As filed with the Securities and Exchange Commission on September
27, 2017
Registration No. 333-220308
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No.1
to
Form S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
RumbleOn, Inc.
(Exact Name of registrant as specified in its charter)
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Nevada
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7371
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46-3951329
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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4521 Sharon Road
Suite 370
Charlotte, North Carolina 28211
Telephone: (704) 448-5240
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
________________
Marshall Chesrown
Chairman and Chief Executive Officer
RumbleOn, Inc.
4521 Sharon Road
Suite 370
Charlotte, North Carolina 28211
Telephone: (704) 448-5240
(Name, address, including zip code, and telephone
number,
including area code, of agent for service)
________________
With
copies to:
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Michael Francis, Esq.
Christina C. Russo, Esq.
Akerman LLP
350 East Las Olas Boulevard
Suite 1600
Fort Lauderdale, Florida 33301
Telephone: (
954)
463-2700
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Larry A. Cerutti, Esq.
Heather M. Ducat, Esq.
Troutman Sanders LLP
5 Park Plaza
14
th
Floor
Irvine, California 92614
Telephone: (949) 622-2710
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________________
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this registration
statement is declared effective.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box: 󠄠
☒󠄟
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
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Smaller
reporting company ☒
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Emerging
growth company ☒
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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 to
Section 7(a)(2)(B) of the Securities Act ☒
________________
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Title of Each
Class of
Securities to be
Registered
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Proposed Maximum
Aggregate Offering Price (1)(2)
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Amount of
Registration Fee (1)(2)
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Class B Common
Stock, par value $0.001 per share
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$
23,000,000
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$
2,666
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Representatives'
Warrants to purchase
Class B Common
Stock
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—
(3)
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—
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Shares of Class B
Common Stock underlying Representatives'
Warrants
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$
1,725,000
(4)
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$
200
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Total
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$
24,725,000
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$
2,866
(5)
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(1)
In accordance with
Rule 416(a), the Registrant is also registering hereunder an
indeterminate number of additional shares of common stock that
shall be issuable pursuant to Rule 416 to prevent dilution
resulting from stock splits, stock dividends or similar
transactions.
(2)
The registration
fee for securities to be offered by the Registrant is based on an
estimate of the Proposed Maximum Aggregate Offering Price of the
securities, and such estimate is solely for the purpose of
calculating the registration fee pursuant to Rule 457(o). Includes
shares that the underwriters have the option to purchase from the
Registrant to cover over-allotments, if any.
(3)
The Registrant has
agreed to issue warrants exercisable within five years after the
effective date of this registration statement representing 7.5% of
the securities issued in the offering (the
“Representatives' Warrants”) to Roth
Capital Partners, LLC and Maxim Group LLC, as representatives
of the underwriters. The Representatives'
Warrants are exercisable at a per share price equal to 115% of the
Class B Common Stock public offering price. Resales of the
Representatives' Warrants on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, are registered hereby. Resales of shares issuable upon
exercise of the Representatives' Warrants are also
being similarly registered on a delayed or continuous basis hereby.
See “Underwriting.” In accordance with Rule 457(g)
under the Securities Act, because the shares of the
Registrant’s common stock underlying the
Representatives' Warrants are registered hereby, no
separate registration fee is required with respect to the warrants
registered hereby.
(4)
Represents the
maximum number of shares of the Registrant’s common stock
issuable upon exercise of the Representatives'
Warrants.
(5)
Previously
paid.
The
registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective
in accordance with section 8(a) of the Securities Act of 1933 or
until the registration statement shall become effective on such
date as the Commission, acting pursuant to said section 8(a), may
determine.
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The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities, and it is not soliciting offers to buy these securities
in any state where the offer or sale of these securities is not
permitted.
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SUBJECT TO COMPLETION DATED, SEPTEMBER
27
, 2017.
PRELIMINARY PROSPECTUS
2,000,000 Shares
Class
B Common Stock
We are offering 2,000,000 shares of our Class B Common
Stock. The offering is being underwritten on a firm commitment
basis.
Our shares of Class B Common Stock are currently quoted on the
OTCQB marketplace. The symbol for our Class B Common Stock is
“RMBL.” We have applied to have our Class B Common
Stock listed on The NASDAQ Capital Market under the symbol
“RMBL.” The closing of this offering is
contingent upon the successful listing of our Class B Common Stock
on The NASDAQ Capital Market. On September
2
6
, 2017, the last
reported sale price of our Class B Common Stock on the OTCQB was
$9.49 per share.
We are an “emerging growth company” as defined in
Section 2(a) of the Securities Act of 1933, as amended, and we have
elected not to take advantage of the extended transition period for
complying with new or revised accounting standards.
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Per Share
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Total(1)
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Public offering price
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$
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$
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Underwriting discounts and commissions(2)
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$
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$
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Proceeds, before expenses, to us
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$
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$
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(1)
Assumes no exercise of the underwriters’ option to purchase
additional shares of our Class B Common Stock described
below.
(2)
See "Underwriting" on page
54 of
this prospectus for a description of the compensation payable to
the underwriters.We have agreed to issue to the
representatives of the underwriters warrants to purchase up to 7.5%
of the aggregate number of shares of Class B Common Stock sold in
this offering. The representatives' warrants will have an exercise
price equal to 115% of the public offering price per share of Class
B Common Stock sold in this offering. The registration statement of
which this prospectus forms a part also covers the representatives'
warrants and the shares of Class B Common Stock underlying the
representatives' warrants. We have also agreed to pay Roth Capital
Partners, LLC an advisory fee in the amount of $150,000 at the
closing of this offering.
We have granted the underwriters an option, exercisable one or more
times in whole or in part, to purchase up to additional
300,000
shares of Class B Common Stock from us at the public offering
price, less the underwriting discount, within 30 days from the date
of this prospectus to cover overallotments, if any. If the
underwriters exercise the option in full, the total underwriting
discounts and commissions payable will be $ , and the total
proceeds to us, before expenses, will be $ .
Investing
in our securities involves a high degree of risk. See the section
titled “Risk Factors” appearing on page
4
of this prospectus and
elsewhere in this prospectus for a discussion of information that
should be considered in connection with an investment in our
securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of Class B Common
Stock to the purchasers on or about
,
2017.
Joint
Book - Running Manager
s
Roth
Capital
Partners
Maxim Group
LLC
Co-Manager
Aegis
Capital Corp
The
date of this prospectus
is
, 2017.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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ii
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WE ARE AN EMERGING GROWTH COMPANY
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ii
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PROSPECTUS SUMMARY
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1
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THE OFFERING
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3
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RISK FACTORS
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4
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USE OF PROCEEDS
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16
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CAPITALIZATION
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17
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DILUTION
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18
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DESCRIPTION OF BUSINESS
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19
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MARKET PRICE AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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26
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR RUMBLEON
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27
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR NEXTGEN
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39
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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42
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MANAGEMENT
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43
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EXECUTIVE AND DIRECTOR COMPENSATION
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47
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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48
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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49
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DESCRIPTION OF CAPITAL STOCK
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51
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SHARES AVAILABLE FOR FUTURE SALES
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53
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UNDERWRITING
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54
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LEGAL MATTERS
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57
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EXPERTS
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57
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WHERE YOU CAN FIND MORE INFORMATION
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57
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INDEX TO FINANCIAL STATEMENTS
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F-1
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INDEX TO PRO FORMA FINANCIAL STATEMENT
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PF-1
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This prospectus and any freewriting prospectus we file with the
Securities and Exchange Commission, or the SEC, contain information
you should consider when making your investment decision. We have
not, and the underwriters have not, authorized any other person to
provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it.
The securities are not being offered in any jurisdiction where the
offer is not permitted.
You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this
prospectus.
In this prospectus, we refer to information regarding potential
markets for our products and other industry data. We believe that
all such information has been obtained from reliable sources that
are customarily relied upon by companies in our industry.
However, we have not independently verified any such
information.
This prospectus includes statistical and other industry and market
data that we obtained from industry publications and research,
surveys and studies conducted by third parties. Industry
publications and third-party research, surveys and studies
generally indicate that their information has been obtained from
sources believed to be reliable, although they do not guarantee the
accuracy or completeness of such information.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. These
statements, which in some cases, you can identify by terms such as
“may,” “will,” “should,”
“could,” “would,” “expects,”
“plans,” “anticipates,”
“believes,” “estimates,”
“projects,” “predicts,”
“potential” and similar expressions intended to
identify forward-looking statements, relate to future events or to
our future operating or financial performance and involve known and
unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially
different from any future results, performances or achievements
expressed or implied by the forward-looking statements. These
statements include statements regarding our operations, cash flows,
financial position and economic performance including, in
particular, future sales, competition and the effect of economic
conditions. These statements reflect our current views with respect
to future events and are based on assumptions and subject to risks
and uncertainties.
Although we believe that these
statements are based upon reasonable assumptions, these statements
and other projections contained in this prospectus expressing
opinions about future outcomes and non-historical information, are
subject a number of risks and uncertainties, many of which are
beyond our control, and reflect future business decisions that are
subject to change and, therefore, there is no assurance that the
outcomes expressed in these statements will be achieved. Some of
the assumptions, future results and levels of performance expressed
or implied in the forward-looking statements we have made or may
make in the future inevitably will not materialize, and
unanticipated events may occur which will affect our results.
Investors are cautioned that forward-looking statements are not
guarantees of future performance and actual results or developments
may differ materially from the expectations expressed in
forward-looking statements contained herein. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements. We discuss many of these risks and
uncertainties in greater detail under the heading “Risk
Factors” on page
4
of this prospectus, as well as in our
consolidated financial statements, related notes, and the other
financial information appearing in this prospectus. You should read
this prospectus completely and with the understanding that our
actual future results may be materially different from what we
expect. We qualify all of the forward-looking statements in this
prospectus by these cautionary statements. We undertake no
obligation to publicly update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as may be required under the securities laws of the United
States. You are advised, however, to consult any additional
disclosures we make in our reports filed with the
SEC.
WE ARE AN EMERGING GROWTH COMPANY
We qualify as an “emerging growth company” as defined
in the Jumpstart our Business Startups Act of 2012, or the JOBS
Act. An emerging growth company may take advantage of reduced
reporting and other burdens that are otherwise applicable generally
to public companies. These provisions include (i) a requirement to
have only two years of audited financial statements and only two
years of related Management’s Discussion and Analysis of
Financial Condition and Results of Operations disclosure and (ii)
an exemption from the auditor attestation requirement in the
assessment of our internal control over financial reporting
pursuant to the Sarbanes-Oxley Act of 2002.
We may take advantage of these provisions until the end of the
fiscal year ending after the fifth anniversary of our initial
public offering or such earlier time that we are no longer an
emerging growth company and if we do, the information that we
provide stockholders may be different than you might get from other
public companies in which you hold equity. We would cease to be an
emerging growth company if we have more than $1.0 billion in annual
revenue, have more than $700 million in market value of our shares
of common stock held by non-affiliates, or issue more than $1.0
billion of nonconvertible debt over a three year
period.
The JOBS Act permits an “emerging
growth company” like us to take advantage of an extended
transition period to comply with new or revised accounting
standards applicable to public companies.
We have elected
not to take advantage of the extended transition period for
complying with new or revised accounting standards.
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PROSPECTUS SUMMARY
The following summary highlights certain of the information
contained elsewhere in this prospectus. Because this is only a
summary, however, it does not contain all the information you
should consider before investing in our Class B Common Stock and it
is qualified in its entirety by, and should be read in conjunction
with, the more detailed information included elsewhere in this
prospectus. Before you make an investment decision, you should read
this entire prospectus carefully, including the risks of investing
in our securities discussed under the section of this prospectus
titled "Risk Factors" and our consolidated financial statements and
related notes included elsewhere in this prospectus. Unless the
context indicates otherwise, references in this prospectus to
"RumbleOn, Inc.," "RumbleOn," "our Company," "we," "our" and "us"
refer to RumbleOn, Inc., a Nevada corporation, and its consolidated
subsidiaries.
Overview
We
operate a capital light disruptive e-commerce platform facilitating
the ability of both consumers and dealers to Buy-Sell-Trade-Finance
pre-owned motorcycle and other power sport and recreation vehicles,
or power/recreation vehicles, in one online location.
Our goal is to transform the way motorcycles and other
power/recreation vehicles are bought and sold by
providing users with the most efficient, timely and transparent
transaction experience. Our initial focus is the market for
601cc and larger on-road motorcycles,
particularly those concentrated in the
“Harley-Davidson” brand. We will look to extend to
additional power/recreation vehicles and products as
the platform matures, including ATVs, personal watercraft,
snowmobiles, side-by-sides, boats, and both towable and motor coach
RVs.
Serving
both consumers and dealers, through our online platform, we make
cash offers for the purchase of their vehicles and intend to
provide them the flexibility to trade, list, or auction their
vehicle through our website and mobile applications. In addition,
we offer a large inventory of used vehicles for sale along with
third-party financing and associated products. Our operations are
designed to be scalable by working through an infrastructure and
capital light model that is achievable by virtue of a synergistic
relationship with dealer partners. We utilize dealer partners in
the acquisition of motorcycles as well as to provide inspection,
reconditioning and distribution services. Correspondingly, we earn
fees and transaction income, and dealer partners will earn
incremental revenue and enhance profitability through increased
sales, leads, and fees from inspection, reconditioning and
distribution programs.
Our
business model is driven by a technology platform we acquired in
February 2017, through our acquisition, or the NextGen Acquisition,
of substantially all of the assets of NextGen Dealer Solutions,
LLC, or NextGen, by our wholly-owned subsidiary, NextGen Pro, LLC,
or NextGen Pro. The acquired system provides integrated vehicle
appraisal, inventory management, customer relationship and lead
management, equity mining, and other key services necessary to
drive the online marketplace. Over the past 16 years, the
developers of the software have designed and built, for large
multi-national clients, a number of dealer and, what we believe to
be, high quality applications solutions.
Our
business combines a comprehensive online buying and selling
experience with a vertically-integrated supply chain that allows us
to buy and sell high quality vehicles to consumers and dealer
partners transparently and efficiently at a value-oriented price.
Using our website or mobile application, consumers and dealers can
complete all phases of a used vehicle transaction. Our online
buying and selling experience allows consumers to: (1) sell us a
vehicle, (2) list a vehicle, (3) purchase a used vehicle, (4)
finance a purchase and (5) protect a purchase.
To
enable a seamless dealer and consumer experience, we are building a
vertically-integrated used vehicle supply chain, supported by
proprietary software systems and data which include the following
attributes: (1) vehicle sourcing and acquisition, (2) inspection
and reconditioning and (3) logistics and fulfillment.
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Our Growth Strategy
We
intend to transform the way recreational vehicles are bought and
sold and thereby significantly grow our business and gain market
share by targeting the large number of private consumer peer to
peer transactions driven by listing only sites such as Craigslist.
Management estimates the market for annual used motorcycle sales
today at approximately 800,000 units sold, or approximately $7.5
billion of sales. Management believes approximately 50% or more of
these transactions are completed on a peer to peer basis. We
believe these transactions are highly inefficient and consumers
view the process as cumbersome. Our online consumer direct sourcing
strategy, wherein we make a cash offer to a consumer or dealer
utilizing our website or mobile application allows us to deliver
value pricing on our vehicles for sale. We believe
our large scale inventory of vehicles for sale,
coupled with our unique online platform, transparent selling
process, certified and reconditioned vehicles and ability to offer
financing and ancillary products provides a unique customer
experience as compared to current alternatives when purchasing a
vehicle. We believe we can aggressively drive RumbleOn brand
recognition and awareness at a relatively low expense by utilizing
digital, social media and guerrilla marketing techniques, as there
are few national competitors and consumers are very brand focused
and loyal. For example, approximately 15 key motorcycle events,
such as Daytona Bike Week and the Sturgis Bike Rally, attract
approximately four million attendees annually, many of
whom are both motorcycle enthusiasts and Harley-Davidson consumers.
We intend to have a significant presence at these events, with
onsite advertising and sales facilities to build brand awareness.
In addition, we anticipate engaging with or sponsoring active
Harley Owner Group® (“HOG”) chapters, providing us
a targeted audience to which to market RumbleOn and showcase the
ease with which they can buy, sell, or trade motorcycles. Once
motorcycle enthusiasts have sampled our website, we believe the
unique experience will be compelling and drive organic growth. Over
time, management believes we will build a proprietary database of
customers and their interests, which will facilitate customer
retention and cross sell activities.
