manufacturer holdbacks, incentives, floor plan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floor plan payables are reflective of the gross cost of the vehicle. The vehicle floor plan payables, as shown in the above table, will generally also be higher than the inventory cost due to the timing of the sale of a vehicle and payment of the related liability. Vehicle floor plan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floor plan facilities are primarily collateralized by vehicle inventories and related receivables.

New vehicle floor plan facilities generally utilize LIBOR or ADB (Average Daily Balance)-based interest rates, which generally ranged between 5.0% and 7.0% as of September 30, 2021. Used vehicle floor plan facilities generally utilize prime, LIBOR or ADB-based interest rates, which ranged between 4.75% and 8.0% as of September 30, 2021. The aggregate capacity to finance our inventory under the new and used vehicle floor plan facilities was $217,717 as of September 30, 2021.

NOTE 6 – PROPERTY AND EQUIPMENT, NET

The following table summarizes property and equipment, net of accumulated depreciation and amortization as of September 30, 2021, and December 31, 2020:

Amortization and depreciation on Property and Equipment is determined on a straight-line basis over the estimated useful lives ranging from three to five years.

As of September 30, 2021, capitalized technology development costs were $12,066 and capitalized software costs were $208. Total technology development costs incurred for the three and nine-months ended September 30, 2021 was $1,008 and $2,706, respectively, of which $360 and $1,266, respectively was capitalized and $648 and $1,441, respectively, was charged to expense in the accompanying Condensed Consolidated Statements of Operations. Depreciation expense for the three and nine-months ended September 30, 2021 was $689 and $1,920, respectively, which included the amortization of capitalized technology development costs of $592 and $1,710, respectively. Total technology development costs incurred for the three and nine-months ended-months ended September 30, 2020 was $1,164 and $2,635, respectively, of which $984 and $1,598, respectively, was capitalized and $180 and $1,037 respectively, was charged to expense in the accompanying Condensed Consolidated Statements of Operations. Depreciation expense for the three and nine-months ended-month periods ended September 30, 2020 was $536 and $1,568, respectively, which included the amortization of capitalized technology development costs of $477 and $1,367, respectively.

NOTE 7 – INTANGIBLE ASSETS AND GOODWILL

The following is a summary of the carrying amounts of goodwill, franchise rights and other intangible assets as of September 30, 2021 and December 31, 2020.

The Company evaluates intangible assets for impairment at least annually, or when triggering events occur. No triggering events were noted as of September 30, 2021.

NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The following table summarizes accounts payable and other accrued liabilities as of September 30, 2021 and December 31, 2020:

NOTE 9 – NOTES PAYABLE

Notes payable consisted of the following as of September 30, 2021 and December 31, 2020:

Term Loan Credit Agreement

On the Closing Date, the Company entered into the Oaktree Credit Agreement among the Company, as borrower, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent (the “Administrative Agent”). The Oaktree Credit Agreement provides for secured credit facilities in the form of a $280,000 principal amount of initial term loans (the “Initial Term Loan Facility”) and a $120,000 in aggregate principal amount of delayed draw term loans (the “Delayed Draw Term Loans Facility,” and together with the Initial Term Loan Facility, the “Oaktree Credit Facility”). The proceeds from the Initial Term Loan Facility, together with cash on hand, and the proceeds from the August 2021 Offering were used to (i) consummate the RideNow Transaction and (ii) pay fees, expenses and other items related to the consummation of the RideNow Transaction, the August 2021 Offering and to provide for working capital. The proceeds from the Delayed Draw Term Loans Facility, if drawn, will be used to finance acquisitions permitted by the Oaktree Credit Agreement and similar investments or “earn-outs” entered into in connection with acquisitions and to pay fees and expenses relating thereto. Loans under the Delayed Draw Term Loans Facility are subject to customary conditions precedent for facilities of this type including the need to meet certain financial tests and become available six (6) months after the Closing Date and are unavailable to be drawn after the eighteen (18) month anniversary of the Closing Date. The Oaktree Credit Facility also provides for incremental draws for up to an additional $100,000 in accordance with the terms set forth in the Oaktree Credit Agreement, which may be used for acquisitions or working capital.

