Form 8-K RumbleON, Inc. For: Apr 08
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 8,
2021
RumbleOn, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or Other Jurisdiction of Incorporation)
001-38248
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46-3951329
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(Commission File
Number)
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(I.R.S.
Employer Identification
No.)
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901 W.
Walnut Hill Lane, Irving, Texas
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75038
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(Address of Principal Executive
Offices)
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(Zip
Code)
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(214) 771-9952
(Registrant’s Telephone Number, Including Area
Code)
(Former Name or Former Address, If Changed Since Last
Report)
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
☐ Written communications pursuant
to Rule 425 under the Securities Act (17 CFR
230.425)
☒ Soliciting material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
☐ Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2 (b))
☐ Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4 (c))
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, $0.001 par value
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RMBL
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The
Nasdaq Stock Market LLC
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Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (17 CFR
§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934
(17 CFR §240.12b-2).
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.
☐
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Explanatory Note
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As
previously disclosed in its Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 15, 2021, on March
12, 2021, RumbleOn, Inc. (the “Company” or
“RumbleOn”) entered into a Plan of Merger and Equity
Purchase Agreement (the “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
Agreement) and execute a Seller Joinder (as defined in the
Agreement) (together with the Principal Owners, the
“Sellers” and each, a “Seller”), and Tkach,
as the representative of the Sellers. 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
Agreement provides that, upon the terms and subject to the
conditions set forth in the Agreement, (i) the Company will acquire
all of the equity interests (the “Equity Purchases”) in
the Transferred Entities (as defined in the 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 “Transaction”). The
Transaction is expected to close in the second or third quarter of
2021.
Each of the Company, the Merger Subs, and the
Sellers has provided customary representations, warranties and
covenants in the Agreement. The completion of the 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 Agreement) for the consummation of the 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
Transaction, (b) performance in all respects by each party of its
covenants and agreements, (c) the Company obtaining stockholder
approval of the Transaction and related matters, (d) the shares of
Class B Common Stock to be issued in connection with the
Transaction being approved for listing on Nasdaq, and (e) the
receipt of consent to the Transaction from certain powersports
manufacturers.
Certain
RideNow minority equity holders are not initially parties to the
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 Transaction will be correspondingly reduced.
RideNow anticipates that all minority owners will participate in
the Transaction and that no minority owners will exercise their
ROFR, but there is no assurance this will occur.
Item 1.01.
Entry into a Material Definitive Agreement.
On
April 8, 2021, the Company and its subsidiary, Next Gen Pro, LLC,
amended and restated its secured promissory note with BRF Finance
Co., LLC an affiliate of B. Riley Securities, Inc., dated March 12,
2021, pursuant to which BRF Finance previously loaned the Company
$2,500,000 (the “Amended and Restated Note”). Pursuant
to the Amended and Restated Note, the note matures on the earlier
of September 30, 2021 or, after May 1, 2021, upon the issuance of
debt or equity in the aggregate amount of $2,650,000 or more. A
copy of the Amended and Restated Note is attached hereto as Exhibit
10.1 and incorporated herein by reference.
Item 2.03.
Creation of a Direct Financial
Obligation or an Obligation under an Off-Balance Sheet Arrangement
of a Registrant.
The
disclosure included in Item 1.01 above is incorporated herein by
reference.
Item 8.01
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Other
Events
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The
Company is filing this Current Report on Form 8-K to disclose (i)
the audited combined financial statements of RideNow Group and
Affiliates for the years ended December 31, 2020 and December 31,
2019, (ii) the audited combined financial statements of RideNow
Group and Affiliates for the years ended December 31, 2019 and
December 31, 2018 and (iii) the unaudited pro forma condensed
combined financial statements (and related notes) of the Company as
of and for the year ended December 31, 2020. The unaudited pro
forma condensed combined financial statements are based on the
Company’s audited historical consolidated financial
statements and RideNow Group and Affiliates’s audited
historical combined financial statements as adjusted to give effect
to the Company’s acquisition of RideNow and the related
financing transactions. The unaudited pro forma condensed combined
balance sheet as of December 31, 2020 gives effect to these
transactions as if they occurred on December 31, 2020. The
unaudited pro forma condensed combined statements of operations for
the twelve months ended December 31, 2020 give effect to these
transactions as if they occurred on January 1, 2020.
Item 9.01
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Financial Statements and Exhibits
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(d)
Exhibits
Exhibit No.
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Description
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Amended and Restated Secured Promisorry Note, dated April 8,
2021.
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Consent of Dixon Hughes Goodman LLP
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The
audited combined financial statements of RideNow Group and
Affiliates for the years ended December 31, 2020 and December 31,
2019
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The
audited combined financial statements of RideNow Group and
Affiliates for the years ended December 31, 2019 and December 31,
2018
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The unaudited pro forma condensed combined financial statements
(and related notes) of the RumbleOn, Inc. as of and for the year
ended December 31, 2020
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Additional Information about the Transaction and Where to Find
It
In
connection with the Transaction, RumbleOn intends to file relevant
materials with the SEC, including a preliminary proxy statement,
and when available, a definitive proxy statement. Promptly after
filing its definitive proxy statement with the SEC, RumbleOn will
mail the definitive proxy statement and a proxy card to each
RumbleOn stockholder entitled to vote at the meeting of
stockholders relating to the Transaction. INVESTORS AND
STOCKHOLDERS OF RUMBLEON ARE URGED TO READ THESE MATERIALS
(INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER
RELEVANT DOCUMENTS IN CONNECTION WITH THE TRANSACTION THAT RUMBLEON
WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT RUMBLEON, RIDENOW, AND THE
TRANSACTION. The definitive proxy statement, the preliminary proxy
statement, and other relevant materials in connection with the
Transaction (when they become available), and any other documents
filed by RumbleOn with the SEC, may be obtained free of charge at
the SEC’s website (www.sec.gov) or by visiting RumbleOn's
investor relations section at www.rumbleon.com. The information
contained on, or that may be accessed through, the websites
referenced in this report is not incorporated by reference into,
and is not a part of, this report.
Participants in the Solicitation
RumbleOn
and its directors and executive officers may be deemed participants
in the solicitation of proxies from RumbleOn’s stockholders
with respect to the Transaction. A list of the names of those
directors and executive officers and a description of their
interests in RumbleOn will be included in the proxy statement for
the proposed business combination and will be available at
www.sec.gov. Additional information regarding the interests of such
participants will be contained in the proxy statement relating to
the Transaction when available. Information about RumbleOn’s
directors and executive officers and their ownership of
RumbleOn’s common stock is set forth in RumbleOn’s
Annual Report on Form 10-K for the year ended December 31, 2020
filed with the SEC on March 31, 2021. Other information regarding
the interests of the participants in the proxy solicitation will be
included in the proxy statement relating to the Transaction when it
becomes available. These documents can be obtained free of charge
from the sources indicated above.
RideNow
and its directors and executive officers may also be deemed to be
participants in the solicitation of proxies from the stockholders
of RumbleOn in connection with the Transaction. A list of the names
of such directors and executive officers and information regarding
their interests in the proposed business combination will be
included in the proxy statement relating to the
Transaction.
No Offer or Solicitation
This
report does not constitute an offer to sell or the solicitation of
an offer to buy any securities or a solicitation of any vote or
approval, by RumbleOn, nor shall there be any sale of the
securities in any state in which such offer, solicitation or sale
would be unlawful before the registration or qualification under
the securities laws of such state. Any offering of the securities
will only be by means of a statutory prospectus meeting the
requirements of the rules and regulations of the SEC and applicable
law.
Forward
Looking Statements
Certain
statements made in this report are “forward-looking
statements” within the meaning of the “safe
harbor” provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements may be identified by
the use of words such as “target,”
“believe,” “expect,” “will,”
“shall,” “may,” “anticipate,”
“estimate,” “would,”
“positioned,” “future,”
“forecast,” “intend,” “plan,”
“project,” “outlook”, and other similar
expressions that predict or indicate future events or trends or
that are not statements of historical matters. Examples of
forward-looking statements include, among others, statements made
in this report regarding the Transaction, including the benefits of
the Transaction, revenue opportunities, anticipated future
financial and operating performance, and results, including
estimates for growth, and the expected timing of the Transaction.
Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they are based only on
management’s current beliefs, expectations, and assumptions.
Because forward-looking statements relate to the future, they are
subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict and many of which are
outside of RumbleOn's control. Actual results and outcomes may
differ materially from those indicated in the forward-looking
statements. Therefore, you should not rely on any of these
forward-looking statements. Important factors that could cause
actual results and outcomes to differ materially from those
indicated in the forward-looking statements include, among others,
the following: (1) the occurrence of any event, change, or other
circumstances that could give rise to the termination of the
Transaction; (2) the failure to obtain debt and equity financing
required to complete the Transaction; (3) failure to obtain the OEM
approvals; (4) the inability to complete the Transaction, including
due to failure to obtain approval of the stockholders of RumbleOn,
certain regulatory approvals, or satisfy other conditions to
closing in the Agreement; (5) the impact of COVID-19 pandemic on
RumbleOn's business and/or the ability of the parties to complete
the Transaction; (6) the risk that the Transaction disrupts current
plans and operations as a result of the announcement and
consummation of the Transaction; (7) the ability to recognize the
anticipated benefits of the proposed business combination, which
may be affected by, among other things, competition, the ability of
management to integrate the combined company's business and
operation, and the ability of the parties to retain its key
employees; (8) costs related to the Transaction; (9) changes in
applicable laws or regulations; (10) risks relating to the
uncertainty of the pro forma financial information with respect to
the combined company; and (11) other risks and uncertainties
indicated from time to time in the preliminary and definitive proxy
statements to be filed with the SEC relating to the Transaction,
including those under “Risk Factors” therein, and in
RumbleOn's other filings with the SEC. RumbleOn cautions that the
foregoing list of factors is not exclusive. RumbleOn cautions
readers not to place undue reliance upon any forward-looking
statements, which speak only as of the date made. RumbleOn does not
undertake or accept any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
to reflect any change in their expectations or any change in
events, conditions, or circumstances on which any such statement is
based, whether as a result of new information, future events, or
otherwise, except as may be required by applicable law. Neither
RumbleOn nor RideNow gives any assurance that after the Transaction
the combined company will achieve its expectations.
Without
limiting the foregoing, the inclusion of the financial projections
in this report should not be regarded as an indication that
RumbleOn considered, or now considers, them to be a reliable
prediction of the future results. The financial projections were
not prepared with a view towards public disclosure or with a view
to complying with the published guidelines of the SEC, the
guidelines established by the American Institute of Certified
Public Accountants with respect to prospective financial
information, or with U.S. generally accepted accounting principles.
Neither RumbleOn’s independent auditors, nor any other
independent accountants, have compiled, examined or performed any
procedures with respect to the financial projections, nor have they
expressed any opinion or any other form of assurance on such
information or its achievability. Although the financial
projections were prepared based on assumptions and estimates that
RumbleOn’s management believes are reasonable, RumbleOn
provides no assurance that the assumptions made in preparing the
financial projections will prove accurate or that actual results
will be consistent with these financial projections. Projections of
this type involve significant risks and uncertainties, should not
be read as guarantees of future performance or results and will not
necessarily be accurate indicators of whether or not such results
will be achieved.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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RUMBLEON, INC.
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Date: April 8, 2021
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By:
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/s/ Steven R. Berrard
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Steven R. Berrard
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Chief Financial Officer
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Exhibit 10.1
AMENDED AND RESTATED SECURED PROMISSORY NOTE
$2,500,000.00
New York, New York
April 8, 2021
FOR
VALUE RECEIVED, NextGen Pro, LLC, a Delaware limited liability
company (“NextGen”), and RumbleOn, Inc., a Nevada
corporation (“Parent”; NextGen and Parent collectively
herein called the “Borrowers” and each a
“Borrower”), both jointly and severally, promise to pay
to the order of BRF Finance Co., LLC, a Delaware limited liability
company (herein called “Lender”), at its offices in
30780 Russell Ranch Rd Suite 250, Westlake Village, CA 91362 , or
at such other place as the holder of this note may hereafter
designate in writing, in immediately available funds and in lawful
money of the United States of America, the principal sum of Two
Million Five Hundred Thousand Dollars ($2,500,000.00), together
with interest on the unpaid principal balance of this note from
time to time outstanding until maturity (whether by acceleration or
otherwise) at the Stated Rate and interest on all past due
principal and other past due amounts owing hereunder at the Past
Due Rate.
"Stated
Rate" means, on any day, a rate per annum equal to twelve percent
(12%). "Past Due Rate" means, on any day , a rate per annum equal
to the Stated Rate plus six percent (6%). Interest shall be
computed for the actual number of days elapsed in a year consisting
of 360 days.
Notwithstanding any
provision to the contrary contained in this note or any other
document, it is expressly provided that in no case or event (A)
shall the aggregate of (i) all interest on the unpaid balance
hereof accrued or paid from the date hereof and (ii) the aggregate
of any other amounts accrued or paid pursuant hereto which under
applicable laws are or may be deemed to constitute interest upon
the indebtedness evidenced hereby, ever exceed the maximum rate of
interest which could lawfully be contracted for, charged or
received on the unpaid principal balance of this note; or (B) shall
Borrowers be obligated to pay interest and other amounts described
above at a rate which could subject the Lender to either civil or
criminal liability as a result of such rate being in excess of the
maximum rate which the Lender is permitted to charge under
applicable law. In this connection, it is expressly stipulated and
agreed that it is the intent of the Borrowers and the Lender to
contract in strict compliance with the applicable federal and state
usury laws (whichever permit the higher rate of interest) from time
to time in effect.
On the
first day of each calendar month during the term of this note,
interest hereunder shall be due and payable and shall be paid and
discharged by adding the accrued but unpaid interest to the
principal amount of this note, whereupon it shall be deemed to be a
portion of the principal amount outstanding hereunder for all
purposes (including, without limitation, the accrual of interest).
This note shall be due and payable in an amount equal to the
principal of this note which then remains unpaid, together with all
accrued but unpaid interest, on September 30, 2021, the final
maturity of this note. On or after maturity, interest on this note
shall be payable on demand.
This
note may be prepaid in whole or in part at any time without premium
or penalty. All outstanding amounts under this this note shall be
immediately prepaid in full without premium or penalty in the event
that the Parent shall issue either debt or equity, or a combination
thereof, in one or more transactions occurring on or following May
1, 2021 resulting in cash proceeds to the Parent from such
transactions in excess of $2,650,000 net of transaction costs. All
prepayments shall be applied first to accrued but unpaid interest,
the balance to principal.
1
Borrowers' failure
to pay any principal or accrued interest on this note when due or
Borrowers' failure to pay any other amount payable pursuant to this
note within five (5) days of written demand or the occurrence of
any default of any other obligation in this note that is not
remedied within ten (10) days of the earlier of (1) written notice
thereof or (2) a Borrower obtaining knowledge thereof or an
involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect is commenced against
either Borrower and such petition remains unstayed and in effect
for a period of 60 consecutive days or any Borrower shall commence
a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consent to the
entry of an order for relief in an involuntary case under any such
law, or consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of such Borrower or any substantial part of its
respective property or make any general assignment for the benefit
of creditors or any Borrower shall admit in writing its inability
to pay its debts generally as they become due or any action shall
be taken by any Borrower in furtherance of any of the foregoing
purposes, in each case, shall constitute default under this note,
whereupon the holder of this note may elect to exercise any or all
rights, powers and remedies afforded (a) as set forth in this note
with regard to the Collateral (as defined below) and under all
writings related to this note and (b) by law, including the right
to accelerate the maturity of this entire note.
Borrowers shall,
jointly and severally, pay on written demand all reasonable fees
and expenses, including reasonable attorneys’ fees and
expenses, incurred by Lender with respect to any amendments or
waivers hereof or in the enforcement or attempted enforcement of
any of the obligations of Borrowers to Lender under this note or in
preserving any of Lender’s rights and remedies (including,
without limitation, all such fees and expenses incurred in
connection with any “workout” or restructuring
affecting this note, including without limitation, the enforcement
of any lien on the Collateral or of the obligations thereunder or
any bankruptcy or similar proceeding involving any Borrower) and
all reasonable attorneys’ fees and expenses incurred by
Lender in analyzing, exercising, or addressing any rights of Lender
in connection with any future actions of the Lender or
Borrowers. Any such amounts shall be deemed to be outstanding
under this note and shall be payable on written
demand.
Except
only for any notices which are specifically required by another
provision of this note, Borrowers waive notice (including, but not
limited to, notice of intent to accelerate and notice of
acceleration, notice of protest and notice of dishonor), demand,
presentment for payment, protest, diligence in collecting and the
filing of suit for the purpose of fixing liability. Borrowers
absolutely, unconditionally and irrevocably waive any and all right
to assert any defense, counterclaim, crossclaim or setoff of any
nature whatsoever with respect to this note except to the extent
such right (other than setoff) would be waived if not asserted in
any proceeding commenced by the Lender.
As
security for the payment and performance of all obligations of the
Borrowers under or pursuant to, or evidenced by, this note, NextGen
does hereby grant to the Lender a continuing first priority
security interest in all of the Collateral (as hereinafter
defined), whether now existing or hereafter arising or acquired and
wherever located. For purposes of this note, the term "Collateral"
shall mean all of NextGen’s right, title and interest in (a)
software and other general intangibles as such terms are defined in
Article 9 of the Uniform Commercial Code of the State of New York
(the "UCC"), (b) copyrights, trademarks and other intellectual
property, together with all goodwill associated therewith, (c) all
contract rights, documents, applications, licenses, materials and
other matters related to such general intangibles, and (d) all
proceeds of the foregoing. Without limiting the foregoing, NextGen
intends that the Collateral shall include all of NextGen’s
right, title and interest in intellectual property including, but
not limited to, (i) all patents, and all unpatented or unpatentable
inventions; (ii) all trademarks, service marks, and trade names;
(iii) all copyrights and literary rights; (iv) all computer
software programs; (v) all mask works of semiconductor chip
products; (vi) all trade secrets, proprietary information, customer
lists, manufacturing, engineering and production plans, drawings,
specifications, processes and systems; and (vii) all good will
connected with or symbolized by any of such general intangibles,
including, without limitation, the intellectual property described
on Exhibit A hereto and the goodwill associated therewith (the
“Specific IP”). The Lender is a secured party under
Article 9 of the UCC and shall have all the rights of a secured
party under Article 9 of the UCC and applicable law including,
without limitation, the right to foreclose or otherwise enforce the
security interest upon default under this note. Upon disposition of
any Collateral, the Borrowers and each other obligor shall remain
liable for any deficiency. The Lender is authorized to file
financing statements naming the Lender as secured party and NextGen
as debtor indicating that the financing statement covers all assets
or all personal property of NextGen. NextGen hereby represents and
warrants that it is the sole owner of the Specific IP, free and
clear of any liens charges or other encumbrances and that none of
the Specific IP is subject to any license other than non-exclusive
licenses granted by NextGen in the ordinary course of business.
None of the Specific IP is subject to any copyright filed in the US
Copyright Office. Until payment in full in cash of all outstanding
amounts under this note, NextGen shall not create, assume or incur,
directly or indirectly, or permit to be created, assumed or
incurred, or suffer to exist any lien, charge or other encumbrance
on the Collateral or sell, transfer, license or otherwise dispose
of any Collateral other than non-exclusive licenses of the
Collateral in the ordinary course of business.
2
THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK. NEW YORK COUNTY, NEW YORK SHALL BE A
PROPER PLACE OF VENUE FOR SUIT HEREON. BORROWERS IRREVOCABLY AGREE
THAT ANY LEGAL PROCEEDINGS IN RESPECT OF THIS NOTE OR ANY OTHER
WRITING RELATING HERETO MAY BE BROUGHT IN ANY COURT OF THE STATE OF
NEW YORK LOCATED IN NEW YORK COUNTY, NEW YORK, OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND
BORROWERS IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF
SUCH COURTS IN ANY SUCH LEGAL PROCEEDINGS. THE BORROWERS AGREE THAT
SERVICE OF PROCESS MAY BE MADE BY DELIVERY BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, OR COURIER OR OVERNIGHT
DELIVERY SERVICE, TO THE BORROWERS' ADDRESSES AS THEN SHOWN ON THE
RECORDS OF THE LENDER.
BORROWERS
AND LENDER WAIVE TRIAL BY JURY IN CONNECTION WITH ANY ACTION OR
PROCEEDING OF ANY NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ANY
COUNTERCLAIM, OFFSET OR DEFENSE) ARISING UNDER, OUT OF OR IN
CONNECTION WITH THIS NOTE.
BORROWERS’
OBLIGATIONS TO PAY THIS NOTE ARE JOINT AND SEVERAL.
The
Borrowers may not assign this note. The Lender may assign this note
at any time to an affiliate of the Lender or, after the occurrence
of a default hereunder, to any party.
This
note may be executed in any number of counterparts, each of which
shall be an original, and all of which, when taken together, shall
constitute a single instrument. Delivery of this note or an
executed signature page of this note by facsimile or other
electronic transmission (e.g., “pdf” or
“tif”) shall be
effective as delivery of a manually executed counterpart hereof,
and the words “execution,” “execute”,
“signed,” “signature,” and words of like
import in or related to this note shall be deemed to include
electronic signatures, the electronic matching of assignment terms
and contract formations on electronic platforms, or the keeping of
records in electronic form, each of which shall be of the same
legal effect, validity or enforceability as a manually executed
signature or the use of a paper based recordkeeping system, as the
case may be, to the extent and as provided for in any applicable
law, including the Federal Electronic Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and
Records Act, or any other similar state laws based on the Uniform
Electronic Transactions Act.