Risks Associated with Our Business
Our
business is subject to numerous risks, as more fully described in
the section titled “Risk Factors” on page 4 of this
prospectus. You should read these risks before you invest in our
common stock. We may be unable, for many reasons, including those
that are beyond our control, to implement our business strategy. In
particular, risks associated with our business
include:
●
Our limited
operating history and our ability to achieve or maintain
profitability;
●
Potential for
significant fluctuation in our annual and quarterly operating
results;
●
Our initial
development and progress may not be indicative of future growth
prospects;
●
The ability to
obtain additional capital, if needed, to address business
opportunities and unforeseen circumstances; and
●
The success of our
marketing and branding offers and acceptance of our active
platform.
Corporate Information
We
were incorporated as a development stage company in the State of
Nevada as Smart Server, Inc. in October 2013. In February 2017, we
changed our name to RumbleOn, Inc. Our principal executive offices
are located at 4521 Sharon Road, Suite 370, Charlotte, North
Carolina 28211 and our telephone number is (704) 448-5240. Our
Internet website is
www.rumbleon.com
.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to reports filed or
furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act
are available, free of charge, under the Investor Relations tab of
our website as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.
You may also read and copy any materials we file with the SEC at
the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website located at
www.sec.gov
that contains the information we file or furnish electronically
with the SEC.
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RISK FACTORS
Investing in our Class B Common Stock involves a high degree of
risk. Investors should carefully consider the risks described below
and all of the other information set forth in this prospectus,
including our financial statements and related notes and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” before deciding to
invest in our Class B Common Stock. If any of the events or
developments described below occur, our business, financial
condition, or results of operations could be materially adversely
affected. As a result, the market price of our Class B Common Stock
could decline, and investors could lose all or part of their
investment.
Risks Related to Our Business
We have a limited operating history and we cannot assure you we
will achieve or maintain profitability.
Our
business model is unproven and we have a limited
operating
history. We are only in the initial development stage of our
business. We expect to make significant investments in the further
development and expansion of our business and these investments may
not result in the successful development, operation, or growth of
our business on a timely basis or at all. We may not generate
sufficient revenue and we may incur significant losses in the
future for a number of reasons, including a lack of demand for our
products and services, increasing competition, weakness in the
motorcycle, power sport, and other recreational vehicle industries
generally, as well as other risks described in these Risk Factors,
and we may encounter unforeseen expenses, difficulties,
complications and delays, and other unknown factors relating to the
development and operation of our business. Accordingly, we may not
be able to successfully develop and operate our business, generate
revenue, or achieve or maintain profitability.
Our auditor’s report reflects that our ability to continue as
a going concern is dependent upon our ability to raise additional
capital and, ultimately the achievement of significant operating
revenue.
Our financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Our auditor’s
report reflects that our ability to continue as a going concern is
dependent upon our ability to raise additional capital from the
sale of common stock or through other debt or equity financings
and, ultimately, the achievement of significant operating revenue.
If we are unable to continue as a going concern, stockholders will
lose their investment. We will be required to seek additional
capital to fund future growth and expansion. No assurance can be
given that such financing will be available or, if available, that
it will be on commercially favorable terms acceptable to us.
Moreover, favorable financing may be dilutive to
investors.
Our annual and quarterly operating results may fluctuate
significantly or may fall below the expectations of investors or
securities analysts, each of which may cause our stock price to
fluctuate or decline.
We
expect our operating results to be subject to annual and quarterly
fluctuations, and they will be affected by numerous factors,
including:
●
a change in
consumer discretionary spending;
●
weather, which may
impact the ability or desire for potential end customers to
consider whether they wish to own a motorcycle or
power/recreation vehicle;
●
the timing and cost
of, and level of investment in, research and development activities
relating to our software services, which may change from time to
time;
●
our ability to
attract, hire and retain qualified personnel;
●
expenditures that
we will or may incur to acquire or develop additional product and
service offerings;
●
future accounting
pronouncements or changes in our accounting policies;
and
●
the changing and
volatile U.S., European and global economic
environments.
If our
annual or quarterly operating results fall below the expectations
of investors or securities analysts, the price of our Class B
Common Stock could decline substantially. Furthermore, any annual
or quarterly fluctuations in our operating results may, in turn,
cause the price of our stock to fluctuate substantially. We believe
that annual and quarterly comparisons of our financial results are
not necessarily meaningful and should not be relied upon as an
indication of our future performance.
Our unaudited pro forma financial statements are not intended as an
indication of our financial condition or anticipated results of
operations following the NextGen Acquisition.
The
unaudited pro forma financial statements included elsewhere in this
prospectus relating to the NextGen Acquisition are presented for
illustrative purposes only and may not be an indication of our
financial condition or anticipated results of operations following
the NextGen Acquisition. The pro forma financial statements were
derived from our historical financial statements and the historical
financial statements of NextGen, and certain adjustments and
assumptions have been made after giving effect to the NextGen
Acquisition. The information upon which these adjustments and
assumptions have been made is preliminary, and these kinds of
adjustments and assumptions are difficult to make with accuracy.
Moreover, our actual financial condition and results of operations
following the NextGen Acquisition may not be consistent with, or
evident from, the pro forma financial statements. In addition, the
assumptions used in preparing the pro forma financial data may not
prove to be accurate, and other factors may affect our financial
condition or results of operations following the NextGen
Acquisition. Any decline in our financial condition or results of
operations may cause significant variations in the trading price of
our securities.
The initial development and progress of our business to date may
not be indicative of our future growth prospects and, if we
continue to grow rapidly, we may not be able to manage our growth
effectively.
We
expect that, in the future, as our revenue increases, our rate of
growth will decline. In addition, we will not be able to grow as
fast or at all if we do not accomplish the following:
●
maintain and grow
our dealer relationships and network;
●
increase the number
of users of our products and services, and in particular the number
of unique visitors to our website and our branded mobile
applications;
●
increase the number
of transactions between our users and both RumbleOn and our dealer
networks;
●
introduce third
party ancillary products and services;
●
acquire sufficient
number of vehicles at attractive cost; and
●
sell sufficient
number of vehicles at acceptable prices.
We may
not successfully accomplish any of these objectives. We plan to
continue our investment in future growth. We expect to continue to
expend substantial financial and other resources on:
●
marketing and
advertising;
●
product and service
development; including investments in our website, business
processes, infrastructure, inventory, product and service
development team and the development of new products and services
and new features for existing products; and
●
general
administration, including legal, accounting and other compliance
expenses related to being a public company.
In
addition, our anticipated growth may place and may continue to
place significant demands on our management and our operational and
financial resources. As we grow, we expect to hire additional
personnel. Also, our organizational structure will become more
complex as we add additional staff, and we will need to ensure we
adequately develop and maintain operational, financial and
management controls as well as our reporting systems and
procedures.
We may require additional capital to pursue our business objectives
and respond to business opportunities, challenges or unforeseen
circumstances. If capital is not available on terms acceptable to
us or at all, we may not be able to develop and grow our business
as anticipated and our business, operating results and financial
condition may be harmed.
We
intend to continue to make investments to support the development
and growth of our business and, we may require additional capital
to pursue our business objectives and respond to business
opportunities, challenges or unforeseen circumstances. Accordingly,
we may need to engage in equity or debt financings to secure
additional funds. However, additional funds may not be available
when we need them, on terms that are acceptable to us, or at all.
Volatility in the credit markets may also have an adverse effect on
our ability to obtain debt financing. Also, the incurrence of
leverage, the debt service requirements resulting therefrom, and
the possibility of a need for financing or any additional financing
could have important and negative consequences, including the
following: (a) our ability to obtain additional financing for
working capital, capital expenditures, or general corporate or
other purposes may be impaired in the future; (b) certain future
borrowings may be at variable rates of interest, which will expose
us to the risk of increased interest rates; (c) we may need to use
a portion of the money it earns to pay principal and interest on
their credit facilities, which will reduce the amount of money
available to finance operations and other business activities,
repay other indebtedness, and pay distributions; and (d)
substantial leverage may limit our flexibility to adjust to
changing economic or market conditions, reduce their ability to
withstand competitive pressures and make them more vulnerable to a
downturn in general economic conditions.
If we
raise additional funds through further issuances of equity or
convertible debt securities, our existing stockholders could suffer
significant dilution, and any new equity securities we issue could
have rights, preferences and privileges superior to those of
holders of our common stock. If we are unable to obtain adequate
financing or financing on terms satisfactory to us, when we require
it, our ability to continue to pursue our business objectives and
to respond to business opportunities, challenges or unforeseen
circumstances could be significantly limited, and our business,
operating results, financial condition and prospects could be
adversely affected.
If key industry participants, including
power/recreation vehicle dealers and
power/recreation vehicle manufacturers, perceive us in
a negative light or our relationships with them suffer harm, our
ability to operate and grow our business and our financial
performance may be damaged.
We
anticipate that we will derive a significant portion of our revenue
from fees paid by existing power/recreation vehicle
dealers for dealer services we may provide them. In addition, we
intend to utilize a select set of dealers to perform services for
our benefit, including, among other things, vehicle reconditioning,
vehicle storage and vehicle photography. If our relationships with
our network of dealers suffer harm in a manner that leads to the
departure of these dealers from our network, then our ability to
operate our business, grow revenue and lower our costs will be
adversely affected.
We
cannot assure you that we will maintain strong relationships with
the dealers in our network or that we will not suffer dealer
attrition in the future. We may also have disputes with dealers
from time to time, including relating to the collection of fees
from them and other matters. We may need to modify our products,
change pricing or take other actions to address dealer concerns in
the future. If we are unable to create and maintain a compelling
value proposition for dealers to become and remain dealers, our
dealer network will not grow and may begin to decline. If a
significant number of these dealers decided to leave our network or
change their financial or business relationship with us, then our
business, growth, operating results, financial condition and
prospects would suffer. Additionally, if we are unable to add
dealers to our network, our growth could be impaired.
We may be unable to maintain or grow relationships with information
data providers or may experience interruptions in the data feeds
they provide, which may limit the information that we are able to
provide to our users and dealers, as well as adversely affect the
timeliness of such information, and may impair our ability to
attract or retain consumers and our dealers and to timely invoice
all parties.
We
expect to receive data from third-party data providers, including
our network of dealers, dealer management system data feed
providers, data aggregators and integrators, survey companies,
purveyors of registration data and possibly others. There may be
some instances in which we use this information to appraise
vehicles we purchase, display inventory or listings available for
sale, target market to customers, and collect a transaction fee
from dealers or recognize revenue from the related transactions. If
we are unable to maintain or grow relationships with these data
providers, or if and when an interruption of the data occurs, we
may not always be able to buy inventory at competitive prices, have
available for sale as many vehicles as we might otherwise, or
collect the appropriate fees from dealers, potentially resulting in
a shortfall of revenue that could be material to our operating
results.
The success of our business relies heavily on our marketing and
branding efforts, especially with respect to the RumbleOn website
and our branded mobile applications, and these efforts may not be
successful.
We
believe that an important component of our development and growth
will be the business derived from the RumbleOn website and our
branded mobile applications. Because RumbleOn is a consumer brand,
we rely heavily on marketing, advertising, and social media to
increase the visibility of this brand with potential
customers.
Our
business model relies on our ability to scale rapidly and to
decrease incremental user acquisition costs as we grow. Some of our
methods of marketing and advertising may not be profitable because
they may not result in the acquisition of sufficient users visiting
our website and mobile applications such that we may recover these
costs by attaining corresponding revenue growth. If we are unable
to recover our marketing and advertising costs through increases in
user traffic and in the number of transactions by users of our
platform, it could have a material adverse effect on our growth,
results of operations and financial condition.
The failure to develop and maintain our brand could harm our
ability to grow unique visitor traffic and to expand our dealer
network.
Developing and
maintaining the RumbleOn brand will depend largely on the success
of our efforts to maintain the trust of our users and dealers and
to deliver value to each of our users and dealers. If our potential
users perceive that we are not focused primarily on providing them
with a better motorcycle and power/recreation vehicle
buying experience, our reputation and the strength of our brand
will be adversely affected.
Complaints or
negative publicity about our business practices, our marketing and
advertising campaigns, our compliance with applicable laws and
regulations, the integrity of the data that we provide to users,
data privacy and security issues, and other aspects of our
business, irrespective of their validity, could diminish
users’ and dealers’ confidence in and the use of our
products and services and adversely affect our brand. There can be
no assurance that we will be able to develop, maintain or enhance
our brand, and failure to do so would harm our business growth
prospects and operating results.
We rely on Internet search engines and social media to drive
traffic to our website, and if we fail to appear prominently in the
search results, our traffic would decline and our business would be
adversely affected.
We
depend in part on companies such as Google™,
Facebook
™ and
Instagram
™
to drive traffic to our website. For example, when a user searches
the internet for a particular type of recreational vehicle, we rely
on a high organic search ranking of our web pages in these search
results to refer the user to our website. However, our ability to
maintain high, non-paid search result rankings is not within our
control. Our competitors’ search engine optimization efforts
may result in their websites receiving a higher search result page
ranking than ours, or search engines could revise their
methodologies in a way that would adversely affect our search
result rankings. If search engines modify their search algorithms
in ways that are detrimental to us, or if our competitors’
efforts are more successful than ours, overall growth in our user
base could slow or our user base could decline. Search engine
providers and social media platforms could provide
power/recreation vehicle dealer and pricing
information directly in search results, align with our competitors
or choose to develop competing services. Any reduction in the
number of users directed to our website via search engines or
social media could harm our business and operating
results.
A significant disruption in service on our website or of our mobile
applications could damage our reputation and result in a loss of
consumers, which could harm our business, brand, operating results,
and financial condition.
Our
brand, reputation and ability to attract consumers, affinity groups
and advertisers depend on the reliable performance of our
technology infrastructure and content delivery. We may experience
significant interruptions with our systems in the future.
Interruptions in these systems, whether due to system failures,
computer viruses or physical or electronic break-ins, could affect
the security or availability of our products on our website and
mobile application and prevent or inhibit the ability of consumers
to access our products. Problems with the reliability or security
of our systems could harm our reputation, result in a loss of
consumers, dealers and affinity group marketing partners and result
in additional costs.
We
intend to locate our communications, network, and computer hardware
used to operate our website and mobile applications at facilities
in various parts of the country to minimize the risk and create an
environment where we can remain online if one of the facilities in
which our equipment is housed goes offline. Nevertheless, we will
not own or control the operation of these facilities, and our
systems and operations will be vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, terrorist
attacks, acts of war, electronic and physical break-ins, computer
viruses, earthquakes and similar events. The occurrence of any of
these events could result in damage to our systems and hardware or
could cause them to fail.
Problems faced by
any third-party web hosting providers we may utilize could
adversely affect the experience of our consumers. Any third-party
web hosting providers could close their facilities without adequate
notice. Any financial difficulties, up to and including bankruptcy,
faced by any third-party web hosting providers or any of the
service providers with whom they contract may have negative effects
on our business, the nature and extent of which are difficult to
predict. If our third-party web hosting providers are unable to
keep up with our growing capacity needs, our business could be
harmed.
Any
errors, defects, disruptions, or other performance or reliability
problems with our network operations could cause interruptions in
access to our products as well as delays and additional expense in
arranging new facilities and services and could harm our
reputation, business, operating results and financial
condition.
If we are unable to provide a compelling
power/recreation vehicle buying experience to our
users, the number of transactions between our users, RumbleOn and
dealers will decline and our revenue and results of operations will
suffer harm.
We
cannot assure you that we are able to provide a compelling
power/recreation vehicle buying experience to our
users, and our failure to do so will mean that the number of
transactions between our users, RumbleOn and dealers will decline
and we will be unable to effectively monetize our user traffic. We
believe that our ability to provide a compelling
power/recreation vehicle buying experience is subject
to a number of factors, including:
●
our ability to
launch new products that are effective and have a high degree of
consumer engagement; and
●
compliance of the
dealers within our dealer network with applicable laws, regulations
and the rules of our platform.
The growth of our business relies significantly on our ability to
increase the number of dealers in our network such that we are able
to increase the number of transactions between our users and
dealers. Failure to do so would limit our growth.
Our
ability to grow the number of dealers in our network is an
important factor in growing our business. We are a new participant
in the recreational vehicle industry, our business may be viewed in
a negative light by power/recreation vehicle
dealerships, and there can be no assurance that we will be able to
maintain or grow the number of power/recreation
vehicle dealers in our network.
Our ability to grow our complementary product offerings may be
limited, which could negatively impact our development, growth,
revenue and financial performance.
