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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

For the quarterly period ended March 31, 2021

 

OR

 

 

 For the transition period from                     to                     

 

Commission file number 001-38248

 

RumbleOn, Inc.  (Exact name of registrant as specified in its charter)
Nevada		46-3951329
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
901 W Walnut Hill Lane Irving TX		75038
(Address of principal executive offices)		(Zip Code)

 

		(214) 771-9952
		(Registrant's telephone number, including area code)
	(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class B Common Stock, $0.001 par value		RMBL		The NASDAQ Capital Market

 

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.

 

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 Exchange Act). ☐ Yes ☒ No

 

The number of shares of Class B Common Stock, $0.001 par value, outstanding on May 12, 2021 was 3,343,062 shares. In addition, 50,000 shares of Class A Common Stock, $0.001 par value, were outstanding on May 12, 2021.

 

 

RUMBLEON, INC.

QUARTERLY PERIOD ENDED MARCH 31, 2021

Table of Contents to Report on Form 10-Q

 

 

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosure About Market Risk	46
Item 4. Controls and Procedures	46

PART II - OTHER INFORMATION
Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3. Defaults Upon Senior Securities	47
Item 4. Mine Safety Disclosures	47
Item 5. Other Information	47
Item 6. Exhibits	48
SIGNATURES	49

 

 

PART I - FINANCIAL INFORMATION

 

RumbleOn, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

	As of March 31, 2021	As of December 31, 2020
ASSETS
Current assets:
Cash	$80,049	$1,466,831
Restricted cash	2,049,056	2,049,056
Accounts receivable, net	21,342,681	9,407,960
Inventory	24,034,754	21,360,441
Prepaid expense and other current assets	4,050,991	3,446,225
Total current assets	51,557,531	37,730,513
Property and equipment, net	6,317,167	6,521,446
Right-of-use assets	5,418,220	5,689,637
Goodwill	26,886,563	26,886,563
Deferred finance charge	10,950,000	-
Other assets	159,409	151,076
Total assets	$101,288,890	$76,979,235
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$17,523,899	$12,707,448
Accrued interest payable	827,903	1,485,854
Current portion of convertible debt	522,391	562,502
Current portion of long-term debt	32,826,176	20,688,651
Total current liabilities	51,700,369	35,444,455
Long-term liabilities:
Note payable	4,691,181	4,691,181
Warrant liability	10,950,000
Convertible debt, net	27,572,970	27,166,019
Derivative liabilities	37,346	16,694
Operating lease liabilities and other long-term liabilities	4,483,929	5,090,221
Total long-term liabilities	47,735,426	36,964,115
Total liabilities	99,435,795	72,408,570
Commitments and contingencies (Notes 6, 7, 8, 11, 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 March 31, 2021 and December 31, 2020	-	-
Common A stock, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020	50	50
Common B stock, $0.001 par value, 4,950,000 shares authorized, 2,286,404 and 2,191,633 shares issued and outstanding as of March 31, 2021 and December 31, 2020	2,286	2,192
Additional paid-in capital	110,683,126	108,949,204
Accumulated deficit	(108,832,367)	(104,380,781)
Total stockholders' equity	1,853,095	4,570,665
Total liabilities and stockholders' equity	$101,288,890	$76,979,235

 

 

See Notes to the Condensed Consolidated Financial Statements.

 

 

RumbleOn, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

	Three-Months Ended March 31,
	2021	2020
Revenue:
Pre-owned vehicle sales:
Powersports	$10,854,884	$23,139,080
Automotive	84,070,855	114,198,079
Transportation and vehicle logistics	9,338,272	7,087,591
Total revenue	104,264,011	144,424,750
Cost of revenue
Powersports	7,876,391	20,558,286
Automotive	77,859,808	108,353,505
Transportation	7,349,342	5,088,059
Cost of revenue before impairment loss	93,085,541	133,999,850
Impairment loss on automotive inventory	-	11,738,413
Total cost of revenue	93,085,541	145,738,263
Gross profit (loss)	11,178,470	(1,313,513)
Selling, general and administrative	13,401,344	18,056,426
Depreciation and amortization	599,240	522,995
Operating income (loss)	(2,822,114)	(19,892,934)
Interest expense	(1,608,820)	(2,216,757)
Change in derivative liability	(20,652)	(116,815)
Gain (loss) on early extinguishment of debt	-	188,164
Loss before provision for income taxes	(4,451,586)	(22,038,342)
Benefit for income taxes	-	-
Loss	$(4,451,586)	$(22,038,342)
Weighted average number of common shares outstanding - basic and fully diluted	2,303,525	2,046,423
Net income (loss) per share - basic and fully diluted	$(1.93)	$(10.77)

 

See Notes to the Condensed Consolidated Financial Statements.