This
note amends and restates in its entirety that certain Secured
Promissory Note, dated March 12, 2021, in the face amount of
$2,500,000.00, executed by Borrowers in favor of the Lender (the
“Existing Note”). This note shall not constitute or be
construed as a novation of the indebtedness evidenced by the
Existing Note or the Lender’s security interest in the
Collateral contained therein and granted by the Borrowers to the
Lender thereunder.
[Signature
Pages Follow]
3
|
RumbleOn,
Inc.
By:_/s/ Thomas
Aucamp_____
Name:_Thomas Aucamp_____
Title:__CAO_______________
NextGen
Pro, LLC
By:_/s/ Thomas
Aucamp_____
Name:__Thomas Aucamp____
Title:___CAO______________
|
Agree
to accept the foregoing Amended and Restated Secured Promissory
Note in substitution for that certain Existing Note (as defined
above):
BRF
Finance Co., LLC,
a
Delaware limited liability company
By:
/s/ Daniel
Shribman
Name:
Daniel
Shribman
Title:
CIO
4
Exhibit A
Specific Intellectual Property
1) CyclePro Trademark
2) Cash offer Tool
a) Proprietary
acquisitions tool with full website integration and third party
valuation tools
b) Global
Margin Controls
c) Machine
Learning /AI valuation predictions
3) Targeted Acquisition Tool (Sniper)
a) Targeted
cash offer submissions
b) Focus
on Region, brand, value, miles, color, previous targets,
etc
4) Middleware Integration Normalization Portal
a) Normalizes
third party data
b) Full
DMS and Website integration
5) Dealer Direct Marketplace
a) Fully
online Dealer Marketplace
b) RumbleOn
to Dealer auction sales
c) Dealer
to Dealer Auction Sales
6) Inventory/Transaction Management Hub (P2)
a) Proprietary
Inventory Management tool
b) Controls
all inventory for all companies
c) Stores
and tracks all valuations and data for inventory
history
7) Corporate Analytics & Metrics
a)
Real time analytics for
Sales, Performance, Acquisitions, Inventory, Leads, and Pay
plans
8) CyclePro
a) Full
Powersports focused CRM
b) Equity
Mining Tool
c) ProValue
Acquisitions Tool
9) Fulfillment Center and CR
a) Location
Control of Cash Offers. Ability to submit, edit, and accept offers
for customers
b) Complete
Acquisitions in person
c) CR
ability on purchased units
10) Dealer Portal
a) Full
RumbleOn Dealer Service Access
b) Submit
Cash Offers
c) Monitor
Leads
d) Sell
to RumbleOn Cash Offer Leads
e) Dealer
Direct Access
11) On Demand Vehicle Acquisition Service (Spedding)
a) Live
and Realtime filtered vehicles available for sale.
b) Allows
targeted purchases on multiple platforms.
12) Real Time Vehicle Pricing, Valuation, and Stock Tool
(Carvis)
a) Full
Acquisitions Tool
b) Ability
to Evaluate, Save, and Purchase
c) Automated
integrations to stock in the unit, book transportation and
unwind.
13) Wholesale Express Logistics
a) Automated
transportation quoting tool
b) Integration
for transportation booking
Patents and Applications
App. No.
|
Pat. No.
|
Title
|
Owner
|
14/614160
|
10165424
|
Near Field Communication (NFC) Vehicle
|
Nextgen Pro, LLC
|
|
|
Identification System and Process
|
|
5
Exhibit 23.1
Consent Of Independent Registered Public Accounting
Firm
We
consent to the incorporation by reference in the Registration
Statements on Forms S-3 (Nos. 333-223425, 333-226514, 333-228483,
333-231631, 333-234340, 333-233399, and 333-239285) and on Forms
S-8 (Nos. 333-219203, 333-223428, 333-226440, 333-231884, and
333-248926) of RumbleOn, Inc. of our report dated April 6, 2021,
relating to the combined financial statements of RideNow Group and
Affiliates as of and for the years ended December 31, 2020 and
2019, and our report dated February 12, 2021, relating to the
combined financial statements of RideNow Group and Affiliates as of
and for the years ended December 31, 2019 and 2018.
/s/
Dixon Hughes Goodman LLP
Atlanta,
GA
April
8, 2021
Exhibit
99.1
RIDENOW
GROUP AND AFFILIATES
COMBINED
FINANCIAL STATEMENTS
DECEMBER
31, 2020 AND 2019
RideNow Group and Affiliates
Table of Contents
Report
of Independent Registered Public Accounting Firm
|
1
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
Report
of Independent Registered Public Accounting Firm
Management and
Board of Directors
RideNow
Group and Affiliates
Chandler,
Arizona
Opinion on the Combined Financial Statements
We have
audited the accompanying combined balance sheets of RideNow Group
and Affiliates (the "Company") as of December 31, 2020 and 2019,
and the related combined statements of income, changes in
owners’ equity, and cash flows for the years then ended, and
the related notes to the combined financial statements. In our
opinion, the combined financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of their
operations and cash flows for the years then ended, in conformity
with U.S. generally accepted accounting principles.
Basis for Opinion
These
combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the Company's combined financial statements based on our audits.
We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB
and in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
combined financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the combined financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the combined
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
combined financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
Critical audit
matters are matters arising from the current period audit of the
combined financial statements that were communicated or required to
be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the combined financial
statements and (2) involved our especially challenging, subjective,
or complex judgments. We determined that there are no critical
audit matters.
/s/
Dixon Hughes Goodman LLP
We have
served as the Company's auditor since 2020.
Atlanta,
GA
April
6, 2021
Page 1 of
25
RideNow Group and Affiliates
Combined
Balance Sheets
December
31, 2020 and 2019
|
2020
|
2019
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$3,905,686
|
$4,980,718
|
Contracts in
transit
|
10,736,791
|
10,554,704
|
Accounts
receivable, net
|
10,023,174
|
9,851,225
|
Accounts receivable
– related parties
|
84,535,861
|
34,211,546
|
Inventories,
net
|
109,749,521
|
216,990,595
|
Prepaid
expenses
|
1,625,109
|
1,775,528
|
Total current
assets
|
220,576,142
|
278,364,316
|
|
|
|
Right-of-use
assets
|
71,280,471
|
59,845,283
|
Property and
equipment, net of accumulated depreciation
|
23,705,230
|
23,099,316
|
Goodwill
|
55,294,222
|
54,988,384
|
Note receivable
– related party
|
1,264,425
|
1,184,043
|
Other non-current
assets
|
288,758
|
732,250
|
Total
Assets
|
$372,409,248
|
$418,213,592
|
|
|
|
LIABILITIES AND
OWNERS’ EQUITY
|
|
|
|
|
|
Current
liabilities
|
|
|
Accounts payable
and accrued liabilities
|
$36,806,476
|
$31,587,231
|
Accounts payable
– related parties
|
27,615,211
|
19,080,916
|
Floor plan notes
payable
|
68,533,679
|
162,975,930
|
Revolving line of
credit
|
-
|
18,000,000
|
Current portion of
operating lease liabilities
|
15,755,805
|
14,693,192
|
Current portion of
financing lease liabilities
|
4,059,496
|
3,163,199
|
Current portion of
notes payable – related parties
|
504,000
|
6,569,584
|
Current portion of
note payable – other
|
8,093,444
|
2,495,170
|
Total current
liabilities
|
161,368,111
|
258,565,222
|
|
|
|
Long-term
liabilities
|
|
|
Notes payable
– related parties
|
6,907,322
|
7,499,949
|
Long-term portion
of operating lease liabilities
|
57,473,929
|
47,244,420
|
Long-term portion
of financing lease liabilities
|
14,550,947
|
13,464,666
|
Note payable- PPP
loans
|
16,923,759
|
-
|
Note payable
– other
|
985,052
|
6,856,727
|
Other long-term
liabilities
|
4,779,112
|
6,820,000
|
Total
liabilities
|
262,988,232
|
340,950,984
|
|
|
|
Owners’
equity
|
109,421,016
|
77,762,608
|
|
|
|
Total liabilities
and owners’ equity
|
$372,409,248
|
$418,213,592
|
See accompanying Notes to Combined Financial
Statements
Page 2 of
25
RideNow Group and Affiliates
Combined Statements of Operations
For the Years Ended December 31, 2020 and 2019
|
2020
|
2019
|
Revenue
|
|
|
New
vehicles
|
$515,823,974
|
$397,717,879
|
Used
vehicles
|
146,325,260
|
132,805,032
|
Service, parts and
others
|
164,895,944
|
151,849,099
|
Finance and
insurance, net
|
71,845,220
|
53,868,710
|
Total
revenue
|
898,890,398
|
736,240,720
|
|
|
|
Cost of
Sales
|
|
|
New
vehicles
|
429,345,954
|
355,214,641
|
Used
vehicles
|
122,306,144
|
116,104,217
|
Service, parts and
others
|
91,017,529
|
83,372,418
|
Total cost of
sales
|
642,669,627
|
554,691,276
|
|
|
|
Gross
profit
|
256,220,771
|
181,549,444
|
|
|
|
Selling, general
and administrative expenses
|
154,520,040
|
137,201,905
|
|
|
|
Depreciation and
amortization expenses
|
4,087,914
|
3,752,922
|
|
|
|
Operating
income
|
97,612,817
|
40,594,617
|
|
|
|
Other Income
(Expense)
|
|
|
Floor plan interest
expense
|
(3,051,930)
|
(5,528,416)
|
Interest expense
– other
|
(3,904,879)
|
(4,551,687)
|
Interest
income
|
840,454
|
986,756
|
Management fee
expense
|
-
|
-
|
Miscellaneous
income
|
1,126,614
|
1,215,627
|
Total other
(expense)
|
(4,989,741)
|
(7,877,720)
|
|
|
|
Net
income
|
$92,623,076
|
$32,716,897
|
See accompanying Notes to Combined Financial
Statements
Page 3 of
25
RideNow Group and Affiliates
Combined Statements of Owners’ Equity
For the Years Ended December 31, 2020 and 2019
|
Owners’
Equity
|
Balance at December
31, 2018
|
$69,563,076
|
Contributions
|
15,052,445
|
Distributions
|
(39,569,810)
|
Net
income
|
32,716,897
|
|
|
Balance at December
31, 2019
|
$77,762,608
|
Contributions
|
6,406,309
|
Distributions
|
(67,370,977)
|
Net
income
|
92,623,076
|
|
|
Balance at December
31, 2020
|
$109,421,016
|
|
|
See accompanying Notes to Combined Financial
Statements
Page 4 of
25
RideNow Group and Affiliates
Combined Statements of Cash Flows
For the Years Ended December 31, 2020 and 2019
|
2020
|
2019
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
Net
Income
|
$92,623,076
|
$32,716,897
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
Loss on disposal of
property and equipment
|
270,722
|
47,486
|
Depreciation and
amortization
|
4,087,914
|
3,752,922
|
Provision for
allowance for doubtful accounts
|
130,989
|
(141,900)
|
(Increase) decrease
in assets, net of effects from business combinations:
|
|
|
Contracts in
transit
|
(182,087)
|
738,127
|
Accounts
receivable
|
(302,938)
|
(291,104)
|
Accounts receivable
– related parties
|
(50,324,315)
|
(12,286,225)
|
Inventories
|
111,209,190
|
(17,189,741)
|
Prepaid
expenses
|
150,420
|
(497,131)
|
Other
assets
|
466,736
|
(495,390)
|
Increase (decrease)
in liabilities, net of effects from business
combinations:
|
|
|
Floor plan payable,
net
|
(97,241,343)
|
(5,894,357)
|
Accounts
payable
|
2,357,548
|
118,372
|
Payables to related
parties
|
8,534,295
|
-
|
Accrued
liabilities
|
(2,040,889)
|
1,119,304
|
Net cash provided
by operating activities
|
69,739,318
|
1,697,260
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
Purchases of
property and equipment
|
(2,101,473)
|
(2,774,476)
|
Proceeds from sale
of property and equipment
|
106,289
|
239,189
|
Purchase of net
assets through business combination
|
(1,748,842)
|
(4,638,218)
|
Net cash used in
investing activities
|
(3,744,026)
|
(7,173,505)
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
Issuance of notes
receivables
|
(195,529)
|
(437,480)
|
Payments received
on notes receivables
|
115,147
|
618,016
|
Proceeds from
borrowings from related party
|
3,600,000
|
2,375,820
|
Payments of
borrowings from related party
|
(10,258,211)
|
(6,050,762)
|
Net proceeds from
vehicle Floor Plan payable - non-trade
|
-
|
16,765,713
|
Proceeds from
revolving line of credit
|
13,000,000
|
65,000,000
|
Payments of
revolving line of credit
|
(31,000,000)
|
(47,000,000)
|
Payments of
borrowings from bank
|
(2,285,714)
|
(2,437,004)
|
Payments on other
notes payable
|
(103,157)
|
-
|
Proceeds from PPP
loans
|
19,039,229
|
-
|
Net change in
finance lease liabilities
|
1,982,579
|
(566,024)
|
Contributions from
owners
|
6,406,309
|
15,052,445
|
Distributions to
owners
|
(67,370,977)
|
(39,569,810)
|
Net cash (used in)
provided by financing activities
|
(67,070,324)
|
3,750,914
|
|
|
|
DECREASE IN CASH
AND CASH EQUIVALENTS
|
(1,075,032)
|
(1,725,331)
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR
|
4,980,718
|
6,706,049
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF YEAR
|
$3,905,686
|
$4,980,718
|
Page 5 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
NOTE 1
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
RideNow
Group and Affiliates, a non-legal entity, (“RideNow” or
“The Group” or the “Company”) is a
collection of franchised dealerships operating in the powersports
industry. The Group is engaged in the sale of new and used
motorcycles, all-terrain vehicles, personal watercraft, other
powersports vehicles, and related products and services, including
repair and maintenance services, parts and accessories, riding
gear, and apparel. As of December 31, 2020, RideNow owned and
operated more than 45 retail dealerships in the United States,
predominately in the Sunbelt region. The core brands sold by
RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki,
Bombardier, Polaris, BMW, Ducati and Triumph, which are sold
through franchise dealer agreements.
Basis
of Presentation
The
Combined Financial Statements include the accounts of the following
affiliated companies: CMG Powersports Inc., America's Powersports,
Inc., Woods Fun Center, LLC, San Diego House of Motorcycles, LLC,
APS of Oklahoma, LLC, APS of Georgetown, LLC, APS of Ohio, LLC, APS
of Texas, LLC, C&W Motors, Inc., BJ Motorsports, LLC, Coyote
Motorsports - Allen, LTD, Coyote Motorsports - Garland, LTD, East
Valley Motorcycles, LLC, Glendale Motorcycles, LLC, JJB Properties,
LLC, Metro Motorcycle, Inc., RideNow Carolina, LLC, RideNow, LLC,
Ride USA, LLC, Top Cat Enterprises, LLC, Tucson Motorcycle, Inc.,
Tucson Motorsports, Inc., YSA Motorsports, LLC, RN Tri-Cities, LLC,
ECHD Motorcycles, LLC, IOT Motorcycles, LLC, RideNow 6 Garland,
LLC, RideNow Gainesville, LLC, RNKC, LLC, RNMC Daytona, LLC, TC
Motorcycles, LLC, Ride Now 5 Allen, LLC, RHND Ocala, LLC and Bayou
Motorcycles, LLC.
These
combined financial statements were prepared on a combined basis
using the accrual method of accounting. All transactions and
accounts between and among the combined entities have been
eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. In preparing these financial statements, management has
made its best estimates and judgments of certain amounts included
in the financial statements. RideNow bases its estimates and
judgments on historical experience and other assumptions that
management believes are reasonable. However, application of these
accounting policies involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual
results could differ materially from these estimates. RideNow
periodically evaluates estimates and assumptions used in the
preparation of the financial statements and make changes on a
prospective basis when adjustments are necessary. The critical
accounting estimates made in the accompanying Combined Financial
Statements include certain assumptions related to goodwill and
other intangible assets. Other significant accounting estimates
include certain assumptions related to long-lived assets, assets
held for sale, accruals for chargebacks against revenue recognized
from the sale of finance and insurance products, certain legal
proceedings, and estimated tax liabilities. Actual results could
differ from those estimates.
Reclassifications
Certain
reclassifications have been made to the accompanying 2019 combined
financial statements included herein to conform to the 2020
presentation. These reclassifications had no material effect on the
financial position of RideNow.
Cash
and Cash Equivalents
RideNow
considers all highly liquid investments with a maturity of three
months or less as of the date of purchase to be cash equivalents
unless the investments are legally or contractually restricted for
more than three months. Under RideNow’s cash management
system, outstanding checks that are in excess of the cash balances
at certain banks are included in Accounts Payable in the Combined
Balance Sheets and changes in these amounts are reflected in
operating cash flows in the accompanying Combined Statements of
Cash Flows.
Page 6 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Inventories
Inventories,
consisting of new units, are stated at the lower of cost or net
realizable value on a specific identification basis. Parts and
accessories inventories are stated at the weighted average cost.
Used units and other inventories are stated at the lower of cost or
wholesale net realizable values on a specific identification basis,
as determined by management.
Credit
Risk
Financial
instruments which potentially subject RideNow to concentrations of
credit risk consist principally of cash in financial institutions
that, at times, may exceed FDIC insurance limits. At various times
during the year, the cash in bank balances exceed the federally
insured limits. Management believes there are no unusual risks
associated with current depository institutions.
Credit
risk with respect to accounts receivable is limited due to the
large number of customers comprising RideNow’s customer base.
RideNow performs ongoing credit evaluations of its customer’s
financial condition and generally requires no collateral from its
customers.
Contracts
in Transit
Contracts in
transit are proceeds to be received on sales contracts from
financing institutions.
Accounts
Receivable
Accounts receivable
are uncollateralized obligations for major units, parts, service,
and warranty work. Accounts receivable are stated at the invoice
amount. Payments of accounts receivable are applied to the specific
invoices identified on the customer’s remittance advice or,
if unspecified, to the earliest unpaid invoice.
Factory
receivables which are included in accounts receivable represent
amounts due primarily from manufacturer holdbacks, rebates, co-op
advertising, warranty, and supplier returns.
RideNow
provides an allowance for doubtful accounts equal to estimated
uncollectible amounts. RideNow’s estimate is based on
historical collection experience and a review of the current status
of accounts receivable. It is reasonably possible that
RideNow’s estimate of the allowance for doubtful accounts
will change. Bad debt expense is included as a component of general
and administrative expenses in the Combined Statements of
Income.
Property
and Equipment
Property and
equipment are recorded at cost and depreciated over the lesser of
their estimated useful lives or lease terms, ranging from 3 to 20
years, using the straight-line method. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the
respective accounts, and the resulting gain or loss is included in
the results of operations. Repairs and maintenance charges that do
not increase the useful lives of the assets are charged to
operations as incurred.
Goodwill
and Other Intangible Assets, net
RideNow
acquisitions have resulted in the recording of goodwill and other
intangible assets. Goodwill is an asset representing operational
synergies, franchise rights and future economic benefits arising
from other assets acquired in a business combination that are not
individually identified and separately recognized. Other intangible
assets represent non-compete agreements entered into with sellers
from acquired businesses.
RideNow
does not amortize goodwill. Goodwill is tested for impairment
annually or more frequently when events or changes in circumstances
indicate that impairment may have occurred. RideNow elected to
perform a quantitative goodwill impairment test for its reporting
units as of December 31, 2020 and 2019, and no goodwill impairment
charges resulted from the testing.
Page 7 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Other
intangible assets identified include non-compete agreements which
are intangible assets with definite lives and are carried at the
acquired fair values less accumulated amortization. The non-compete
agreements are amortized over the estimate useful
lives.
Impairment
of Long-Lived Assets
RideNow
reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
undiscounted future cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
value of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount, or
the fair value less costs to sell.
Revenue
Recognition
Revenue
consists of the sales of new and used recreational vehicles,
commissions from related finance and insurance products, sales of
parts and services, and sale of other products. See Note 3 for a
summary of the significant accounting policies related to revenue
recognition.
Advertising
Advertising costs
are expensed during the year in which they are incurred.
Advertising expense for the years ended December 31, 2020 and 2019
was approximately $6,717,000 and $7,198,000,
respectively.
Income
Taxes
RideNow
and its affiliates’ taxable income or loss is included in the
tax returns of its shareholders. Therefore, no provision for income
taxes is recorded in these Combined Financial Statements. RideNow
has evaluated its tax positions and determined it has no uncertain
tax positions as of December 31, 2020 and 2019.
Sales
and Excise Tax
RideNow
collects certain taxes from customers and remits to governmental
authorities. RideNow’s accounting policy is to exclude the
taxes collected and remitted to the governmental authorities from
revenue and costs of sales.
Government
Regulations
All of
RideNow’s facilities are subject to federal, state, and local
regulations relating to the discharge of materials into the
environment. Compliance with these provisions has not had, nor does
it expect such compliance to have, any material effect on the
capital expenditures, net income, financial condition, or
competitive position of RideNow. Management believes that its
current practices and procedures for the control and disposition of
such wastes comply with applicable federal and state
requirements.
Recently
Adopted Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board (“FASB”) under its
Accounting Standards Codification (“ASC”) or other
standard setting bodies.