As we
introduce or expand additional offerings for our platform, such as
power/recreation vehicle trade-ins, lead management,
transaction processing, financing, leasing, maintenance and
insurance, we may incur losses or otherwise fail to enter these
markets successfully. Our expansion into these markets may place us
in competitive and regulatory environments with which we are
unfamiliar and involves various risks, including the need to invest
significant resources and the possibility that returns on such
investments will not be achieved for several years, if at all. In
attempting to establish such new product offerings, we may incur
significant expenses and face various other challenges, such as
expanding our sales force and management personnel to cover these
markets and complying with complicated regulations that apply to
these markets. In addition, we may not successfully demonstrate the
value of these ancillary products to consumers or dealers, and
failure to do so would compromise our ability to successfully
expand into these additional revenue streams.
We rely on third-party financing providers to finance a significant
portion of our customers’ vehicle purchases.
We rely
on third-party financing providers to finance a significant portion
of our customers’ vehicle purchases. Accordingly, our revenue
and results of operations are partially dependent on the actions of
these third parties. We provide financing to qualified customers
through a number of third-party financing providers. If one or more
of these third-party providers cease to provide financing to our
customers, provide financing to fewer customers or no longer
provide financing on competitive terms, it could have a material
adverse effect on our business, sales and results of operations.
Additionally, if we were unable to replace the current third-party
providers upon the occurrence of one or more of the foregoing
events, it could also have a material adverse effect on our
business, sales and results of operations. We rely on third-party
providers to supply Extended Protection Plan, or EPP, products to
our customers. Accordingly, our revenue and results of operations
will be partially dependent on the actions of these third-parties.
If one or more of these third-party providers cease to provide EPP
products, make changes to their products or no longer provide their
products on competitive terms, it could have a material adverse
effect on our business, revenue and results of operations.
Additionally, if we were unable to replace the current third-party
providers upon the occurrence of one or more of the foregoing
events, it could also have a material adverse effect on our
business, revenue and results of operations.
Our sales of motorcycles and other power/recreation
vehicles may be adversely impacted by increased supply of and/or
declining prices for used recreational vehicles and excess supply
of new recreational vehicles.
We
believe when prices for used recreational vehicles have declined,
it can have the effect of reducing demand among retail purchasers
for new recreational vehicles (at or near manufacturer’s
suggested retail prices). Further, the manufacturers of
recreational vehicles can and do take actions that influence the
markets for new and used recreational vehicles. For example,
introduction of new models with significantly different
functionality, technology or other customer satisfiers can result
in increased supply of used recreational vehicles, and a decrease
in the inventory of used recreational vehicles available for sale
at dealers in the U.S. could result in an increased supply or
decreased demand in the market for used recreational vehicles,
which could result in declining prices for used recreational
vehicles, and prior model-year new recreational vehicles. Also,
while historically manufacturers have taken steps designed to
balance production volumes for new recreational vehicles with
demand, those steps may not be effective, or further manufacturers
could choose to supply new recreational vehicles to the market in
excess of demand at reduced prices which could also have the effect
of reducing demand for used recreational vehicles. Ultimately,
reduced demand among retail purchasers for new recreational
vehicles leads to reduced shipments by us.
We rely on a number of third parties to perform certain operating
and administrative functions for us.
We may
experience problems with outsourced services, such as unfavorable
pricing, untimely delivery of services, or poor quality. Also,
these suppliers may experience adverse economic conditions due to
difficulties in the global economy that could lead to difficulties
supporting our operations. In light of the amount and types of
functions that we will outsource, these service provider risks
could have a material adverse effect on our business and results of
operations.
We participate in a highly competitive market, and pressure from
existing and new companies may adversely affect our business and
operating results.
We face
significant competition from companies that provide listings,
information, lead generation and power/recreation
vehicle buying services designed to reach consumers and enable
dealers to reach these consumers. We will compete for a share of
overall power/recreation vehicle purchases as well as
power/recreation vehicle dealer’s marketing and
technology spend. To the extent that power/recreation
vehicle dealers view alternative strategies to be superior to
RumbleOn, we may not be able to maintain or grow the number of
dealers in our network, we may sell fewer
power/recreation vehicles to users of our platform and
our business, operating results and financial condition will be
harmed.
We also
expect that new competitors will continue to enter the online
power/recreation vehicle retail industry with
competing products and services, which could have an adverse effect
on our revenue, business and financial results.
Our
competitors could significantly impede our ability to expand our
network of dealers and to reach consumers. Our competitors may also
develop and market new technologies that render our existing or
future products and services less competitive, unmarketable or
obsolete. In addition, if our competitors develop products or
services with similar or superior functionality to our solutions,
we may need to decrease the prices for our solutions in order to
remain competitive. If we are unable to maintain our current
pricing structure due to competitive pressures, our revenue will be
reduced and our operating results will be negatively
affected.
Our
current and potential competitors may have significantly more
financial, technical, marketing and other resources than we have,
and the ability to devote greater resources to the development,
promotion and support of their products and services. Additionally,
they may have more extensive power/recreation vehicle
industry relationships than we have, longer operating histories and
greater name recognition. As a result, these competitors may be
better able to respond more quickly to undertake more extensive
marketing or promotional campaigns. If we are unable to compete
with these companies, the demand for our products and services
could substantially decline.
In
addition, if one or more of our competitors were to merge or
partner with another of our competitors, the change in the
competitive landscape could adversely affect our ability to compete
effectively. Our competitors may also establish or strengthen
cooperative relationships with our current or future third-party
data providers, technology partners or other parties with whom we
may have relationships, thereby limiting our ability to develop,
improve and promote our solutions.
Seasonality or weather trends may cause fluctuations in our unique
visitors, revenue and operating results.
Our
revenue trends are likely to be a reflection of consumers’
power/recreation vehicle buying patterns. While
different types of power/recreation vehicles are
designed for different seasons (motorcycles are typically for
non-snow seasons, while snowmobiles are typically designed for
winter), our revenue may be cyclical if, for example, motorcycles
and motorcycle dealers represent a large percentage of our revenue.
Our business likely will also be impacted by cyclical trends
affecting the overall economy, specifically the retail
power/recreation vehicle industry, as well as by
actual or threatened severe weather events.
We collect, process, store, share, disclose and use personal
information and other data, and our actual or perceived failure to
protect such information and data could damage our reputation and
brand and harm our business and operating results.
We
collect, process, store, share, disclose and use personal
information and other data provided by consumers and dealers. We
rely on encryption and authentication technology licensed from
third parties to effect secure transmission of such information. We
may need to expend significant resources to protect against
security breaches or to address problems caused by breaches. Any
failure or perceived failure to maintain the security of personal
and other data that is provided to us by consumers and dealers
could harm our reputation and brand and expose us to a risk of loss
or litigation and possible liability, any of which could harm our
business and operating results. In addition, from time to time, it
is possible that concerns will be expressed about whether our
products, services, or processes compromise the privacy of our
users. Concerns about our practices with regard to the collection,
use or disclosure of personal information or other privacy related
matters, even if unfounded, could harm our business and operating
results.
There
are numerous federal, state and local laws around the world
regarding privacy and the collection, processing, storing, sharing,
disclosing, using and protecting of personal information and other
data, the scope of which are changing, subject to differing
interpretations, and which may be costly to comply with and may be
inconsistent between countries and jurisdictions or conflict with
other rules. We generally comply with industry standards and are
subject to the terms of our privacy policies and privacy-related
obligations to third parties. We strive to comply with all
applicable laws, policies, legal obligations and industry codes of
conduct relating to privacy and data protection, to the extent
possible. However, it is possible that these obligations may be
interpreted and applied in new ways or in a manner that is
inconsistent from one jurisdiction to another and may conflict with
other rules or our practices or that new regulations could be
enacted. Any failure or perceived failure by us to comply with our
privacy policies, our privacy-related obligations to consumers or
other third parties, or our privacy-related legal obligations, or
any compromise of security that results in the unauthorized release
or transfer of sensitive information, which may include personally
identifiable information or other user data, may result in
governmental enforcement actions, litigation or public statements
against us by consumer advocacy groups or others and could cause
consumers and power/recreation vehicle dealers to lose
trust in us, which could have an adverse effect on our business.
Additionally, if vendors, developers or other third parties that we
work with violate applicable laws or our policies, such violations
may also put consumer or dealer information at risk and could in
turn harm our reputation, business and operating
results.
Failure to adequately protect our intellectual property could harm
our business and operating results.
A
portion of our success may be dependent on our intellectual
property, the protection of which is crucial to the success of our
business. We expect to rely on a combination of patent, trademark,
trade secret and copyright law and contractual restrictions to
protect our intellectual property. In addition, we will attempt to
protect our intellectual property, technology and confidential
information by requiring our employees and consultants to enter
into confidentiality and assignment of inventions agreements and
third parties to enter into nondisclosure agreements. These
agreements may not effectively prevent unauthorized use or
disclosure of our confidential information, intellectual property,
or technology and may not provide an adequate remedy in the event
of unauthorized use or disclosure of our confidential information,
intellectual property, or technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our website features, software and functionality or
obtain and use information that we consider
proprietary.
Competitors may
adopt service names similar to ours, thereby harming our ability to
build brand identity and possibly leading to user confusion. In
addition, there could be potential trade name or trademark
infringement claims brought by owners of other registered
trademarks or trademarks that incorporate variations of the term
“RumbleOn” or “RMBL.”
We
currently hold the “RumbleOn.com” internet
domain name and approximately 1,000 other
related domain names. The regulation of domain names in the United
States is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name
registrars, or modify the requirements for holding domain names. As
a result, we may not be able to acquire or maintain all domain
names that use the name RumbleOn or RMBL.
We may in the future be subject to intellectual property disputes,
which are costly to defend and could harm our business and
operating results.
We may
from time to time face allegations that we have infringed the
trademarks, copyrights, patents and other intellectual property
rights of third parties, including from our competitors or
non-practicing entities.
Patent
and other intellectual property litigation may be protracted and
expensive, and the results are difficult to predict and may require
us to stop offering some features, purchase licenses or modify our
products and features while we develop non-infringing substitutes
or may result in significant settlement costs.
In
addition, we use open source software in our products and will use
open source software in the future. From time to time, we may face
claims against companies that incorporate open source software into
their products, claiming ownership of, or demanding release of, the
source code, the open source software or derivative works that were
developed using such software, or otherwise seeking to enforce the
terms of the applicable open source license. These claims could
also result in litigation, require us to purchase a costly license
or require us to devote additional research and development
resources to change our platform or services, any of which would
have a negative effect on our business and operating
results.
Even if
these matters do not result in litigation or are resolved in our
favor or without significant cash settlements, these matters, and
the time and resources necessary to litigate or resolve them, could
harm our business, our operating results and our
reputation.
We depend on key personnel to operate our business, and if we are
unable to retain, attract and integrate qualified personnel, our
ability to develop and successfully grow our business could be
harmed.
We
believe our success will depend on the efforts and talents of our
executives and employees, including Marshall Chesrown, our Chairman
and Chief Executive Officer, and Steven R. Berrard, our Chief
Financial Officer and Secretary. Our future success depends on our
continuing ability to attract, develop, motivate and retain highly
qualified and skilled employees. Qualified individuals are in high
demand, and we may incur significant costs to attract and retain
them. In addition, the loss of any of our senior management or key
employees could materially adversely affect our ability to execute
our business plan and strategy, and we may not be able to find
adequate replacements on a timely basis, or at all. Our executive
officers are at-will employees, which means they may terminate
their employment relationship with us at any time, and their
knowledge of our business and industry would be extremely difficult
to replace. We cannot ensure that we will be able to retain the
services of any members of our senior management or other key
employees. If we do not succeed in attracting well-qualified
employees or retaining and motivating existing employees, our
business could be materially and adversely affected.
We may acquire other companies or technologies, which could divert
our management’s attention, result in additional dilution to
our stockholders and otherwise disrupt our operations and harm our
operating results.
Our
success will depend, in part, on our ability to grow our business
in response to the demands of consumers, dealers and other
constituents within the power/recreation vehicle
industry as well as competitive pressures. In some circumstances,
we may determine to do so through the acquisition of complementary
businesses and technologies rather than through internal
development. The identification of suitable acquisition candidates
can be difficult, time-consuming and costly, and we may not be able
to successfully complete identified acquisitions. The risks we face
in connection with acquisitions include:
●
diversion of
management time and focus from operating our business to addressing
acquisition integration challenges;
●
coordination of
technology, research and development and sales and marketing
functions;
●
transition of the
acquired company’s users to our website and mobile
applications;
●
retention of
employees from the acquired company;
●
cultural challenges
associated with integrating employees from the acquired company
into our organization;
●
integration of the
acquired company’s accounting, management information, human
resources and other administrative systems;
●
the need to
implement or improve controls, procedures and policies at a
business that prior to the acquisition may have lacked effective
controls, procedures and policies;
●
potential
write-offs of intangibles or other assets acquired in such
transactions that may have an adverse effect our operating results
in a given period;
●
liability for
activities of the acquired company before the acquisition,
including patent and trademark infringement claims, violations of
laws, commercial disputes, tax liabilities and other known and
unknown liabilities; and
●
litigation or other
claims in connection with the acquired company, including claims
from terminated employees, consumers, former stockholders or other
third parties.
Our
failure to address these risks or other problems encountered in
connection with our future acquisitions and investments could cause
us to fail to realize the anticipated benefits of these
acquisitions or investments, cause us to incur unanticipated
liabilities, and harm our business generally. Future acquisitions
could also result in dilutive issuances of our equity securities,
the incurrence of debt, contingent liabilities, amortization
expenses, or the impairment of goodwill, any of which could harm
our financial condition. Also, the anticipated benefits of any
acquisitions may not materialize to the extent we anticipate or at
all.
Risks Related to this Offering and our Class B Common
Stock
You will experience immediate and substantial dilution in the net
tangible book value per share of the Class B Common Stock you
purchase.
The price per share of our Class B
Common Stock sold in this offering is substantially higher than the
net tangible book value per share of our Class B Common Stock. If
you purchase shares of Class B Common Stock in this offering, you
will suffer immediate and substantial dilution of approximately
$
per share in the net
tangible book value of the Class B Common Stock. Purchasers of our
Class B Common Stock in this offering will have contributed
approximately
% of the aggregate price paid by purchasers of
our Class B Common Stock but will only own approximately % of our
Class B Common Stock outstanding after this offering, excluding any
shares they may have acquired before this offering. Furthermore, if
the underwriters exercise their over-allotment option or their
warrants, you will experience further dilution.
See the section titled
“Dilution” in this prospectus for a detailed discussion
of the dilution you will incur if you purchase Class B Common Stock
in this offering.
There has been a limited public market for our Class B Common
Stock, and we do not know if one will develop to provide you
adequate liquidity. Furthermore, the trading price for our Class B
Common Stock, should an active trading market develop, may be
volatile and could be subject to wide fluctuations in per share
price.
Our
Class B Common Stock is listed for trading on the OTCQB Market
under the trading symbol “RMBL,” however historically
there has been a limited public market for our Class B Common
Stock. We have applied to list our Class B
Company Stock on The NASDAQ Capital
Market, and the closing of this offering is contingent on the
successful listing of our Class B Common Stock on The NASDAQ
Capital Market.
R
egardless of whether our
stock is approved for listing on The NASDAQ Capital Market or
continues to trade on the OTCQB Market, we cannot assure you that
an active trading market for our Class B Common Stock will develop
or be sustained. The liquidity of any market for the shares of our
Class B Common Stock will depend on a number of factors,
including:
●
the number of
stockholders;
●
our operating
performance and financial condition;
●
the market for
similar securities;
●
the extent of
coverage of us by securities or industry analysts; and
●
the interest of
securities dealers in making a market in the shares of our Class B
Common Stock.
Even if
an active trading market develops, the market price for our Class B
Common Stock may be highly volatile and could be subject to wide
fluctuations. In addition, the price of shares of our Class B
Common Stock could decline significantly if our future operating
results fail to meet or exceed the expectations of market analysts
and investors and actual or anticipated variations in our quarterly
operating results could negatively affect our share
price.
Other factors may also contribute to volatility of the price of our
Class B Common Stock and could subject our Class B Common Stock to
wide fluctuations. These include, but are not limited
to:
●
developments in the financial markets and worldwide or regional
economies;
●
announcements of innovations or new products or services by us or
our competitors;
●
announcements by the government relating to regulations that govern
our industry;
●
significant sales of our Class B Common Stock or other securities
in the open market;
●
variations in interest rates;
●
changes in the market valuations of other comparable companies;
and
●
changes in accounting principles.
Our principal stockholders and management own a significant
percentage of our stock and an even greater percentage of our
voting power and will be able to exert significant control over
matters subject to stockholder approval.