 

 

RumbleOn, Inc.

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited)

 

	Preferred Shares		Class A Common Shares		Class B Common Shares		Additional Paid in	Accumulated	Total Stockholders'
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Deficit	Equity
Balance, as of December 31, 2020	-	-	50,000	$50	2,191,633	$2,192	$108,949,204	$(104,380,781)	$4,570,665
Issuance of common stock for restricted stock units	-	-	-	-	94,771	94	(94)	-	-
Stock-based compensation	-	-	-	-	-	-	1,734,016	-	1,734,016
Net loss	-	-	-	-	-	-	-	(4,451,586)	(4,451,586)
Balance as of March 31, 2021	-	$-	50,000	$50	2,286,404	$2,286	$110,683,126	$(108,832,367)	$1,853,095

 

	Preferred Shares		Class A Common Shares		Class B Common Shares		Additional Paid in	Accumulated	Total Stockholders'
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Deficit	Equity
Balance, as of December 31, 2019	-	-	50,000	$50	1,111,681	$1,112	$92,268,213	$(79,381,806)	$12,887,569
Issuance of common stock, net of issuance cost	-	-	-	-	1,035,000	1,035	10,779,045	-	10,780,080
Issuance of common stock for restricted stock units	-	-	-	-	4,485	4	(4)	-	-
Convertible note exchange	-	-	-	-	-	-	2,923,755	-	2,923,755
Stock-based compensation	-	-	-	-	-	-	846,370	-	846,370
Net loss	-	-	-	-	-	-	-	(22,038,342)	(22,038,342)
Balance as of March 31, 2020	-	-	50,000	50	2,151,166	2,151	106,817,379	(101,420,148)	5,399,432

 

See Notes to the Condensed Consolidated Financial Statements.

 

RumbleOn, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

	Three Months Ended March 31,
	2021	2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$(4,451,586)	$(22,038,342)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	599,240	522,995
Amortization of debt discounts	558,840	627,755
Share based compensation	1,734,016	846,370
Impairment loss on inventory	-	11,738,413
Impairment loss on property and equipment	-	177,626
Loss from change in value of derivatives	20,652	116,815
Gain on early extinguishment of debt	-	(188,164)
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current assets	(604,766)	(159,175)
Increase in inventory	(2,674,313)	(9,765,663)
(Increase) decrease in accounts receivable	(11,934,721)	240,682
(Increase) decrease in other assets	(8,333)	155,175
Increase (decrease) in accounts payable and accrued liabilities	4,695,873	(2,176,064)
Increase in other liabilities	(214,296)	-
(Decrease) increase in accrued interest payable	(657,951)	434,318
Net cash used in operating activities	(12,937,345)	(19,467,259)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	-	(132,366)
Technology development	(394,962)	(290,376)
Net cash used in investing activities	(394,962)	(422,742)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable	2,500,000	8,272,375
Payments on notes payable	(1,397,098)
Net proceeds from line of credit	10,842,623	2,097,755
Net Proceeds from sale of common stock	-	10,780,080
Net cash provided by financing activities	11,945,525	21,150,210
NET CHANGE IN CASH	(1,386,782)	1,260,209
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD	3,515,887	6,726,282
CASH AND RESTRICTED CASH AT END OF PERIOD	$2,129,105	$7,986,491

 

See Notes to the Condensed Consolidated Financial Statements.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

Overview

 

We are a technology driven, motor vehicle dealer and e-commerce platform provider disrupting the vehicle supply chain using innovative technology that aggregates, processes and distributes inventory in a faster and more cost-efficient manner.

We operate an infrastructure-light platform that facilitates the ability of all participants in the supply chain, including RumbleOn, other dealers and consumers to Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to transform the way VIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and transparent transaction experiences. While our initial customer facing emphasis through most of 2018 was on motorcycles and other powersports vehicles, we continue to enhance our platform to accommodate nearly any VIN-specific vehicle including motorcycles, ATVs, boats, RVs, cars and trucks. Of the 3,500 vehicles we sold during the three-months ended March 31, 2021, 2,494 (71%) were automotive and 1,006 (29%) were powersports vehicles. For the three-months ended March 31, 2020, we sold 7,420 vehicles of which 4,603 (62%) were automotive and 2,817 (38%) 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. The combination of RumbleOn and RideNow will become the first omnichannel platform in powersports. This channel is a full-service platform that will revolutionize the customer experience. This omnichannel platform will offer the consumer the fastest, easiest, and most transparent transaction online or in store while providing customers the most comprehensive offering that includes: Buy, Sell or Trade without Leaving Your Home;Virtual Inventory Listings Online and In Store;Physical Retail and Service Locations;Proprietary Supply Aggregation;Apparel, Parts, Service and Accessories;Vehicle Transportation and Logistics;Online Cash Offers; and Proprietary Secondary Online Financing.