Revenue
from Contracts with Customers
RideNow
adopted ASU 2014-09 Revenue from Contracts with Customers and all
subsequent amendments to the ASU, collectively referred to as
Accounting Standards Codification (ASC) Topic 606, which (i)
creates a single framework for recognizing revenue from contracts
with customers that fall within its scope. RideNow’s goods
and services that fall within the scope of Topic 606 are recognized
as revenue when promised goods or services are transferred to
customers in amounts that reflect the consideration to which
RideNow expects to be entitled in exchange for those goods or
services.
Page 8 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
RideNow
adopted the accounting standard effective January 1, 2018, using
the modified retrospective approach applied only to contracts not
completed as of the date of adoption, with no restatement of
comparative periods recorded an increase to retained earnings of
approximately $737,000.
Accounting
for Leases
In
February 2016, the Financial Accounting Standards Board
(“FASB”) issued an accounting standard update (ASC
Topic 842) that amends the accounting guidance on leases. The new
standard establishes a right-of-use (ROU) model that requires a
lessee to record an ROU asset and a lease liability on the balance
sheet for all leases with terms longer than 12 months. Leases are
classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income
statement. The FASB also subsequently issued amendments to the
standard, including providing an additional and optional transition
method to adopt the new standard, described below, as well as
certain practical expedients related to land easements and lessor
accounting.
The
accounting standard update originally required the use of a
modified retrospective approach reflecting the application of the
standard to the leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the
financial statements with the option to elect certain practical
expedients. A subsequent amendment to the standard provides an
additional and optional transition method that allows entities to
initially apply the new leases standard at the adoption date and
recognize a cumulative effect adjustment to the opening balance of
retained earnings in the period of adoption. RideNow adopted this
accounting standard effective January 1, 2018, using the optional
transition method with no restatement of comparative
periods.
RideNow
elected certain practical expedients available under the transition
guidance within the new standard, which among other things, allowed
it to carry forward the historical lease classification of
RideNow’s existing leases. RideNow did not elect the
use-of-hindsight or the practical expedient pertaining to land
easements; the latter not being applicable to RideNow. The new
standard also provides practical expedients for an entity’s
ongoing accounting. RideNow elected the short- term lease
recognition exemption for all leases that qualify. As a result, for
those leases that qualify, RideNow will not recognize ROU assets or
lease liabilities, and RideNow did not recognize ROU asset or lease
liabilities for existing short-term leases of those assets in
transition. RideNow also elected the practical expedient to not
separate lease and non-lease components of leases for the majority
of RideNow classes of underlying assets.
NOTE
2
BUSINESS
ACQUISITION
On May
4, 2020, RideNow closed on a business acquisition with Daytona Fun
Machines, Inc., a Florida dealership, for a cash payment of
$1,306,617 pursuant to an asset purchase agreement subject to
adjustments for working capital and escrow provisions. Daytona Fun
Machines, Inc. sells and services motorcycles, powersports and
marine products manufactured by American Honda Motor Company,
Yamaha Motor Corporation, Kawasaki Motors Corp. and Bombardier
Recreational Products Inc. The acquisition qualified as a business
combination and was accounted for using the acquisition method of
accounting.
On May
5, 2020, RideNow closed on a business acquisition with Volusia
Motorsports, Inc., a Florida dealership, for a cash payment of
$442,225 pursuant to an asset purchase agreement subject to
adjustments for working capital and escrow provisions. Volusia
Motorsports, Inc. sells and services Polaris, Slingshot, KTM and
Star EV motorcycles/scooters, all-terrain vehicles, utility
vehicles and golf carts manufactured and distributed by Polaris
Industries Inc., KTM North American, Inc. and JH Global Services,
Inc. The acquisition qualified as a business combination and will
be accounted for using the acquisition method of
accounting.
During
2019, RideNow acquired the assets and assumed certain liabilities
of Crystal Motorcycle Ocala LLC, in order to further expand
operations in the Florida market. During 2018, RideNow acquired the
assets and assumed certain liabilities of Cycle Mart LP, Deen
Implement Co, and Moving Forward Arizona LLC in order to further
expand operations in Texas and Arizona markets.
Page 9 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
All
acquisitions were accounted for as business combinations under the
acquisition method of accounting. The results of operations of the
acquired stores are included in the Combined Financial Statements
from the date of acquisition.
The
following table summarizes the consideration paid in cash for the
acquisitions and the amount of identified assets acquired and
liabilities assumed as of the acquisition date.
|
2020
|
2019
|
Cash paid, net of cash
acquired
|
$1,748,842
|
$4,638,218
|
|
|
|
Assets
acquired and liabilities assumed for the year ended December
31,
|
2020
|
2019
|
Cash
|
$1,400
|
$-
|
Inventories
|
3,968,116
|
2,627,975
|
Property and
equipment
|
244,066
|
266,539
|
Other
assets
|
-
|
102,700
|
Floor plan notes
payables
|
(2,799,092)
|
(2,245,471)
|
Other
liabilities
|
(18,063)
|
(13,525)
|
|
1,396,427
|
738,218
|
Goodwill
|
352,415
|
3,900,000
|
|
$1,748,842
|
$4,638,218
|
NOTE
3
REVENUE
FROM CONTRACTS WITH CUSTOMERS
New
and Used Recreational Vehicles
RideNow
sells new and used recreational vehicles. The transaction price for
a recreational vehicle sale is determined with the customer at the
time of sale. Customers often trade in their own recreational
vehicle to apply toward the purchase of a retail new or used
recreational vehicle. The “trade-in” recreational
vehicle is a type of noncash consideration measured at fair value,
based on external and internal market data for a specific
recreational vehicle, and applied as payment of the contract price
for the purchased recreational vehicle.
When
RideNow sells a new or used recreational vehicle, transfer of
control typically occurs at a point in time upon delivery of the
vehicle to the customer, which is generally at the time of sale, as
the customer is able to direct the use of, and obtain substantially
all benefits from the recreational vehicle at such time. RideNow
does not directly finance its customer’s purchases or provide
leasing. In many cases, RideNow arranges third- party financing for
the retail sale or lease of recreational vehicles to customers in
exchange for a fee paid to RideNow by a third-party financial
institution. RideNow receives payment directly from the customer at
the time of sale or from a third-party financial institution
(referred to as contracts-in-transit) within a short period of time
following the sale. RideNow establishes provisions, which are not
significant, for estimated returns and warranties on the basis of
both historical information and current trends.
Parts
and Service
RideNow
sells parts and vehicle services related to customer-paid repairs
and maintenance, repairs and maintenance under manufacturer
warranties and extended service contracts, and collision-related
repairs. RideNow also sells parts through wholesale and retail
counter channels.
Page 10 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Each
repair and maintenance service is a single performance obligation
that includes both the parts and labor associated
with
the vehicle service. Payment for each vehicle service work is
typically due upon completion of the service, which is generally
completed within a short period from contract inception. The
transaction price for repair and maintenance services is based on
the parts used, the number of labor hours applied, and standardized
hourly labor rates. The performance obligation for repair and
maintenance service are satisfied over time and create an asset
with no alternative use and with an enforceable right to payment
for performance completed to date. Revenue is recognized over time
based on a direct measurement of labor hours, parts and accessories
that are allocated to open service and repair orders at the end of
each reporting period. As a practical expedient, the time value of
money is not considered since repair and maintenance service
contracts have a duration of one year or less. The transaction
price for wholesale and retail counter parts sales is determined at
the time of sale based on the quantity and price of each product
purchased. Payment is typically due at time of sale, or within a
short period following the sale. RideNow establishes provisions,
which are not significant, for estimated parts returns based on
historical information and current trends. Delivery method of
wholesale and retail counter parts vary.
RideNow
generally considers control of wholesale and retail counter parts
to transfer when the products are shipped, which typically occurs
the same day as or within a few days of sale. RideNow also offers
customer loyalty points for parts and services for select
franchises. RideNow satisfies its performance obligations and
recognizes revenue when the loyalty points are redeemed. Amounts
deferred related to the customer loyalty programs are
insignificant.
Finance
and Insurance
RideNow
sells and receives commissions on the following types of finance
and insurance products: extended service contracts, maintenance
programs, guaranteed auto protection, tire and wheel protection,
and theft protection products, among others. RideNow offers
products that are sold and administered by independent third
parties, including the vehicle manufacturers’ captive finance
subsidiaries.
Pursuant to the
arrangements with these third-party providers, RideNow sells the
products on a commission basis. For the majority of finance and
insurance product sales, RideNow’s performance obligation is
to arrange for the provision of goods and services by another
party. RideNow’s performance obligation is satisfied when
this arrangement is made, which is when the finance and insurance
product is delivered to the end customer, generally at the time of
the vehicle sale. As agent, RideNow recognizes revenue in the
amount of any fee or commission to which it expects to be entitled,
which is the net amount of consideration that it retains after
paying the third-party provider the consideration received in
exchange for the goods or services to be fulfilled by that
party.
RideNow’s
customers are concentrated in the Sunbelt region. There are no
significant judgements or estimates required in determining the
satisfaction of the performance obligations or the transaction
price allocated to the performance obligations. As revenue are
recognized at a point-in-time, costs to obtain the customer (i.e.
commissions) do not require capitalization.
Disaggregation
of Revenue
The
significant majority of RideNow’s revenue is from contracts
with customers. In the following tables, revenue is disaggregated
by major lines of goods and services and timing of transfer of
goods and services. We have determined that these categories depict
how the nature, amount, timing, and uncertainty of our revenue and
cash flows are affected by economic factors.
Page 11 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Revenue
from contracts with customers consists of the
following:
|
For the
Year
Ended December
31,
|
|
|
2020
|
2019
|
Revenue:
|
|
|
New
vehicle
|
$515,823,974
|
$397,717,879
|
Used
vehicle
|
146,325,260
|
132,805,032
|
New and used
vehicle
|
662,149,234
|
530,522,911
|
|
|
|
Service, parts and
others
|
164,895,944
|
151,849,099
|
Finance and
insurance, net
|
71,845,220
|
53,868,710
|
Total
revenue
|
$898,890,398
|
$736,240,720
|
|
|
|
Timing of revenue recognition:
|
|
|
Goods and services
transferred at a point in time
|
$796,952,257
|
$641,370,068
|
Goods and services
transferred over time (1)
|
101,938,141
|
94,870,652
|
Total
revenue
|
$898,890,398
|
$736,240,720
|
(1)
Represents revenue
recognized during the period for vehicle repair and maintenance
services.
NOTE
4
ACCOUNTS
RECEIVABLE
Accounts receivable
consisted of the following as of December 31,
|
2020
|
2019
|
Trade
receivables
|
$3,145,226
|
$2,830,500
|
Factory
receivables
|
6,624,129
|
6,827,863
|
Other
receivables
|
720,861
|
803,832
|
Total accounts
receivables
|
10,490,216
|
10,462,195
|
Less: Allowance for
doubtful accounts
|
(467,042)
|
(610,970)
|
Accounts
receivables, net
|
$10,023,174
|
$9,851,225
|
NOTE
5
INVENTORIES
AND VEHICLE FLOOR PLAN PAYABLES
Inventories
consisted of the following as of December 31 are as
follows:
|
2020
|
2019
|
New
vehicles
|
$67,416,505
|
$166,901,387
|
Used
vehicles
|
22,225,209
|
26,634,590
|
Parts, accessories
and
other
|
20,107,807
|
23,454,618
|
Total
cost
|
$109,749,521
|
$216,990,595
|
Page 12 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
The
components of vehicle Floor Plan payables at December 31 are as
follows:
|
2020
|
2019
|
Vehicle Floor Plan
payable - trade
|
$18,516,327
|
$39,087,146
|
Vehicle Floor Plan
payable – non-trade
|
50,017,352
|
123,888,784
|
Vehicle Floor Plan
payable
|
$68,533,679
|
$162,975,930
|
Vehicle
Floor Plan payable - trade reflects amounts borrowed to finance the
purchase of specific new and, to a lesser extent, used vehicle
inventories with the corresponding manufacturers’ captive
finance subsidiaries (“trade lenders”). Vehicle Floor
Plan payable-non-trade represents amounts borrowed to finance the
purchase of specific new and, to a lesser extent, used vehicle
inventories with non-trade lenders, as well as amounts borrowed
under RideNow’s secured used vehicle Floor Plan facilities.
Changes in vehicle Floor Plan payable- trade are reported as
operating cash flows and changes in vehicle Floor Plan
payable-non-trade are reported as financing cash flows in the
accompanying Combined Statements of Cash Flows.
RideNow’s
inventory costs are generally reduced by manufacturer holdbacks,
incentives, Floor Plan assistance, and non-reimbursement-based
manufacturer advertising rebates, while the related vehicle Floor
Plan payables are reflective of the gross cost of the vehicle. The
vehicle Floor Plan payables, as shown in the above table, will
generally also be higher than the inventory cost due to the timing
of the sale of a vehicle and payment of the related liability.
Vehicle Floor Plan facilities are due on demand, but in the case of
new vehicle inventories, are generally paid within several business
days after the related vehicles are sold. Vehicle Floor Plan
facilities are primarily collateralized by vehicle inventories and
related receivables.
NOTE
6
PROPERTY
AND EQUIPMENT, NET
The
following table summarizes property and equipment, net of
accumulated depreciation and amortization as of December
31:
|
2020
|
2019
|
Equipment
|
$4,231,451
|
$5,084,165
|
Furniture and
fixtures
|
19,307,497
|
18,422,739
|
Buildings
|
13,522,538
|
13,146,907
|
Vehicles
|
4,191,156
|
4,190,082
|
Leasehold
improvements
|
10,296,570
|
9,907,006
|
Construction in
progress
|
26,183
|
102,831
|
Total property and
equipment
|
51,575,395
|
50,853,730
|
Less: Accumulated
depreciation
|
(27,870,165)
|
(27,754,414)
|
Property and
equipment, net
|
$23,705,230
|
$23,099,316
|
Depreciation and
amortization expense for the years ended December 31, 2020 and 2019
was approximately $4,088,000 and $3,753,000,
respectively.
NOTE
7
GOODWILL
AND INTANGIBLE ASSETS, NET
RideNow’s
acquisitions have resulted in the recording of goodwill and other
intangible assets. Goodwill is an asset representing operational
synergies, franchise rights and future economic benefits arising
from other assets acquired in a business combination that are not
individually identified and separately recognized. Other intangible
assets represent non-compete agreements entered into with sellers
from the acquired businesses and are not significant to the
combined financial statements.
Page 13 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
The
changes in goodwill for the years ended December 31, 2020 and 2019
are as follows:
|
Goodwill
|
Balance at December
31, 2018
|
$51,088,384
|
Acquisitions
|
3,900,000
|
Impairments
|
-
|
Balance at December
31, 2019
|
54,988,384
|
Acquisitions
|
305,838
|
Impairments
|
-
|
Balance at December
31, 2020
|
$55,294,222
|
NOTE
8
LINE
OF CREDIT
RideNow
has a $19,000,000 revolving line of credit established at a bank.
RideNow participates in the line of credit with certain affiliates.
Interest is payable monthly at the lesser of the prime rate (3.25%
and 4.75% at December 31, 2020 and 2019, respectively) or LIBOR
plus 2.75% (2.98% and 4.98% at December 31, 2020 and 2019,
respectively). The line of credit is secured by substantially all
of the assets of the participating affiliates. The line of credit
has been amended and renewed multiple times under similar terms
since its inception and has a maturity date of January 15, 2022.
The outstanding balance on the line of credit was $-0- and
$18,000,000 at December 31, 2020 and 2019,
respectively.
NOTE
9
NOTES
PAYABLE
The
following consist of a note payable to a bank and other
third-parties as of December 31:
|
2020
|
2019
|
Northern Trust Bank
term loan agreement that requires monthly principal payments of
approximately $190,500 and accrues interest at the one-month LIBOR
plus 2.0%. This loan is guaranteed by the owners of CMG
Powersports, Inc. and matures July 1, 2021.
|
$5,714,286
|
$8,000,000
|
Unsecured note
payable to P&D Motorcycles in the original amount of $1,724,000
with an interest rate of 4% and note payable matures on July 1,
2022
|
1,248,740
|
1,351,897
|
PPP Loans dated
April 6, 2020. Payments of principal and interest were deferred
until August 6, 2021, at which time the Companies will make equal
payments of principal and interest through maturity, which is April
6, 2026.
|
19,039,229
|
-
|
|
26,002,255
|
9,351,897
|
Less: Current
maturities
|
(8,093,444)
|
(2,495,170)
|
Long-term
maturities of note payables - bank
|
$17,908,811
|
$6,856,727
|
The
future maturities of long-term note payables to other as of
December 31, 2020:
2021
|
$8,093,444
|
2022
|
5,286,583
|
2023
|
5,852,725
|
2024
|
5,077,128
|
2025
|
1,692,375
|
Total of long-term
notes payable - other
|
$26,002,255
|
Page 14 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Note
Payable to Northern Trust Bank
RideNow
is a collective borrower to a $16,000,000 term loan agreement with
Northern Trust Bank held by CMG Powersports, Inc. The term loan
agreement requires monthly principal payments of approximately
$190,500 and accrues interest at the one-month LIBOR plus 2.0%.
This loan is guaranteed by the owners of CMG Powersports, Inc. The
term loan includes required covenants to be met. Management
believes RideNow is in compliance with these covenants as of and
for the years ended December 31, 2020 and 2019. For the years ended
December 31, 2020 and 2019 interest expense was $277,470 and
$377,855, respectively.
Note
Payable to P&D Motorcycles
On June
28, 2017 TC Motorcycles, LLC “DBA–RideNow Powersports
Jacksonville” (the buyer) entered into a promissory note with
P&D Motorcycles (the seller) as part of an acquisition. The
original principal sum was $1,724,000 accruing interest at 4%
including 59 monthly payments of $17,454 with final balloon payment
due July 1, 2022
PPP
Loan
On
April 6, 2020, RideNow 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 $19,039,229 (the "Loan Proceeds").
The Companies received the Loan Proceeds on April 6, 2020, and
under the SBA Loan Documents, the SBA Loans had an initial maturity
date of April 5, 2022 and an annual interest rate of 0.98%. Payment
of principal and interest, to be paid monthly, on the PPP Loans can
be prepaid by the Companies at any time and was originally deferred
through October 5, 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 August 6, 2021, with the last payment due April
6, 2025.
NOTE
10
LEASES
General
description
The
significant majority of leases that RideNow enters into
are for real estate. RideNow
leases numerous facilities relating to RideNow’s operations,
including primarily for vehicle showrooms, display lots, service
facilities, collision repair centers, supply facilities, vehicle
storage lots, parking lots, offices, and RideNow’s corporate
headquarters. Leases for real property have terms ranging from one
to twenty-five years. RideNow also leases various types of
equipment, including security cameras, diagnostic equipment,
copiers, key-cutting machines, and postage machines, among others.
Equipment leases generally have terms ranging from one to five
years.
RideNow’s
lease agreements do not contain any material residual value
guarantees or material restrictive covenants. RideNow does not have
any significant leases that have not yet commenced but that create
significant rights and obligations for us. RideNow has elected the
practical expedient under ASC Topic 842 to not separate lease and
non-lease components for the following classes of underlying
assets: real estate, office equipment, service loaner vehicles, and
marketing-related assets (e.g., billboards).
RideNow’s
real estate and equipment leases often require that RideNow pay
maintenance in addition to rent. Additionally, RideNow’s real
estate leases generally require payment of real estate taxes and
insurance. Maintenance, real estate taxes, and insurance payments
are generally variable and based on actual costs incurred by the
lessor. Therefore, these amounts are not included in the
consideration of the contract when determining the right-of-use
(“ROU”) asset and lease liability but are reflected as
variable lease expenses for those classes of underlying assets for
which RideNow has elected the practical expedient to not separate
lease and non-lease components. Leases with an initial term of 12
months or less are not recorded on the balance sheet; RideNow
recognizes lease expense for these leases on a straight-line basis
over the lease term. RideNow rents or subleases certain real estate
to third parties, which are primarily operating
leases.
Page 15 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Variable
lease payments
A
majority of RideNow’s lease agreements include fixed rental
payments. Certain of RideNow’s lease agreements include fixed
rental payments that are adjusted periodically for changes in the
Consumer Price Index (“CPI”). Payments based on a change in an index, or a rate
are not considered in the determination of lease payments for
purposes of measuring the related lease liability. While
lease liabilities are not remeasured because of changes to the CPI,
changes to the CPI are treated as variable lease payments and
recognized in the period in which the obligation for those payments
are incurred.
Options
to extend or terminate leases
Most of
RideNow’s real estate leases include one or more options to
renew, with renewal terms that can extend the lease term from one
to five years or more. The exercise of lease renewal options is at
RideNow’s sole discretion. If it is reasonably certain that
RideNow will exercise such options, the periods covered by such
options are included in the lease term and are recognized as part
of RideNow’s ROU assets and lease liabilities. Certain leases
also include options to purchase the leased property. The
depreciable life of assets and leasehold improvements are limited
by the expected lease term unless there is a transfer of title or
purchase option reasonably certain of exercise.
Discount
rate
For the
incremental borrowing rate, RideNow generally uses a portfolio
approach to determine the discount rate for leases with similar
characteristics. RideNow determines discount rates based on current
market prices of instruments similar to RideNow’s unsecured
borrowings with maturities that align with the relevant lease term,
and such rates are then adjusted for RideNow’s credit spread
and the effects of full collateralization.