Our
executive officers and directors as a group beneficially own shares
of our Class A Common Stock and Class B Common Stock representing
85.4% in aggregate of our voting power, including 72.1% in
aggregate voting power held by Messrs. Chesrown and Berrard as the
only holders of our 1,000,000 outstanding shares of our Class A
Common Stock, which has ten votes for each one share outstanding.
As a result, these stockholders have the ability to determine all
matters requiring stockholder approval. For example, these
stockholders are able to control elections of directors, amendments
of our organizational documents approval of any merger, sale of
assets, or other major corporate transaction. This may prevent or
discourage unsolicited acquisition proposals or offers for our
common stock that you may believe are in your best interest as a
stockholder or to take other action that you may believe are not in
your best interest as a stockholder. This may also adversely affect
the market price of our Class B Common Stock.
Our management has broad discretion as to the use of the net
proceeds from this offering.
We cannot specify with certainty the particular uses of the net
proceeds we will receive from this offering, and these uses may
vary from our current plans. Our management will have broad
discretion in the application of the net proceeds, including for
any of the purposes described in “Use of Proceeds.”
Accordingly, you will have to rely upon the judgment of our
management with respect to the use of the proceeds (other
than the repayment of approximately $1.7 million of outstanding
debt). Our management may spend a portion or all of the net
proceeds from this offering in ways that holders of our Class B
Common Stock may not desire or that may not yield a significant
return or any return at all. The failure by our management to apply
these funds effectively could harm our business.
Because our Class B Common Stock may be deemed a low-priced
“penny” stock, an investment in our Class B Common
Stock should be considered high risk and subject to marketability
restrictions.
Historically, the
trading price of our Class B Common Stock has been $5.00 per share
or lower, and deemed a penny stock, as defined in Rule 3a51-1 under
the Exchange Act, and subject to the penny stock rules of the
Exchange Act specified in rules 15g-1 through 15g-10. Those rules
require broker-dealers, before effecting transactions in any penny
stock, to:
●
deliver to the
customer, and obtain a written receipt for, a disclosure
document;
●
disclose certain
price information about the stock;
●
disclose the amount
of compensation received by the broker-dealer or any associated
person of the broker-dealer;
●
send monthly
statements to customers with market and price information about the
penny stock; and
●
in some
circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with
information specified in the rules.
Consequently, if
our Class B Common Stock returns to a $5.00 per share price or
lower, the penny stock rules may restrict the ability or
willingness of broker-dealers to sell the Class B Common Stock and
may affect the ability of holders to sell their Class B Common
Stock in the secondary market and the price at which such holders
can sell any such securities. These additional procedures could
also limit our ability to raise additional capital in the
future.
If securities or industry analysts do not publish research or
reports about our business, or if they issue an adverse or
misleading opinion regarding our stock, our stock price and trading
volume could decline.
The
trading market for our Class B Common Stock may be influenced by
the research and reports that industry or securities analysts
publish about us or our business. We do not currently have and may
never obtain research coverage by securities and industry analysts.
If no or few securities or industry analysts commence coverage of
us, the trading price for our stock may be negatively impacted. In
the event we obtain securities or industry analyst coverage, if any
of the analysts who cover us issue an adverse or misleading opinion
regarding us, our business model, our intellectual property or our
stock performance, or if our operating results fail to meet the
expectations of analysts, our stock price would likely decline. If
one or more of these analysts cease coverage of us or fail to
publish reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
A significant portion of our total outstanding shares of Class B
Common Stock is restricted from immediate resale but may be sold
into the market in the near future. This could cause the market
price of our Class B Common Stock to drop significantly, even if
our business is doing well.
Sales
of a substantial number of shares of our Class B Common Stock in
the public market or the perception that these sales might occur,
could depress the market price of our Class B Common Stock and
could impair our ability to raise capital through the sale of
additional equity securities. We are unable to predict the effect
that sales may have on the prevailing market price of our Class B
Common Stock.
On
February 8, 2017, our executive officers, directors, and certain
stockholders entered into an Amended and Restated Stockholders
Agreement, or the Stockholders Agreement, restricting the
stockholders’ ability to transfer shares of our common stock
through the earlier of (i) October 19, 2017, or (ii) the date on
which we receive at least $3,500,000 in proceeds of any equity
financing, or the Restricted Period, subject to certain exceptions.
Further, the Stockholders Agreement limits the number of shares of
our common stock that may be sold by these stockholders.
Approximately 7.3 million shares of our Class B Common Stock are
subject to these restrictions. In addition to the Stockholders
Agreement, our executive officers, directors and certain
stockholders have entered into a Lock-up Agreement, which restricts
the sale of our common stock by such parties through December 31,
2017. Approximately 7.1 million shares
of our Class B Common Stock are
subject to this Lock-up Agreement. In addition, approximately
6,243,644 shares of our Class B Common
Stock will be subject to a 180-day contractual lock-up
with the underwriters. Subject to certain limitations, including
sales volume limitations with respect to shares held by our
affiliates, following termination of the Restricted Period and
after December 31, 2017, substantially all of our outstanding
shares of common stock (other than shares of common stock subject
to the lock-up agreements with the underwriters, of which 6,243,644
shares of Class B Common Stock will be available for resale after ,
2018) will become eligible for sale. Sales of stock by the
stockholders currently subject to these lock-ups could have a
material adverse effect on the trading price of our common
stock.
We do not currently or for the foreseeable future intend to pay
dividends on our common stock.
We have
never declared or paid any cash dividends on our common stock. We
currently anticipate that we will retain future earnings for the
development, operation, and expansion of our business and do not
anticipate declaring or paying any cash dividends for the
foreseeable future. As a result, any return on your investment in
our common stock will be limited to the appreciation in the price
of our common stock, if any.
We are an “emerging growth company” under the JOBS Act,
and we cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies will make our common stock
less attractive to investors.
We are
an “emerging growth company,” as defined in the JOBS
Act, and we may take advantage of certain exemptions from various
reporting requirements that are applicable to other public
companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved.
We cannot predict if investors will find our common stock less
attractive because we may rely on these exemptions. If some
investors find our common stock less attractive as a result, there
may be a less active trading market for our common stock and our
stock price may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an
“emerging growth company” can take advantage of the
extended transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting
standards. In other words, an “emerging growth company”
can delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. We have
elected not to take advantage of the extended transition period for
complying with new or revised accounting standards.
We will
remain an “emerging growth company” for up to five
years, although we will lose that status sooner if our revenue
exceeds $1 billion, if we issue more than $1 billion in
non-convertible debt in a three-year period, or if the market value
of our common stock that is held by non-affiliates exceeds $700
million.
Even if we no longer qualify as an “emerging growth
company,” we may still be subject to reduced reporting
requirements so long as we are considered a “smaller
reporting company.”
Many of
the exemptions available for emerging growth companies are also
available to smaller reporting companies like us that have less
than $75 million of worldwide common equity held by non-affiliates.
So, although we may no longer qualify as an emerging growth
company, we may still be subject to reduced reporting
requirements.
If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results or prevent fraud. As a result, stockholders could
lose confidence in our financial and other public reporting, which
would harm our business and the trading price of our common
stock.
Effective internal
controls over financial reporting are necessary for us to provide
reliable financial reports and, together with adequate disclosure
controls and procedures, are designed to prevent fraud. Any failure
to implement required new or improved controls, or difficulties
encountered in their implementation could cause us to fail to meet
our reporting obligations. In addition, any testing by us conducted
in connection with Section 404 of the Sarbanes-Oxley Act, or
any subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls
over financial reporting that are deemed to be material weaknesses
or that may require prospective or retroactive changes to our
financial statements or identify other areas for further attention
or improvement. Inferior internal controls could also cause
investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our
common stock.
We are
required to disclose changes made in our internal controls and
procedures on a quarterly basis and our management will be required
to assess the effectiveness of these controls annually. However,
for as long as we are an “emerging growth company”
under the JOBS Act, our independent registered public accounting
firm will not be required to attest to the effectiveness of our
internal controls over financial reporting pursuant to
Section 404. We could be an “emerging growth
company” for up to five years. An independent assessment of
the effectiveness of our internal controls could detect problems
that our management’s assessment might not. Undetected
material weaknesses in our internal controls could lead to
financial statement restatements and require us to incur the
expense of remediation.
Anti-takeover provisions may limit the ability of another party to
acquire us, which could cause our stock price to
decline.
Nevada law and our charter, bylaws, and other governing documents
contain provisions that could discourage, delay or prevent a third
party from acquiring us, even if doing so may be beneficial to our
stockholders, which could cause our stock price to decline. In
addition, these provisions could limit the price investors would be
willing to pay in the future for shares of our common
stock.
USE OF PROCEEDS
We estimate the net proceeds from the
sale of
2,000,000
shares of our Class B Common Stock we
are offering will be approximately $17.3
million, based on an assumed offering price of
$9.49
per share of Class B Common Stock
(the last reported sale price of our Class B Common Stock on the
OTCQB on September 26, 2017), after deducting underwriting
discounts and $
397,075
of estimated offering
fees and expenses payable by us. If the
underwriters’ option to purchase additional shares of Class B
Common Stock is exercised in full, we estimate that our net
proceeds will be approximately $
19.9
million
.
We will retain broad discretion over
the use of the net proceeds of this offering. We currently intend
to use approximately $1.7 million of the net proceeds
of this offering for the repayment of senior secured
promissory notes in the aggregate principal amount of
$1.65 million, plus accrued interest (the "Bridge
Notes".)
The Bridge Notes bear interest at a
rate of 5% per annum through December 31, 2017, and a rate of 10%
per annum thereafter. Interest is payable monthly in arrears. The
maturity date of the Bridge Notes is September 5, 2018.
The principal amount and
any unpaid interest accrued thereon may be prepaid at any time
before the maturity date without premium or penalty upon five days
prior written notice to the holders. If we consummate one or more
financing transactions resulting in available net proceeds of
$5,000,000 or more, then the holders of the Bridge Notes may
require us to prepay the Bridge Notes. The Bridge Notes are secured
by an interest in all of our Collateral, as such term is defined in
the Bridge Notes.
We intend to use the remaining
net proceeds for working capital and general corporate
purposes, which may include purchases of additional inventory held
for sale, increased spending on marketing and advertising and
capital expenditures necessary to grow the
business.
The net proceeds received
by us may be used for other purposes that our Board or management
deem to be in our best interest. This expected use of proceeds
represents our intentions based on current plans and business
conditions. Thus, as of the date of this prospectus and except as
explicitly set forth herein, we cannot specify with certainty all
of the particular uses of the net proceeds from this offering.
Pending use of the net proceeds of this offering as described
above, we may invest the net proceeds in short-term
interest-bearing investment grade instruments.
Although it is difficult to predict future liquidity requirements,
we believe that the net proceeds from this offering and our
existing cash flow from operations will be sufficient to fund our
operations for the next twelve months.
CAPITALIZATION
The following table sets forth our cash, total liabilities and
capitalization, as of June 30, 2017:
●
on an actual basis; and
●
as adjusted, based on
an assumed offering price of $9.49
per share of our Class
B Common Stock (the last reported sale price of our Class B
Common Stock on the OTCQB on September 26, 2017),
to give
effect to the sale of
2,000,000 shares
of Class B Common Stock, after deducting the estimated
underwriter discounts and commissions and estimated offering
expenses payable by us
.
|
|
As of June 30, 2017
|
|
|
|
Actual
|
As Adjusted
|
|
Cash
|
$
1,050,246
|
$
18,304,571
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued liabilities
|
$
1,262,093
|
1,262,093
|
|
Accrued interest
payable – current portion
|
$
33,479
|
33,479
|
|
Total current
liabilities
|
$
1,295,572
|
1,295,572
|
|
|
|
|
|
Long term
liabilities:
|
|
|
|
Notes
payable
|
$
1,372,959
|
1,372,959
|
|
Accrued interest
payable, excluding current portion
|
$
10,809
|
10,809
|
|
Deferred tax
liability
|
-
|
-
|
|
Total long-term
liabilities
|
$
1,383,768
|
1,383,768
|
|
Total
liabilities
|
$
2,679,340
|
2,679,340
|
|
Stockholders'
equity:
|
|
|
|
Preferred stock,
$0.001 par value, 10,000,000 shares authorized,
no shares issued
and outstanding
|
-
|
-
|
|
Class A common
stock, $0.001 par value, 10,000,000 share
authorized,
1,000,000 shares issued and outstanding
|
1,000
|
1,000
|
|
Class B common
stock, $0.001 par value, 100,000,000 shares
authorized,
9,018,541 shares issued and outstanding, actual;
100,000,000 shares
authorized, shares issued and outstanding, as adjusted
|
9,019
|
11,019
|
|
Additional paid in
capital
|
8,591,803
|
25,844,128
|
|
Subscriptions
receivable
|
(1,000
)
|
(1,000
)
|
|
Accumulated
deficit
|
(3,261,094
)
|
(3,261,094
)
|
|
Total
Stockholders’ equity
|
5,339,728
|
22,594,053
|
|
Total
Capitalization
|
$
6,723,496
|
$
23,977,821
|
The forgoing
table does not give effect to the private placement of Bridge Notes
on September 5, 2017 in an aggregate principal amount of $1,650,000
plus accrued interest and including an original issue discount of
approximately 10%, which Bridge Notes will be repaid in full with
the proceeds from this offering. In addition,
the foregoing table assumes no exercise of the
underwriters' option to purchase up to an additional
300,000
shares of Class B Common Stock to cover over-allotments, if any.
The as adjusted numbers in the foregoing table are illustrative
only and our capitalization upon completion of the offering will be
adjusted based upon the actual public offering price and other
terms of the offering determined at pricing. You should read the
forgoing table together with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations for
RumbleOn” and our consolidated financial statements and
related notes appearing elsewhere in this prospectus.
DILUTION
As of June 30, 2017, we had a net
tangible book value of $1,966,713 or $0.20 per share, based on
1,000,000 shares of Class A Common Stock and 9,018,541 shares of
Class B Common Stock outstanding as of June 30, 2017. Net
tangible book value represents our total tangible assets, less
all liabilities and intangible assets, divided by the number of
shares of Common Stock outstanding. Without taking into account any
changes in such net tangible book value after June 30, 2017, other
than to give effect to our sale of
2,000,000 shares of Class
B Common Stock offered at the assumed price of
$9.49
per share (the last reported sale
price of our Class B Common Stock on the OTCQB on September 26,
2017), after deducting underwriting discounts
and commissions and estimated offering fees and
expenses of $1,725,675 in the aggregate, or $0.86 per
share, payable by us, the pro forma net tangible book value
per share at June 30, 2017 was $
1.60
. This amount represents an immediate
increase in net tangible book value of $
1.40
per share to our current shareholders
and an immediate decrease in net tangible book value of
$
7.03
per share to new investors
purchasing shares in this offering.
The table set forth below shows the calculation of the increase in
book value to current shareholders and the decrease in offering
price to investors in this offering.
|
Offering
price per share
|
$
9.49
|
|
Net tangible book value per share at
June 30,
2017
|
$
0.20
|
|
Net tangible book value per share
giving
effect to offering
|
$
1.60
|
|
Increase in book value per share to existing
investors
|
$
1.40
|
|
Dilution
in net tangible book value per share to new investors
|
$
7.03
|
If the underwriters exercise their
over-allotment option in full to purchase an additional
shares of Class B Common
Stock in this offering and the representatives of the
underwriter exercise their warrants for an
additional 172,500 shares of Class B Common Stock, our
pro forma net tangible book value as of June 30, 2017 would be
approximately
$23,545,773, or $1.89 per
share, the increase in the pro forma net tangible book value to
existing stockholders would be $1.69
per share and the pro forma
dilution to new investors participating in this offering would be
$6.90
per share.
The above discussion and table are based on 10,018,541 shares of
common stock outstanding as of June 30,
2017 which excludes 560,000 shares underlying outstanding
restricted stock units granted under the RumbleOn, Inc. 2017 Stock
Incentive Plan and 522,224 shares reserved for issuance under the
RumbleOn, Inc. 2017 Stock Incentive Plan.
In addition, we may
choose to raise additional capital in the future. To the extent
that capital is raised through equity or convertible securities,
the issuance of those securities may result in further dilution to
the holders of common stock.
DESCRIPTION OF BUSINESS
Overview
We
operate a capital light disruptive e-commerce platform facilitating
the ability of both consumers and dealers to Buy-Sell-Trade-Finance
pre-owned motorcycle and other power/recreation
vehicles in one online location. Our goal is to transform the way
motorcycles and other power/recreation vehicles are
bought and sold by providing users with the most efficient, timely
and transparent transaction experience. Our initial focus is the
market for 601cc and larger on-road
motorcycles, particularly those concentrated in the
“Harley-Davidson” brand. We will look to extend to
additional power/recreation vehicle types and products
as the platform matures, including ATVs, personal watercraft,
snowmobiles, side-by-sides, boats, and both towable and motor coach
RVs.