  

 

COVID-19 Pandemic

 

Since March 2020, the rapid spread of COVID-19 has resulted in governmental authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, shutdowns and vaccines. 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 some state and local governments have taken further action to relax previously implemented measures, considerable uncertainty remains regarding such measures and potential future measures. The extent to which the COVID-19 outbreak continues to impact 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. Our current focus is on continuing to position the Company for a strong recovery when this crisis is over. During 2020 and through the end of the first quarter of 2021 we managed our business activities to meet the parameters of our capital structure and available liquidity by adjusting inventory purchasing levels, reducing our operating expenses and capital expenditures to align with demand and market conditions while managing the business to support our customers’ needs for reliable vehicles. Future restrictions on our access to and utilization of our logistics and distribution network, our corporate offices, the inspection and reconditioning centers of our automotive 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.

 

Our financial statements reflect estimates and assumptions made by management that affect the carrying values of the Company's assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. The judgments, assumptions and estimates used by management are based on historical experience, management's experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of the Company's assets and liabilities and the results of operations. We will continue to evaluate the nature and extent of the impact to our business and our results of operations and financial condition as conditions evolve as a result of the COVID-19 pandemic.

 

Basis of Presentation

 

The accompanying unaudited 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. 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 Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the entire fiscal year. All intercompany accounts and material intercompany transactions have been eliminated.

 

Liquidity

 

We have incurred losses and negative cash flow from operations since inception through March 31, 2021 and expect to incur additional losses and negative cash flow in the future. As we continue to expand our business, build our brand name and awareness, and continue technology and software development efforts, we may need access to additional capital, including through debt and equity financing. Historically, we have raised additional capital to fund our expansion through equity issuances or debt instruments; refer to Note 7 — Notes Payable and Lines of Credit, Note 8 - Convertible Notes, and Note 9 — Stockholders Equity. Also, we have historically funded vehicle inventory purchases through our Line of Credit-Floor Plans. Due to the impact of COVID-19 on the economy, we have a strong focus on preserving liquidity. Our primary liquidity sources are available cash and cash equivalents, amounts available under lines of credit, monetization of our retail loan portfolio, rationalizing costs and expenses, and proceeds from our April 8, 2021 equity offering of 1,048,998 Class B common stock that generated net proceeds of $36,700,000; refer to Note 20 — Subsequent Events. 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 issuance date.

 

 

 

Use of Estimates

 

The preparation of these unaudited 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.

 

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. Finance receivables originated in connection with the Company's vehicle sales are held for sale and are subsequently sold. On March 31, 2021 and December 31, 2020, finance receivables were $5,237,860 and $2,117,809, respectively.

 

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 –ACCOUNTS RECEIVABLE, NET

 

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

 

	March 31, 2021	December 31, 2020
Trade	$16,518,164	$8,859,237
Finance	5,237,860	2,117,809
	21,756,024	10,977,046
Less: allowance for doubtful accounts	413,343	1,569,086
	$21,342,681	$9,407,960

 

 

NOTE 3 – INVENTORY

 

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

 

	March 31, 2021	December 31, 2020
Pre-owned vehicles:
Powersport vehicles	$1,176,343	$1,869,830
Automobiles and trucks	23,147,940	19,592,896
	24,324,283	21,462,726
Less: Reserve	289,529	102,285
	$24,034,754	$21,360,441

 

NOTE 4 – PROPERTY AND EQUIPMENT, NET

 

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

 

	March 31, 2021	December 31, 2020
Vehicles	$240,603	$240,603
Furniture and equipment	191,047	191,047
Technology development and software	11,403,264	11,008,303
Leasehold improvements	321,082	321,082
Total property and equipment	12,155,996	11,761,035
Less: accumulated depreciation and amortization	5,838,829	5,239,589
Total	$6,317,167	$6,521,446

 

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 March 31, 2021, capitalized technology development costs were $11,195,253. Total technology development costs incurred for the three-months ended March 31, 2021 was $758,990 of which $394,962 was capitalized and $364,028 was charged to expense in the accompanying Condensed Consolidated Statements of Operations. Depreciation expense for the three-months ended March 31, 2021 was $599,240, which included the amortization of capitalized technology development costs of $546,683. Total technology development costs incurred for the three-months ended March 31, 2020 was $911,210 of which $290,376 was capitalized and $620,834 was charged to expense in the accompanying Condensed Consolidated Statements of Operations. Depreciation expense for the three-months ended March 31, 2020 was $522,995, which included the amortization of capitalized technology development costs of $437,943.