Balance
Sheet Presentation
The
following consist of leases related assets and liabilities as of
December 31:
Leases
|
|
Classification
|
2020
|
2019
|
Assets:
|
|
|
|
|
Operating
|
|
Operating lease
assets
|
$71,280,471
|
$59,845,283
|
Finance
|
|
Property and
Equipment, net
|
12,336,146
|
10,805,089
|
Total right-of-use
assets
|
|
|
$83,616,617
|
$70,650,372
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating
|
|
Current portion of
operating lease liabilities
|
$15,755,805
|
$14,693,192
|
Finance
|
|
Current portion of
finance lease liabilities
|
3,967,670
|
3,163,199
|
|
|
|
|
|
Non-Current
|
|
|
|
|
Operating
|
|
Long-term portion
of operating lease liabilities
|
57,473,929
|
47,244,420
|
Financing
|
|
Long-term portion
of finance lease liabilities
|
14,642,774
|
13,464,666
|
Total lease
liabilities
|
|
|
$91,840,178
|
$78,565,477
|
Page 16 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Lease
Term and Discount Rate
The
following consists of the lease terms and discount rates as of
December 31:
|
2020
|
2019
|
Weighted Average
Lease Term - Operating Leases
|
6.4
years
|
5.9
years
|
Weighted Average
Lease Term - Finance Leases
|
10.0
years
|
9.6
years
|
Weighted Average
Discount Rate - Operating Leases
|
3.0%
|
3.0%
|
Weighted Average
Discount Rate - Finance Leases
|
24.2%
|
18.1%
|
Lease
Costs
The
following table provides certain information related to the lease
costs for finance and operating leases for the years ended December
31:
Lease
Cost
|
|
Classification
|
2020
|
2019
|
Operating lease
costs
|
|
Selling, general
and administrative expenses
|
$16,319,257
|
$14,995,468
|
|
|
|
|
|
Finance lease
costs:
|
|
|
|
|
Amortization of ROU
assets
|
|
Depreciation and
Amortization
|
1,170,909
|
1,170,909
|
Interest on lease
liabilities
|
|
Floor plan interest
and other interest expense
|
2,714,108
|
2,810,138
|
|
|
|
|
|
*Variable lease costs
|
|
Selling, general
and administrative expenses
|
4,814,249
|
1,067,513
|
|
|
$25,018,523
|
$20,044,028
|
*Variable Lease
Cost includes the following:
-
Short term lease
costs, which are immaterial.
-
Sales tax, CAM
charges, and CPI adjustments.
Supplemental
Cash Flow Information
The
following table presents supplemental cash flow information for
leases for the year ended December 31:
|
2020
|
2019
|
Cash paid for
amounts included in the measurements of lease
liabilities:
|
|
|
Operating cash
flows from operating leases
|
$16,433,493
|
$15,342,746
|
Operating cash
flows from finance leases
|
$2,714,108
|
$2,810,138
|
Financing cash
flows from finance leases
|
$719,386
|
$566,024
|
Right-of-use assets
obtained in exchange for new:
|
|
|
Operating lease
liabilities
|
$15,211,272
|
$22,482,942
|
Finance lease
liabilities
|
$2,701,966
|
$-
|
Non-cash reduction
in right-of-use assets and lease liabilities from modification to
operating leases:
|
$11,768,897
|
$-
|
RideNow
leases facilities under operating leases expiring through January
2029. The leases require varying monthly payments ranging from
$3,900 to $79,000.
Page 17 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Future
minimum payments under these commitments as of December 31, 2020
are as follows:
|
Operating
Leases
|
Finance
Leases
|
Year Ending
December 31,
|
|
|
2021
|
$15,755,805
|
$4,059,496
|
2022
|
14,967,869
|
4,393,205
|
2023
|
13,270,537
|
4,454,856
|
2024
|
11,435,302
|
4,511,215
|
2025
|
7,354,293
|
4,567,841
|
Thereafter
|
17,401,262
|
28,036,897
|
Total lease
payments
|
80,185,068
|
50,023,509
|
Less:
Interest
|
(6,955,334)
|
(31,413,067)
|
Present value of
lease liabilities
|
$73,229,734
|
$18,610,443
|
|
|
|
Current portion of
lease liabilities
|
$15,755,805
|
$4,059,496
|
Long-term portion
of lease liabilities
|
57,473,929
|
14,550,947
|
|
$73,229,734
|
$18,610,443
|
Lease
expense charged to operations was $16,319,257 and $14,995,468 for
the years ended December 31, 2020 and 2019,
respectively.
NOTE
11
RELATED
PARTY TRANSACTIONS
Due
from (to) related parties consist of the following balances as of
December 31,
|
2020
|
2019
|
Accounts
receivable-related parties
|
$84,535,861
|
$34,211,546
|
Notes receivable
– related parties
|
1,264,425
|
1,184,043
|
Total balances due
from related parties
|
$85,800,286
|
$35,395,589
|
|
|
|
|
|
|
Accounts payable
– related parties
|
$27,615,211
|
$19,080,916
|
Notes payable
– related parties
|
7,411,322
|
14,069,533
|
Total balances due
to related parties
|
$35,026,533
|
$33,150,449
|
Accounts
Receivable and Payables
Receivables Due from Related Parties
|
2020
|
2019
|
Cash sweep
receivables
|
$84,478,128
|
$28,555,340
|
Other receivables
due from related parties
|
57,733
|
5,656,206
|
Total receivables
due from related parties
|
$84,535,861
|
$34,211,546
|
Page 18 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Cash
Sweep Account Receivables/Payables
RideNow
is a participant in a Cash Sweep Account arrangement with a bank
and its affiliates. The Cash Sweep Account combines the cash
balances of all the participating affiliates and invests excess
cash on a daily basis. Interest is paid to each participant based
on the average cash balance in the Cash Sweep account over the
course of the year. Any participant that develops an overdraft cash
balance is charged interest. For the years ended December 31, 2020
and 2019, the Cash Sweep Account was earning interest at 1.10% and
3.11%, respectively, and for overdraft balances, the interest
charged was 3.25% and 3.50%, respectively.
Cash Sweep
Accounts:
|
2020
|
2019
|
Related party
receivable
|
$84,478,128
|
$28,555,340
|
Related party
payable
|
(27,956,598)
|
(14,087,220)
|
Net Cash Sweep
Account Balance
|
$56,521,530
|
$14,468,120
|
|
|
|
Payables Due to Related Parties
|
2020
|
2019
|
Cash sweep
payables
|
$27,956,598
|
$14,087,220
|
Other payables due
to related parties
|
(341,387)
|
4,993,696
|
Total payables due
to related parties
|
$27,615,211
|
$19,080,916
|
Notes
payable – Related Parties
The
following table summarizes the notes payable to related parties as
of December 31:
|
2020
|
2019
|
Various unsecured
notes payable to Steele IV, LLLP, a related party through common
ownership; monthly principal payments range from $10,000 to
$20,000; interest accruing at rates ranging from LIBOR + 1.3% to
LIBOR + 2.0%
|
$3,000,000
|
$5,744,265
|
Various unsecured
notes payable to RideNow Management, LLLP, a related party through
common ownership; monthly principal payments ranging from
$7,000 to $13,500; interest
accruing at rates ranging from LIBOR + 0.6% to LIBOR +
1.3%.
|
1,411,322
|
3,277,639
|
Various unsecured
notes payable to Denex, LLLP, a related party through common
ownership; monthly principal payments ranging from $10,000 to
$20,000 interest accruing at rates ranging from LIBOR + 0.5% to
LIBOR + 2.0%.
|
3,000,000
|
5,047,629
|
Total
|
7,411,322
|
14,069,533
|
Less: Current
maturities
|
(504,000)
|
(6,569,584)
|
Long-term
maturities due to related party
|
$6,907,322
|
$7,499,949
|
Page 19 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
The
future maturities of long-term note payables to related parties as
of December 31, 2020:
2021
|
$504,000
|
2022
|
504,000
|
2023
|
6,403,322
|
Total maturities of
long-term notes payable – related parties
|
$7,411,322
|
Related
Party Leases
Included in the
leases discussed above in Note 10 are leases for twenty-five (25)
locations which are owned by the owners of RideNow or their
affiliates. Lease expense charged to operations in connection with
these related party leases was $10,126,669 and $8,715,266 for the
years ended December 31, 2020 and 2019, respectively.
The
following table provides the future minimum lease payments under
these commitments, as presented above, scheduled in connection with
related party are as follows:
Maturity of Related
Party Lease Liabilities
|
2020
|
2020
|
$13,208,380
|
2021
|
13,129,530
|
2022
|
12,415,862
|
2023
|
11,860,080
|
2024
|
9,577,251
|
Thereafter
|
41,387,884
|
Total lease
payments
|
101,578,987
|
Less:
Interest
|
(35,522,714)
|
Present value of
lease liabilities
|
$66,056,273
|
Shared
Services
RideNow
receives administrative support from RideNow Management, LLLP and
Coulter Management Group, LLLP, which are related parties due to
common ownership. Total administrative services received from these
entities and charged to operations were $731,089 and $450,454 for
the years ending December 31, 2020 and 2019,
respectively.
NOTE
12
SUPPLEMENTAL
CASH FLOW INFORMATION
The
following table includes supplemental cash flow information,
including noncash investing and financing activity for the years
ended December 31,
|
2020
|
2019
|
Cash paid for
interest
|
$6,628,351
|
$10,102,590
|
Non-cash
activities:
|
|
|
Non-cash issuance
of noncontrolling interest
|
-
|
$125,000
|
Non-cash purchase
of noncontrolling interest and release of related party
receivable
|
-
|
$634,552
|
Non-cash equity
contributions
|
$223,389
|
$613,964
|
Page 20 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
NOTE
13
RETIREMENT
PLAN
RideNow
maintains a 401(k) plan (the Plan) covering substantially all
employees who are over the age of 21 and meet specified service
requirements. Participants may voluntarily contribute to the Plan,
not to exceed the maximum limits imposed by the Internal Revenue
Service regulations. Contributions to the Plan are made by the
participants to their individual accounts through payroll
withholding. Additionally, RideNow provides a matching contribution
of 25% up to the first 6% of participants’ annual earnings
with a maximum of $2,000 annually. RideNow’s contribution to
the Plan was $563,624 and $613,270 for the years ended December 31,
2020 and 2019, respectively.
NOTE
14
CONTINGENCIES
From
time to time, RideNow is contingently liable in respect to lawsuits
and claims incidental to the ordinary course of its operations.
Management has determined that the outcome of any such matters will
not have a material effect on the Combined Financial Statements. No
provision has been made in the accompanying Combined Financial
Statements for losses, if any, that might result from the ultimate
outcome of such matters.
Coronavirus
Pandemic (COVID-19)
Subsequent to
year-end, the World Health Organization declared the spread of
Coronavirus Disease (COVID- 19) a worldwide pandemic. The COVID-19
pandemic is having significant effects on global markets, supply
chains, businesses, and communities. Specific to RideNow, COVID-19
may impact various parts of its 2020 operations and financial
results. Management believes RideNow is taking appropriate actions
to mitigate the negative impact. However, the full impact of
COVID-19 is unknown and cannot be reasonably estimated at December
31, 2020 and 2019.
NOTE
15
BUSINESS
AND CREDIT CONCENTRATIONS
Financial
instruments that potentially subject us to concentrations of credit
risk consist principally of cash on deposit with financial
institutions. At times, amounts invested with financial
institutions exceed Federal Deposit Insurance Corporation insurance
limits. Concentrations of credit risk with respect to receivables
are limited primarily to receivables from powersports manufacturers
or distributors which RideNow holds franchises, totaling
approximately $6,624,000 and $6,828,000 at December 31, 2020 and
2019, respectively.
RideNow
is subject to a concentration of risk in the event of financial
distress or other adverse events related to any of the
manufacturers whose franchised dealerships are included in
RideNow’s brand portfolio. RideNow purchases new vehicle
inventory from various powersports manufacturers at the prevailing
prices available to all franchised dealerships. In addition,
RideNow finances a substantial portion of its new vehicle inventory
with manufacturer-affiliated finance companies. RideNow’s
results of operations could be adversely affected by the
manufacturers’ inability to supply RideNow dealerships with
an adequate supply of new vehicle inventory and related floor plan
financing. RideNow also has concentrations of risk related to the
geographic markets in which RideNow dealerships operate. Changes in
overall economic, retail powersports or regulatory environments in
one or more of these markets could adversely impact the results of
RideNow’s operations.
Concentrations of
credit risk with respect to non-manufacturer trade receivables are
limited due to the wide variety of customers and markets in which
RideNow’s products are sold as well as their dispersion
across many different geographic areas in the United States.
Consequently, at December 31, 2020, RideNow does not consider
itself to have any significant non-manufacturer concentrations of
credit risk.
Page 21 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
NOTE
16
FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The
fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation. Fair
value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of judgment, and therefore cannot be determined with
precision.
Accounting
standards define fair value as the price that would be received
from selling an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants at the
measurement date. Accounting standards establish a fair value
hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value and also establishes the following three
levels of inputs that may be used to measure fair
value:
Level 1
Quoted prices in active markets for identical assets or
liabilities
Level 2
Observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted market prices in markets
that are not active; or model-derived valuations or other inputs
that are observable or can be corroborated by observable market
data for substantially the full term of the assets or
liabilities.
Level 3
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
The
following methods and assumptions were used by us in estimating
fair value disclosures for financial instruments:
●
Cash and cash equivalents, receivables, other
current assets, vehicle Floor Plan payable, accounts payable, other
current liabilities, and variable rate debt: The amounts
reported in the accompanying Combined Balance Sheets approximate
fair value due to their short-term nature or the existence of
variable interest rates that approximate prevailing market
rates.
●
Fixed rate long-term debt:
RideNow’s fixed rate long-term debt consists primarily of
amounts outstanding under its senior unsecured notes. The amounts
reported in the accompanying Combined Balance Sheets approximate
fair value due to its senior unsecured notes using quoted prices
for the identical liability (Level 1).
Nonfinancial assets
such as goodwill, other intangible assets, and long-lived assets
held and used are measured at fair value when there is an indicator
of impairment and recorded at fair value only when impairment is
recognized or for a business combination. The fair values less
costs to sell of long-lived assets or disposal groups held for sale
are assessed each reporting period they remain classified as held
for sale. Subsequent changes in the held for sale long-lived
asset’s or disposal group’s fair value less cost to
sell (increase or decrease) are reported as an adjustment to its
carrying amount, except that the adjusted carrying amount cannot
exceed the carrying amount of the long-lived asset or disposal
group at the time it was initially classified as held for
sale.
NOTE
17
SEGMENT
INFORMATION
As of
December 31, 2020, and 2019, RideNow had two operating segments:
(1) Harley-Davidson motor sports dealerships and (2) Metric motor
sports dealerships (representing all Non-Harley-Davidson motor
sports dealerships). RideNow’s Harley-Davidson dealership
segment is comprised of retail franchises that sell new and used
motorcycles and related accessories, riding gear and apparel,
replacement parts, equipment repair and maintenance services, and
also arrange for the delivery of finance and insurance products
through third party providers. RideNow’s Metric dealerships
segment is comprised of retail franchises that sell new and used
motorcycles (non-Harley-Davidson) and other motor sports equipment,
including all-terrain vehicles, utility terrain vehicles, boats,
personal watercraft, snowmobiles and scooters from manufacturers
such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW,
Ducati and Triumph. Additionally, dealerships in RideNow’s
Metric segment sell related products and services, including repair
and maintenance services and also arrange for the delivery of
finance and insurance products through third party
providers.
Page 22 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
RideNow
has determined that the operating segments also represent the
reportable segments. The reportable segments identified above are
the business activities of RideNow for which discrete financial
information is available and for which operating results are
regularly reviewed by the chief operating decision maker to assess
operating performance and allocate resources. RideNow’s chief
operating decision maker is comprised of its two owners, who are
also RideNow’s (1) Chairman of the Board and (2) Chief
Executive Officer.
The
following tables provide reportable segment revenue, gross profit,
Floor Plan interest expense, segment income and
inventories:
|
2020
|
||
|
Harley
Davidson Dealerships
|
Metric
Dealerships
|
Total
Segments
|
Revenue
|
$226,652,843
|
$672,237,556
|
$898,890,399
|
|
|
|
|
Gross
Profit
|
$67,432,653
|
$188,788,118
|
$256,220,771
|
Gross profit
%
|
29.9%
|
28.1%
|
28.6%
|
|
|
|
|
Floor Plan interest
expense
|
$930,726
|
$2,121,204
|
$3,051,930
|
Segment
income%
|
0.4%
|
0.3%
|
0.3%
|
|
|
|
|
Segment income
(1)
|
$17,990,848
|
$76,570,039
|
$94,560,887
|
Segment income
%
|
8.0%
|
11.4%
|
10.5%
|
|
|
|
|
Inventories
|
$22,366,902
|
$87,382,619
|
$109,749,521
|
|
2019
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Total
Segments
|
Revenue
|
$220,621,113
|
$515,619,607
|
$736,240,720
|
|
|
|
|
Gross
Profit
|
$60,788,862
|
$120,760,582
|
$181,549,444
|
Gross profit
%
|
27.6%
|
23.4%
|
24.7%
|
|
|
|
|
Floor Plan interest
expense
|
$1,017,392
|
$4,511,024
|
$5,528,416
|
Segment
income%
|
0.5%
|
0.9%
|
0.8%
|
|
|
|
|
Segment income
(1)
|
$11,623,250
|
$23,223,398
|
$34,846,648
|
Segment income
%
|
5.3%
|
4.5%
|
4.7%
|
|
|
|
|
Inventories
|
$53,477,090
|
$163,513,505
|
$216,990,595
|
(1)
Segment income
represents income for each reportable segment and is defined as
income from operations less Floor Plan interest expense, which is
the measure by which management allocates resources to its
segments.
Page 23 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
The
following is a reconciliation of the total of the reportable
segments’ segment income to the combined net
income:
|
2020
|
2019
|
Reportable segment
income
|
$94,560,887
|
$34,846,648
|
Corporate operating
income/expense
|
-
|
219,553
|
Other interest
expense
|
(3,904,879)
|
(4,551,687)
|
Interest
income
|
840,454
|
986,756
|
Miscellaneous
income
|
1,126,614
|
1,215,627
|
Combined net
income
|
$92, 623,076
|
$32,716,897
|
The
following tables provide revenue by products and
services:
|
2020
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Total
Segments
|
New
vehicles
|
$71,867,922
|
$443,956,052
|
$515,823,974
|
Used
vehicles
|
82,031,841
|
64,293,419
|
146,325,260
|
Service, parts and
other
|
56,951,705
|
107,944,239
|
164,895,944
|
Finance and
insurance income
|
15,801,375
|
56,043,846
|
71,845,221
|
|
$226,652,843
|
$672,237,556
|
$898,890,399
|
|
|
|
|
|
2019
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Total
Segments
|
New
vehicles
|
$79,738,881
|
$317,978,998
|
$397,717,879
|
Used
vehicles
|
68,871,728
|
63,933,304
|
132,805,032
|
Service, parts and
other
|
57,515,708
|
94,333,391
|
151,849,099
|
Finance and
insurance income
|
14,494,796
|
39,373,914
|
53,868,710
|
|
$220,621,113
|
$515,619,607
|
$736,240,720
|
NOTE
18
SUBSEQUENT
EVENTS
RideNow
Transaction
On
March 12, 2021, RumbleOn, Inc. announced a definitive agreement to
combine with RideNow Group 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,
RumbleOn 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 RumbleOn Class B Common Stock. RumbleOn 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. RumbleOn
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.
Page 24 of
25
RideNow Group and Affiliates
Notes to Combined Financial Statements
December 31, 2020 and 2019
Business
Combinations
On March 16, 2021,
RideNow entered into a management agreement on a business with
Beach Boulevard Motorsports 2015, LLC, a Florida dealership
to take over daily operations effective April 1, 2021.
Commensurate with the management agreement RideNow entered into an
asset purchase agreement and are working towards closing the
transaction within the next 60-90 days. The purchase price
consists of Fixed Assets $250,000, Goodwill $3,725,000,
Non-Competition $25,000 and agreed upon values for all inventories
including parts, accessories, work-in-process, new and used
vehicles and assumption of certain liabilities. The target
dealership fits in nicely to the RideNow Sunbelt growth strategy
adding to its successful fleet of dealerships located in
Florida. The target dealership currently carries the
following powersports and marine brands: Yamaha, Suzuki, KTM,
Zero Motorcycles, Ranger Boats, Yamaha Jet Boats, and Tide Water
Boats.
Page 25 of
25
EXHIBIT 99.2
RIDENOW GROUP AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
RIDENOW GROUP AND AFFILIATES
TABLE OF CONTENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1
|
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
Report of Independent Registered Public Accounting
Firm
To the
Boards of Directors and Management of
RideNow
Group and Affiliates
Chandler,
Arizona
Opinion on the Financial Statements
We have
audited the accompanying combined balance sheets of RideNow Group
and Affiliates (the "Company") as of December 31, 2019 and 2018,
and the related combined statements of income, changes in
owners’ equity, and cash flows for the years then ended, and
the related notes to the combined financial statements. In our
opinion, the combined financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of their operations and
cash flows for the years then ended, in accordance with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
combined financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s combined financial statements based
on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB
and in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
combined financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the
combined financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts
and disclosures in the combined financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the combined financial statements. We
believe that our audits provide a reasonable basis for our
opinion.
/s/Dixon
Hughes Goodman LLP
We have served as the Company’s auditor since
2020.