The loan is reported on the balance sheet as senior secured debt and was recorded net of debt discount of $27,223. The debt discount includes the warrant for $10,950 that was previously recorded as a deferred finance charge. See Note 11-Stockholders’ Equity for a more detailed discussion of the warrant. The debt discount also includes fees incurrent in from our investment bankers and other debt issuance expenses. Borrowings under the Oaktree Credit Facility bear interest at a rate per annum equal, at the Company’s option, to either (a) LIBOR (with a floor of 1.00%), plus an applicable margin of 8.25% or (b) a fluctuating adjusted base rate in effect from time to time, plus an applicable margin of 7.25%. At the Company’s option, one percent (1.00%) of such interest may be payable in kind. The interest rate as of September 30, 2021 was 9.25%. Interest expense for the three and nine-months ended September 2021 was $2,666, which included debt amortization of $509.

The Oaktree Credit Agreement contains affirmative and negative covenants customary for facilities of its type which, among other things, generally limit (with certain exceptions including those for permitted acquisitions and floor plan financing): mergers, amalgamations or consolidations; the incurrence of additional indebtedness (including guarantees); the incurrence of additional liens; the sale, license, lease, transfer or other disposition of assets; certain investments; transactions with affiliates; payments of certain indebtedness; and other activities customarily restricted in such agreements. Beginning in the first full calendar quarter after the Closing Date, the Credit Agreement requires that (i) Consolidated Total Net Leverage Ratio not be greater than 4.25 to 1.00; (ii) Consolidated Senior Secured Net Leverage Ratio not be greater than 3.75 to 1.00, and (iii) its Liquidity not be less than $25,000 (each term as defined in the Oaktree Credit Agreement).

On the last business day of each calendar quarter, beginning with the first full fiscal quarter ending after the Closing Date (or with regard to the Delayed Draw Term Loans Facility, beginning with the first full fiscal quarter ending after the applicable funding dates), the Company is required to make amortization payments in an aggregate principal amount equal to 0.25% of the aggregate principal amount of the Initial Term Loan Facility (or with regard to the Delayed Draw Term Loans Facility funded on the applicable funding date). Borrowings under the Oaktree Credit Facility mature five (5) years after the Closing Date.

The Company is permitted to make voluntary prepayments of the loans and is obligated to make mandatory prepayments with regard to excess cash flow and out of the proceeds of certain asset sales and other recovery events and debt and certain equity issuances. Optional prepayments, mandatory prepayments out of the proceeds of debt and certain equity issuances, or an acceleration of the loans following an event of default will subject the Company to payment of certain fees, as defined in the Oaktree Credit Agreement, if such acceleration occurs on or before the thirty-six (36) month anniversary of the Closing Date.

Obligations under the Oaktree Credit Agreement are secured by a first-priority lien on substantially all of the assets of the Company and its wholly owned subsidiaries (the “Subsidiary Guarantors”) although certain assets of the Company and Subsidiary Guarantors are subject to a first-priority lien in favor of floor plan lenders, and such liens and priority are subject to certain other exceptions. The Subsidiary Guarantors also guarantee the obligations of the Company under the Oaktree Credit Agreement.

The Oaktree Credit Agreement contains customary events of default for facilities of this type. If an event of default under the Oaktree Credit Agreement occurs and is continuing, the commitments to make available the Delayed Draw Term Loan Facility may be terminated and the principal amount outstanding under the Oaktree Credit Agreement, together with all accrued and unpaid interest and other amounts owed thereunder, may be declared immediately due and payable.

Oaktree Warrant

In connection with providing the debt financing for the RideNow Transaction, and pursuant to the Commitment Letter executed on March 15, 2021, the Company issued warrants to purchase $40,000 shares of Class B common stock to Oaktree Capital Management, L.P. and its lender affiliates (the “Oaktree Warrants”). In connection with the August 2021 Offering, the exercise price of the Warrants was set at $33.00 per share and the aggregate number of shares of Class B common stock underlying the Oaktree Warrants was set at 1,212,121. The Oaktree Warrants are immediately exercisable on the Closing Date and expire eighteen (18) months after the Closing.