 

NOTE 5 –INTANGIBLE ASSETS AND GOODWILL

  

The following is a summary of the changes in the carrying amount of goodwill and other indefinite-lived asset as of December 31, 2020 and the three-months ended March 31, 2021. 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 at 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. Management determined no triggering event occurred during the quarter ended March 31, 2021.

 

	Goodwill	Indefinite Lived Intangible Assets
Balance at December 31, 2020	$26,886,563	$45,515
Acquisitions	-	-
Impairment	-	-
Balance at March 31, 2021	$26,886,563	$45,515

 

The $45,515 of indefinite lived intangible asset is included in other assets in the Company's Condensed Consolidated balance sheets.

 

NOTE 6 – ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

 

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

 

	March 31, 2021	December 31, 2020
Accounts payable	$11,128,671	$8,167,957
Operating lease liability-current portion	1,696,078	1,630,002
Accrued payroll	1,663,436	1,079,771
State and local taxes	709,988	856,341
Other accrued expenses	2,325,726	973,377
Total	$17,523,899	$12,707,448

 

 

NOTE 7 – NOTES PAYABLE AND LINES OF CREDIT

 

Notes payable and lines of credit consisted of the following as of March 31, 2021 and December 31, 2020:

 

	March 31, 2021	December 31, 2020
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
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	297,411	669,175
Notes payable-Bridge loan dated March 12, 2021. Facility provides up to $2,500,000 of available credit secured by certain intellectual assets. Interest rate at 12.0% annually payable at maturity which is the earlier of September 21, 2021 or upon the issuance of debt or equity above a certain threshold.	2,500,000	-
Line of credit-NextGear floor plan dated October 30, 2018. Secured by vehicle inventory and other assets. Interest rate on March 31, 2021 was 8.25%. Principal and interest is payable on demand.	27,043,101	17,811,626
Line of Credit- RumbleOn Finance. Line of credit secured by the loans and other assets of RumbleOn Finance, LLC. Interest rate on March 31, 2021 was 7.25%. Principal and interest is payable on demand.	2,500,000	888,852
Notes payable-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	5,176,845
Total notes payable and lines of credit	$37,517,357	$25,379,832
Less: Current portion	32,826,176	20,688,651
Long-term portion	$4,691,181	$4,691,181

 

Line of Credit-Floor Plan-NextGear

 

On October 30, 2018, Wholesale, as borrower, entered into a floorplan vehicle financing credit line (the "NextGear Credit Line") with NextGear. As of March 31, 2021, the credit line was amended pursuant to which the Lender may provide up to $25,000,000 in financing. Advances under the NextGear Credit Line, if not demanded earlier, are due and payable for each vehicle financed under the NextGear Credit Line as and when such vehicle is sold, leased, consigned, gifted, exchanged, transferred, or otherwise disposed of. Advances, effective in April 2021 under the NextGear Credit Line required that the Company maintain $3,000,000 on deposit as restricted cash. Advances under the NextGear Credit Line will bear interest at an initial per annum rate of 6.25%, 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 NextGear Credit Line for the three-months ended March 31, 2021 and 2020 was $303,918 and $458,528, respectively.

 

Line of Credit-Floor Plan-Ally

 

On February 16, 2018, the Company, through its wholly-owned subsidiary RMBL MO, entered into an Inventory Financing and Security Agreement (the "Credit Facility") with Ally Bank ("Ally") and Ally Financial, Inc., a Delaware corporation ("Ally" together with Ally Bank, the "Lender"), pursuant to which the Lender may provide up to $25,000,000 in financing, or such lesser sum which may be advanced to or on behalf of RMBL MO from time to time, as part of its floorplan vehicle financing program. Advances under the Credit Facility require that the Company maintain 10.0% of the advance amount as restricted cash. Advances under the Credit Facility will bear interest at a per annum rate designated from time to time by the Lender and will be determined using a 365/360 simple interest method of calculation, unless expressly prohibited by law. Advances under the Credit Facility, if not demanded earlier, are due and payable for each vehicle financed under the Credit Facility as and when such vehicle is sold, leased, consigned, gifted, exchanged, transferred, or otherwise disposed. Interest under the Credit Facility is due and payable upon demand, but, in general, in no event later than 60 days from the date of request for payment. Upon any event of default (including, without limitation, RMBL MO's obligation to pay upon demand any outstanding liabilities of the Credit Facility), the Lender may, at its option and without notice to the RMBL MO, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to Lender and its affiliates by RMBL MO and its affiliates. The Credit Facility is secured by a grant of a security interest in the vehicle inventory and other assets of RMBL MO and payment is guaranteed by the Company pursuant to a guaranty in favor of the Lender and secured by the Company pursuant to a General Security Agreement. Interest expense on the Credit Facility for the three-months ended March 31, 2020 was $79,694. The Credit Facility ended in February 2020.