Atlanta, Georgia
February 12, 2021
1
RIDENOW GROUP AND AFFILIATES
COMBINED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$4,980,718
|
$6,706,049
|
Contracts in
transit
|
10,554,704
|
11,292,831
|
Accounts
receivable, net
|
9,851,225
|
9,418,221
|
Accounts receivable
– related parties
|
34,211,546
|
21,925,321
|
Inventories,
net
|
216,990,595
|
197,172,879
|
Prepaid
expenses
|
1,775,528
|
1,625,724
|
Total current
assets
|
278,364,316
|
248,141,025
|
|
|
|
Right-of-use
assets
|
59,845,283
|
51,270,811
|
Property and
equipment, net of accumulated depreciation
|
23,099,316
|
24,097,898
|
Goodwill
|
54,988,384
|
51,088,384
|
Note receivable
– related party
|
1,184,043
|
1,364,579
|
Other non-current
assets
|
732,250
|
134,160
|
Total
Assets
|
$418,213,592
|
$376,096,857
|
|
|
|
LIABILITIES AND
OWNERS’ EQUITY
|
|
|
|
|
|
Current
liabilities
|
|
|
Floor plan notes
payable
|
$162,975,930
|
$149,859,103
|
Accounts
payable
|
12,565,588
|
12,925,641
|
Payables to related
parties
|
19,080,916
|
19,466,490
|
Accrued and other
current liabilities
|
19,021,643
|
17,888,864
|
Revolving line of
credit
|
18,000,000
|
-
|
Current portion of
operating lease liabilities
|
14,693,192
|
13,981,772
|
Current portion of
financing lease liabilities
|
3,163,199
|
3,109,558
|
Current portion of
notes payable – related parties
|
6,569,584
|
1,816,681
|
Current portion of
note payable – bank
|
2,285,714
|
2,285,714
|
Current portion of
note payable – other
|
209,456
|
151,290
|
Total current
liabilities
|
258,565,222
|
221,485,113
|
|
|
|
Long-term
liabilities
|
|
|
Long-term portion
of operating lease liabilities
|
47,244,420
|
39,728,645
|
Long-term portion
of financing lease liabilities
|
13,464,666
|
14,084,331
|
Notes payable
– related parties
|
7,499,949
|
15,927,795
|
Notes payable
– bank, less current portion
|
5,714,286
|
8,000,000
|
Notes payable
– other, less current portion
|
1,142,441
|
1,351,897
|
Other long-term
liabilities
|
6,820,000
|
5,956,000
|
Total
liabilities
|
340,450,984
|
306,533,781
|
|
|
|
Owners’
equity
|
77,762,608
|
69,563,076
|
|
|
|
Total liabilities
and owners’ equity
|
$418,213,592
|
$376,096,857
|
See accompanying Notes to Combined Financial
Statements.
2
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
Revenue
|
|
|
New
vehicles
|
$397,717,879
|
$389,346,760
|
Used
vehicles
|
132,805,032
|
113,616,255
|
Service, parts and
others
|
151,849,099
|
146,211,431
|
Finance and
insurance, net
|
53,868,710
|
50,180,259
|
Total
revenue
|
736,240,720
|
699,354,705
|
|
|
|
Cost of
Sales
|
|
|
New
vehicles
|
355,214,641
|
344,534,573
|
Used
vehicles
|
116,104,217
|
100,863,191
|
Service, parts and
others
|
83,372,418
|
81,383,081
|
Total cost of
sales
|
554,691,276
|
526,780,845
|
|
|
|
Gross
profit
|
181,549,444
|
172,573,860
|
|
|
|
Selling, general
and administrative expenses
|
137,201,905
|
128,929,516
|
|
|
|
Depreciation and
amortization expenses
|
3,752,922
|
3,868,513
|
|
|
|
Operating
income
|
40,594,617
|
39,775,831
|
|
|
|
Other Income
(Expense)
|
|
|
Floor plan interest
expense
|
(5,528,416)
|
(4,147,134)
|
Interest expense
– other
|
(4,551,687)
|
(4,416,800)
|
Interest
income
|
986,756
|
721,953
|
Management fee
expense
|
-
|
(672,256)
|
Miscellaneous
income
|
1,215,627
|
440,687
|
Total other income
(expense)
|
(7,877,720)
|
(8,073,550)
|
|
|
|
Net
income
|
$32,716,897
|
$31,702,281
|
See accompanying Notes to Combined Financial
Statements.
3
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
Owners’
Equity
|
Balance at December 31, 2017
|
$39,878,779
|
|
|
Contributions
|
2,640,541
|
|
|
Distributions
|
(4,658,525)
|
|
|
Net
income
|
31,702,281
|
|
|
Balance at December
31, 2018
|
69,563,076
|
|
|
Contributions
|
15,052,445
|
|
|
Distributions
|
(39,569,810)
|
|
|
Net
income
|
32,716,897
|
|
|
Balance at December
31, 2019
|
$77,762,608
|
See accompanying Notes to Combined Financial
Statements.
4
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
Income
|
$32,716,897
|
$31,702,281
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
Loss on disposal of
property and equipment
|
47,486
|
158,699
|
Depreciation and
amortization
|
3,752,922
|
3,868,513
|
Provision for
allowance for doubtful accounts
|
(141,900)
|
301,255
|
(Increase) decrease
in assets, net of effects from business combinations:
|
|
|
Contracts in
transit
|
738,127
|
(2,374,176)
|
Accounts
receivable
|
(291,104)
|
(2,607,288)
|
Accounts receivable
– related parties
|
(12,286,225)
|
315,164
|
Inventories
|
(17,189,741)
|
(39,218,736)
|
Prepaid
expenses
|
(497,131)
|
726,301
|
Other
assets
|
(495,390)
|
206,735
|
Increase (decrease)
in liabilities, net of effects from business
combinations:
|
|
|
Vehicle floor plan
payable – trade, net
|
(5,894,357)
|
2,644,842
|
Accounts
payable
|
118,372
|
(14,487,749)
|
Accrued
liabilities
|
1,119,304
|
(1,406,882)
|
Net cash provided
by operating activities
|
1,697,260
|
(20,171,041)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
Purchases of
property and equipment
|
(2,774,476)
|
(1,972,391)
|
Proceeds from sale
of property and equipment
|
239,189
|
72,175
|
Purchase of net
assets through business combination
|
(4,638,218)
|
(5,366,161)
|
Net cash used in
investing activities
|
(7,173,505)
|
(7,266,377)
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
Issuance of notes
receivables
|
(437,480)
|
(1,364,579)
|
Payments received
on notes receivables
|
618,016
|
98,683
|
Proceeds from
borrowings from related party
|
2,375,820
|
7,722,636
|
Payments of
borrowings from related party
|
(6,050,762)
|
(950,481)
|
Net proceeds from
vehicle Floor Plan payable - non-trade
|
16,765,713
|
32,147,050
|
Proceeds from
revolving line of credit
|
65,000,000
|
20,446,288
|
Payments of
revolving line of credit
|
(47,000,000)
|
(26,446,288)
|
Payments of
borrowings from bank
|
(2,437,004)
|
(2,431,002)
|
Payments of finance
lease liabilities
|
(566,024)
|
(442,790)
|
Contributions from
owners
|
15,052,445
|
2,640,541
|
Distributions to
owners
|
(39,569,810)
|
(4,658,525)
|
Net cash (used in)
provided by financing activities
|
3,750,914
|
26,761,533
|
|
|
|
DECREASE IN CASH
AND CASH EQUIVALENTS
|
(1,725,331)
|
(675,885)
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR
|
6,706,049
|
7,381,934
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF YEAR
|
$4,980,718
|
$6,706,049
|
See accompanying Notes to Combined Financial
Statements.
5
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
Cash paid for
Interest
|
$10,102,590
|
$8,456,398
|
Non-cash
activities
|
|
|
Non-cash issuance
of noncontrolling interest
|
$125,000
|
$1,304,859
|
Non-cash purchase
of noncontrolling interest and release of related party note
receivable
|
$634,552
|
$
|
None-cash equity
contributions
|
$613,964
|
$
|
See accompanying Notes to Combined Financial
Statements.
6
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE 1
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
RideNow
Group and Affiliates, a non-legal entity, (“RideNow”)
is a collection of franchised dealerships operating in the
power-sports industry. The Group is engaged in the sale of new and
used motorcycles, all-terrain vehicles, personal watercraft, other
power-sports vehicles, and related products and services, including
repair and maintenance services, parts and accessories, riding
gear, and apparel. As of December 31, 2019, RideNow owned and
operated more than 45 retail dealerships in the United States,
predominately in the Sunbelt region. The core brands sold by
RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki,
Bombardier, Polaris, BMW, Ducati and Triumph, which are sold
through dealer agreements.
Basis of Presentation
The
Combined Financial Statements include the accounts of the following
affiliated companies: CMG Powersports Inc., America's Powersports,
Inc., Woods Fun Center, LLC, San Diego House of Motorcycles, LLC,
APS of Oklahoma, LLC, APS of Georgetown, LLC, APS of Ohio, LLC, APS
of Texas, LLC, C&W Motors, Inc., BJ Motorsports, LLC, Coyote
Motorsports - Allen, LTD, Coyote Motorsports - Garland, LTD, East
Valley Motorcycles, LLC, Glendale Motorcycles, LLC, JJB Properties,
LLC, Metro Motorcycle, Inc., RideNow Carolina, LLC, RideNow, LLC,
Ride USA, LLC, Top Cat Enterprises, LLC, Tucson Motorcycle, Inc.,
Tucson Motorsports, Inc., YSA Motorsports, LLC, RN Tri-Cities, LLC,
ECHD Motorcycles, LLC, IOT Motorcycles, LLC, RideNow 6 Garland,
LLC, RideNow Gainesville, LLC, RNKC, LLC, RNMC Daytona, LLC, TC
Motorcycles, LLC, Ride Now 5 Allen, LLC, RHND Ocala, LLC and Bayou
Motorcycles, LLC.
These
combined financial statements were prepared on a combined basis
using the accrual method of accounting. All transactions and
accounts between and among the combined entities have been
eliminated.
Use of Estimates
The
preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. In preparing these financial statements, management has
made its best estimates and judgments of certain amounts included
in the financial statements. RideNow bases its estimates and
judgments on historical experience and other assumptions that
management believes are reasonable. However, application of these
accounting policies involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual
results could differ materially from these estimates. RideNow
periodically evaluates estimates and assumptions used in the
preparation of the financial statements and make changes on a
prospective basis when adjustments are necessary. The critical
accounting estimates made in the accompanying Combined Financial
Statements include certain assumptions related to goodwill and
other intangible assets. Other significant accounting estimates
include certain assumptions related to long-lived assets, assets
held for sale, accruals for chargebacks against revenue recognized
from the sale of finance and insurance products, certain legal
proceedings, and estimated tax liabilities. Actual results could
differ from those estimates.
Cash and Cash Equivalents
RideNow
considers all highly liquid investments with a maturity of three
months or less as of the date of purchase to be cash equivalents
unless the investments are legally or contractually restricted for
more than three months. Under RideNow’s cash management
system, outstanding checks that are in excess of the cash balances
at certain banks are included in Accounts Payable in the Combined
Balance Sheets and changes in these amounts are reflected in
operating cash flows in the accompanying Combined Statements of
Cash Flows.
Inventories
Inventories,
consisting of new units, are stated at the lower of cost or net
realizable value on a specific identification basis. Parts and
accessories inventories are stated at the weighted average cost.
Used units and other inventories are stated at the lower of cost or
wholesale net realizable values on a specific identification basis,
as determined by management.
Credit Risk
Financial
instruments which potentially subject RideNow to concentrations of
credit risk consist principally of cash in financial institutions
that, at times, may exceed FDIC insurance limits. At various times
during the year, the cash in bank balances exceed the federally
insured limits. Management believes there are no unusual risks
associated with current depository institutions.
Credit
risk with respect to accounts receivable is limited due to the
large number of customers comprising RideNow’s customer base.
RideNow performs ongoing credit evaluations of its customer’s
financial condition and generally requires no collateral from its
customers.
7
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Contracts in Transit
Contracts in
transit are proceeds to be received on sales contracts from
financing institutions.
Accounts Receivable
Accounts receivable
are uncollateralized obligations for major units, parts, service,
and warranty work. Accounts receivable are stated at the invoice
amount. Payments of accounts receivable are applied to the specific
invoices identified on the customer’s remittance advice or,
if unspecified, to the earliest unpaid invoice.
Factory
receivables which are included in accounts receivable represent
amounts due primarily from manufacturer holdbacks, rebates, co-op
advertising, warranty, and supplier returns.
RideNow
provides an allowance for doubtful accounts equal to estimated
uncollectible amounts. RideNow’s estimate is based on
historical collection experience and a review of the current status
of accounts receivable. It is reasonably possible that
RideNow’s estimate of the allowance for doubtful accounts
will change. Bad debt expense is included as a component of general
and administrative expenses in the Combined Statements of
Income.
Property and Equipment
Property and
equipment are recorded at cost and depreciated over the lesser of
their estimated useful lives or lease term, ranging from 3 to 20
years, using the straight-line method. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the
respective accounts, and the resulting gain or loss is included in
the results of operations. Repairs and maintenance charges that do
not increase the useful lives of the assets are charged to
operations as incurred.
Goodwill and Other Intangible Assets, net
RideNow
acquisitions have resulted in the recording of goodwill and other
intangible assets. Goodwill is an asset representing operational
synergies, franchise rights and future economic benefits arising
from other assets acquired in a business combination that are not
individually identified and separately recognized. Other intangible
assets represent non-compete agreements entered into with sellers
from acquired businesses.
RideNow
does not amortize goodwill. Goodwill is tested for impairment
annually or more frequently when events or changes in circumstances
indicate that impairment may have occurred. RideNow elected to
perform a quantitative goodwill impairment test for its reporting
units as of December 31, 2019 and 2018, and no goodwill impairment
charges resulted from the testing.
Other
intangible assets identified include non-compete agreements which
are intangible assets with definite lives and are carried at the
acquired fair values less accumulated amortization. The non-compete
agreements are amortized over the estimate useful
lives.
Impairment of Long-Lived Assets
RideNow
reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
undiscounted future cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
value of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount, or
the fair value less costs to sell.
Revenue Recognition
Revenues consist of
the sales of new and used recreational vehicles, commissions from
related finance and insurance products, sales of parts and
services, and sale of other products. See Note 3 for a summary of
the significant accounting policies related to revenue
recognition.
Advertising
Advertising costs
are expensed during the year in which they are incurred.
Advertising expense for the years ended December 31, 2019 and
2018 was approximately $7,198,000 and $5,331,000,
respectively.
8
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Income Taxes
RideNow
and its affiliates’ taxable income or loss is included in the
tax returns of its shareholders. Therefore, no provision for income
taxes is recorded in these Combined Financial Statements. RideNow
has evaluated its tax positions and determined it has no uncertain
tax positions as of December 31, 2019.
Sales and Excise Tax
RideNow
collects certain taxes from customers and remits to governmental
authorities. RideNow’s accounting policy is to exclude the
taxes collected and remitted to the governmental authorities from
revenues and costs of sales.
Government Regulations
All of
RideNow’s facilities are subject to federal, state, and local
regulations relating to the discharge of materials into the
environment. Compliance with these provisions has not had, nor does
it expect such compliance to have, any material effect on the
capital expenditures, net income, financial condition, or
competitive position of RideNow. Management believes that its
current practices and procedures for the control and disposition of
such wastes comply with applicable federal and state
requirements.
Recently Adopted Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board (“FASB”) under its
Accounting Standards Codification (“ASC”) or other
standard setting bodies.
Revenue from Contracts with Customers
RideNow
adopted ASU 2014-09 Revenue from Contracts with Customers and all
subsequent amendments to the ASU, collectively referred to as
Accounting Standards Codification (ASC) Topic 606, which (i)
creates a single framework for recognizing revenue from contracts
with customers that fall within its scope. RideNow’s goods
and services that fall within the scope of Topic 606 are recognized
as revenue when promised goods or services are transferred to
customers in amounts that reflect the consideration to which
RideNow expects to be entitled in exchange for those goods or
services.
RideNow
adopted the accounting standard effective January 1, 2018, using
the modified retrospective approach applied only to contracts not
completed as of the date of adoption, with no restatement of
comparative periods.
Accounting for Leases
In
February 2016, the Financial Accounting Standards Board
(“FASB”) issued an accounting standard update (ASC
Topic 842) that amends the accounting guidance on leases. The new
standard establishes a right-of-use (ROU) model that requires a
lessee to record an ROU asset and a lease liability on the balance
sheet for all leases with terms longer than 12 months. Leases are
classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income
statement. The FASB also subsequently issued amendments to the
standard, including providing an additional and optional transition
method to adopt the new standard, described below, as well as
certain practical expedients related to land easements and lessor
accounting.
The
accounting standard update originally required the use of a
modified retrospective approach reflecting the application of the
standard to the leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the
financial statements with the option to elect certain practical
expedients. A subsequent amendment to the standard provides an
additional and optional transition method that allows entities to
initially apply the new leases standard at the adoption date and
recognize a cumulative effect adjustment to the opening balance of
retained earnings in the period of adoption. RideNow adopted this
accounting standard effective January 1, 2018, using the optional
transition method with no restatement of comparative periods.
Therefore, the comparative information has not been adjusted and
continues to be reported under ASC Topic 840.
RideNow
elected certain practical expedients available under the transition
guidance within the new standard, which among other things, allowed
it to carry forward the historical lease classification of
RideNow’s existing leases. RideNow did not elect the
use-of-hindsight or the practical expedient pertaining to land
easements; the latter not being applicable to us. Consequently, on
adoption, RideNow recognized additional operating liabilities of
$78,565,477 and ROU assets of $70,650,372 at December 31, 2019 and
additional operating liabilities of $70,904,306 and ROU assets of
$63,246,809 at December 31, 2018, respectively. The new standard
also provides practical expedients for an entity’s ongoing
accounting. RideNow elected the short-term lease recognition
exemption for all leases that qualify. As a result, for those
leases that qualify, RideNow will not recognize ROU assets or lease
liabilities, and RideNow did not recognize ROU asset or lease
liabilities for existing short-term leases of those assets in
transition. RideNow also elected the practical expedient to not
separate lease and non-lease components of leases for the majority
of RideNow classes of underlying assets.
9
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
2
BUSINESS
ACQUISITION
During
2019, RideNow acquired the assets and assumed certain liabilities
of Crystal Motorcycle Ocala LLC, in order to further expand
operations in the Florida market. During 2018, RideNow acquired the
assets and assumed certain liabilities of Cycle Mart LP, Deen
Implement Co, and Moving Forward Arizona LLC in order to further
expand operations in Texas and Arizona markets.
All
acquisitions were accounted for as business combinations under the
acquisition method of accounting. The results of operations of the
acquired stores are included in the Combined Financial Statements
from the date of acquisition.
The
following tables summarize the consideration paid in cash for the
acquisitions and the amount of identified assets acquired and
liabilities assumed as of the acquisition date:
|
2019
|
2018
|
Cash paid, net of cash
acquired
|
$4,638,218
|
$5,366,161
|
Assets
acquired and liabilities assumed for the year ended December
31,
|
2019
|
2018
|
Cash
|
$-
|
$1,500
|
Inventories
|
2,627,975
|
4,916,161
|
Property and
equipment
|
266,539
|
350,000
|
Other assets
|
102,700
|
10,000
|
Floor plan notes
payables
|
(2,245,471)
|
(2,773,985)
|
Other
liabilities
|
(13,525)
|
(253,515)
|
|
738,218
|
2,250,161
|
Goodwill
|
3,900,000
|
3,116,000
|
|
$4,638,218
|
$5,366,161
|
For the
years ended 2019 and 2018, the total cash paid at closing amounted
to $4,638,218 and $5,366,161, net assets acquired amounted to
$738,218 and $2,250,161 and goodwill recognized amounted to
$3,900,000 and $3,116,000 respectively.
NOTE
3
REVENUE
FROM CONTRACTS WITH CUSTOMERS
New and Used Recreational Vehicles
RideNow
sells new and used recreational vehicles. The transaction price for
a recreational vehicle sale is determined with the customer at the
time of sale. Customers often trade in their own recreational
vehicle to apply toward the purchase of a retail new or used
recreational vehicle. The “trade-in” recreational
vehicle is a type of noncash consideration measured at fair value,
based on external and internal market data for a specific
recreational vehicle, and applied as payment of the contract price
for the purchased recreational vehicle.
When
RideNow sells a new or used recreational vehicle, transfer of
control typically occurs at a point in time upon delivery of the
vehicle to the customer, which is generally at the time of sale, as
the customer is able to direct the use of, and obtain substantially
all benefits from the recreational vehicle at such time. RideNow
does not directly finance its customer’s purchases or provide
leasing. In many cases, RideNow arranges third-party financing for
the retail sale or lease of recreational vehicles to customers in
exchange for a fee paid to RideNow by a third-party financial
institution.
RideNow
receives payment directly from the customer at the time of sale or
from a third-party financial institution (referred to as
contracts-in-transit) within a short period of time following the
sale. RideNow establishes provisions, which are not significant,
for estimated returns and warranties on the basis of both
historical information and current trends.
10
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Parts and Service
RideNow
sells parts and vehicle services related to customer-paid repairs
and maintenance, repairs and maintenance under manufacturer
warranties and extended service contracts, and collision-related
repairs. RideNow also sells parts through wholesale and retail
counter channels.