Line of Credit- RumbleOn Finance Facility

On June 23, 2020, RumbleOn Finance, LLC, a wholly owned subsidiary of the Company (“RumbleOn Finance”), entered into a loan agreement providing for up to $2,500 in proceeds (the “ROF Facility”) with CL Rider Finance, L.P. (“CL Rider”). In connection with the ROF Facility, RumbleOn Finance pledged its assets to CL Rider to secure the ROF Facility and executed a promissory note in favor of the CL Rider pursuant to which the ROF Facility will accrue interest at an initial rate not lower than 7% per annum. The ROF Facility is payable on demand by CL Rider. Interest expense on the ROF Facility for the for the three and nine-months ended September 30, 2021 was $0 and $71, respectively.

Notes Payable

NextGen

On February 8, 2017, in connection with the acquisition of NextGen, the Company issued a subordinated secured promissory note in favor of NextGen (which note was subsequently assigned to Halcyon in February 2018) in the amount of $1,333. Halcyon was affiliated with Kartik Kakarala, a former director of the Company. Interest accrues and will be paid semi-annually (i) at a rate of 6.5% annually from the closing date through the second anniversary of such date; (ii) at a rate of 8.5% annually from the second anniversary of the closing date through February 10, 2020; and (iii) 10.0% thereafter through the maturity date. The Company’s obligations under the NextGen Note are secured by substantially all the assets of NextGen Pro LLC (“NetGen Pro”), pursuant to an Unconditional Guaranty Agreement (the “Guaranty Agreement”), by and among NextGen and NextGen Pro, and a related Security Agreement between the parties, each dated as of February 8, 2017. 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 NextGen Note for the three and nine-months ended September 30, 2021 was $0 and $7, respectively. Interest expenses on the NextGen Note for the three and nine-months ended September 30, 2020, was $21 and $66, respectively.

Private Placement

On March 31, 2017, the Company completed funding of the second tranche of the 2016 Private Placement. 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, in consideration of cancellation of loan agreements having an aggregate principal amount committed by the purchasers of $1,350. The Private Placement Notes matured on January 31, 2021. Interest accrued 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. 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 with the corresponding amounts recorded as an addition to paid-in capital. The debt discount was fully amortized to interest expense at the scheduled maturity of the Private Placement Notes in January 2021 using the effective interest method. The effective interest rate at June 30, 2021 was 26.0%. Interest expense on the Private Placement Notes was $0 and $18, respectively for the three and nine months ended September 30, 2021. Interest expense for the three and nine-months ended September 30, 2020 was $17 and $125, respectively, which included debt discount amortization of $0 and $76, respectively. On January 31, 2021, a payment of $371 was made on the Private Placement Note and the remaining balance of $297 was extended through June 30, 2021. The Private Placement Notes were paid in full on July 1, 2021.

Exchange of Notes Payable

Certain of the Company’s investors extended the maturity of currently outstanding promissory notes, and exchanged such notes for new notes (the “New Investor Notes”), pursuant to that certain Note Exchange Agreement, dated January 14, 2020 (the “Investor Note Exchange Agreement”), by and between the Company and each investor thereto, including Halcyon, such New Investor Note for an aggregate principal amount of $833 (after taking account of a $500 pay down of the previously outstanding Halcyon note), Blue Flame Capital, LLC (“Blue Flame”), an entity affiliated with Denmar Dixon, a director of the Company, such New Investor Note for an aggregate principal amount of $99, and Mr. Dixon, individually, such New Investor Note for an aggregate principal amount of $273. The Halcyon and Blue Flame outstanding principal plus accrued interest were paid in full on January 31, 2021. The remaining outstanding principal plus accrued interest of the New Investor Notes was paid in full on July 1, 2021.

Bridge Loan

On March 12, 2021, in anticipation of the RideNow Transaction, the Company and its subsidiary, NextGen Pro, executed a secured promissory note with BRF Finance Co., LLC (“BRF Finance”), an affiliate of B. Riley Securities, Inc., pursuant to which BRF Finance loaned the Company $2,500 (the “Bridge Loan”). The Bridge Loan matures on the earlier of September 30, 2021 or upon the issuance of debt or equity above a threshold. The Bridge Loan plus accrued interest at 12% was paid in full on the Closing Date. Interest expense on the Bridge Loan for the three and nine-months ended September 30, 2021, was $53 and $147, respectively.