Serving
both consumers and dealers, through our online platform, we make
cash offers for the purchase of their vehicles and intend to
provide them the flexibility to trade, list, or auction their
vehicle through our website and mobile applications. In addition,
we offer a large inventory of used vehicles for sale along with
third-party financing and associated products. Our operations are
designed to be scalable by working through an infrastructure and
capital light model that is achievable by virtue of a synergistic
relationship with dealer partners. We utilize dealer partners in
the acquisition of motorcycles as well as to provide inspection,
reconditioning and distribution services. Correspondingly, we earn
fees and transaction income, and dealer partners will earn
incremental revenue and enhance profitability through increased
sales, leads, and fees from inspection, reconditioning and
distribution programs.
Our
business model is driven by a technology platform we acquired in
February 2017, through our acquisition of substantially all of the
assets of NextGen. The acquired system provides integrated vehicle
appraisal, inventory management, customer relationship and lead
management, equity mining, and other key services necessary to
drive the online marketplace. Over the past 16 years, the
developers of the software have designed and built, for large
multi-national clients, a number of dealer and, what we believe to
be, high quality applications solutions.
Our
business combines a comprehensive online buying and selling
experience with a vertically-integrated supply chain that allows us
to buy and sell high quality vehicles to consumers and dealer
partners transparently and efficiently at a value-oriented price.
Using our website or mobile application, consumers and dealers can
complete all phases of a used vehicle transaction. Our online
buying and selling experience allows consumers to:
●
Sell us a vehicle
. We address the lack
of liquidity available in the market for a cash sale of a vehicle
by dealers and consumers through our Sell Us Your Vehicle Program.
Dealers and consumers can sell us a vehicle independent of a
purchase. Using our free online or mobile appraisal tool, consumers
and dealers can complete a short appraisal form and receive a
haggle-free, guaranteed 3-day firm cash offer for their vehicle
within minutes and, if accepted, receive payment in a few days or
less. Our cash offer to buy is based on the use of extensive used
retail and wholesale vehicle market data. When a consumer accepts
our offer, we ship their vehicles to our closest dealer partner
where the vehicle is inspected, reconditioned and stored pending
sale. We believe buying used vehicles directly from consumers will
be the primary driver of our source of supply for sale and a key to
our ability to offer competitive pricing to buyers. By being one of
the few sources for consumers to receive cash for their vehicle, we
have a significant opportunity to buy product at a lower cost since
dealer and auction markup is eliminated from these consumer
purchases. In addition, we believe our willingness to appraise and
purchase a customer’s vehicle, whether or not the customer is
buying a vehicle from us, provides a competitive sourcing advantage
for retail vehicles.
●
List a vehicle.
The current market for
listing motorcycles and other power sport vehicles is inefficient
and ineffective in that a majority of the transactions are
conducted through peer-to-peer transactions, which do not
facilitate making cash offers, accepting trades or providing
financing to the buyer. Our listing options and comprehensive
transaction support addresses the shortcomings that currently exist
in the market for listing a vehicle for sale while allowing dealers
and consumers an opportunity to utilize a simple, efficient and
effective process to maximize their selling price. Consumers who do
no not accept our cash offer can pay a fee to list their vehicle on
Rumbleon.com
and
other available listing sites. During the listing period, our cash
offer is extended and we manage all sales leads, handle all the
documentation necessary to complete a sale and accept a buyer trade
and provide a range of third-party finance options and vehicle
service contracts to the buyer, if necessary. Upon the sale of a
listed vehicle, we earn a fee separate and apart from
the listing fee. Dealer partners do not pay a fee to list their
vehicles.
●
Purchase a used vehicle
. Our 100% online
approach to retail and wholesale distribution addresses the many
issues currently facing the retail and wholesale distribution
marketplace for power/recreation vehicles, a
marketplace we believe is primed for a disruptive change. We
believe the issues facing the marketplace include: (i) heavy use of
inefficient listing sites, (ii) a highly fragmented dealer network;
(iii) a limited selection of used vehicles for sale; (iv) negative
consumer perception of the current buying experience; and (v) a
massive consumer shift to online retail. We offer dealers and
consumers a large selection of high quality vehicles at a
value-oriented price that can be purchased in a seamless
transaction in minutes. In addition to a transparent buying
experience, our no haggle pricing, coupled with an inspected,
reconditioned and certified vehicle, backed by a fender-to-fender
warranty and a 3-day money back guarantee, addresses consumer
dissatisfaction with the current buying processes in the
marketplace. As of September 20, 2017, including
vehicles of our dealer partners, we have approximately
600 vehicles listed for sale on our website, where
consumers can select and purchase a vehicle, including arranging
financing, directly from their desktop or mobile device. Selling
used vehicles to dealers and consumers is the key driver of our
business.
●
Finance a purchase
. Customers can pay
for their vehicle using cash or we will provide a range of finance
options from unrelated third parties such as banks or credit
unions. Customers fill out a short online application form, select
from the range of financing options provided, and, if approved,
apply the financing to their purchase in our online checkout
process.
●
Protect a purchase
. Customers have the
option to protect their vehicle with unrelated third-party branded
EPPs and vehicle appearance protection products as part of our
online checkout process.
EPPs include
extended service plans which are designed to cover unexpected
expenses associated with mechanical breakdowns and guaranteed asset
protection, which is intended to cover the unpaid balance on a
vehicle loan in the event of a total loss of the vehicle or
unrecovered theft. Vehicle appearance protection includes products
aimed at maintaining vehicle appearance
.
To
enable a seamless dealer and consumer experience, we are building a
vertically-integrated used vehicle supply chain, supported by
proprietary software systems and data which include the following
attributes:
●
Vehicle sourcing and acquisition
. We
acquire a significant percentage of our used vehicle inventory
directly from consumers and dealers through our Sell Us Your
Vehicle Program. We also, to a lesser extent, acquire vehicles from
auctions and directly from used vehicle suppliers, including
franchise and independent dealers and finance and leasing
companies. Using used retail and wholesale vehicle market data
obtained from a variety of internal and external sources, we
evaluate a significant number of vehicles daily to determine their
fit with consumer demand, internal profitability targets and our
existing inventory mix. The supply of late-model used vehicles is
influenced by a variety of factors, including: the total number of
vehicles in operation; the rate of new vehicle sales, which in turn
generate used vehicle trade-ins; and the number of used vehicles
sold or remarketed through retail channels, wholesale transactions
and at auctions. Based on the large number of vehicles remarketed
each year, consumer acceptance of our online vehicle appraisal
process, our experience and success in acquiring vehicles from
auctions and other sources and the large size of the United States
market relative to our needs, we believe that sources of used
vehicles will continue to be sufficient to meet our current and
future needs.
●
Inspection, reconditioning
and logistics
. After acquiring a
vehicle, we transport it to one of our dealer partners who is paid
to perform an inspection and to recondition the vehicle to meet
“RumbleOn Certified” standards. High quality
photographs are then taken, the vehicle is listed for sale on
Rumbleon.com and the dealer partner stores the vehicle pending
delivery to the buyer. This process is supported by a custom used
vehicle inventory management system, which tracks vehicles through
each stage of the inspection, reconditioning and logistic process.
The ability to leverage and provide a high margin source of
incremental revenue to the existing network of dealer partners in
return for providing inspection, reconditioning, logistics and
distribution support reduces our need for any significant
investment in retail or reconditioning facilities.
Corporate History
We were
incorporated as a development stage company in the State of Nevada
as Smart Server, Inc. in October 2013. In February 2017, we changed
our name to RumbleOn, Inc. We were formed to engage in the business
of designing and developing computer application software for smart
phones and tablet computers to provide customers at participating
restaurants, bars, and clubs the ability to pay their bill with
their smartphone without having to ask for the check. We ceased our
software development activities in 2015 and, having no operations
and no or nominal assets, met the definition of a “shell
company” under the Exchange Act and the rules and regulations
thereunder. We continued as a public shell company through the
fiscal year ended December 31, 2016, however we engaged in no
business or operations during the year ended December 31,
2016.
In
July 2016, Berrard Holdings Limited Partnership, or Berrard
Holdings, acquired 5,475,000 shares of our common stock from the
prior owner of such shares pursuant to an Amended and Restated
Stock Purchase Agreement, dated July 13, 2016. The shares acquired
by Berrard Holdings represented 99.5% of our then issued and
outstanding shares of common stock. Steven Berrard, a director and
our Chief Financial Officer and Secretary, has voting and
dispositive control over Berrard Holdings. The aggregate purchase
price of the shares was $148,141. In addition, at the closing,
Berrard Holdings loaned us and we executed a convertible promissory
note, or the BHLP Note, in the principal amount of $191,858 payable
to Berrard Holdings. Effective August 31, 2016, the BHLP Note was
amended to increase the principal amount by $5,500 to $197,358 in
aggregate amount payable to Berrard Holdings. On March 31, 2017, we
issued Berrard Holdings 275,312 shares of Class B Common Stock upon
full conversion of the BHLP Note, having an aggregate principal
amount, including accrued interest, of $206,484 at a conversion
price of $0.75 per share.
In
October 2016, Berrard Holdings sold an aggregate of 3,312,500
shares of our common stock to Marshall Chesrown, our Chairman of
the Board and Chief Executive Officer, and certain other purchasers
pursuant to letter agreements dated October 24, 2016. The 2,412,500
shares acquired by Mr. Chesrown represented 43.9% of our
issued and outstanding shares of common stock at the time of the
purchase. The remaining shares owned by Berrard Holdings after
giving effect to the transaction represented 39.3% of our issued
and outstanding shares of common stock. The aggregate purchase
price for the shares sold in this transaction was
$139,125.
On
January 8, 2017, we entered into an Asset Purchase Agreement
with NextGen, Halcyon Consulting, LLC, or Halcyon, and the members
of Halcyon, pursuant to which NextGen agreed to sell to us
substantially all of the assets of NextGen in exchange for a
payment of approximately $750,000 in cash, the issuance to NextGen
of 1,523,809 unregistered shares of our Class B Common Stock, or
NextGen Shares, the issuance of a subordinated secured promissory
note issued by us in favor of NextGen in the amount of $1,333,333,
or the NextGen Note, and the assumption by us of certain specified
post-closing liabilities of NextGen under the contracts being
assigned to us as part of the transaction. On February 8, 2017, we
assigned to NextGen Pro the right to acquire NextGen’s assets
and liabilities.
On
February 8, 2017, or the Closing Date, we and NextGen Pro completed
the NextGen Acquisition in exchange for approximately $750,000 in
cash, the NextGen Shares, the NextGen Note, and the other
consideration described above. The NextGen Note matures on the
third anniversary of the Closing Date, or the Maturity Date.
Interest accrues and will be paid semi-annually (i) at a rate of
6.5% annually from the Closing Date through the second anniversary
of such date and (ii) at a rate of 8.5% annually from the second
anniversary of the Closing Date through the Maturity Date. Our
obligations under the NextGen Note are secured by substantially all
the assets of NextGen Pro pursuant to an Unconditional Guaranty
Agreement, or the Guaranty Agreement, by and among NextGen and
NextGen Pro, and a related Security Agreement between the parties,
each dated as of the Closing Date. Under the terms of the Guaranty
Agreement, NextGen Pro has agreed to guarantee the performance of
all of our obligations under the NextGen Note.
On
February 13, 2017, or the Effective Date, we filed a Certificate of
Amendment with the Secretary of State of the State of Nevada
changing our name to RumbleOn, Inc. and creating the Class A Common
Stock and Class B Common Stock. Also on the Effective Date, we
issued an aggregate of 1,000,000 shares of Class A Common Stock to
Messrs. Chesrown and Berrard in exchange for an aggregate of
1,000,000 shares of Class B Common Stock held by them.
On
March 31, 2017, we completed the sale of 620,000 shares of
Class B Common Stock, at a price of $4.00 per share for aggregate
proceeds of $2,480,000 in a private placement offering, or the 2017
Private Placement. We sold an additional 37,500 shares of Class B
Common Stock in connection with the 2017 Private Placement on April
30, 2017. Our officers and directors acquired 175,000 shares of
Class B Common Stock in the 2017 Private Placement. Proceeds from
the 2017 Private Placement were used to complete the launch of our
website, acquire vehicle inventory, continue development of our
platform, and for working capital purposes.
Our Strategy
Our
strategy is to provide a complete online, direct, pre-owned
motorcycle and power/recreation vehicle marketplace
solution for both consumers and dealers, while providing dealers
access to additional software solutions and services allowing them
to earn incremental revenue and enhance profitability through
increased sales leads, and fees earned from inspection,
reconditioning and distribution programs. The recognition of the
need for our solutions is the result of our management team gaining
a clear understanding of the key drivers of complete supply chain
solutions necessary to create a different and disruptive way to
both acquire and distribute cars and trucks online from their deep
experience in the automotive sector with disruptive businesses such
as: AutoNation, Auto America, and Vroom. We believe that there is a
significant opportunity to disrupt the pre-owned marketplace in
recreational vehicles as it suffers from many of the same negative
consumer sentiments and dealer practices that existed in the
automotive sector prior to the advent of and the significant influx
of new entrants with improved business models. In addition, the
power/recreation vehicle segment lacks the significant
competition that exists in the automotive sector due to its
fragmented dealer network, relative size and the niche nature of
its products. Management believes consumers prefer to
purchase and sell through a well-designed
online/mobile solution, with a broad selection of vehicles at
highly competitive prices. We believe that our applications will
provide appraisal, cash-offer, vehicle listing, financing options,
and logistics/delivery solutions designed to provide an exceptional
consumer experience. We intend to replicate and improve upon the
positive attributes of the various “sell us your
car” and other related programs that have proven successful
in automotive retail for entities such as AutoNation, CarMax,
Carvana, Vroom and others.
Our
dealer strategy is focused on creating a synergistic relationship
wherein dealers will have the ability to leverage the RumbleOn
marketplace and dealer services offerings to drive increased
revenue through the purchase or sale of vehicles via the online
platform and the ability to earn fees from inspection,
reconditioning and distribution programs. Dealer partners will have
the ability to show the complete RumbleOn vehicle inventory on
their website and will have access to preferred pricing on the
acquisition of vehicles. Management believes that partners
utilizing the platform will significantly enhance their existing
online retail strategies. We have agreed to add dealers to our
network and is in discussions with other dealers regarding joining
the network. We believe that our operations, designed to be both
capital and infrastructure light, will leverage the dealer network
to provide inspection, reconditioning and distribution, thus
minimizing the number of warehouse locations, reconditioning
centers and logistics facilities we operate. We plan to primarily
operate a centralized headquarter, call center, and limited number
of strategically located warehouses as needed.
Our
initial focus on pre-owned Harley-Davidson motorcycles provides a
targeted, identifiable segment to establish the functionality of
the platform and the RumbleOn brand. Harley-Davidson is a highly
regarded and dominant brand (representing approximately 50% market
share of new 601cc+ on-road motorcycles according to
both Harley-Davidson public filings and the Motorcycle Industry
Council) in the motorcycle market, with a base of over three
million pre-owned motorcycles registered for use in the United
States. According to Harley-Davidson, as disclosed in their 2017
investor meeting presentation, and management
estimates, each year approximately 400,000 pre-owned
Harley-Davidsons are sold, with Harley-Davidson dealers selling
approximately 125,000 units, 250,000 units sold in private consumer
and independent dealer transactions, and 25,000 sold via other
means. Further, as Harley-Davidson discussed in its 2017
investor meeting presentation, their objective is to build
two million new Harley-Davidson riders in the United States in the
next 10 years, principally, we believe, via brand marketing
and product development, estimated at $70
million in 2016, dealer hosted experiences and the Harley-Davidson
Riding Academy. We believe such efforts will benefit us as, per
Harley-Davidson’s 2017 investor meeting
presentation, there are 2.4 million owners of
non-Harley-Davidson motorcycles, and 15.0 million people who
don’t currently own a motorcycle, who have an interest in
Harley-Davidson and are planning to purchase a motorcycle within
three years. Further, Harley-Davidson’s estimates that there
are 7.8. million motorcycle license holders who do not currently
own a motorcycle and that the sale of used Harley-Davidson
motorcycles to young adults (ages 18-34) was three times the sale
of new Harley-Davidson motorcycles to the same age group. These
statistics support our contention that there is expected to be a
growing market for used Harley-Davison transactions and a more
informed buyer.