Each
repair and maintenance service is a single performance obligation
that includes both the parts and labor associated with the vehicle
service. Payment for each vehicle service work is typically due
upon completion of the service, which is generally completed within
a short period from contract inception. The transaction price for
repair and maintenance services is based on the parts used, the
number of labor hours applied, and standardized hourly labor rates.
The performance obligation for repair and maintenance service are
satisfied over time and create an asset with no alternative use and
with an enforceable right to payment for performance completed to
date. Revenue is recognized over time based on a direct measurement
of labor hours, parts and accessories that are allocated to open
service and repair orders at the end of each reporting
period.
As a
practical expedient, the time value of money is not considered
since repair and maintenance service contracts have a duration of
one year or less. The transaction price for wholesale and retail
counter parts sales is determined at the time of sale based on the
quantity and price of each product purchased. Payment is typically
due at time of sale, or within a short period following the sale.
RideNow establishes provisions, which are not significant, for
estimated parts returns based on historical information and current
trends. Delivery method of wholesale and retail counter parts
vary.
RideNow
generally considers control of wholesale and retail counter parts
to transfer when the products are shipped, which typically occurs
the same day as or within a few days of sale. RideNow also offers
customer loyalty points for parts and services for select
franchises. RideNow satisfies its performance obligations and
recognizes revenue when the loyalty points are redeemed. Amounts
deferred related to the customer loyalty programs are
insignificant.
Finance and Insurance
RideNow
sells and receives commissions on the following types of finance
and insurance products: extended service contracts, maintenance
programs, guaranteed auto protection, tire and wheel protection,
and theft protection products, among others. RideNow offers
products that are sold and administered by independent third
parties, including the vehicle manufacturers’ captive finance
subsidiaries.
Pursuant to the
arrangements with these third-party providers, RideNow sells the
products on a commission basis. For the majority of finance and
insurance product sales, RideNow’s performance obligation is
to arrange for the provision of goods and services by another
party. RideNow’s performance obligation is satisfied when
this arrangement is made, which is when the finance and insurance
product is delivered to the end customer, generally at the time of
the vehicle sale. As agent, RideNow recognizes revenue in the
amount of any fee or commission to which it expects to be entitled,
which is the net amount of consideration that it retains after
paying the third-party provider the consideration received in
exchange for the goods or services to be fulfilled by that
party.
RideNow’s
customers are concentrated in the Sunbelt region. There are no
significant judgements or estimates required in determining the
satisfaction of the performance obligations or the transaction
price allocated to the performance obligations. As revenues are
recognized at a point-in-time, costs to obtain the customer (i.e.
commissions) do not require capitalization.
Disaggregation of Revenue
The
significant majority of RideNow’s revenue is from contracts
with customers. In the following tables, revenue is disaggregated
by major lines of goods and services and timing of transfer of
goods and services. We have determined that these categories depict
how the nature, amount, timing, and uncertainty of our revenue and
cash flows are affected by economic factors.
11
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Revenues from
contracts with customers consists of the following:
|
For the
Year
Ended December
31,
|
|
|
2019
|
2018
|
Revenue:
|
|
|
New vehicle
|
$397,717,879
|
$389,346,760
|
Used vehicle
|
132,805,032
|
113,616,255
|
New and used
vehicle
|
530,522,911
|
502,963,015
|
|
|
|
Service, parts and
others
|
151,849,099
|
146,211,431
|
Finance and insurance,
net
|
53,868,710
|
50,180,259
|
Total revenue
|
$736,240,720
|
$699,354,705
|
|
|
|
Timing of
revenue recognition:
|
|
|
Goods and services transferred at a
point in time
|
$641,370,068
|
$616,238,008
|
Goods and services transferred over
time (1)
|
94,870,652
|
83,116,697
|
Total revenue
|
$736,240,720
|
$699,354,705
|
(1)
Represents revenue
recognized during the period for vehicle repair and maintenance
services.
Adoption of ASU
2014-09 Revenue from Contracts with Customers and all subsequent
amendments to the ASU, collectively referred to as Accounting
Standards Codification (ASC) Topic 606 resulted in a cumulative
adjustment to retained earnings of approximately
$737,000.
NOTE
4
ACCOUNTS
RECEIVABLE
Accounts receivable
consisted of the following as of December 31:
|
2019
|
2018
|
Trade
receivables
|
$2,830,500
|
$2,859,304
|
Factory
receivables
|
6,827,863
|
6,106,437
|
Other
receivables
|
803,832
|
1,205,350
|
Total accounts
receivables
|
10,462,195
|
10,171,091
|
Less: Allowance for
doubtful accounts
|
(610,970)
|
(752,870)
|
Accounts
receivables, net
|
$9,851,225
|
$9,418,221
|
12
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
5
INVENTORIES
AND VEHICLE FLOOR PLAN PAYABLES
Inventories
consisted of the following as of December 31 are as
follows:
|
2019
|
2018
|
New vehicles
|
$166,901,387
|
$145,904,475
|
Used vehicles
|
26,634,590
|
29,678,143
|
Parts, accessories and
other
|
23,454,618
|
21,590,261
|
Total
cost
|
$216,990,595
|
$197,172,879
|
The
components of vehicle floorplan payables at December 31 are as
follows:
|
2019
|
2018
|
Vehicle Floor Plan payable -
trade
|
$39,087,146
|
$43,568,452
|
Vehicle Floor Plan payable –
non-trade
|
123,888,784
|
106,290,651
|
Vehicle Floor Plan
payable
|
$162,975,930
|
$149,859,103
|
|
|
|
Vehicle
floorplan payable-trade reflects amounts borrowed to finance the
purchase of specific new and, to a lesser extent, used vehicle
inventories with the corresponding manufacturers’ captive
finance subsidiaries (“trade lenders”). Vehicle
floorplan payable-non-trade represents amounts borrowed to finance
the purchase of specific new and, to a lesser extent, used vehicle
inventories with non-trade lenders, as well as amounts borrowed
under RideNow’s secured used vehicle floorplan facilities.
Changes in vehicle floorplan payable-trade are reported as
operating cash flows and changes in vehicle floorplan
payable-non-trade are reported as financing cash flows in the
accompanying Combined Statements of Cash Flows.
RideNow’s
inventory costs are generally reduced by manufacturer holdbacks,
incentives, floorplan assistance, and non-reimbursement-based
manufacturer advertising rebates, while the related vehicle
floorplan payables are reflective of the gross cost of the vehicle.
The vehicle floorplan payables, as shown in the above table, will
generally also be higher than the inventory cost due to the timing
of the sale of a vehicle and payment of the related liability.
Vehicle floorplan facilities are due on demand, but in the case of
new vehicle inventories, are generally paid within several business
days after the related vehicles are sold. Vehicle floorplan
facilities are primarily collateralized by vehicle inventories and
related receivables.
NOTE
6
PROPERTY
AND EQUIPMENT, NET
The
following table summarizes property and equipment, net of
accumulated depreciation and amortization as of December
31:
13
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
Equipment
|
$5,084,165
|
$4,587,416
|
Furniture and
fixtures
|
18,422,739
|
16,958,571
|
Buildings
|
13,146,907
|
13,146,907
|
Vehicles
|
4,190,082
|
2,615,332
|
Leasehold
improvements
|
9,907,006
|
9,683,537
|
Construction in
progress
|
102,831
|
9,966
|
Total property and
equipment
|
50,853,730
|
47,001,729
|
Less: Accumulated
depreciation
|
(27,754,414)
|
(22,903,831)
|
Property and equipment,
net
|
$23,099,316
|
$24,097,898
|
Depreciation and
amortization expense for the years ended December 31, 2019 and 2018
was approximately $3,753,000 and $3,869,000,
respectively.
NOTE
7
GOODWILL
AND INTANGIBLE ASSETS, NET
RideNow’s
acquisitions have resulted in the recording of goodwill and other
intangible assets. Goodwill is an asset representing operational
synergies, franchise rights and future economic benefits arising
from other assets acquired in a business combination that are not
individually identified and separately recognized. Other intangible
assets represent non-compete agreements entered into with sellers
from the acquired businesses and are not significant to the
combined financial statements.
The
changes in goodwill for the years ended December 31, 2019 and 2018
are as follows:
|
Goodwill
|
Balance at December 31,
2017
|
$47,972,384
|
Acquisitions
|
3,116,000
|
Impairments
|
-
|
Balance at December 31,
2018
|
51,088,384
|
Acquisitions
|
3,900,000
|
Impairments
|
-
|
Balance at December 31,
2019
|
$54,988,384
|
NOTE
8
LINE
OF CREDIT
RideNow
has a $19,000,000 revolving line of credit established at a bank.
RideNow participates in the line of credit with certain affiliates.
Interest is payable monthly at the lesser of the prime rate (4.75%
and 5.50% at December 31, 2019 and 2018, respectively) or LIBOR
plus 2.75% (4.98% and 5.27% at December 31, 2019 and 2018,
respectively). The line of credit is secured by substantially all
of the assets of the participating affiliates. The line of credit
has been amended and renewed multiple times under similar terms
since its inception and has a maturity date of January 15, 2021.
The outstanding balance on the line of credit was $18,000,000 and
$-0- at December 31, 2019 and 2018, respectively.
14
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
9
LONG-TERM
NOTES PAYABLE
Notes payable – related parties
The
following consists of the notes payable to related parties as of
December 31:
|
2019
|
2018
|
Various unsecured notes payable to
Steele IV, LLLP, a related party through common ownership; monthly
principal payments range from $10,000 to $20,000; interest accruing
at rates ranging from LIBOR + 1.3% to LIBOR +
2.0%
|
$5,744,265
|
$4,656,196
|
Various unsecured notes payable to
RideNow Management, LLLP, a related party through common ownership;
monthly principal payments ranging from $10,000 to $25,000;
interest accruing at rates ranging from LIBOR + 0.6% to LIBOR +
1.3%.
|
3,277,639
|
8,542,709
|
Various unsecured notes payable to
Denex, LLLP, a related party through common ownership; monthly
principal payments ranging from $10,000 to $15,000 interest
accruing at rates ranging from LIBOR + 0.5% to LIBOR +
1.3%.
|
5,047,629
|
4,045,571
|
Unsecured note payable to WRC 2009,
LLC, a related party through common ownership; no formal repayment
terms; repaid during 2019.
|
-
|
500,000
|
Total
|
14,069,533
|
17,744,476
|
Less: Current
maturities
|
(6,569,584)
|
(1,816,681)
|
Long-term maturities due to related
party
|
$7,499,949
|
$15,927,795
|
|
|
|
The
future maturities of long-term note payables to related parties as
of December 31, 2019:
2020
|
$6,569,584
|
2021
|
5,130,281
|
2022
|
1,030,166
|
2023
|
750,000
|
2024
|
500,139
|
Thereafter
|
89,363
|
Total maturities of long-term notes
payable – related parties
|
$14,069,533
|
Note payable – bank
The
following consist of a note payable to a bank as of December
31:
|
2019
|
2018
|
Northern Trust Bank term loan
agreement that requires monthly principal payments of approximately
$190,500 and accrues interest at the one-month LIBOR plus 2.0%.
This loan is guaranteed by the owners of CMG Powersports, Inc. and
matures July 1, 2021.
|
$8,000,000
|
$10,285,714
|
Less: Current
maturities
|
(2,285,714)
|
(2,285,714)
|
Long-term maturities of note
payables - bank
|
$5,714,286
|
$8,000,000
|
15
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
The
future maturities of long-term note payables to a bank as of
December 31, 2019:
2020
|
2,285,714
|
2021
|
5,714,286
|
Total of long-term notes payable -
other
|
$8,000,000
|
Note payable – other
The
following consist of a note payable to others as of December
31:
|
2019
|
2018
|
Unsecured note payable to P&D
Motorcycles in the original amount of $1,724,000 with an interest
rate of 4% and note payable matures on July 1,
2022
|
1,351,897
|
1,503,187
|
Less: Current
maturities
|
(209,456)
|
(151,290)
|
Long-term maturities of note
payables - bank
|
$1,142,441
|
$1,351,897
|
The
future maturities of long-term note payables to other as of
December 31, 2019:
2020
|
209,456
|
2021
|
209,456
|
2022
|
932,985
|
Total maturities of long-term notes
payable – other
|
$1,351,897
|
NOTE
10
LEASES
General description
The
significant majority of leases that RideNow enters into
are for real estate. RideNow
leases numerous facilities relating to RideNow’s operations,
including primarily for vehicle showrooms, display lots, service
facilities, collision repair centers, supply facilities, vehicle
storage lots, parking lots, offices, and RideNow’s corporate
headquarters. Leases for real property have terms ranging from one
to twenty-five years. RideNow also leases various types of
equipment, including security cameras, diagnostic equipment,
copiers, key-cutting machines, and postage machines, among others.
Equipment leases generally have terms ranging from one to five
years.
RideNow’s
lease agreements do not contain any material residual value
guarantees or material restrictive covenants. RideNow does not have
any significant leases that have not yet commenced but that create
significant rights and obligations for us. RideNow has elected the
practical expedient under ASC Topic 842 to not separate lease and
non-lease components for the following classes of underlying
assets: real estate, office equipment, service loaner vehicles, and
marketing-related assets (e.g., billboards).
RideNow’s
real estate and equipment leases often require that RideNow pay
maintenance in addition to rent. Additionally, RideNow’s real
estate leases generally require payment of real estate taxes and
insurance. Maintenance, real estate taxes, and insurance payments
are generally variable and based on actual costs incurred by the
lessor. Therefore, these amounts are not included in the
consideration of the contract when determining the right-of-use
(“ROU”) asset and lease liability, but are reflected as
variable lease expenses for those classes of underlying assets for
which RideNow has elected the practical expedient to not separate
lease and non-lease components.
Leases
with an initial term of 12 months or less are not recorded on the
balance sheet; RideNow recognizes lease expense for these leases on
a straight-line basis over the lease term. RideNow rents or
subleases certain real estate to third parties, which are primarily
operating leases.
16
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Variable lease payments
A
majority of RideNow’s lease agreements include fixed rental
payments. Certain of RideNow’s lease agreements include fixed
rental payments that are adjusted periodically for changes in the
Consumer Price Index (“CPI”). Payments based on a change in an index or a rate
are not considered in the determination of lease payments for
purposes of measuring the related lease liability. While
lease liabilities are not remeasured as a result of changes to the
CPI, changes to the CPI are treated as variable lease payments and
recognized in the period in which the obligation for those payments
are incurred.
Options to extend or terminate leases
Most of
RideNow’s real estate leases include one or more options to
renew, with renewal terms that can extend the lease term from one
to five years or more. The exercise of lease renewal options is at
RideNow’s sole discretion. If it is reasonably certain that
RideNow will exercise such options, the periods covered by such
options are included in the lease term and are recognized as part
of RideNow’s ROU assets and lease liabilities. Certain leases
also include options to purchase the leased property. The
depreciable life of assets and leasehold improvements are limited
by the expected lease term, unless there is a transfer of title or
purchase option reasonably certain of exercise.
Discount rate
For the
incremental borrowing rate, RideNow generally uses a portfolio
approach to determine the discount rate for leases with similar
characteristics. RideNow determines discount rates based on current
market prices of instruments similar to RideNow’s unsecured
borrowings with maturities that align with the relevant lease term,
and such rates are then adjusted for RideNow’s credit spread
and the effects of full collateralization.
Balance Sheet Presentation
Leases
|
Classification
|
2019
|
2018
|
Assets:
|
|
|
|
Operating
|
Operating lease
assets
|
$59,845,283
|
$51,270,811
|
Finance
|
Property and Equipment,
net
|
10,805,089
|
11,975,998
|
Total right-of-use
assets
|
|
$70,650,372
|
$63,246,809
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Operating
|
Current portion of operating lease
liabilities
|
$14,693,192
|
$13,981,772
|
Finance
|
Current portion of finance lease
liabilities
|
3,163,199
|
3,109,558
|
|
|
|
|
Non-Current
|
|
|
|
Operating
|
Long-term portion of operating lease
liabilities
|
47,244,420
|
39,728,645
|
Financing
|
Long-term portion of finance lease
liabilities
|
13,464,666
|
14,084,331
|
Total lease
liabilities
|
|
$78,565,477
|
$70,904,306
|
The
following consist of lease related assets and liabilities as of
December 31:
17
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Lease Term and Discount Rate
The
following consists of the lease terms and discount rates as of
December 31:
|
2019
|
2018
|
Weighted Average Lease Term -
Operating Leases
|
5.9
years
|
6.2
years
|
Weighted Average Lease Term -
Finance Leases
|
9.6
years
|
10.6
years
|
Weighted Average Discount Rate -
Operating Leases
|
3.0%
|
3.0%
|
Weighted Average Discount Rate -
Finance Leases
|
18.1%
|
18.0%
|
Lease Costs
The
following table provides certain information related to the lease
costs for finance and operating leases for the years ended December
31:
Lease Cost
|
Classification
|
2019
|
2018
|
Operating lease
costs
|
Selling, general and administrative
expenses
|
$14,995,468
|
$14,214,823
|
|
|
|
|
Finance lease
costs:
|
|
|
|
Amortization of ROU
assets
|
Depreciation and
Amortization
|
1,170,909
|
1,170,909
|
Interest on lease
liabilities
|
Floor plan interest and other
interest expense
|
2,810,138
|
2,884,300
|
|
|
|
|
*Variable lease
costs
|
Selling, general and administrative
expenses
|
1,067,513
|
992,325
|
|
$20,044,028
|
$19,262,357
|
*Variable Lease
Cost includes the following:
- Short
term lease costs, which are immaterial.
- Sales
tax, CAM charges, and CPI adjustments.
Supplemental Cash Flow Information
The
following table presents supplemental cash flow information for
leases for the year ended December 31:
|
2019
|
2018
|
Cash paid for amounts included in
the measurements of lease liabilities:
|
|
|
Operating cash flows from operating
leases
|
$15,342,746
|
$14,263,316
|
Operating cash flows from finance
leases
|
$2,810,138
|
$2,884,300
|
Financing cash flows from finance
leases
|
$566,024
|
$442,000
|
Right-of-use assets obtained in
exchange for new:
|
|
|
Operating lease
liabilities
|
$22,482,942
|
$8,693,628
|
Finance lease
liabilities
|
$-
|
$
|
Non-cash reduction in right-of-use
assets and lease liabilities from modification to operating
leases:
|
$-
|
$1,389,244
|
RideNow
leases facilities under operating leases expiring through January
2029. The leases require varying monthly payments ranging from
$3,900 to $79,000.
18
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Future
minimum payments under these commitments as of December 31, 2019
are as follows:
|
Operating
Leases
|
Finance
Leases
|
Year Ending December
31,
|
|
|
2020
|
$14,895,237
|
$3,433,494
|
2021
|
12,318,028
|
3,478,480
|
2022
|
10,393,952
|
3,515,681
|
2023
|
8,995,510
|
3,568,272
|
2024
|
7,520,534
|
3,615,480
|
Thereafter
|
13,737,397
|
16,598,014
|
Total lease
payments
|
67,860,658
|
34,209,421
|
Less: Interest
|
(5,923,046)
|
(17,581,556)
|
Present value of lease
liabilities
|
$61,937,612
|
$16,627,865
|
|
|
|
Current portion of lease
liabilities
|
$15,033,457
|
$3,163,199
|
Long-term portion of lease
liabilities
|
46,904,155
|
13,464,666
|
|
$61,937,612
|
$16,627,865
|
Lease expense charged to
operations was approximately $14,995,468 and $14,214,823 for the
years ended December 31, 2019 and 2018,
respectively.
Future
minimum lease payments under these commitments, as presented above,
scheduled in connection with a related party are as
follows:
Maturity of Related Party Lease
Liabilities
|
2019
|
2020
|
$11,867,990
|
2021
|
10,287,195
|
2022
|
9,091,299
|
2023
|
8,368,594
|
2024
|
7,807,116
|
Thereafter
|
24,568,658
|
Total lease
payments
|
71,990,852
|
Less: Interest
|
(20,026,506)
|
Present value of lease
liabilities
|
$51,964,346
|
Maturity of Related Party Lease
Liabilities
|
2018
|
2019
|
$11,073,441
|
2020
|
8,971,832
|
2021
|
7,348,560
|
2022
|
6,004,200
|
2023
|
5,150,024
|
Thereafter
|
27,109,038
|
Total lease
payments
|
65,657,095
|
Less: Interest
|
(21,772,318)
|
Present value of lease
liabilities
|
$43,884,777
|
Lease
expense charged to operations in connection with a related party
was approximately $8,715,266 and $8,598,685 for the years ended
December 31, 2019 and 2018, respectively.
19
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
11
RELATED
PARTY TRANSACTIONS
Cash Sweep Account Payables/Receivables
RideNow
is a participant in a Cash Sweep Account arrangement with a bank
and its affiliates. The Cash Sweep Account combines the cash
balances of all the participating affiliates and invests excess
cash on a daily basis. Interest is paid to each participant based
on the average cash balance in the Cash Sweep account over the
course of the year. Any participant that develops an overdraft cash
balance is charged interest. For the years ended December 31, 2019
and 2018, the Cash Sweep Account was earning interest at 3.11% and
2.89%, respectively, and for overdraft balances, the interest
charged was 3.50% and 3.75%, respectively.