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 $5,177 (the “Loan Proceeds”). 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. In July, 2021, we applied to obtain forgiveness of the PPP Loans and received approval for the forgiveness totaling $564 in September, 2021. The balance of the PPP loans of $4,612 is still under review by the SBA and the Company can provide no assurance that it will obtain forgiveness of this remaining balance in whole or in part. As of September 30, 2021, payments on this remaining loan balance commenced September 1, 2021 and the loans mature on April 25, 2025.

Interest expense on the PPP Notes for the three and nine-months ended September 30, 2021 was $13 and $39, respectively. Interest expense on the PPP Notes for the three and nine-months ended September 30, 2020 was $12 and $19 respectively.

NOTE 10 – CONVERTIBLE NOTES

As of September 30, 2021, the outstanding convertible promissory notes net of debt discount and issue costs are summarized as follows:

Convertible Senior Notes

On May 9, 2019, the Company entered into a purchase agreement (the “Old Notes Purchase Agreement”) with JMP Securities LLC (“JMP Securities”) to issue and sell $30,000 in aggregate principal amount of its 6.75% Convertible Senior Notes due 2024 (the “Old Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) (the “2019 Note Offering”). On January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by a Joinder Agreement (together, the “New Note Purchase Agreement”), with the investors in the 2019 Note Offering, pursuant to which the Company agreed to complete (i) a note exchange pursuant to which $30,000 of the Old Notes would be cancelled in exchange for a new series of 6.75% Convertible Senior Notes due 2025 (the “New Notes,” and together with the Old Notes, the “Public Notes”) and (ii) the issuance of additional New Notes in a private placement (the “2020 Note Offering”). On January 14, 2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering after deducting for payment of accrued interest on the Old Notes and offering-related expenses were approximately $8,272.

The New Notes were issued pursuant to an Indenture (the “New Indenture”), by and between the Company and the Trustee. The New Notes bear interest at 6.75% per annum, payable semiannually on January 1 and July 1, beginning on July 1, 2020. The New Notes may bear additional interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the New Indenture or if the New Notes are not freely tradable as required by the New Indenture. The New Notes mature on January 1, 2025, unless earlier converted, redeemed, or repurchased pursuant to their terms.

The initial conversion rate of the New Notes is 25 shares of Class B common stock per $1 principal amount of New Notes, which is equal to an initial conversion price of $40.00 per share. The conversion rate is subject to adjustment in certain events as set forth in the New Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the New Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its New Notes in connection with such make-whole fundamental change. Before July 1, 2024, the New Notes will be convertible only under circumstances as described in the New Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental change adjustment will result in a conversion rate greater than 62.0 shares per $1 in principal amount.

The New Indenture contains a “blocker provision” which provides that no holder (other than the depository with respect to the notes) or beneficial owner of a New Note shall have the right to receive shares of the Class B common stock upon conversion to the extent that, following receipt of such shares, such holder or beneficial owner would be the beneficial owner of more than 4.99% of the outstanding shares of the Class B common stock.

The New Notes are not redeemable by the Company before January 14, 2023. The Company may redeem for cash all or any portion of the New Notes, at its option, on or after January 14, 2023 if the last reported sale price of the Class B common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the New Notes.

The New Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the New Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company (including trade payables).

The New Notes are subject to events of default typical for this type of instrument. If an event of default, other than an event of default in connection with certain events of bankruptcy, insolvency or reorganization of the Company or any significant subsidiary, occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding New Notes by notice to the Company and the Trustee, may declare 100% of the principal and accrued and unpaid interest, if any, on all the New Notes then outstanding to be due and payable.

As of September 30, 2021, the conditions allowing holders of the New Notes to convert have not been met and therefore the New Notes are not yet convertible.

The Company accounted for the exchange of the Old Notes and the issuance of the New Notes in accordance with the conversion guidance in ASC 470-20 “Debt – Debt with Conversion and Other Option” (ASC 470-20) and determined that the exchange of the Old Notes for the New Notes required derecognition of the Old Notes given that the difference in the fair value of the embedded conversion feature of the New Notes relative to the Old Notes was in excess of 10 percent of the Old Notes conversion feature fair value. In derecognizing the Old Notes, the Company recognized a gain of $188 equal to difference between the fair value of the Old Notes liability immediately prior to extinguishment and the carrying amount of the liability component of the Old Notes, including any unamortized debt issuance costs. The remaining consideration of $2,593 was allocated to the reacquisition of the equity component and recognized as a reduction of stockholder’s equity.