 

 

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 (iii) 10.0% thereafter through the Maturity Date. Upon the occurrence of any event of default, the outstanding balance under the NextGen Note shall become immediately due and payable upon election of the holder. 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 NextGen Note for the three-months ended March 31, 2021 was $7,534 as compared to $21,927 for the same period of 2020.

 

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 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 March 31, 2021 was 26.0%. Interest expense on the Private Placement Notes was $10,491 and $91,893, respectively for the three-months ended March 31, 2021 and 2020, which included debt discount amortization of $75,601, for the three-months ended March 31, 2020. There was no amortization of debt discount for the period ended March 31, 2021. On January 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 borrower 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 ofemployee 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   Interest expense on the PPP Notes for the three-months ended March 31, 2021 was $13,345.

 

Bridge Loan

 

In connection with the proposed acquisition of RideNow (See Note 19 – Proposed Acquisition) 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. Interest will accrue on the Bridge Loan until maturity (by acceleration or otherwise) at a rate of 12.0% annually. Interest expense on the Bridge Loan was $16,667 for the three months ended March 31, 2021.

 

NOTE 8 – CONVERTIBLE NOTES

  

As of March 31, 2021, the outstanding convertible promissory notes net of debt discount and issue costs are summarized as follows:

 

	Principal Amount	Debt Discount	Carrying Amount
Convertible senior notes	$38,750,000	$11,215,473	$27,534,527
Convertible notes-Autosport:
$1,536,000 unsecured note	832,000	271,166	560,834
	39,582,000	11,486,639	28,095,361
Less: Current portion	768,000	245,609	522,391
Long-term portion	$38,814,000	$11,241,030	$27,572,970

 

Convertible Senior Notes

 

On May 9, 2019, the Company entered into a purchase agreement (the "Purchase Agreement") with JMP Securities LLC ("JMP Securities") to issue and sell $30,000,000 in aggregate principal amount of its 6.75% Convertible Senior Notes due 2024 (the "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 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 March 31, 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 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 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 $20,652 being recorded in other income for the three-months ended March 31, 2021. The value of the derivative liability as of March 31, 2021 was $37,346.

 

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

 

	Three-months Ended March 31, 2021
Contractual interest expense	$653,906
Amortization of debt discounts	522,048
Total	$1,175,954

 

Convertible Notes-Autosport USA

 

On February 3, 2019, in connection with the Autosport Acquisition, the Company issued a: (i) $500,000 Promissory Note and (ii) $1,536,000 Convertible Note in favor of the Seller. In connection with the Autosport Acquisition, the Buyer also assumed additional debt of $257,933 pursuant to a 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 Market 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. Interest expense on the Convertible Note for the three-months ended March 31, 2021 was $51,483 and included $36,792 of debt discount amortization as compared to interest expense of $51,560 which included $19,693 of debt discount amortization for the same period of 2020.

 

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 three-months ended March 31, 2020. Interest expense on the Convertible Note for the three-months ended March 31, 2020 was $7,477 and included $6,382 of debt discount amortization.

 

NOTE 9 – STOCKHOLDER 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 B Common Stock to 700,000 shares of Class B Common Stock (the "Third Plan Amendment"). In contemplation of the RideNow Transaction, on March 9, 2021, the Board of Directors (the "Board") approved, subject to stockholder approval, a fourth amendment to the Plan to increase the authorized shares to 2,700,000 shares and extend the term of the Plan for an additional ten years. To date, the vast majority of RSU and Option awards are service/time based vested. Substantially all service/time based RSU and Option awards issued typically vest over a three-year period with (i) 20.0% vesting during the first twelve months after grant date, (ii) 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.

 

	Three-Months Ended March 31,
	2021	2020
Restricted Stock Units	$1,725,782	$831,079
Options	8,234	15,291
Total stock-based compensation	$1,734,016	$846,370

 

 

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 Quarterly Report on Form 10-Q for the Reverse Stock Split.