We
believe that we may potentially enjoy a halo effect from
Harley-Davidson’s advertising as not all young new buyers
will purchase new motorcycles. Our extension into the
“metric” brands (Honda, Yamaha, Kawasaki, Suzuki, etc.)
essentially doubles the available market and is a natural extension
as these vehicles are often sold or traded for Harley-Davidson
vehicles. The metric market and dealer profile closely mirrors that
of the Harley-Davidson market although it is more highly
fragmented. In addition, many of the metric dealers also retail
ATVs, UTVs, snowmobiles and personal watercraft providing the next
organic product extension leveraging existing dealer
relationships.
Our Growth Strategy
We
intend to transform the way recreational vehicles are bought and
sold and thereby significantly grow our business and gain market
share by targeting the large number of private consumer peer to
peer transactions driven by listing only sites such as Craigslist.
Management estimates the market for annual used motorcycle sales
today at approximately 800,000 units sold, or approximately $7.5
billion of sales. Management believes approximately 50% or more of
these transactions are completed on a peer to peer basis. We
believe these transactions are highly inefficient and consumers
view the process as cumbersome. Our online consumer direct sourcing
strategy, wherein we make a cash offer to a consumer or dealer
utilizing our website or mobile application allows us to deliver
value pricing on our vehicles for sale. We believe our
large scale inventory of vehicles for sale, coupled with our online
platform, transparent selling process, certified and reconditioned
vehicles and ability to offer financing and ancillary products
provides a unique customer experience as compared to current
alternatives when purchasing a vehicle. We believe we can
aggressively drive RumbleOn brand recognition and awareness at a
relatively low expense by utilizing digital, social media and
guerrilla marketing techniques, as there are few national
competitors and consumers are very brand focused and loyal. For
example, approximately 15 key motorcycle events, such as Daytona
Bike Week and the Sturgis Bike Rally, attract
approximately four million attendees
annually, many of whom are both motorcycle enthusiasts and
Harley-Davidson consumers. We intend to have a significant presence
at these events, with onsite advertising and sales facilities to
build brand awareness. In addition, we anticipate engaging with or
sponsoring active Harley Owner Group® (“HOG”)
chapters, providing us a targeted audience to which to market
RumbleOn and showcase the ease with which they can buy, sell, or
trade motorcycles. Once motorcycle enthusiasts have sampled our
website, we believe the unique experience will be compelling and
drive organic growth. Over time, management believes we will build
a proprietary database of customers and their interests, which will
facilitate customer retention and cross sell
activities.
Our Market
We
operate in a market with significant scale and breadth of products.
The Motorcycle Industry Council estimates that in
2014, 9.2 million people owned 10.1 million
motorcycles in the United States. 87% of these were
on-highway models, our initial targeted segment. According to
the Powersports Business 2016 Market Data Book, or the 2016 Market
Databook
,
used motorcycle registrations were 1.1 million units
in 2015 with new unit sales of approximately 573,000
or approximately $7 billion in new vehicle sales. The owner
demographic is favorable to the market outlook as millennials and
baby boomers are maturing into the median ranges. The owner group
is characterized by brand loyal riding enthusiasts. According
to the Motorcycle Industry Council, in 2014 the median owner
age was 47 years with a median income of
$62,200 which is approximately 10% above the United
States’ average. The dealer market is fragmented with an
estimated 4,600 retail outlets authorized to sell new
motorcycles, scooter, and all-terrain vehicles.
The
ATV, UTV/side-by-side, snowmobile and personal watercraft vehicle,
or PWC, markets, are a logical next extension for our platform, as
there is significant overlap in the motorcycle dealer base with
dealers of these products. According to data from Power Product
Marketing and the 2016 Market Data Book, there were
approximately 630,000 sales of ATV/UTV/Side-by-sides in 2015. There
are approximately 1.2 million snowmobiles registered in the United
States (another 600,000 in Canada) and in 2016, approximately
95,000 snowmobiles were sold in the United States and Canada.
Lastly, according the National Marine Manufacturers Association and
the Personal Watercraft Industry Association, in 2015 there were
more than 54,000 new PWCs sold in the United States and there are
currently approximately 1.2 million PWCs registered in the United
States.
As we
look to further extend the platform, the two largest adjacent
segments are represented by the recreational boating and
recreational vehicle (
motor vehicle or
trailer equipped with living space and amenities found in a
home)
industries. According to the National Marine
Manufacturers Association, there were approximately 15.7 million
recreational boats in the United States in 2014, and
there were approximately 940,000 sales of pre-owned boats in
2014. Correspondingly, the Recreational Vehicle
Industry Association estimates that currently more than 8.9 million
households own an RV and in 2017 there will be over 470,000
shipments of RVs from manufacturers to dealers.
Competition
We face
competition in all our business segments. The United States used
recreational vehicle marketplace is highly fragmented, and we face
competition from franchised dealers, who sell both new and used
vehicles; independent dealers; online and mobile sales platforms;
and private parties. We believe that the principal competitive
factors in our industry are delivering an outstanding consumer
experience, competitive sourcing of vehicles, breadth and depth of
product selection, and value pricing. Our competitors vary in size
and breadth of their product offerings. We believe that our
principal competitive advantages in used vehicle retailing will
include our ability to provide a high degree of customer
satisfaction with the buying experience by virtue of our low,
no-haggle prices and our online platform including our website and
mobile application and our ability to make a cash offer to purchase
a vehicle or offer listing alternatives coupled with our
customer-friendly sales process and our breadth of selection of the
most popular makes and models available on our website. In
addition, we believe our willingness to appraise and purchase a
customer’s vehicle, whether or not the customer is buying a
vehicle from us, provides a competitive sourcing advantage for
retail vehicles allowing us to offer value-oriented
pricing. We believe the principal competitive factors
for our ancillary products and services include an ability to offer
a full suite of products at competitive prices delivered in an
efficient manner to the customer. We will compete with a variety of
entities in offering these products including banks, finance
companies, insurance and warranty providers and extended vehicle
service contract providers. We believe our competitive strengths in
this category will include our ability to deliver products in an
efficient manner to customers utilizing our technology and our
ability to partner with key participants in each category to offer
a full suite of products at competitive prices. Lastly, additional
competitors may enter the businesses in which we will
operate.
Intellectual Property and Proprietary Rights
Our
brand image and the more than
1,000
domain names held
by us are a critical element of strategy to build consumer
awareness of our business. Our principal trademark,
RumbleOn, has an application pending with the U.S. Patent and
Trademark Office.
Government Regulation
Various
aspects of our business are or may be subject, directly or
indirectly, to U.S. federal and state laws and regulations. Failure
to comply with such laws or regulations may result in the
suspension or termination of our ability to do business in affected
jurisdictions or the imposition of significant civil and criminal
penalties, including fines or the award of significant damages
against us and our dealers in class action or other civil
litigation.
State Motor Vehicle Sales, Advertising and Brokering
Laws
The
advertising and sale of new or used motor vehicles is highly
regulated by the states in which we do business. Although we do not
anticipate selling new vehicles, state regulatory authorities or
third parties could take the position that some of the regulations
applicable to dealers or to the manner in which recreational
vehicles are advertised and sold generally are directly applicable
to our business. If our products and services are determined to not
comply with relevant regulatory requirements, we could be subject
to significant civil and criminal penalties, including fines, or
the award of significant damages in class action or other civil
litigation as well as orders interfering with our ability to
continue providing our products and services in certain states. In
addition, even absent such a determination, to the extent dealers
are uncertain about the applicability of such laws and regulations
to our business, we may lose, or have difficulty increasing the
number of dealers in our network, which would affect our future
growth.
Several
states have laws and regulations that strictly regulate or prohibit
the brokering of motor recreational vehicles or the making of
so-called “bird-dog” payments by dealers to third
parties in connection with the sale of motor vehicles through
persons other than licensed salespersons. If our products or
services are determined to fall within the scope of such laws or
regulations, we may be forced to implement new measures, which
could be costly, to reduce our exposure to those obligations,
including the discontinuation of certain products or services in
affected jurisdictions. Additionally, such a determination could
subject us to significant civil or criminal penalties, including
fines, or the award of significant damages in class action or other
civil litigation.
In
addition to generally applicable consumer protection laws, many
states in which we may do business either have or may implement
laws and regulations that specifically regulate the advertising for
sale of new or used recreational vehicles. These state advertising
laws and regulations may not be uniform from state to state,
sometimes imposing inconsistent requirements on the advertiser of a
new or used recreational vehicle. If the content displayed on the
websites we operate is determined or alleged to be inaccurate or
misleading, we could be subject to significant civil and criminal
penalties, including fines, or the award of significant damages in
class action or other civil litigation. Moreover, such allegations,
even if unfounded or decided in our favor, could be extremely
costly to defend, could require us to pay significant sums in
settlements, and could interfere with our ability to continue
providing our products and services in certain states.
Federal Advertising Regulations
The
Federal Trade Commission, or the FTC, has authority to take actions
to remedy or prevent advertising practices that it considers to be
unfair or deceptive and that affect commerce in the United States.
If the FTC takes the position in the future that any aspect of our
business constitutes an unfair or deceptive advertising practice,
responding to such allegations could require us to pay significant
damages, settlements, and civil penalties, or could require us to
make adjustments to our products and services, any or all of which
could result in substantial adverse publicity, loss of
participating dealers, lost revenue, increased expenses, and
decreased profitability.
Federal Antitrust Laws
The
antitrust laws prohibit, among other things, any joint conduct
among competitors that would lessen competition in the marketplace.
Some of the information that we may obtain from dealers may be
sensitive and, if disclosed inappropriately, could potentially be
used by dealers to impede competition or otherwise diminish
independent pricing activity. A governmental or private civil
action alleging the improper exchange of information, or unlawful
participation in price maintenance or other unlawful or anti
competitive activity, even if unfounded, could be costly to defend
and adversely impact our ability to maintain and grow our dealer
network.
In
addition, governmental or private civil actions related to the
antitrust laws could result in orders suspending or terminating our
ability to do business or otherwise altering or limiting certain of
our business practices, including the manner in which we handle or
disclose pricing information, or the imposition of significant
civil or criminal penalties, including fines or the award of
significant damages against us in class action or other civil
litigation.
The
foregoing description of laws and regulations to which we are or
may be subject is not exhaustive, and the regulatory framework
governing our operations is subject to continuous change. The
enactment of new laws and regulations or the interpretation of
existing laws and regulations in an unfavorable way may affect the
operation of our business, directly or indirectly, which could
result in substantial regulatory compliance costs, civil or
criminal penalties, including fines, adverse publicity, loss of
participating dealers, lost revenue, increased expenses and
decreased profitability.
Description of Property
We
currently maintain offices at 4521 Sharon Road, Suite 370,
Charlotte, NC 28211 and 1431 Greenway Drive, Suite 775, Irving TX
75038, and 3258 South East Outer Road, Scott City, MO 63780. Our
total monthly rent expense is approximately $4,000. During the next
12 months as we continue to implement our business plan, we
anticipate requiring additional office and warehouse space and
additional personnel; however, it is unknown at this time how much
space or how many individuals will be required.
Legal Proceedings
We are
not a party to any material legal proceedings.
Employees
As of
September 20, 2017, we had 26 full-time
employees and no part-time employees.
Available Information
We file
annual, quarterly and other reports and other information with the
SEC. You can read these SEC filings and reports over the Internet
at the SEC’s website at www.sec.gov. You can also obtain
copies of the documents at prescribed rates by writing to the
Public Reference Section of the SEC at 100 F Street, NE,
Washington, DC 20549 on official business days between the hours of
10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for
further information on the operations of the public reference
facilities. We will provide a copy of our annual report to security
holders, including audited financial statements, at no charge upon
receipt of a written request to us at RumbleOn, Inc., 4521 Sharon
Road, Suite 370, Charlotte, NC, 28211.
MARKET PRICE AND DIVIDENDS ON COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
We have
applied for listing of our Class B Common Stock on The NASDAQ
Capital Market under the symbol “RMBL.” No
assurance can be given that our application will be
approved.
Our
common stock trades on the OTCQB Market under the symbol RMBL. The
following table sets forth the high and low closing sales prices
per share of our common stock for the period
indicated:
|
Year
Ending December 31, 2017
|
High
|
Low
|
|
First
Quarter
|
$
5.00
|
$
0.00
|
|
Second
Quarter
|
$
7.00
|
$
3.40
|
|
Third Quarter
(through September 26, 2017)
|
$
9.50
|
$
6.50
|
Before
January 1, 2017, our common stock was not traded, except for 5,000
shares, which traded on the OTC Markets Pink Sheets on January 22,
2016 at a price of $0.245 per share.
Holders of Common Stock
As of
September 26, 2017, we had approximately
44 stockholders of record of 9,018,541 issued and outstanding
shares of Class B Common Stock and two holders of record of
1,000,000 issued and outstanding shares of Class A Common
Stock.
Dividends
We have
never declared or paid any cash dividends. We currently do not
intend to pay cash dividends in the foreseeable future on the
shares of our common stock. We intend to reinvest any earning in
the development and expansion of our business. Any cash dividends
in the future to common stockholders will be payable when, as and
if declared by our Board, based upon the Board’s assessment
of:
●
our financial
condition;
●
earnings;
●
need for
funds;
●
capital
requirements;
●
prior claims of
preferred stock, to the extent issued and outstanding;
and
●
other factors,
including applicable law.
Therefore, there
can be no assurance that any dividends on our common stock will
ever be paid.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS FOR RUMBLEON
This prospectus contains forward-looking statements. Any statements
contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. The words
“believes,” “anticipates,”
“plans,” “expects,” “intends”
and similar expressions identify some of the forward-looking
statements. Forward-looking statements are not guarantees of
performance or future results and involve risks, uncertainties and
assumptions. The factors discussed elsewhere in this prospectus and
in our Annual Report on Form 10-K for the year ended December 31,
2016, and our other filings with the SEC could cause actual results
to differ materially from those indicated by our forward-looking
statements. We undertake no obligation to publicly update or revise
any forward-looking statements, except as required by
law.
Overview
We
operate a capital light disruptive e-commerce platform facilitating
the ability of both consumers and dealers to Buy-Sell-Trade-Finance
pre-owned motorcycle and other power/recreation
vehicles in one online location. Our goal is to transform the way
motorcycles and other power/recreation vehicles are
bought and sold by providing users with the most efficient, timely
and transparent transaction experience. Our initial focus is the
market for 601cc and larger on-road motorcycle brands,
particularly those concentrated in the
“Harley-Davidson” brand. We will look to extend to
additional power/recreation vehicle types and products
as the platform matures, including ATVs, personal watercraft,
snowmobiles, side-by-sides, boats, and both towable and motor coach
RVs.
Serving
both consumers and dealers, through our online platform, we make
cash offers for the purchase of their vehicles and intend to
provide them the flexibility to trade, list, or auction their
vehicle through our website and mobile applications. In addition,
we offer a large inventory of used vehicles for sale along with
third-party financing and associated products. Our operations are
designed to be scalable by working through an infrastructure and
capital light model that is achievable by virtue of a synergistic
relationship with dealer partners. We utilize dealer partners in
the acquisition of motorcycles as well as to provide inspection,
reconditioning and distribution services. Correspondingly, we earn
fees and transaction income, and dealer partners will earn
incremental revenue and enhance profitability through increased
sales, leads, and fees from inspection, reconditioning and
distribution programs.
Our
business model is driven by a technology platform we acquired in
February 2017, through our acquisition of substantially all of the
assets of NextGen. The acquired system provides integrated vehicle
appraisal, inventory management, customer relationship and lead
management, equity mining, and other key services necessary to
drive the online marketplace. Over the past 16 years, the
developers of the software have designed and built, for large
multi-national clients, a number of dealer and, what we believe to
be, high quality applications solutions.
Revenue and Gross Profit
Revenue
is derived from two primary sources: (1) subscription fees; and (2)
our online marketplace.
Subscription fees
are generated from dealer partners under a license arrangement that
provides access to our software solution and ongoing support.
Dealer partners pay a monthly subscription fee for ongoing support
and access to the RumbleOn software solution which includes: (i) a
vehicle appraisal process; (ii) inventory management system; (iii)
customer relationship and lead management program; and (iv) equity
mining.
Dealer partners may also be
charged an initial software installation and training
fee. Dealer partners do not have the contractual right to take
possession of the software and may cancel the license for these
products and services by providing a 30-day notice. Installation
and training do not have value to the user without the license and
ongoing support and maintenance. Because the dealer partner may
cancel the license, revenue for installation and training is
recognized when complete, acceptance has occurred and
collectability of a determinable amount is probable. Revenue
recognition of monthly subscription fees commences upon completion
of installation, acceptance has occurred, and collectability of a
determinable amount is probable.