The New Notes were accounted for in accordance with FASB ASC 470, Debt and ASC 815, Derivatives and Hedging, which required bifurcation of the liability and equity components. The Company determined the carrying amount of the liability component was $25,280 and represents the present value of the New Notes cash flows using an 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, in total debt discount related to the New Notes which included $60 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 $60 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 $41 and are netted with the equity component of the New Notes in stockholders’ equity. The equity component is not remeasured as long as it continues to meet the conditions for equity classification The Company further valued a derivative liability in connection with the interest make-whole provision at $11 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 derivative liability is remeasured at each reporting date with an increase in value of $7 and $25 being recorded in change in derivative liability in the Condensed Consolidated Statement of Operations for the three and nine-months ended September 30, 2021, respectively. The value of the derivative liability as of September 30, 2021 was $41.

The interest expense recognized with respect to the Convertible Notes was as follows:

Convertible Notes-Autosport USA

On February 3, 2019, in connection with the Autosport Acquisition, the Company issued a (i) $500 Promissory Note and (ii) a $1,536 Convertible Note in favor of the seller. The $500 Promissory Note was repaid in full in 2020. The $1,536 Convertible Note matures on January 31, 2022 and accrues interest at a rate of 6.5% per annum. Any interest and principal due under the Convertible Note is convertible into shares of the Company’s Class B common stock at a conversion price of $115.00 per share, (i) at the Seller’s option, or (ii) at the Buyer’s option, on any day that (a) any portion of the principal of the Convertible Note remains unpaid and (b) the weighted average trading price of the Company’s Class B common stock on Nasdaq for the twenty (20) consecutive trading days preceding such day has exceeded $140.00 per share. The maximum number of shares issuable pursuant to the Convertible Note is 2,449 shares of the Company’s Class B common stock. Interest expense on the Convertible Note for the three and nine-months ended September 30, 2021 was $51 which included $37 of debt discount amortization as compared to interest expense of $52 which included $20 of debt discount amortization for the same periods of 2020.

NOTE 11 – STOCKHOLDER EQUITY

Share-Based Compensation

On June 30, 2017, the Company’s shareholders approved a Stock Incentive Plan (as amended, the “Plan”) allowing for the issuance of RSUs, stock options (“Options”), Performance Units, and other equity awards (collectively “Awards”). As of September 30, 2021, the number of shares authorized for issuance under the Plan was 2,700,000 shares of Class B common stock. To date, most RSU and Option awards are service/time based vested over a period of up to three years. The Company has also granted performance-based awards and market condition-based awards with vesting schedules that are typically dependent on achieving a particular objective within thirty-six months.

The Company estimates the fair value of awards granted under the Plan on the date of grant. In the case of time or service based RSU awards, the fair value is the price of the Class B common stock on the date of the award. Performance Awards use the share prices of the Class B common stock but the Company, both at grant and each subsequent quarter, considers whether to apply a discount to the fair value in situations where the Company believes there is risk that the relevant performance metrics may not be met. Options are calculated using the Black-Scholes option valuation model while market-condition based awards are estimated using a Monte Carlo simulation model as these awards are tied to a market condition. Both the Black-Scholes and Monte-Carlo simulations utilize multiple input variables to determine the probability of the Company’s Class B stock price being at certain prices over certain time periods, resulting in an implied value to the holder.

In connection with the closing of the RideNow Transaction, the Company accelerated all the outstanding RSU awards for all participants and waived certain market-based share price hurdles for all market-based awards. This waiver was accounted for as a modification of the awards. The fair value of the awards was remeasured as of effective date of the waiver, and the change in fair value was fully expensed given the concurrent delivery of such shares. In addition, in connection with the execution of the executive employment agreements entered into with each Messrs. Chesrown, Coulter, Levy, and Tkach, (the “Executive Employment Agreements”), Messrs. Coulter and Tkach were granted service-based RSUs and market based awards were granted to each of Messrs. Chesrown, Coulter, Tkach, and Levy. The cost of the acceleration of these RSU awards and other stock issuances of $23,943 has been reported in the Condensed Consolidated Statement of Operations for the three and nine-months ended September 30, 2021 as stock-based compensation and other issuances.