 

NOTE 10 – SELLING, GENERAL AND ADMINISTRATIVE

 

The following table summarizes the detail of selling, general and administrative expense for the three-months ended March 31, 2021 and 2020:

 

	Three-Months Ended March 31,
	2021	2020
Compensation and related costs	$5,981,459	$8,180,100
Advertising and marketing	1,596,304	2,948,155
Professional fees	1,667,096	842,703
Technology development and software	403,475	622,144
General and administrative	3,753,010	5,463,324
	$13,401,344	$18,056,426

NOTE 11 – 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. For the three-months ended March 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 March 31, 2020 Condensed Consolidated statements of operations. Additionally, $177,626 of the net book value of the property and equipment destroyed by the tornado was expensed. 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 12 – SUPPLEMENTAL CASH FLOW INFORMATION

 

The following table includes supplemental cash flow information, including noncash investing and financing activity for the three-months ended March 31, 2021 and 2020:

 

	Three-months Ended March 31,
	2021	2020
Cash paid for interest	$1,707,931	$1,588,030

 

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 March 31:

 

	March 31, 2021	December 31, 2020
Cash and cash equivalents	$80,049	$1,466,831
Restricted cash (1)	2,049,056	2,049,056
Total cash, cash equivalents, and restricted cash	$2,129,105	$3,515,887

                                  

 

NOTE 13 – INCOME TAXES

 

CARES Act

 

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. 

 

No current provision for Federal income taxes was recorded for the three-months ended March 31, 2021 and 2020 due to the Company's operating losses. The Company has provided a valuation allowance on the net deferred tax assets. In assessing the recovery of the net deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment.

 

NOTE 14 – LOSS PER SHARE

 

The Company computes basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighed-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, 393,878 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.

 

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 at March 31, 2021 were 50,000, 2,253,525, and 0, respectively.

 

 

NOTE 15 – RELATED PARTY TRANSACTIONS

 

As of December 31, 2020, the Company had promissory notes of $370,556 and accrued interest of $9,370 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 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-months ended March 31, 2021 and 2020 was $3,158 and $91,844, respectively, which included debt discount amortization of $0 and $42,001, respectively. The interest was charged to interest expense in the Condensed Consolidated Statements of Operations.

 

See Note 8 – Notes Payable and Lines of Credit for a discussion of the NextGen Note.

 

NOTE 16 – COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

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

 

Operating lease expense is recognized on a straight-line basis over the lease term. Total operating lease expenses for the three-months ended March 31, 2021 and 2020 was $533,370 and $527,044, respectively. The current portion of the Company's operating lease liabilities as of March 31, 2021 is $1,696,079 and is included in accounts payable and accrued liabilities. The long-term portion of the Company's operating lease liabilities as of March 31, 2021 is $3,978,158 and is included in other liabilities.

 

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

 

	March 31, 2021
Weighted-average remaining lease term	3.3 Years
Weighted-average discount rate	6.0%

 

Supplemental cash flow information related to operating leases for the three-months ended March 31, 2021 was as follows:

 

	March 31, 2021
Cash payments for operating leases	$487,378

 

The following table summarizes the future minimum payments for operating leases at March 31, 2021 due in each year ending December 31,

 

2021	$1,485,913
2022	1,970,141
2023	1,224,208
2024	855,309
2025	553,334
Thereafter	285,500
Total lease payments	6,374,405
Less imputed interest	(700,168)
Present value of lease liabilities	$5,674,237

 

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 March 31, 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 17 – CONCENTRATIONS

 

The Company is dependent on third-party providers of wholesale vehicle auctions. The Company is dependent on their ability to provide services on a timely basis and at favorable pricing terms. The loss of these principal providers or a significant reduction in service availability could have a material adverse effect on the Company. The Company believes that its relationships with these providers are satisfactory.

 

NOTE 18 - SEGMENT REPORTING

 

Business segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Our operations are organized by management into operating segments by line of business. We have determined that we have three reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics and transportation. Our powersports and automotive segments consist of the distribution of pre-owned vehicles. The powersports segment consists of the distribution principally of motorcycles 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 following table summarizes revenue, operating income (loss), Depreciation and Amortization and interest expense which are the measure by which management allocates resources to its segments to each of our reportable segments.

 

	Powersports	Automotive	Vehicle Logistics and Transportation	Eliminations(1)	Total
Three Months Ended March 31, 2021
Total assets	$48,002,418	$56,970,224	$12,650,687	$(27,284,439)	$90,338,890
Revenue	$10,854,884	$84,070,855	$10,030,352	$(692,080)	$104,264,011
Operating income (loss)	$(5,175,280)	$1,641,087	$712,079	$-	$(2,822,114)
Depreciation and amortization	$572,515	$26,725	$-	$-	$599,240
Interest expense	$(1,246,322)	$(360,527)	$(1,971)	$-	$(1,608,820)
Change in derivative liability	$(20,652)	$-	$-	$-	$(20,652)

Three Months Ended March 31, 2020
Total assets	$54,583,357	$75,520,584	$8,470,887	$(26,610,708)	$111,964,120
Revenue	$23,139,080	$114,198,079	$8,990,181	$(1,902,590)	$144,424,750
Operating income (loss)	$(7,189,585)	$(13,360,432)	$657,083	$-	$(19,892,934)
Depreciation and amortization	$462,537	$58,607	$1,851	$-	$522,995
Interest expense	$(1,464,627)	$(751,834)	$(296)	$-	$(2,216,757)
Change in derivative liability	$(116,815)	$-	$-	$-	$(116,815)
Gain on early extinguishment of debt	$188,164	$-	$-	$-	$188,164

                                   

 

NOTE 19 – PROPOSED ACQUISITION

 

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.