The
online marketplace is our largest source of revenue and includes:
(i) used retail vehicle sales; (ii) wholesale vehicle sales; (iii)
online listing and sales fees; (iv) retail merchandise sales; (v)
vehicle financing; and (vi) vehicle service contracts. We generate
gross profit on retail and wholesale vehicle sales from the
difference between the vehicle selling price and our cost of sales
associated with acquiring the vehicle and preparing it for sale. We
began to generate revenue from our online marketplace in May 2017.
We expect retail and wholesale vehicle sales to increase as we
begin to utilize a combination of brand building as well as direct
response channels to efficiently source and scale our addressable
markets while expanding our suite of product offerings to consumers
who may wish to trade-in or to sell us their vehicle independent of
a retail sale. In July 2017, we began to receive revenue from
retail merchandise sales and commissions on vehicle financing and
service contracts. We recognize retail merchandise sales revenue,
net of sales taxes at the time we sell the merchandise or in the
case of online sales when the merchandise is delivered to the
customer and payment has been received.
Commission revenue for financing and
service contracts
,
net of a reserves for estimated
contract cancellations is recognized
upon delivery of the
vehicle to the customer, when the sales contract is signed and the
financing has been arranged.
Key Operating Metrics
As our
business expands we will regularly review a number of metrics, to
evaluate our business, measure our progress, and make strategic
decisions. Our key operating metrics reflect what we believe will
be the key drivers of our growth, including increasing brand
awareness, maximizing the opportunity to source the purchase of low
cost used vehicles from consumers and dealers while enhancing the
selection of vehicles we make available to our customers. Our key
operating metrics also demonstrate our ability to translate these
drivers into retail sales and to monetize these retail sales
through a variety of product offerings. Initially our key metrics
will include:
Gross
Margin
We
define total gross margin per unit as the aggregate gross margin in
a given period divided by retail units sold in that period. Total
gross margin per unit is driven by sales of used vehicles which, in
many cases generates finance and vehicle service contracts revenue.
We believe gross margin per unit is a key measure of our growth and
long-term profitability.
Retail
Units Sold
We
define retail units sold as the number of vehicles sold to
consumers in each period, net of returns under our three-day return
policy. We view retail units sold as a key measure of our growth
for several reasons. First, retail units sold is the primary driver
of our revenue and, indirectly, gross profit, since retail unit
sales enable multiple complementary revenue streams, including
financing, vehicle service contracts and trade-ins. Second, growth
in retail units sold increases the base of available customers for
referrals and repeat sales. Third, growth in retail units sold is
an indicator of our ability to successfully scale our logistics,
fulfillment, and customer service operations.
Wholesale
Units Sold
We
define wholesale units sold as the number of vehicles sold to
dealer partners, auctions or other third parties in each period. We
view wholesale units sold as a key measure of our growth for
several reasons. First, wholesale units sold is a primary driver of
our revenue and, indirectly, gross profit, since wholesale units
allows us to aggressively buy vehicles from consumers which is the
primary driver of our source of supply for sale to consumers and
dealer partners. Second, the sale of wholesale units allows us to
offer competitive pricing to dealer partners. Third, growth in
wholesale units sold is an indicator of our ability to successfully
scale our logistics and fulfillment operations while managing the
level of units in inventory for sale.
Inventory
Units Available
We
define inventory units available as the average daily number of
vehicles listed for sale on our website for the given reporting
period. Until we reach an optimal pooled inventory level, we view
inventory units available as a key measure of our growth. Growth in
inventory units available increases the selection of vehicles
available to consumers and dealers on a nationwide basis, which we
believe will allow us to increase the number of vehicles we
sell.
Critical Accounting Policies and Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles of the United States, or GAAP,
requires estimates and assumptions that affect the reported amounts
of assets and liabilities, revenue and expenses, and related
disclosures of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. The SEC
has defined a company’s critical accounting policies as the
ones that are most important to the portrayal of the
company’s financial condition and results of operations, and
which require the company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. Based on this definition, we
have identified the critical accounting policies and judgments
addressed below. We also have other key accounting policies, which
involve the use of estimates, judgments, and assumptions that are
significant to understanding our results. For additional
information, see Note 1 “Description of Business and
Accounting Policies” in the accompanying Notes to the
Condensed Consolidated Financial Statements. Although we believe
that our estimates, assumptions, and judgments are reasonable, they
are based upon information presently available. Actual results may
differ significantly from these estimates under different
assumptions, judgments, or conditions.
Purchase Accounting for Business Combinations
We
account for acquisitions by allocating the fair value of the
consideration transferred to the fair value of the assets acquired
and liabilities assumed on the date of the acquisition and any
remaining difference is recorded as goodwill. Adjustments may be
made to the preliminary purchase price allocation when facts and
circumstances that existed on the date of the acquisition surface
during the allocation period subsequent to the preliminary purchase
price allocation, not to exceed one year from the date of
acquisition. Contingent consideration is recorded at fair value
based on the facts and circumstances on the date of the acquisition
and any subsequent changes in the fair value are recorded through
earnings each reporting period. Transactions that occur in
conjunction with or subsequent to the closing date of the
acquisition are evaluated and accounted for based on the facts and
substance of the transactions.
Goodwill
Goodwill is not
amortized but rather tested for impairment at least annually. We
test goodwill for impairment annually during the fourth quarter of
each year. Goodwill is tested for impairment between annual tests
if an event occurs or circumstances change that would more likely
than not reduce the fair value of the reporting unit below its
carrying amount. Impairment testing for goodwill is done at the
reporting unit level. A reporting unit is an operating segment or
one level below an operating segment (also known as a component). A
component of an operating segment is a reporting unit if the
component constitutes a business for which discrete financial
information is available, and segment management regularly reviews
the operating results of that component. We have concluded that
currently we have one reporting unit.
Determining fair
value includes the use of significant estimates and assumptions.
Management will utilize an income approach, specifically the
discounted cash flow technique as a means for estimating fair
value. This discounted cash flow analysis requires various
assumptions including those about future cash flows, transactional
and customer growth rates and discount rates. Expected cash flows
will be based on historical customer growth and the growth in
transactions, including attrition, future strategic initiatives and
continued long-term growth of the business. The discount rates used
for the analysis will reflect a weighted average cost of capital
based on industry and capital structure adjusted for equity risk
and size risk premiums. These estimates can be affected by factors
such as customer and transaction growth, pricing, and economic
conditions that can be difficult to predict.
Other Intangible Assets
Identifiable
intangible assets may include customer relationships, non-compete
agreements, trademarks, trade names and internet domain names. The
estimated fair value of these intangible assets at the time of
acquisition will be based upon various valuation techniques
including replacement cost and discounted future cash flow
projections. Customer relationships are amortized on a
straight-line basis over the expected average life of the acquired
accounts, which are based upon several factors, including
historical longevity of customers and contracts acquired and
historical retention rates. Non-compete agreements are amortized on
a straight-line basis over the term of the agreement, which will
generally not exceed five years. We review the recoverability of
these assets if events or circumstances indicate that the assets
may be impaired and periodically reevaluate the estimated remaining
lives of these assets.
Trademarks, trade
names and internet domain names are considered to be indefinite
lived intangible assets unless specific evidence exists that a
shorter life is more appropriate. Indefinite lived intangible
assets are tested, at a minimum, on an annual basis using an income
approach or sooner whenever events or changes in circumstances
indicate that an asset may be impaired.
Long-Lived Assets
Fixed
assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. Recoverability of assets to be
held and used are measured by a comparison of the carrying amount
of an asset to the future net cash flows expected to be generated
by the asset. If such assets or asset groups are considered to be
impaired, the impairment to be recognized will be measured by the
amount by which the carrying amount of the assets or asset groups
exceeds the related fair values. We also perform a periodic
assessment of the useful lives assigned to the long-lived
assets.
Technology and Content
Technology costs
for the RumbleOn technology platform is accounted for pursuant to
Accounting Standards Codification ("ASC") 350,
Intangibles — Goodwill and Other
and consists principally of development activities including
payroll and related expenses for employees and third-party
contractors involved in application, content, production,
maintenance, operation, and platform development for new and
existing products and services, as well as other technology
infrastructure expenses. Technology and content costs for design or
maintenance of internal-use software and general website
development are expensed as incurred. Costs incurred to develop new
website functionality as well as new software products for resale
and significant upgrades to existing platforms or modules are
capitalized and amortized over seven years.
Beneficial Conversion Feature
From
time to time, we may issue convertible notes that may have
conversion prices that create an embedded beneficial conversion
feature pursuant to the guidelines established by the Financial
Accounting Standards Board’s (“FASB”) ASC Topic
470-20,
Debt with Conversion and
Other Options
.
The
Beneficial Conversion Feature, or the BCF, of a convertible
security is normally characterized as the convertible portion or
feature of certain securities that provide a rate of conversion
that is below market value or in-the-money when issued. We record a
BCF related to the issuance of a convertible security when issued
and also record the estimated fair value of any conversion feature
issued with those securities. Beneficial conversion features that
are contingent upon the occurrence of a future event are recorded
when the contingency is resolved.
The BCF
of a convertible note is measured by allocating a portion of the
note’s proceeds to the conversion feature, if applicable, and
as a reduction of the carrying amount of the convertible note equal
to the intrinsic value of the conversion feature, both of which are
credited to additional paid-in-capital. We calculate the fair value
of the conversion feature embedded in any convertible security
using either a) the Black Scholes valuation model, or b) a discount
cash flow analysis tested for sensitivity to key Level 3 inputs
using the Monte Carlo simulation.
The
value of the proceeds received from the convertible security are
then allocated between the conversion features and the underlying
security on a relative fair value basis. The allocated fair value
is recorded in the financial statements as a debt discount from the
face amount of the security with a corresponding amount to
additional paid in capital. The debt discount is amortized to
interest expense over the life of the note using the effective
interest method.
Revenue Recognition
We
recognize revenue when all of the following conditions are
satisfied: (i) there is persuasive evidence of an arrangement;
(ii) the product or service has been provided to the customer;
(iii) the amount of the product sale or fees to be paid by the
customer is fixed or determinable; and (iv) the collection of
our sales proceeds or fees are probable.
Valuation Allowance for Accounts Receivable
We
estimate the allowance for doubtful accounts for accounts
receivable by considering a number of factors, including overall
credit quality, age of outstanding balances, historical write-off
experience and specific account analysis that projects the ultimate
collectability of the outstanding balances. Ultimately, actual
results could differ from these assumptions.
Income Taxes
We
follow
ASC Topic
740,
Income
Taxes
for recording the
provision for income taxes. Deferred tax assets and liabilities are
computed based upon the difference between the financial statement
and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is
expected to be realized or settled. Deferred income tax expenses or
benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of
change. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for
financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending
on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or
non-current depending on the periods in which the temporary
differences are expected to reverse.
We
apply a more-likely-than-not recognition threshold for all tax
uncertainties. ASC Topic 740 only allows the recognition of those
tax benefits that have a greater than fifty percent likelihood of
being sustained upon examination by the taxing authorities. As of
December 31, 2016, December 31, 2015 and November 30, 2015, we
reviewed our tax positions and determined there were no
outstanding, or retroactive tax positions with less than a 50%
likelihood of being sustained upon examination by the taxing
authorities, therefore this standard has not had a material effect
on our company.
Stock Based Compensation
We
measure and recognize all stock based compensation at fair value at
the date of grant and recognize compensation expense over the
service period for awards expected to vest. Determining the fair
value of stock based awards at the grant date requires judgment,
including estimating the share volatility, the expected term the
award will be outstanding, and the amount of the awards that are
expected to be forfeited. We utilize the Black-Scholes option
pricing model or other industry accepted valuation model, as
necessary, to determine the fair value.
Newly Issued Accounting Pronouncements
No
recently adopted or new accounting pronouncements have had, or are
expected to have, a material effect on our net loss, financial
position or cash flows.
Seasonality
Historically, the
retail industry for different types of
power/recreation vehicles is cyclical depending on the
geography and season in which the vehicles are used; for example,
motorcycles are typically for non-snow seasons, while snowmobiles
are typically designed for winter. As a result, the interest in and
purchase of motorcycles has been typically been strongest in the
spring and summer quarters which tracks closely with the timing of
regional riding seasons. We believe that our ability to
sell nationwide may somewhat mitigate that seasonality, however we
have not been in operation long enough to confirm this belief.
Additionally, like many higher-cost items, sales and traffic may be
somewhat correlated with the tax refund season in the spring, when
sales of motorcycles are typically highest.
Results of Operations for the Three-month and Six-month periods
ended June 30, 2017 and June 30, 2016
Revenue
Revenue
is derived from our online marketplace and subscription
fees.
The
online marketplace is our largest source of revenue and includes:
(i) used retail vehicle sales; (ii) wholesale vehicle sales; (iii)
online listing and sales fees; (iv) retail merchandise sales; (v)
vehicle financing; and (vi) vehicle service contracts. We generate
gross profit on retail and wholesale vehicle sales from the
difference between the vehicle selling price and our cost of sales
associated with acquiring the vehicle and preparing it for sale. We
began to generate revenue from our online marketplace in May
2017.
Subscription fees
are generated from dealer partners for ongoing support and access
to the RumbleOn software solution, which includes: (i) a vehicle
appraisal process; (ii) inventory management system; (iii) customer
relationship and lead management program; and (iv) equity mining.
We began to generate revenue for subscriptions fees in February
2017 in connection with the acquisition of NextGen.
Revenue
for the three-month and six-month periods ended June 30, 2017
increased by $116,522 and $155,411, respectively as compared to the
same periods in 2016 and consisted of wholesale vehicle sales to
dealer partners of $81,940 for the three-month and six-month
periods ended June 30, 2017 and monthly subscription fees of
$34,582 and $73,471, respectively for the three-month and six-month
periods end June 30, 2017.
Expenses
Cost of Revenue
Cost of
revenue for the three-month and six-month periods ended June 30,
2017 increased by $114,643 and $149,331, respectively as compared
to the same periods in 2016. Cost of revenue consisted of cost of
wholesale vehicle sales, which included the cost to acquire
vehicles and the reconditioning and transportation costs associated
with preparing the vehicles for resale. Vehicle acquisition costs
are driven by the mix of vehicles we acquire, the source of those
vehicles, and supply and demand dynamics in the vehicle market.
Reconditioning costs are billed by third-party providers and
include parts, labor, and other repair expenses directly
attributable to specific vehicles. Transportation costs consisted
of costs incurred to transport the vehicles from the point of
acquisition or delivery. Cost of sales also includes any necessary
adjustments to reflect vehicle inventory at the lower of cost or
net realizable value. Cost of wholesale vehicle sales for the
three-month and six-month periods ended June 30, 2017 increased by
$84,966 as compared to the same periods in 2016. Cost of
subscription fee revenue, included the (i) various data feeds from
third parties; (ii) hosting of the customer facing website; (iii)
commissions for new sales; and (iv) implementation and training of
new and existing dealers. These costs and expenses are charged to
cost of revenue as incurred. Cost of subscription fee revenue for
the three-month and six-month periods ended June 30, 2017 increased
by $29,677 and $64,365, respectively as compared to the same
periods in 2016.
Selling, general and administrative
Selling, general
and administrative expenses for the three-month and six-month
periods ended June 30, 2017 increased by $1,698,142 and $2,342,745,
respectively as compared to the same periods in 2016. The increase
is a result of establishing and expanding our business operations
resulting in an increase in expenses associated with advertising to
consumers and dealers, development and operating our product
procurement and distribution system, managing our logistics system,
establishing our dealer partner arrangements, and other corporate
overhead expenses, including expenses associated with technology
development, legal, accounting, finance, and business development.
Selling, general and administrative expenses will increase
substantially as we continue to execute and aggressively expand our
business through increased marketing spending and the addition of
management and support personnel to ensure we adequately develop
and maintain operational, financial and management controls as well
as our reporting systems and procedures.
Compensation and
related costs, which includes all payroll and related costs,
including benefits, payroll taxes, and stock-based compensation,
for the three-month and six-month periods ended June 30, 2017
increased by $801,162 and $923,092 as compared to the same periods
in 2016. The increase was driven by the growth in headcount and
related compensation and benefits at our Dallas operations center,
and included new hires in our marketing, product and inventory
management, accounting, finance, information technology, and
administration departments. As our business continues to grow,
these expenses will increase as we add headcount in all areas of
the business.
Advertising and
marketing for the three-month and six-month periods ended June 30,
2017 increased by $242,906 and $269,036 as compared to the same
periods in 2016. The increase consists of cost associated with
development of a multi-channel approach to consumers and dealers.