On September 30, 2021, the Audit Committee approved the issuance of 154,731 shares of the Company’s Class B common stock as a gift of a death benefit to the estate of Mr. Berrard, or as instructed by the estate of Mr. Berrard. Mr. Berrard was one of the Company’s founders. Also, on August 30, 2021, the Audit Committee approved a gift of a death benefit to the estate of Mr. Berrard, or as instructed by the estate of Mr. Berrard, in an amount equal to (1) $1,500, which shall be paid in equal weekly installments beginning October 1, 2021 and ending June 30, 2024 and (2) the cash bonus paid to the Company’s Chief Executive Officer each quarter over the same period ending June 30, 2024, if and when paid to the Chief Executive Officer in accordance with the Company’s Executive Incentive Program. The Company accrued the liability for approximately $1,300  during the three-months ended September 30, 2021.

We generally expense the grant-date fair value of all awards on a straight-line basis over the vesting period. However, the acceleration of awards as described above resulted in the awards being expensed in the three-months ended September 30, 2021. The following table reflects the stock-based compensation for the three and nine-months ended September 30, 2021 and September 30, 2020.

As of September 30, 2021, there are 2,551 Options and 524,578 RSUs outstanding. The total unrecognized compensation expense related to outstanding equity awards was approximately $2,955, which the Company expects to recognize over a weighted-average period of approximately 35 months.

January 2020 Offering

On January 14, 2020, the Company closed its public offering of 1,035,000 shares of Class B common stock at a price to the public of $11.40 per share (“2020 Public Offering”), which included the full exercise of the underwriter’s option to purchase an additional 135,000 shares from RumbleOn. The Company raised approximately $10,780 in net proceeds for working capital and general corporate purposes.

Reverse Stock Split

On May 18, 2020, the Company filed a Certificate of Change to the Company’s Articles of Incorporation 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 Quarterly Report on Form 10-Q for the Reverse Stock Split.

April 2021 Offering

On April 8, 2021, the Company closed its public offering of 1,048,998 shares of Class B common stock at a price to the public of $38.00 per share (the “April 2021 Offering”). The Company raised approximately $36,797 in net proceeds for working capital and general corporate purposes.

August 2021 Offering

On August 31, 2021, the Company closed its the August 2021 Offering of 5,053,029 shares of Class B common stock at a price to the public of $33.00 per share, which included the full exercise of the underwriter’s option to purchase an additional 659,090 shares from RumbleOn. The Company raised approximately $154,443 in net proceeds for the RideNow Transaction and for working capital.

Warrant

At inception of the Commitment Letter, the Company accounted for the Oaktree Warrant as a liability with the initial offset as a deferred financing charge as the Oaktree Warrant was issued in lieu of a commitment fee connected to the debt financing of the RideNow Transaction. The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability was subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of change in derivative liability in the Condensed Consolidated Statements of Operations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 inputs. There was no gain or loss recorded related to the Warrant liability during the three-months ended March 31, 2021 as there was no significant changes in the fair value between March 12, 2021 and March 31, 2021. For the three months ended June 30, 2021, the fair value of the warrant liability was increased $2,224 to $13,174. On August 31, 2021, the fair value of the warrant liability was increased $6,526 to $19,700. Upon closing of the RideNow Transaction, the Oaktree Under ASC 815-40, warrants were considered equity linked contracts indexed to RumbleOn’s stock and therefore met the equity classification guidance. As a result, the $19,700 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge was reclassified as part of the debt discount related to the Oaktree Credit Agreement. The recognition of the warrant liability and deferred financing charge and the reclassification of the warrant liability to additional paid-in-capital and the reclassification of the deferred financing charge to debt discount are non-cash items.

NOTE 12 – SELLING, GENERAL AND ADMINISTRATIVE

The following table summarizes the detail of selling, general and administrative expense for the three and nine-months ended September 30, 2021 and September 30, 2020:

NOTE 13 – LOSS CONTINGENCIES AND INSURANCE RECOVERIES

On March 3, 2020, a severe tornado struck the greater Nashville area (the “Nashville Tornado”) causing significant damage to the Company’s facilities including property and equipment and other contents and inventory held for sale. The Company maintains insurance coverage for damage to its facilities and inventory, as well as business interruption insurance. The loss was comprised of three components: (1) inventory loss, assessed by the insurance carrier at approximately $13,000; (2) building and personal property loss, primarily impacting our leased facilities, assessed by the insurance carrier at $2,783; and (3) loss of business income, for which the company has coverage in the amount of $6,000.