 

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.

 

The Company has accounted for the Warrant agreement as a liability with the initial offset as a deferred financing charge as the Warrant was issued in lieu of a commitment fee connected to the proposed financing of the RideNow Transaction. If the Transaction and related financing is closed, the deferred financing charge will be reclassed as a debt discount to the Credit Facility. The initial warrant liability and deferred financing charge recognized was $10,950,000 The agreement to issue the Warrant is an equity linked contract considered not indexed to its own stock and does not meet the equity classification guidance. The warrant liability is subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other income (expense), net on the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the Warrant or until it meets equity classification. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 3 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 change in the fair value between March 12, 2021 to March 31, 2021.  The recognition of the warrant liability and deferred financing charge was a non-cash item.

 

Certificate of Amendment and Changes to 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 Plan to increase the authorized shares of Class B Common Stock available under the Plan from 700,000 shares to 2,700,000 shares and extend the term of the 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.

 

NOTE 20 – SUBSEQUENT EVENTS

 

Equity Offering

 

On April 8, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley Securities, Inc., as representative to the several underwriters named on Schedule A to the Underwriting Agreement (the “Underwriters”), relating to the Company’s public offering (the “Offering”) of 1,048,998 shares of Class B Common Stock (the “Firm Shares”) and an additional 157,349 shares of Class B Common Stock (the “Additional Shares,” and together with Firm Shares, the “Shares”).

 

The Underwriters agreed to purchase the Firm Shares at a price of $38.00 per share. The Firm Shares were offered, issued, and sold pursuant to a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement filed with the SEC on Form S-3 (File No. 333-234340) under the Securities Act, and an effective registration statement filed with the SEC on Form S-3MEF (File. No. 333-255139) under the Securities Act.

 

On April 13, 2021, the Company issued the Firm Shares and closed the Offering at a public price of $38.00 per share for net proceeds to the Company of approximately $36.7 million after deducting the underwriting discount and offering fees and expenses payable by the Company.

 

The Underwriting Agreement included customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. The representations, warranties and covenants contained in the Underwriting Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the agreement and were subject to limitations agreed upon by the contracting parties.

 

The Company intends to use the net proceeds of the Offering for working capital and general corporate purposes. Pending these uses, the Company may invest the net proceeds in short-term interest-bearing investment grade instruments.

 

 

 

Unless the context requires otherwise, references in this report to "RumbleOn," the "Company," "we," "us," and "our" refer to RumbleOn and its consolidated subsidiaries. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our most recent Annual Report filed on Form 10-K, as well as our Condensed Consolidated financial statements and the accompanying notes included in Item 1 of this Form 10-Q.

 

Overview

 

We are a technology driven, motor vehicle dealer and e-commerce platform provider disrupting the vehicle supply chain using innovative technology that aggregates, processes and distributes inventory in a faster and more cost-efficient manner.

We operate an infrastructure-light platform that facilitates the ability of all participants in the supply chain, including RumbleOn, other dealers and consumers to Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to transform the way VIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and transparent transaction experiences. While our initial customer facing emphasis through most of 2018 was on motorcycles and other powersports vehicles, we continue to enhance our platform to accommodate nearly any VIN-specific vehicle including motorcycles, ATVs, boats, RVs, cars and trucks. Of the 3,500 vehicles we sold during the three-months ended March 31, 2021, 2,494 (71%) were automotive and 1,006 (29%) were powersports vehicles. For the three-months ended March 31, 2020, we sold 7,420 vehicles of which 4,603 (62%) were automotive and 2,817 (38%) 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. The combination of RumbleOn and RideNow will become the first omnichannel platform in powersports. This channel is a full-service platform that will revolutionize the customer experience. This omnichannel platform will offer the consumer the fastest, easiest, and most transparent transaction online or in store while providing customers the most comprehensive offering that includes:

 

The combination of RumbleOn and RideNow is well positioned to capitalize on the secular changes in consumer behavior accelerated by COVID-19. These changes include:

 

Shift in Demographics (1)

 

Transition to Outdoor Lifestyle (1)

 

Digital Adoption Accelerated (1)

 

 

We believe today’s consumer is experienced focused; RumbleOn’s acquisition platform for pre-owned vehicles enables the combined business to capture incremental market share as new riders continue to enter the category.