Cash Sweep
Accounts:
|
2019
|
2018
|
Related party
receivable
|
$28,555,340
|
$21,297,800
|
Related party
payable
|
(14,087,220)
|
(18,728,170)
|
Net Cash Sweep Account
Balance
|
$14,468,120
|
$2,569,630
|
Shared Services
RideNow
receives administrative support from RideNow Management, LLLP and
Coulter Management Group, LLLP, which are related parties due to
common ownership. Total administrative services received from these
entities and charged to operations were $450,454 and $221,648, for
the years ending December 31, 2019 and 2018,
respectively.
NOTE
12
SUPPLEMENTAL
CASH FLOW INFORMATION
The
following table includes supplemental cash flow information,
including noncash investing and financing activity for the years
ended December 31,
|
2019
|
2018
|
Cash paid for
interest
|
$10,102,590
|
$8,456,398
|
Non-cash
activities:
|
|
|
Non-cash issuance of noncontrolling
interest
|
$125,000
|
$1,304,859
|
Non-cash purchase of noncontrolling
interest and release of related party note
receivable
|
$634,552
|
-
|
Non-cash equity
contributions
|
$613,964
|
-
|
NOTE
13
RETIREMENT
PLAN
RideNow
maintains a 401(k) plan (the Plan) covering substantially all
employees who are over the age of 21 and meet specified service
requirements. Participants may voluntarily contribute to the Plan,
not to exceed the maximum limits imposed by the Internal Revenue
Service regulations. Contributions to the Plan are made by the
participants to their individual accounts through payroll
withholding. Additionally, RideNow provides a matching contribution
of 25% up to the first 6% of participants’ annual earnings
with a maximum of $2,000 annually. RideNow’s contribution to
the Plan was approximately $613,270 and $1,093,730 for the years
ended December 31, 2019 and 2018, respectively.
NOTE
14
CONTINGENCIES
From
time to time, RideNow is contingently liable in respect to lawsuits
and claims incidental to the ordinary course of its operations.
Management has determined that the outcome of any such matters will
not have a material effect on the Combined Financial Statements. No
provision has been made in the accompanying Combined Financial
Statements for losses, if any, that might result from the ultimate
outcome of such matters.
20
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
15
BUSINESS
AND CREDIT CONCENTRATIONS
Financial
instruments that potentially subject us to concentrations of credit
risk consist principally of cash on deposit with financial
institutions. At times, amounts invested with financial
institutions exceed Federal Deposit Insurance Corporation insurance
limits. Concentrations of credit risk with respect to receivables
are limited primarily to receivables from automobile manufacturers
or distributors which RideNow holds franchises, totaling
approximately $6,828,000 and $6,106,000 at December 31, 2019 and
2018, respectively.
RideNow
is subject to a concentration of risk in the event of financial
distress or other adverse events related to any of the
manufacturers whose franchised dealerships are included in
RideNow’s brand portfolio. RideNow purchases new vehicle
inventory from various powersports manufacturers at the prevailing
prices available to all franchised dealerships. In addition,
RideNow finances a substantial portion of its new vehicle inventory
with manufacturer-affiliated finance companies. RideNow’s
results of operations could be adversely affected by the
manufacturers’ inability to supply RideNow dealerships with
an adequate supply of new vehicle inventory and related floor plan
financing. RideNow also has concentrations of risk related to the
geographic markets in which RideNow dealerships operate. Changes in
overall economic, retail powersports or regulatory environments in
one or more of these markets could adversely impact the results of
RideNow’s operations.
Concentrations of
credit risk with respect to non-manufacturer trade receivables are
limited due to the wide variety of customers and markets in which
RideNow’s products are sold as well as their dispersion
across many different geographic areas in the United States.
Consequently, at December 31, 2019, RideNow does not consider
itself to have any significant non-manufacturer concentrations of
credit risk.
NOTE
16
FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The
fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation. Fair
value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of judgment, and therefore cannot be determined with
precision.
Accounting
standards define fair value as the price that would be received
from selling an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants at the
measurement date. Accounting standards establish a fair value
hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value and also establishes the following three
levels of inputs that may be used to measure fair
value:
Level 1
|
Quoted
prices in active markets for identical assets or
liabilities
|
|
|
Level 2
|
Observable inputs
other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted market prices in markets that are not
active; or model-derived valuations or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities
|
|
|
Level 3
|
Unobservable inputs
that are supported by little or no market activity and that are
significant to the fair value of the assets or
liabilities
|
21
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
The
following methods and assumptions were used by us in estimating
fair value disclosures for financial instruments:
●
Cash and cash equivalents, receivables, other current assets,
vehicle floorplan payable, accounts payable, other current
liabilities, and variable rate debt: The amounts reported in
the accompanying Combined Balance Sheets approximate fair value due
to their short-term nature or the existence of variable interest
rates that approximate prevailing market rates.
●
Fixed rate long-term debt:
RideNow’s fixed rate long-term debt consists primarily of
amounts outstanding under its senior unsecured notes. The amounts
reported in the accompanying Combined Balance Sheets approximate
fair value due to its senior unsecured notes using quoted prices
for the identical liability (Level 1.)
Nonfinancial assets
such as goodwill, other intangible assets, and long-lived assets
held and used are measured at fair value when there is an indicator
of impairment and recorded at fair value only when impairment is
recognized or for a business combination. The fair values less
costs to sell of long-lived assets or disposal groups held for sale
are assessed each reporting period they remain classified as held
for sale. Subsequent changes in the held for sale long-lived
asset’s or disposal group’s fair value less cost to
sell (increase or decrease) are reported as an adjustment to its
carrying amount, except that the adjusted carrying amount cannot
exceed the carrying amount of the long-lived asset or disposal
group at the time it was initially classified as held for
sale.
NOTE
17
SEGMENT
INFORMATION
As of
December 31, 2019 and 2018, RideNow had two operating segments: (1)
Harley-Davidson motor sports dealerships and (2) Metric motor
sports dealerships (representing all Non-Harley-Davidson motor
sports dealerships). RideNow’s Harley-Davidson dealership
segment is comprised of retail franchises that sell new and used
motorcycles and related accessories, riding gear and apparel,
replacement parts, equipment repair and maintenance services, and
also arrange for the delivery of finance and insurance products
through third party providers. RideNow’s Metric dealerships
segment is comprised of retail franchises that sell new and used
motorcycles (non-Harley-Davidson) and other motor sports equipment,
including all-terrain vehicles, utility terrain vehicles, boats,
personal watercraft, snowmobiles and scooters from manufacturers
such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW,
Ducati and Triumph. Additionally, dealerships in RideNow’s
Metric segment sell related products and services, including repair
and maintenance services and also arrange for the delivery of
finance and insurance products through third party
providers.
RideNow
has determined that the operating segments also represent the
reportable segments. The reportable segments identified above are
the business activities of RideNow for which discrete financial
information is available and for which operating results are
regularly reviewed by the chief operating decision maker to assess
operating performance and allocate resources. RideNow’s chief
operating decision maker is comprised of its two owners, who are
also RideNow’s (1) Chairman of the Board and (2) Chief
Executive Officer.
The
following tables provide reportable segment revenues, gross profit,
floorplan interest expense, segment income and
inventories:
|
2019
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Total
Segments
|
Revenue
|
$220,621,113
|
$515,619,607
|
$736,240,720
|
|
|
|
|
Gross Profit
|
$60,788,862
|
$120,760,582
|
$181,549,444
|
Gross profit %
|
27.6%
|
23.4%
|
24.7%
|
|
|
|
|
Floor Plan interest
expense
|
$1,017,392
|
$4,511,024
|
$5,528,416
|
Segment income%
|
0.5%
|
0.9%
|
0.8%
|
|
|
|
|
Segment income
(1)
|
$11,623,250
|
$23,223,398
|
$34,846,648
|
Segment income
%
|
5.3%
|
4.5%
|
4.7%
|
|
|
|
|
Inventories
|
$53,477,090
|
$163,513,505
|
$216,990,595
|
22
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
|
2018
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Total
Segments
|
Revenue
|
$223,649,734
|
$475,704,971
|
$699,354,705
|
|
|
|
|
Gross Profit
|
$61,595,526
|
$110,978,334
|
$172,573,860
|
Gross profit %
|
27.5%
|
23.3%
|
24.7%
|
|
|
|
|
Floor Plan interest
expense
|
$1,068,945
|
$3,078,189
|
$4,147,134
|
Segment income%
|
0.5%
|
0.6%
|
0.6%
|
|
|
|
|
Segment income
(1)
|
$14,110,515
|
$21,557,144
|
$35,667,659
|
Segment income
%
|
6.3%
|
4.5%
|
5.1%
|
|
|
|
|
Inventories
|
$40,449,979
|
$156,722,900
|
$197,172,879
|
(1)
Segment
income represents income for each reportable segment and is defined
as income from operations less floorplan interest expense, which is
the measure by which management allocates resources to its
segments.
The
following is a reconciliation of the total of the reportable
segments’ segment income to the combined net
income:
|
2019
|
2018
|
Reportable segment
income
|
$34,846,648
|
$35,667,659
|
Corporate operating
income/expense
|
219,553
|
(38,962)
|
Other interest
expense
|
(4,551,687)
|
(4,416,800)
|
Interest income
|
986,756
|
721,953
|
Management fee
expense
|
|
(672,256)
|
Miscellaneous
income
|
1,215,627
|
440,687
|
Combined net
income
|
$32,716,897
|
$31,702,281
|
The
following tables provide revenues by products and
services:
|
2019
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Combined
|
New vehicles
|
$79,738,881
|
$317,978,998
|
$397,717,879
|
Used vehicles
|
68,871,728
|
63,933,304
|
132,805,032
|
Service, parts and
other
|
57,515,708
|
94,333,391
|
151,849,099
|
Finance and insurance
income
|
14,494,796
|
39,373,914
|
53,868,710
|
|
$220,621,113
|
$515,619,607
|
$736,240,720
|
|
|
|
|
|
2018
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Combined
|
New vehicles
|
$91,490,058
|
$297,856,702
|
$389,346,760
|
Used vehicles
|
60,363,476
|
53,252,779
|
113,616,255
|
Service, parts and
other
|
57,234,843
|
88,976,588
|
146,211,431
|
Finance and insurance
income
|
14,561,357
|
35,618,902
|
50,180,259
|
|
$223,649,734
|
$475,704,971
|
$699,354,705
|
23
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
18
SUBSEQUENT
EVENTS
Business Combinations
On May
4, 2020, RideNow closed on a business acquisition with Daytona Fun
Machines, Inc., a Florida dealership, for a cash payment of
$1,306,617 pursuant to an asset purchase agreement subject to
adjustments for working capital and escrow provisions. Daytona Fun
Machines, Inc. sells and services motorcycles, powersports and
marine products manufactured by American Honda Motor Company,
Yamaha Motor Corporation, Kawasaki Motors Corp. and Bombardier
Recreational Products Inc. The acquisition qualified as a business
combination and was accounted for using the acquisition method of
accounting. As of the settlement date, RideNow recognized assets of
$2,923,017, liabilities assumed of $1,854,535 and goodwill of
$238,135. As of November 30, 2020, the acquired business had
recognized gross revenues of $7,625,884, costs and operating
expenses of $6,920,052 and net income of $705,832.
On May
5, 2020, RideNow closed on a business acquisition with Volusia
Motorsports, Inc., a Florida dealership, for a cash payment of $
448,225 pursuant to an asset purchase agreement subject to
adjustments for working capital and escrow provisions. Volusia
Motorsports, Inc. sells and services Polaris, Slingshot, KTM and
Star EV motorcycles/scooters, all-terrain vehicles, utility
vehicles and golf carts manufactured and distributed by Polaris
Industries Inc., KTM North American, Inc and JH Global Services,
Inc. The acquisition qualified as a business combination and will
be accounted for using the acquisition method of accounting. As of
the settlement date, RideNow recognized assets of $1,278,502,
liabilities assumed of $944,557 and goodwill of $114,280. As of
November 30, 2020, the acquired business had recognized gross
revenues of $1,976,911, costs and operating expenses of $1,998,037
and a net loss of $21,126. In September 2020, the Company was
merged into Daytona Fun machines, Inc.
Coronavirus Pandemic (COVID-19)
Subsequent to
year-end, the World Health Organization declared the spread of
Coronavirus Disease (COVID-19) a worldwide pandemic. The COVID-19
pandemic is having significant effects on global markets, supply
chains, businesses, and communities. Specific to RideNow, COVID-19
may impact various parts of its 2020 operations and financial
results. Management believes RideNow is taking appropriate actions
to mitigate the negative impact. However, the full impact of
COVID-19 is unknown and cannot be reasonably estimated at December
31, 2019.
Paycheck Protection Program
In
March 2020, tax legislation was passed in the United States of
America, which created the Paycheck Protection Program (PPP). As
part of the PPP, RideNow received combined loans of approximately
$18,731,000, which can be used to cover certain allowable expenses
of RideNow. The PPP contains provisions that allow for the full or
partial forgiveness of the loans if certain requirements are met.
Loan amounts that are not forgiven accrue interest at 1% per annum
and are generally due within two years.
24
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
On
March 12, 2021, the RumbleOn, Inc. (the “Company) entered
into a Plan of Merger and Equity Purchase Agreement (the
“RideNow Agreement”) to acquire RideNow Group and
Affiliates, a non-legal entity, (“RideNow” or
“The Group”). RideNow is a collection of franchised
dealerships operating in the powersports industry. Collectively,
the Group is referred to as the Acquired Companies in the
Agreement. The Group is engaged in the sale of new and used
motorcycles, all- terrain vehicles, personal watercraft, other
powersports vehicles, and related products and services, including
repair and maintenance services, parts and accessories, riding
gear, and apparel. As of December 31, 2020, RideNow owned and
operated more than 45 retail dealerships in the United States,
predominately in the Sunbelt region. The core brands sold by
RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki,
Bombardier, Polaris, BMW, Ducati and Triumph, which are sold
through franchise dealer agreements.
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.
The
following unaudited pro forma condensed combined financial
statements are based on the Company’s audited historical
consolidated financial statements and RideNow’s audited
historical combined financial statements as adjusted to give effect
to the Company’s acquisition of RideNow and the related
financing transactions. The unaudited Pro Forma Condensed Combined
Balance Sheet as of December 31, 2020 gives effect to these
transactions as if they occurred on December 31, 2020. The
unaudited pro forma condensed combined statements of operations for
the twelve months ended December 31, 2020 give effect to these
transactions as if they occurred on January 1, 2020.
The
unaudited pro forma condensed combined financial statements should
be read together with the Company’s audited historical
financial statements, which are included in the Company’s
most recent Annual Report on Form 10-K, which was filed with the
Securities and Exchange Commission on March 31, 2021, and
RideNow’s audited historical financial statements included in
this Form 8-K.
The
unaudited pro forma combined financial information is provided for
informational purpose only and is not intended to represent or be
indicative of the consolidated results of operations or financial
position that the Company would have reported had the RideNow
transaction closed on the dates indicated and should not be taken
as representative of our future consolidated results of operations
or financial position.
The
pro forma adjustments related to the RideNow Agreement are
described in the notes to the unaudited pro forma combined
financial information and principally include the
following:
■
Pro
forma adjustment to eliminate the RideNow assets, liabilities and
owners’ equity not acquired.
■
Pro
forma adjustment to record the equity and debt financing obtained
in connection with the RideNow merger.
■
Proforma
adjustment to record the merger of the Company and
RideNow.
■
Proforma
adjustments to record the record the estimated interest expense and
other expenses resulting from the merger.
■
Record
the estimated tax provision on the consolidated income before tax,
as adjusted for the above pro forma adjustments.
The
adjustments to fair value and the other estimates reflected in the
accompanying unaudited pro forma condensed consolidated financial
statements may be materially different from those reflected in the
combined company’s consolidated financial statements
subsequent to the merger. In addition, the unaudited pro forma
condensed combined financial statements do not purport to project
the future financial position or results of operations of the
combined companies. Reclassifications and adjustments may be
required if changes to RideNow’s financial presentation are
needed to conform RideNow’s accounting policies to the
accounting policies of RumbleOn.
These
unaudited pro forma condensed combined financial statements do not
give effect to any anticipated synergies, operating efficiencies or
cost savings that may be associated with the RideNow Agreement.
These financial statements also do not include any integration
costs the companies may incur related to the Transactions as part
of combining the operations of the companies.
PF-1
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Balance Sheet
as of December 31, 2020
(Unaudited)
|
RumbleOn
|
RideNow
|
Pro Forma
Adjustments
|
Notes
|
Pro Forma
Combined
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$1,466,831
|
$3,905,686
|
$70,392,514
|
A
|
$75,765,031
|
Restricted
cash
|
2,049,056
|
-
|
|
|
2,049,056
|
Accounts
receivable, net
|
9,407,960
|
105,295,826
|
(84,478,128)
|
B
|
30,225,658
|
Inventory
|
21,360,441
|
109,749,521
|
|
|
131,109,962
|
Other current
assets
|
3,446,225
|
1,625,109
|
|
|
5,071,334
|
Total current
assets
|
37,730,513
|
220,576,142
|
(14,085,614)
|
|
244,221,041
|
|
|
|
|
|
|
Property and
equipment - net
|
6,521,446
|
23,705,230
|
|
|
30,226,676
|
Right of use
assets
|
5,689,637
|
71,280,471
|
|
|
76,970,108
|
Other indefinite
lived intangible assets
|
-
|
-
|
194,483,527
|
C
|
194,483,527
|
Goodwill
|
26,886,563
|
55,294,222
|
347,985,099
|
C
|
430,165,884
|
Other
assets
|
151,076
|
1,553,183
|
(1,264,424)
|
D
|
439,835
|
Total
assets
|
$76,979,235
|
$372,409,248
|
$527,118,588
|
|
$976,507,071
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
$12,563,300
|
$64,421,687
|
$(23,352,582)
|
E
|
$53,632,405
|
Lease
liabilities-current portion
|
1,630,002
|
19,815,301
|
|
|
21,445,303
|
Notes payable-floor
plan
|
17,811,626
|
68,533,679
|
|
|
86,345,305
|
Current portion of
long-term debt
|
3,439,527
|
8,597,444
|
|
|
12,036,971
|
Total current
liabilities
|
35,444,455
|
161,368,111
|
(23,352,582)
|
|
173,459,984
|
|
|
|
|
|
|
Long term
liabilities:
|
|
|
|
|
|
Long-term
debt
|
4,691,181
|
24,816,133
|
235,926,821
|
F
|
265,434,135
|
Convertible debt,
net
|
27,166,019
|
-
|
|
|
27,166,019
|
Derivative
liabilities
|
16,694
|
-
|
|
|
16,694
|
Lease
liabilities-long-term portion
|
4,370,154
|
72,024,876
|
|
|
76,395,030
|
Other long-term
liabilities
|
720,067
|
4,779,112
|
|
|
5,499,179
|
Total long-term
liabilities
|
36,964,115
|
101,620,121
|
235,926,821
|
|
374,511,057
|
|
|
|
|
|
|
Total
liabilities
|
72,408,570
|
262,988,232
|
212,574,239
|
|
547,971,041
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
Class B Preferred
stock
|
-
|
-
|
|
|
-
|
Class A
stock
|
50
|
-
|
|
|
50
|
Class B
Stock
|
2,192
|
-
|
10,717
|
G
|
12,909
|
Owners’
equity
|
-
|
109,421,016
|
(109,421,016)
|
H
|
-
|
Additional paid in
capital
|
108,949,204
|
-
|
423,954,648
|
G
|
532,903,852
|
Accumulated
deficit
|
(104,380,781)
|
-
|
|
|
(104,380,781)
|
Total stockholders'
equity
|
4,570,665
|
109,421,016
|
314,544,349
|
|
428,536,030
|
Total liabilities
and stockholders' equity
|
$76,979,235
|
$372,409,248
|
$527,118,588
|
|
$976,507,071
|
See
Accompanying Notes to Pro Forma Financial Statements.
PF-2
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
(Unaudited)
|
RumbleOn
|
RideNow
|
Pro Forma
Adjustments
|
Notes
|
Pro Forma
Combined
|
Revenue:
|
|
|
|
|
|
Vehicle
sales
|
|
|
|
|
|
Powersports
|
$46,653,668
|
$662,149,234
|
|
|
$708,802,902
|
Automotive
|
337,084,959
|
-
|
|
|
337,084,959
|
Transportation and
vehicle logistics
|
31,816,157
|
-
|
|
|
31,816,157
|
Parts and other
revenue
|
872,459
|
236,741,164
|
|
|
237,613,623
|
Total
Revenue
|
416,427,243
|
898,890,398
|
|
|
1,315,317,641
|
|
|
|
|
|
|
Cost of
revenue
|
|
|
|
|
|
Powersports
|
40,060,571
|
551,652,098
|
|
|
591,712,669
|
Automotive
|
308,800,631
|
-
|
|
|
308,800,631
|
Transportation and
vehicle logistics
|
24,200,229
|
-
|
|
|
24,200,229
|
Other cost of sales
and revenue
|
-
|
91,017,529
|
|
|
91,017,529
|
Cost of revenue
before impairment loss
|
373,061,431
|
642,669,627
|
|
|
1,015,731,058
|
Impairment loss on
automotive inventory
|
11,738,413
|
-
|
|
|
11,738,413
|
Total cost of
revenue
|
384,799,844
|
642,669,627
|
|
|
1,027,469,471
|
|
|
|
|
|
|
Gross
profit
|
31,627,399
|
256,220,771
|
|
|
287,848,170
|
|
|
|
|
|
|
Selling, general
and administrative
|
53,659,348
|
154,520,040
|
2,393,673
|
I
|
210,573,061
|
Insurance recovery
proceeds
|
(5,615,268)
|
-
|
|
|
(5,615,268)
|
Depreciation and
amortization
|
2,142,939
|
4,087,914
|
|
|
6,230,853
|
|
|
|
|
|
|
Operating income
(loss)
|
(18,559,620)
|
97,612,817
|
(2,393,673)
|
|
76,659,524
|
|
|
|
|
|
|
Interest
expense
|
(6,638,325)
|
(6,956,809)
|
(31,402,906)
|
J
|
(44,998,040)
|
Other
income
|
198,970
|
1,967,068
|
|
|
2,166,038
|
|
|
|
|
|
|
Net income (loss)
before provision for income taxes
|
$(24,998,975)
|
$92,623,076
|
(33,796,579)
|
|
33,827,522
|
|
|
|
|
|
|
Income tax
expense
|
-
|
-
|
(8,456,880)
|
K
|
(8,456,880)
|
|
|
|
|
|
|
Net income
(loss)
|
$(24,998,975)
|
$92,623,076
|
$(42,253,459)
|
|
$25,370,642
|
|
|
|
|
|
|
Weighted average
number of common shares outstanding – basic
|
2,184,441
|
|
|
|
10,851,570
|
|
|
|
|
|
|
Net income (loss)
per share – basic
|
$(11.44)
|
|
|
|
$2.34
|
|
|
|
|
|
|
Weighted average
number of common shares outstanding – basic and fully
diluted
|
2,184,441
|
|
|
|
10,991,564
|
|
|
|
|
|
|
Net income (loss)
per share – fully diluted
|
$(11.44)
|
|
|
|
$2.31
|
See
Accompanying Notes to Pro Forma Financial Statements.