All three components of the Company’s loss claim have been submitted to its insurers. The Company’s inventory claim is subject to a dispute with the carrier as to the applicable policy limits applicable to the loss; however, the insurer has paid $5,615 in July 2020 and $3,135 in July 2021. Therefore, the total payments received thus far against the final settlement are $8,750. The insurer has agreed to pay $2,778 on the building and personal property loss, reflecting limits of $2,783, net of a $5 deductible. The insurer has made an interim payment on the building and personal property loss of $2,270 to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation, however, the insurer has advanced $250 against the final settlement. The Company believes there will be a recovery of all three loss components, however no assurance can be given regarding the amounts, if any, that will be ultimately recovered or when any such recoveries will be made.

As a result of the damage caused by the Nashville Tornado, the Company concluded that the utility of the inventory damaged by the storm was impaired as a result of physical damage sustained. Whether the impairment is caused by physical destruction or an adverse change in the utility of the inventory, entities should assess whether an inventory impairment or write-off is required in accordance with ASC 330-10-35-1 through 35-11, which address adjustments of inventory balances to the lower of cost or market and requires that when there is evidence that the utility of goods will be less than cost, the difference is recognized as a loss of the current period. For the nine-months ended September 30, 2020, the Company recorded an impairment loss on inventory of $11,738 comprised of $4,454 for vehicles that were a total loss and $7,285 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the September 30, 2020 Condensed Consolidated statements of operations. Additionally, $178 of the net book value of the property and equipment destroyed by the Nashville Tornado was expensed.

NOTE 14 – SUPPLEMENTAL CASH FLOW INFORMATION

The following table includes supplemental cash flow information, including noncash investing and financing activity for the nine-months ended September 30, 2021 and 2020:

The following table provides a reconciliation of cash and restricted cash reported within the accompanying Condensed Consolidated balance sheets that sum to the total of the same amounts shown in the accompanying Condensed Consolidated statements of cash flows as of September 30, 2021 and December 31, 2020:

NOTE 15 – INCOME TAXES

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the Covid-19 pandemic. The Company does not expect the provisions of the legislation to have a significant impact on the effective tax rate or income tax payable and deferred income tax positions of the Company. 

As of December 31, 2020, the Company provided a full valuation allowance on the net deferred tax assets of $23,744. On a quarterly basis, management assesses the recovery of its deferred tax assets by considering whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result of the RideNow Transaction, management anticipates that the Company will have taxable income in 2022 and future years, and undertook an in-depth IRS Code Section 382 Ownership Change Analysis to determine what limitations exist on the utilization of Federal and state net operating loss carryforwards. Based on this analysis, management has concluded that a valuation allowance of $12,000 should be provided as of September 30, 2021.

The components of the income tax provision from continuing operations for the three and nine-months ended September 30, 2021 and September 30, 2020 are as follows:

A reconciliation of the statutory U.S. Federal income tax rate to the Company’s effective income tax rate for the nine-months ended September 30, 2021 and the year ended December 31, 2020 is set forth below.

Deferred income taxes reflected on the balance sheet as of September 30, 2021 and December 31, 2020, reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. These differences are summarized below.

NOTE 16 – LOSS PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average common shares and common share equivalents outstanding during the period. The diluted earnings per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, 524,578 of RSUs, 2,551 of stock options, 1,212,121 of Oaktree Warrants to purchase shares of Class B common stock, 16,531 of other warrants and 982,107 shares of Class B common stock issuable in connection with convertible debt are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.

The Company applies the two-class method of calculating earnings per share, but as the rights of the Series B Non-Voting Convertible Preferred Stock and Class A and Class B common stock are identical, except in respect of voting, basic and diluted earnings per share are the same for all classes. Weighted average number of shares outstanding of Class A common stock, Class B common stock, and Series B Preferred for the three and nine months ended September 30, 2021 were 50,000, 6,889,708 and 0 and 50,000, 4,128,932 and 0, respectively.