                                   

(1)  Source: NPD, National Marine Manufacturers Association, U.S. Department of Commerce, Cox Automotive, Boston Consulting Group, McKinsey & Company.

 

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 2.1, 10.2, 10.3 and 4.1. See the section titled Proposed Acquisition in this MD&A for a discussion of the RideNow Transaction and Oaktree Financing.

 

COVID-19 Update

 

Since March 2020, the rapid spread of COVID-19 has resulted in governmental authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, shutdowns and vaccines. 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 some state and local governments have taken further action to relax previously implemented measures, considerable uncertainty remains regarding such measures and potential future measures. The extent to which the COVID-19 outbreak continues to impact 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. Our current focus is on continuing to position the Company for a strong recovery when this crisis is over. During 2020 and through the end of the first quarter of 2021, we managed our business activities to meet the parameters of our capital structure and available liquidity by adjusting inventory purchasing levels, reducing our operating expenses and capital expenditures to align with demand and market conditions while managing the business to support our customers’ needs for reliable vehicles. Future restrictions on our access to and utilization of our logistics and distribution network, our corporate offices, the inspection and reconditioning centers of our automotive 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, which could have a material impact on the carrying values of the Company's assets and liabilities and the results of operations. We will continue to evaluate the nature and extent of the impact to our business and our results of operations and financial condition as conditions evolve as a result of the COVID-19 pandemic.

 

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, which was assessed by the insurance carrier at approximately $13,000,000; (2) building and personal property loss, 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 revenue for our powersports, automotive and transportation businesses for the year ended December 31, 2020 and through the first quarter of 2021. We experienced a significant decrease in demand in early March through mid-April of 2020 and a sequential month-over-month growth in revenue 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. This trend of low average days to sale and average selling prices increasing continued through March 31, 2021 and we expect it to continue through the second quarter of 2021 and possibly beyond. The effect of these higher market prices and our level of available liquidity required that we adjust purchasing levels to align with market conditions. The effect of these adjustments was lower levels of inventory available to purchase for resale causing a decline revenue that began in September 2020 and continued through the quarter ended March 31, 2021 as compared to same quarter of 2020. As the impact of COVID-19 abates over time, we anticipate that inventory purchasing levels and revenue will return to or exceed levels experienced pre-pandemic as we increase penetration in existing markets and add new dealers. However we can provide no assurance as to how quickly the adverse impacts of COVID-19 and its impacts on trends in the markets will abate or if spikes in COVID-19 infections will further negatively impact the economy generally or our business. 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

 

Reportable segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Our operations are organized by management into operating segments by line of business. We have determined that we have three reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics and transportation. Our powersports and automotive segments consist of the distribution of pre-owned vehicles. The powersports segment consists of the distribution of principally motorcycles, while the automotive segment distributes cars and trucks. Our vehicle logistics and transportation service segment provides nationwide automotive transportation services primarily between dealerships and auctions.

 

	For the Three-Months Ended March 31, 2021				For the Three-Months Ended March 31, 2020
	Revenue	Revenue%	Gross Profit	GP%	Revenue	Revenue%	Gross Profit	GP%
Segment
Powersports	$10,854,884	10.4%	$2,978,493	27.4%	$23,139,080	16.0%	$2,580,794	11.2%
Automotive	84,070,855	80.6%	6,211,047	7.4%	114,198,079	79.1%	5,844,574	5.1%
Transportation	9,338,272	9.0%	1,988,930	21.3%	7,087,591	4.9%	1,999,532	28.2%
Gross profit before impairment loss	104,264,011	100.0%	11,178,470	10.7%	144,424,750	% -	10,424,900	7.2%
Impairment loss (1)	-	-%	-	-%	-	%-	(11,738,413)	(8.1)%
	$104,264,011	100.0%	$11,178,470	10.7%	$144,424,750	100.0%	$(1,313,513)	(0.9)%

                                   

(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 business, 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 three months ended March 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.

 

 

	Three Months Ended March 31,
Powersports:	2021	2020
Vehicles sold	1,006	2,817
Average days to sale	19	43
Total vehicle revenue	$10,854,884	$23,139,080
Gross Profit	$2,978,493	$2,926,263

 

	Three Months Ended March 31,
Automotive(1):	2021	2020
Vehicles sold	2,494	4,603
Average days to sale	21	31
Total vehicle revenue	$84,070,855	$113,632,267
Gross Profit	$6,211,047	$6,348,968

                                

(1)  Excludes the Impairment Loss resulting from the Nashville Tornado and other insignificant indirect cost for the three months ended March 31, 2020.

 

Vehicles Sold