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Form 8-K RumbleON, Inc. For: Apr 08

April 8, 2021 4:17 PM EDT
 
 

 
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
 46-3951329
 (Commission File Number)
 (I.R.S. Employer Identification No.)
 
 901 W. Walnut Hill Lane, Irving, Texas 
 75038
 (Address of Principal Executive Offices)
 (Zip Code)
 
(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
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value
RMBL
The Nasdaq Stock Market LLC
 
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.   
 
 

 

 
 
 
 
Explanatory Note
 
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
Other Events
  
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
Financial Statements and Exhibits
 
(d) Exhibits
 
Exhibit No.
Description
Amended and Restated Secured Promisorry Note, dated April 8, 2021.
Consent of Dixon Hughes Goodman LLP
The audited combined financial statements of RideNow Group and Affiliates for the years ended December 31, 2020 and December 31, 2019
The audited combined financial statements of RideNow Group and Affiliates for the years ended December 31, 2019 and December 31, 2018
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
 
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.
 
 
RUMBLEON, INC.
 
 
 
Date: April 8, 2021
By:  
  /s/ Steven R. Berrard
 
 
Steven R. Berrard 
 
 
Chief Financial Officer
 
 
 
 
 
 
 
 
                      


  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
 
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
 
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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