NOTE 17 – RELATED PARTY TRANSACTIONS

Promissory Notes

As of December 31, 2020, the Company had promissory notes of $371 and accrued interest of $9 due to Blue Flame Capital, LLC (“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 and exchanged in January 2020 for New Investor Notes. The Blue Flame Notes plus accrued interest were paid in full on January 31, 2021. Interest expense on the promissory notes for the three and nine-months ended September 30, 2021, and 2020 was $3 and $92, respectively, which included debt discount amortization of $0 and $42, respectively. The interest was charged to interest expense in the Condensed Consolidated Statements of Operations.

August 2021 Offering

On August 31, 2021, we completed the August 2021 Offering. Denmar Dixon, a director of the Company, purchased an aggregate of 13,636 shares of Class B common stock in the Offering at the public price of $33.00 per share.

RideNow Leases

In connection with the RideNow Transaction, the Company entered into related party leases for 24 properties consisting of dealerships and offices. Each related party lease is with a wholly owned subsidiary of the Company as the tenant and an entity controlled by William Coulter and/or Mark Tkach, each a director and executive officer of the Company, as the landlord. The initial aggregate base rent payment for all 24 leases is approximately $1,229 per month, and each lease commenced a new 20-year term on September 1, 2021, with each lease containing annual 2% increases on base rent. The Company is still in the process of finalizing its purchase price allocation and related fair values of assets and liabilities, including the RideNow leases.

RideNow Reinsurance Products

Each of the operating entities owned by the Company that own retail powersport stores which sell motorcycles and various off-road vehicles also sell extended service contracts, prepaid maintenance, “GAP insurance,” theft protection and tire and wheel products on their vehicles. These products sold to customers of these stores are offered by RPM One (“RPM”), which is an after-market third-party provider of these products commonly used in the industry. Affiliate reinsurance companies controlled by and owned primarily by William Coulter and/or Mark Tkach participate in the underwriting profits of these RPM products. The sales representatives employed by these operating companies are incentivized to offer the products sold by RPM. The total amount generated by these affiliate companies attributable to the ownership interests of Mr. Coulter and Mr. Tkach was approximately $7,000 in 2019 and approximately $8,400 in 2020. The Audit Committee of the Board of Directors (the “Board”) of the Company (the “Audit Committee”) is in the process of reviewing the terms and rates of these entities.

Notes Payable to RideNow Management, LLLP

The Company has notes payable to RideNow Management, LLLP, a entity owned equally by two directors of $1,033.

NOTE 18 – COMMITMENTS AND CONTINGENCIES

Lease Commitments

We determine whether an arrangement is a lease at inception and whether such leases are operating or financing leases. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. We use these options in determining our capitalized financing and right-of-use assets and lease liabilities. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. To determine the discount rate to use in determining the present value of the lease payments, we use the rate implicit in the lease if determinable, otherwise we use our incremental borrowing rate.

The following table reflects the balance sheet presentation of our lease assets and liabilities:

Operating lease expense is recognized on a straight-line basis over the lease term. Total operating lease expenses for the three and nine-months ended September 30, 2021 and 2020 are provided in the table below.

The weighted-average remaining lease term and discount rate for the Company’s operating and financing leases are as follows:

The following table provides information related to the lease costs of finance and operating leases for three and nine-month periods ended September 30, 2021 and September 30, 2020:

Supplemental cash flow information related to operating leases for the nine-months ended September 30, 2021, is set forth below:

The following table summarizes the future minimum payments for operating and financing leases as of September 30, 2021, due in each year ending December 31,

Legal Matters

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 September 30, 2021 and December 31, 2020, 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 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 segment consists of the sale of new and used powersports vehicles principally through retail and, to a lesser extent, through wholesale distribution channels. Our automotive segment consist of the distribution of pre-owned cars and trucks through wholesale distribution channels. Our vehicle logistics and transportation service segment provide nationwide automotive transportation services between dealerships and auctions. Our vehicle logistics and transportation service reportable segment has been determined to represent one operating segment and reporting unit.

The following table summarizes financial measures by which management allocates resources to its segments in each of our reportable segments and other key metrics.