PF-3
RumbleOn Inc. and Subsidiaries
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
Note 1
– Basis of Presentation
The audited historical consolidated financial
statements have been adjusted in the pro forma condensed combined
financial statements to give effect to pro forma events that
are (1) directly attributable to the business combination, (2)
factually supportable and (3) with respect to the pro forma
condensed combined statements of operations, expected to have a
continuing impact on the combined results following the business
combination.
The
business combination was accounted for under the acquisition method
of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer
for accounting purposes, the Company has estimated the fair value
of RideNow’s assets acquired and liabilities assumed and
conformed the accounting policies of RideNow to its own accounting
policies.
The
unaudited pro forma condensed combined financial statements are
based on our audited historical consolidated financial statements
and RideNow’s audited historical combined financial
statements as adjusted to give effect to the Company’s
acquisition of RideNow and the related financing transactions. The
Unaudited Pro Forma Condensed Combined Balance Sheet as of December
31, 2020 gives effect to these transactions as if they occurred on
December 31, 2020. The Unaudited Pro Forma Condensed Combined
Statements of Operations for the twelve months ended December 31,
2020 give effect to these transactions as if they occurred on
January 1, 2020.
The
allocation of the purchase price used in the unaudited pro forma
financial statements is based upon a preliminary valuation by
management. The final estimate of the fair values of the assets and
liabilities will be determined with the assistance of a third-party
valuation firm. The Company’s preliminary estimates and
assumptions are subject to materially change upon the finalization
of internal studies and third-party valuations of assets, including
investments, property and equipment, intangible assets including
goodwill, and certain liabilities.
The
Unaudited Pro Forma Condensed Combined Financial Statements are
provided for informational purpose only and is not necessarily
indicative of what the combined company’s financial position
and results of operations would have actually been had the
Transactions been completed on the dates used to prepare these pro
forma financial statements. The adjustments to fair value and the
other estimates reflected in the accompanying unaudited pro forma
condensed combined financial statements may be materially different
from those reflected in the combined company’s consolidated
financial statements subsequent to the Transactions. In addition,
the Unaudited Pro Forma Condensed Combined Financial Statements do
not purport to project the future financial position or results of
operations of the combined companies. Reclassifications and
adjustments may be required if changes to RumbleOn’s
financial presentation are needed to conform RumbleOn’s
accounting policies to the accounting policies of the
RideNow.
These
unaudited pro forma condensed combined financial statements do not
give effect to any anticipated synergies, operating efficiencies or
cost savings that may be associated with the Transactions. These
financial statements also do not include any integration costs the
companies may incur related to the Transactions as part of
combining the operations of the companies.
Note 2 – Summary of Significant Accounting
Policies
The unaudited pro forma condensed combined
financial statements have been prepared in a manner consistent with
the accounting policies adopted by the Company. The accounting
policies followed for financial reporting on a pro forma basis are
the same as those disclosed in the 2020 Annual Report on Form 10-K
and for RideNow, the accounting policies followed for financial
reporting on a pro forma basis are the same as those disclosed in
the audited financial statements included in this Form 8-K . The
unaudited pro forma condensed combined financial statements do not
assume any differences in accounting policies among the Company and
RideNow. The Company is reviewing the accounting policies of
RideNow to ensure conformity of such accounting policies to those
of the Company and, as a result of that review, the Company may
identify differences among the accounting policies of the
two companies, that when confirmed, could have a material impact on
the consolidated financial statements. However, at this time, the
Company is not aware of any difference that would have a material
impact on the unaudited pro forma condensed combined financial
statements.
PF-4
RumbleOn
and RideNow have recorded leases in accordance with ASC 842. In the
pro forma combined balance sheet theses lease are reported as a
single amount for short-term and long-term lease liabilities. The
following table provides the segregation of these leases between
operating leases and financing leases for the audited historical
financial statements for RumbleOn and RideNow.
|
RumbleOn
|
RideNow
|
Lease liabilities
– current portion
|
|
|
Operating
leases
|
$1,630,002
|
$15,755,805
|
Financing
leases
|
-
|
4,059,496
|
Total lease
liabilities – current portion
|
$1,630,002
|
$19,815,301
|
|
|
|
Lease liabilities
– long-term portion
|
|
|
Operating
leases
|
$4,370,154
|
$57,473,929
|
Financing
leases
|
-
|
14,550,947
|
Total lease
liabilities – long-term portion
|
$4,370,154
|
$72,024,876
|
RideNow
has notes receivable due from a related party, which is included in
other assets in the pro forma combined balance sheet. In addition,
RideNow has certain payables due from related parties and are
included in the current and long-term portions of long-term debt in
the pro forma combined balance sheet. The following table is
provided to segregate these amounts before being combined in the
balance sheet.
|
RumbleOn
|
RideNow
|
Other
assets
|
|
|
Notes receivable
– related party
|
$-
|
$1,264,425
|
Other non-current
assets
|
151,076
|
288,758
|
Total other
assets
|
$151,076
|
$1,553,183
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
|
Notes
payable-related parties
|
$ -
|
$504,000
|
Notes payable
– other
|
3,439,527
|
8,093,444
|
Total current
portion of long-term debt
|
$3,439,527
|
$8,597,444
|
|
|
|
Long-term
debt
|
|
|
Notes payable
– related parties
|
$ -
|
$6,907,322
|
Notes payable
– PPP Loans
|
-
|
16,923,759
|
Notes payable
– other
|
4,691,181
|
985,052
|
|
$4,691,181
|
$24,816,133
|
PF-5
RideNow
Sweep Account
RideNow
is a participant in a Cash Sweep Account arrangement with a bank
and its affiliates. The Cash Sweep Account combines the cash
balances of all the participating affiliates and invests excess
cash on a daily basis. Interest is paid to each participant based
on the average cash balance in the Cash Sweep account over the
course of the year. Any participant that develops an overdraft cash
balance is charged interest. For the years ended December 31, 2020
and 2019, the Cash Sweep Account was earning interest at 1.10% and
3.11%, respectively, and for overdraft balances, the interest
charged was 3.25% and 3.50%, respectively. In the audited financial
statements for the year ended December 31, 2020, members of the
Group with positive sweep balances reported those balances as
related party receivables, whereas members of the Group with
negative sweep balances reported those balances as related party
payables. The following table provides a summary of these balances
as of December 31, 2020:
Cash Sweep
Accounts:
|
2020
|
Related party
receivable
|
$84,478,128
|
Related party
payable
|
(27,956,598)
|
Net Cash Sweep
Account Balance
|
$56,521,530
|
|
|
For
purposes of the Unaudited Condensed Combined Balance Sheet as of
December 31,2020, the proforma adjustment below to record the
preliminary allocation of the purchase price includes a
reclassification of these related party balances to cash as a
management contemplates that balances in the sweep account on the
date of closing will be transferred to a Company
account.
Note 3 –
Financing Transactions
Senior Secured Term Loan
The
Company is financing $280,000,000 of the cash consideration
pursuant to the RideNow Agreement by the issuance of a new Senior
Secured Term Loan. At the option of the Company, the interest rate
on the new loan will be (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). For
purposes of these pro forma condensed combined financial
statements, we have used an interest rate of 8.45%.
RMBL Equity Raise
To
finance the balance of the cash consideration, the Company intends
to raise $170,000,000 in new equity, not inclusive of any
overallotment option that may be granted. To estimate the fair
value of this equity, a per share price of $43.00 was used which
results in the issuance of 3,953,488 shares. This price represents
the per has price of the Company’s stock as of the close of
business on April 2, 2020.
Transaction Costs
For
purposes of these pro forma financial statements, the Company has
estimated that the total transaction costs for these financing
transactions will be $19,225,000 for the debt financing and
$11,900,000 for the equity raise. In addition, as discussed below,
the Company has issued a warrant to Oaktree for which we have
estimated a preliminary value of $15,032,046. Legal and other
professional fees and expenses are estimated to be approximately
$4,790,000, are non-recurring, and have not been recorded as a pro
forma adjustment to the Pro Forma Condensed Combined Statement of
Operations.
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 (“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 and expires
eighteen (18) months after the Closing or termination of the
Commitment Letter.
Using
the stock price of $43.00 as of April 2, 2021, the number of
warrants issued is 930,232. The preliminary fair value of the
warrant has been estimated to be $15,032,046 and it is reflected in
the accompanying pro form combined financial statements as debt
discount. The preliminary estimated fair value was determined using
the Black-Scholes method.
PF-6
Note 4 - Purchase Price Allocation
On
March 12, 2021, the Company entered into a Plan of Merger and
Equity Purchase Agreement (the “RideNow Agreement”) to
acquire RideNow Group and Affiliates, a non-legal entity,
(“RideNow” or “The Group”). RideNow is a
collection of franchised dealerships operating in the powersports
industry. Collectively, the Group are referred to as the Acquired
Companies in the Agreement. The Group is engaged in the sale of new
and used motorcycles, all- terrain vehicles, personal watercraft,
other powersports vehicles, and related products and services,
including repair and maintenance services, parts and accessories,
riding gear, and apparel. As of December 31, 2020, RideNow owned
and operated more than 45 retail dealerships in the United States,
predominately in the Sunbelt region. The core brands sold by
RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki,
Bombardier, Polaris, BMW, Ducati and Triumph, which are sold
through franchise dealer agreements.
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.
The
following table summarizes the preliminary allocation of the
purchase price based on the estimated fair value of the acquired
assets and assumed liabilities as of December 31,
2020:
Purchase price
consideration
|
|
Cash
|
$400,400,000
|
Class B
stock
|
250,833,319
|
Total purchase
price consideration
|
$651,233,319
|
|
|
PF-7
Estimated fair
value of assets:
|
|
Cash
|
$55,823,199
|
Contracts in
transit
|
10,736,791
|
Accounts
receivable
|
10,080,908
|
Inventory
|
109,749,521
|
Prepaid
expenses
|
1,625,109
|
Right-of-use
assets
|
71,280,471
|
Property &
equipment
|
23,705,230
|
Other
Assets
|
288,758
|
|
283,289,987
|
|
|
Estimated fair
value of liabilities assumed:
|
|
Accounts payable,
accrued expenses and other current liabilities
|
49,666,549
|
Notes payable -
floor plan
|
68,533,679
|
Lease
liabilities
|
91,840,177
|
Long-term
debt
|
15,000,000
|
Other long-term
liabilities
|
4,779,111
|
|
229,819,516
|
|
|
Net tangible
assets
|
53,470,471
|
Intangible
assets
|
194,483,527
|
Goodwill
|
403,279,321
|
|
|
Total
consideration
|
$651,233,319
|
This
preliminary purchase price allocation has been used to prepare pro
forma adjustments in the pro forma balance sheet and statement of
operations. The final purchase price allocation will be determined
when the Company has completed the detailed valuations and
necessary calculations. The final allocation could differ
materially from the preliminary allocation used in the pro forma
adjustments. The final allocation may include (1) changes in fair
values of property, plant and equipment, (2) changes in allocations
to intangible assets such as trade names, technology, franchise
rights and customer relationships as well as goodwill and (3) other
changes to assets and liabilities.
This
preliminary purchase price allocation has been used to prepare pro
forma adjustments in the pro forma balance sheet and statement of
operations. The final purchase price allocation will be determined
when the Company has completed the detailed valuations and
necessary calculations. For purposes of the pro forma condensed
combined financial statements, for inventory, property and
equipment, leases and other assets and liabilities the Company used
the carrying value as reported its audited historical financial
statement as reported in its Annual Report on Form 10K for the year
ended December 31, 2020, and as reported in the audited historical
financial statements for RideNow that have been included in this
8-K. The final allocation could differ materially from the
preliminary allocation used in the pro forma
adjustments.
In
accordance with the RideNow Agreement, as discussed above, the
purchase price includes a $400,400,000 in cash plus $175,000,000 in
stock. For purposes of these pro forma combined financial
statements, the number of shares to be issued was determined based
on a price of $30 per share as required under the RideNow Agreement
which results in the issuance of 5,833,333 shares of the
Company’s Class B stock. The fair value of the shares issued
was determined based on a per share price of $43.00, which is the
price of the RumbleOn stock as of the close of business on April 2,
2020. The following table reflects the impact of a 10% increase or
decrease in the per share price on the estimated fair value of the
purchase price and goodwill:
|
Purchase
Price
|
Estimate
Goodwill
|
As presented in the
pro forma combined results
|
$651,233,319
|
$403,279,321
|
10% increase in
common stock price
|
$676,316,651
|
$428,362,653
|
10% decrease in
common stock price
|
$626,149,987
|
$378,195,989
|
Note 5 - Pro Forma Adjustments
The pro
forma adjustments are based on our preliminary estimates and
assumptions that are subject to change. The following adjustments
have been reflected in the unaudited pro forma condensed combined
financial information:
A.
This adjustment records
the net increase in cash resulting from the merger as
follows:
Net proceeds from
issuance of debt
|
260,775,000
|
Net proceeds from
issuance of Class B stock
|
158,100,000
|
Total net proceeds
from financing transactions
|
418,875,000
|
Less cash
consideration paid to Sellers
|
(400,400,000)
|
Net cash received
from sweep account on the Closing Date
|
$56,521,530
|
Less 50% of Net
Working Capital Adjustment due Seller on Date of
Closing
|
(4,604,016)
|
Net increase in
cash
|
70,392,514
|
PF-8
B.
This
adjustment records the reclassification of the positive cash
balances from the sweep account.
C.
As part
of the preliminary valuation analysis, the Company identified
Franchise Rights as a separately identifiable intangible asset. The
fair value of this intangible asset $194,483,527 was determined
primarily using the “income approach,” which requires a
forecast of the expected future cash flows. Since all the
information required to perform a detail valuation analysis of
RideNow’s intangible assets could not be obtained as of the
date of this filing, for purposes of these unaudited pro forma
condensed combined financial statements, the Company used certain
assumptions based on publicly available transactions data for the
industry. Based on our research and discussions with RideNow
management we have concluded that the Franchise Rights intangible
asset has an indefinite life and therefore we have not made any
adjustment in the pro forma condensed combined statement of
operations for amortization.
In
addition, this adjustment reflects the recognition of goodwill of
$403,279,321, less the removal of $55,294,222 of goodwill reflected
on the audited historical balance sheet of RideNow as of December
31, 2020.
D.
This
adjustment reflects the elimination of notes receivable related
party that are expected to be paid off prior to
closing.
E.
This
adjustment includes the payable for 50% of the Net Working Capital
adjustment of $4,604,016, less the reclassification of the negative
cash balances of $27,956,598 from the sweep account.
F.
As
described in Note 3 above, this adjustment records the new debt,
less debt discount and less elimination as follows:
Balance of new
Senior Term Loan
|
$280,000,000
|
Less deferred
financing fees
|
(19,225,000)
|
Less debt
discount
|
(15,032,046)
|
Less removal of
debt not assumed due to the $15 million cap
|
(9,816,133)
|
Net
adjustment
|
$235,926,821
|
G.
This
adjustment records the net proceeds received from the equity raised
to finance payment of the cash consideration of $158,100,000 plus
this issuance of warrants with a fair value of $15,032,036 plus the
issuance of 5,833,333 shares of Class B stock to the sellers as the
equity portion of the purchase consideration, valued at
$250,833,319 based on a per share price of $43.00 which was the per
share price of the Company’s stock as of the close of
business on April 2, 2020.
H.
This
adjustment eliminates RideNow’s Owners’ Equity as
reported in the audited historical financial
statements.
I.
Pursuant
to the RideNow Agreement, the Company is adopting an Equity
Incentive Plan and as disclosed in a Schedule to the RideNow
Agreement rewarding 278,334 of restrictive stock units (RSUs) to
employees of RideNow. Based on the stock price of $43 per share,
these units have a fair value of $11,968,362. The pro forma
adjustment recognizes 20% ($2,393,673) of these awards being
recognized as share-based compensation in the Unaudited Condensed
Combined Statement of Operations for the year ended December 31,
2020. This estimate used the same vesting schedule used by the
Company as disclosed in its audited financial statements for the
year ended December 31, 2020 as reported on Form 10-K.
J.
This
pro forma adjustment records the estimated interest expense as
follows:
Contract interest
on the new Senior Term Loan
|
$24,592,544
|
Amortization of
debt discount (Note 1)
|
6,180,362
|
Amortization of
deferred financing costs (Note 1)
|
720,000
|
Less interest
expense reported by RideNow for debt that won’t be
assumed
|
(90,000)
|
Total interest
expense adjustment
|
$31,402,906
|
Note
(1) Amortization of debt discounts is assumed using an effective
interest method using an interest rate of 11.25%. Deferred finance
costs are amortized on a straight-line basis over the term of the
loan (five years).
K.
This
pro forma adjustment reflects the estimated tax provision that may
be required based on an estimated blended federal and state
statutory tax rate of 25%.
Income before
tax
|
$33,827,522
|
Effective tax
rate
|
25%
|
Provision for
taxes
|
$8,456,880
|
PF-9
Note 6 – Combined Adjusted EBITDA Before Pro Forma
Adjustments
Adjusted EBITDA is
a non-GAAP financial measure and should not be considered as an
alternative to operating income or net income as a measure of
operating performance or cash flows or as a measure of liquidity.
Non-GAAP financial measures are not necessarily calculated the same
way by different companies and should not be considered a
substitute for or superior to U.S. GAAP.
Combined Adjusted
EBITDA Before Pro Forma Adjustments is defined as net income
adjusted to add back interest expense including debt extinguishment
and depreciation and amortization, and certain charges and
expenses, such as goodwill impairment, impairment loss on
automotive inventory, impairment loss on plant & equipment,
insurance recovery proceeds, non-cash stock-based compensation,
change in derivative liability, litigation expenses, severance, new
business development and other non-recurring costs, as these
charges and expenses are not considered a part of our core business
operations and are not an indicator of ongoing, future company
performance.
Adjusted EBITDA is
one of the primary metrics used by management to evaluate the
financial performance of our business. We present Adjusted EBITDA
because we believe it is frequently used by analysts, investors and
other interested parties to evaluate companies in our industry.
Further, we believe it is helpful in highlighting trends in our
operating results, because it excludes, among other things, certain
results of decisions that are outside the control of management,
while other measures can differ significantly depending on
long-term strategic decisions regarding capital structure and
capital investments.
The
following tables reconcile Combined Adjusted EBITDA Before Pro
Forma Adjustments to net income based on the Company’s
audited Consolidated Statement of Operations for the year ended
December 31, 2020 and RideNow’s audited Combined Statements
of Operations for the year ended December 31, 2020, as reported in
this Form 8-K:
|
RumbleOn
|
RideNow
|
Combined (Before Pro Forma Adjustments)
|
Net
income
|
$(24,998,975)
|
$92,623,076
|
$67,624,101
|
|
|
|
|
Add
back:
|
|
|
|
Interest expense
(including debt extinguishment)
|
6,450,161
|
6,956,809
|
13,406,970
|
Depreciation and
amortization
|
2,142,939
|
4,087,914
|
6,230,853
|
Interest income and
miscellaneous income
|
-
|
(1,967,068)
|
(1,967,068)
|
EBITDA
|
(16,405,875)
|
101,700,731
|
85,294,856
|
Adjustments
|
|
|
|
Impairment loss on
automotive inventory
|
11,738,413
|
-
|
11,738,413
|
Impairment loss on
plant & equipment
|
177,626
|
-
|
177,626
|
Insurance recovery
proceeds
|
(5,615,268)
|
-
|
(5,615,268)
|
Non-cash
stock-based compensation
|
2,978,236
|
-
|
2,978,236
|
Change in
derivative liability
|
(10,806)
|
-
|
(10,806)
|
Litigation
expenses
|
1,295,717
|
-
|
1,295,717
|
Other Non-recurring
costs
|
51,387
|
-
|
51,387
|
Adjusted
EBITDA
|
$(5,790,570)
|
$101,700,731
|
$95,910,161
|
PF-10
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