We have begun to utilize a combination of brand building as well as
direct response channels to efficiently source and scale our
addressable markets. Our paid advertising efforts include
advertisements through search engine marketing, inventory site
listing, retargeting, organic referral, display, direct mail and
branded pay-per-click channels. We believe our strong consumer and
dealer focus ensures loyalty which will drive both high
participation in the buy and selling process while increasing
referrals. In addition to our paid channels, we intend to attract
new customers through increased media spending and public relations
efforts and further investing in our proprietary
technology.
Professional fees
consist primarily of legal and accounting fees and costs associated
with: (i) financing activities; (ii) general corporate
matters; (iii) the NextGen acquisition; (iv) the
preparation of quarterly and annual financial statements; and
(v) the filing of regulatory reports required for public
reporting purposes. Professional fees for the three-month and
six-month periods ended June 30, 2017 increased by $177,988 and
$517,472, respectively as compared to the same periods in 2016.
This increase was primarily a result of legal, accounting and other
professional fees and expenses incurred in connection with the:
(i) NextGen Acquisition; (ii) 2017 Private Placement;
(iii) second tranche of 2016 Private Placement; and
(iv) various corporate matters resulting from the
discontinuation of the Smart Server business strategy and the
adoption of our business plan. For additional information, see
“Overview,” and Note 1 - “Business
Description” in the accompanying Notes to the Condensed
Consolidated Financial Statements. Professional fees including
legal, accounting and other fees and expenses related to being a
public company will increase as we continue to expand our
business.
Technology
development costs consist principally of (i) development
activities including payroll and related expenses billed by a
third-party contractor involved in application, content,
production, maintenance, operation, and platform development for
new and existing products and services, (ii) technology
infrastructure expenses, and (iii) costs of our employees
devoted to the development and maintenance of software
products. Technology development expenses for the three-month
and six-month periods ended June 30, 2017 increased by $108,694 and
$186,702, respectively as compared to the same period in 2016.
Total technology costs and expenses incurred for the three-month
and six-month periods ended June 30, 2017 were $272,000 and
$477,366 of which $163,306 and 290,664, respectively were
capitalized. For the three-month and six-month periods ended
June 30, 2017, a third-party contractor billed $257,000 and
$457,366 respectively, of the total technology development costs.
The amortization of capitalized technology development costs for
the three-month and six-month periods ended June 30, 2017 was
$81,698 and $129,945, respectively. There were no technology
development costs incurred and no amortization of capitalized
development costs for the same periods in 2016. Technology
development costs are accounted for pursuant to ASC
350,
Intangibles
— Goodwill and Other.
Technology development costs include internally developed software
and website applications that are used by us for our own internal
use and to provide services to our customers, which include
consumers, dealer partners and ancillary service providers. Under
the terms of these customer arrangements we retain the revenue
generating technology and hosts the applications on its
servers
and mobile
applications. The customer does not have a contractual right to
take possession of the software during the term of the arrangement
and is not permitted to run the software itself or contract with
another party unrelated to the entity to host the software.
Technology development costs consist principally of (i) development
activities including payroll and related expenses billed by a
third-party contractor involved in application, content,
production, maintenance, operation, and platform development for
new and existing products and services, (ii) technology
infrastructure expenses, and (iii) costs our employees devoted to
the development and maintenance of software
products. Technology and content costs for design,
maintenance and post-implementation stages of
internal-use software and general website development are expensed
as incurred. For costs incurred to develop new website
functionality as well as new software products and significant
upgrades to existing internally used platforms or
modules, capitalization begins during the application
development stage and ends when the software is available for
general use. Capitalized technology development is amortized
on a straight-line basis over periods ranging from 3 to 7 years. We
perform periodic assessments of the useful lives assigned to
capitalized software applications. Additionally, from
time-to-time we may abandon additional development activities
relating to specific software projects or applications and charge
accumulated costs to technology development expense in the period
such determination is made. We expect our technology development
expenses to increase as we continue to upgrade and enhance our
technology infrastructure, invest in our products, expand the
functionality of our platform and provide new product offerings. We
also expect technology development expenses to continue to be
affected by variations in the amount of capitalized internally
developed technology.
Depreciation and Amortization
Depreciation and
amortization is comprised of the: (i) amortization of capitalized
technology development; (ii) amortization of identifiable
intangible assets; and (iii) depreciation of vehicle, furniture and
equipment. Depreciation and amortization for the three-month and
six-month periods ended June 30, 2017 increased by $112,860 and
$172,470 respectively, as compared to the same period in 2016. The
increase in amortization and depreciation is a result of the
investments made in connection with the expansion and growth of the
business which for the three-month and six-month periods ended June
30, 2017 included: (i) capitalized technology acquisition and
development costs of $163,306 and $290,664, respectively; and (ii)
the purchase of vehicles, furniture and equipment of $450,814 and
$493,58
8
, respectively. For the
three-month and six-month periods ended June 30, 2017 amortization
of: (i) capitalized technology development was $81,698 and
$129,945, respectively; (ii) amortization of identifiable
intangible was $11,250 and $22,500, respectively; and (iii)
depreciation and amortization on vehicle, furniture and equipment
was $20,388 and $20,974, respectively. Depreciation and
amortization on vehicle, furniture and equipment for the same
periods in 2016 was $475 and $950, respectively.
Interest Expense
Interest expense
consists of interest on the: (i) BHLP Note; (ii) NextGen
Note; and (iii) Private Placement Notes. Interest expense for
the three-month and six-month periods ended June 30, 2017 increased
by $69,461 and $279,053, respectively, as compared to the same
periods in 2016. The increase resulted from a higher level of debt
outstanding, the conversion of the BHLP Note and the amortization
of the beneficial conversion feature on the Private Placement Notes
for the three-month and six-month periods ended June 30, 2017
as compared to the same period in 2016. The conversion of the BHLP
Note, resulted in a $196,076 charge to interest expense for the
remaining balance of the beneficial conversion feature, net of
deferred taxes and is included in interest expense for the
three-month period ended June 30, 2017. The amortization of the
beneficial conversion feature on the Private Placement Notes was
$39,625 and is included in interest expense for the three-month
period ended June 30, 2017. For additional information, see
Note 8 - “Notes Payable” in the accompanying Notes
to the Condensed Consolidated Financial Statements.
Liquidity
and Capital Resources
The
following table sets forth a summary of our cash flows for the
six-month period ended June 30, 2017 and 2016:
Operating Activities
Net
cash used in operating activities increased $2,722,026 to
$2,746,122 for the six-month period ended June 30, 2017, as
compared to the same period in 2016. The increase in net cash used
is primarily due to a $2,788,188 increase in our net loss offset by
an increase in the net change operating assets and liabilities of
$471,794 and a $537,957 increase in non-cash expense items. The
increase in the net loss for the six-month period ended June 30,
2017 was a result of the continued expansion and progress made on
our business plan, including the integration of the NextGen
acquisition and the purchase of inventory.
Investing Activities
Net
cash used in investing activities increased $1,534,252 for the
six-month period ended June 30, 2017, as compared to the same
period in 2016. The increase in cash used for investment activities
was primarily for the purchase of NextGen, costs incurred for
technology development and the purchase of $493,588 of vehicles,
furniture and equipment.
On
January 8, 2017, we entered into an Asset Purchase Agreement
with NextGen, Halcyon, and the members of Halcyon, pursuant to
which NextGen agreed to sell to us substantially all of the assets
of NextGen in exchange for a payment of approximately $750,000 in
cash, the issuance to NextGen of the NextGen Shares, the issuance
of the NextGen Note, and the assumption by us of certain specified
post-closing liabilities of NextGen under the contracts being
assigned to us as part of the transaction. On February 8, 2017, we
assigned to NextGen Pro the right to acquire NextGen’s assets
and liabilities.
On
February 8, 2017, or the Closing Date, we and NextGen Pro completed
the NextGen Acquisition in exchange for approximately $750,000 in
cash, the NextGen Shares, the NextGen Note, and the other
consideration described above. The NextGen Note matures on the
third anniversary of the Closing Date, or the Maturity Date.
Interest accrues and will be paid semi-annually (i) at a rate of
6.5% annually from the Closing Date through the second anniversary
of such date and (ii) at a rate of 8.5% annually from the second
anniversary of the Closing Date through the Maturity Date. Our
obligations under the NextGen Note are secured by substantially all
the assets of NextGen Pro pursuant to the Guaranty Agreement and a
related Security Agreement. Under the terms of the Guaranty
Agreement, NextGen Pro has agreed to guarantee the performance of
all of our obligations under the NextGen Note. For additional
information, see Note 8 - “Notes Payable” in the
accompanying Notes to the Condensed Consolidated Financial
Statements.
Financing Activities
Net
cash provided by financing activities increased $3,958,040 to
$3,980,040 for the six-month period ended June 30, 2017, compared
with net cash provided by financing activities of $22,000 for the
same period in 2016. This increase is primarily a result of the:
(i) 2017 Private Placement of $2,630,000 in Class B Common Stock
and (ii) second tranche of the 2016 Private Placement of $683,040
in Class B Common Stock and $667,000 in promissory notes described
below. For additional information, see Note 1 - “Business
Description,” Note 4 - “Acquisitions,” and
Note 8 - “Notes Payable” in the accompanying Notes
to the Condensed Consolidated Financial Statements. During the
six-months ended June 30, 2017, we completed the private placement,
or the 2017 Private Placement, of 657,500 shares of our Class B
Common Stock, at a price of $4.00 per share for aggregate proceeds
of $2,630,000. Our officers and directors acquired
175,000 shares of Class B Common Stock in the 2017
Private Placement. Proceeds from the 2017 Private Placement were
used to complete the launch of our website, www.rumbleon.com,
acquire vehicle inventory, continue development of our platform,
and for working capital purposes. For additional information, see
Note 9 - “Stockholders’ Equity” in the
accompanying Notes to the Condensed Consolidated Financial
Statements.
On
March 31, 2017, we completed funding of the second tranche of the
2016 Private Placement. The investors were issued 1,161,920 shares
of Class B Common Stock and notes in the aggregate principal amount
of $667,000, or the Private Placement Notes, in consideration of
cancellation of loan agreements having an aggregate principal
amount committed by the purchasers of $1,350,000. Under the terms
of the Private Placement Notes, interest accrues on the outstanding
and unpaid principal amount until paid in full. The Private
Placement Notes mature on March 31, 2020. Interest accrues at a
rate of 6.5% annually from the closing date through the second
anniversary of such date and (ii) at a rate of 8.5% annually from
the second anniversary of the closing date through the maturity
date. Upon the occurrence of any event of default, the outstanding
balance under the Private Placement Notes shall become immediately
due and payable upon election of the holder. Based on the relative
fair values attributed to the Class B Common Stock and Private
Placement Notes issued in the 2016 Private Placement, we recorded a
debt discount on the Private Placement Notes of $667,000 with the
corresponding amounts as addition to paid in capital. The debt
discount will be amortized to interest expense over the life of the
notes using the effective interest method. For additional
information, see Note 8 - “Notes Payable” in the
accompanying Notes to the Condensed Consolidated Financial
Statements.
On July
13, 2016, we entered into the BHLP Note with Berrard Holdings, an
entity owned and controlled by a current officer and director, Mr.
Berrard, pursuant to which we were required to repay $191,858 on or
before July 13, 2026 plus interest at 6% per annum. The BHLP Note
was also convertible into common stock, in whole, at any time
before maturity at the option of the holder at the greater of $0.06
per share or 50% of the price per share of the next qualified
financing which is defined as $500,000 or greater. Effective August
31, 2016, the principal amount of the BHLP Note was amended to
include an additional $5,500 loaned to us, on the same terms. On
November 28, 2016, we completed our qualified financing at $1.50
per share which established the conversion price per share for the
BHLP Note of $0.75 per share, resulting in the principal amount of
the BHLP Note being convertible into 263,144 shares of Class B
Common Stock. As such, November 28, 2016 became the
“commitment date” for determining the value of the BHLP
Note conversion feature. Because there had been one trade in
January 2016 in our common stock since July 2014, other than the
purchase by Berrard Holdings of 99.5% of the outstanding shares in
a single transaction, we used the Monte Carlo simulation to
determine the intrinsic value of the conversion feature of the BHLP
Note, which resulted in a value in excess of the principal amount
of the BHLP Note. Thus, we recorded a note discount of $197,358
with the corresponding amount as an addition to paid in capital.
This note discount is amortized to interest expense until the
scheduled maturity of the BHLP Note in July 2026 or until it is
converted using the effective interest method. The effective
interest rate at March 31, 2017 was 7.4%. Interest expense on the
BHLP Note for the three-month period ended March 31, 2017 was
$2,920 and the amortization of the beneficial conversion feature
was $3,558. On March 31, 2017, we issued 275,312 shares of Class B
Common Stock upon full conversion of the BHLP Note, having an
aggregate principal amount, including accrued interest, of $206,484
and a conversion price of $0.75 per share. In connection with the
conversion of the BHLP Note, the remaining debt discount of
$196,076 was charged to interest expense in the Condensed
Consolidated Statements of Operations and the related deferred tax
liability was credited to additional paid in capital in the
Condensed Consolidated Balance Sheets. For additional information,
see Note 8 - “Notes Payable” in the accompanying Notes
to the Condensed Consolidated Financial Statements.
Investment in Growth
As of
June 30, 2017, we had a total of $1,050,246 in available cash.
We expect our cash requirements for the next twelve
months to be significant as we have begun to
aggressively invest in the growth of our business and we expect
this investment to continue. We plan to invest heavily in
inventory, marketing, technology and infrastructure to support the
growth of the business. These investments are expected to increase
our negative cash flow from operations and operating losses at
least in the near term, and there is no guarantee that we will be
able to realize the return on our investments. If we do not receive
any additional funds, we may not continue in business for the next
12 months with our currently available capital. Since inception, we
have financed our cash flow requirements through debt and equity
financing. However, additional funds may not be available when we
need them, on terms that are acceptable to us, or at all.
Volatility in the credit markets may also have an adverse effect on
our ability to obtain debt financing. Our limited operating history
makes predictions of future operating results difficult to
ascertain. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and
rapidly evolving markets. These risks include, but are not limited
to, an evolving business model, advancement of technology and the
management of growth. To address these risks, we must, among other
things, continue our development of relevant applications, stay
abreast of changes in the marketplace, as well as implement and
successfully execute our business and marketing strategy. There can
be no assurance that we will be successful in addressing such
risks, and the failure to do so can have a material adverse effect
on our business prospects, financial condition and results of
operations.
Off-Balance Sheet Arrangements
As of
June 30, 2017, we did not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition,
revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to
investors.
Emerging Growth Company
We are
an “emerging growth company” under the federal
securities laws and are subject to reduced public company reporting
requirements. In addition, Section 107 of the JOBS Act also
provides that an “emerging growth company” can take
advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised
accounting standards. In other words, an “emerging growth
company” can delay the adoption of certain accounting
standards until those standards would otherwise apply to private
companies. We are choosing not to take advantage of the extended
transition period for complying with new or revised accounting
standards.
Results of Operations for the Years Ended December 31, 2016 and
November 30, 2015, and the Month Ended December 31,
2015
The
following table provides our results of operations for the year
ended December 31, 2016, for the month ended December 31, 2015, and
for the year ended November 30, 2015. As of December 31, 2016, we
had not generated any revenue. This financial information should be
read in conjunction with our audited financial statements and notes
thereto included in this prospectus.
|
Operating
expenses:
|
December
31,
2016
|
December
31,
2015
|
November
30,
2015
|
|
General and
administrative
|
$
57,825
|
$
-
|
$
2,529
|
|
Depreciation and
amortization
|
1,900
|
158
|
1,900
|
|
Impairment of
assets
|
792
|
-
|
-
|
|
Professional
fees
|
152,876
|
2,850
|
37,123
|
|
|
|
|
|
|
Total operating
expenses
|
$
213,393
|
$
3,008
|
$
41,552
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
Interest expense -
related party
|
11,698
|
719
|
7,257
|
|
Total other
expense
|
$
11,698
|
$
719
|
$
7,257
|
|
|
|
|
|
|
Net loss before
provision for income taxes
|
$
225,091
|
$
3,727
|
$
48,809
|
Operating Expenses
Operating expenses
increased $168,833 or 379% to $213,393 for the year ended December
31, 2016 as compared to the thirteen-month period ended December
31, 2015. The significant components of this change were increases
in general and administrative expenses and professional fees.
General and administrative expenses increased $55,296 to $57,825
for the year ended December 31, 2016, as compared to the
thirteen-month period ended December 31, 2015. The components of
this change were an increase in licenses and permits, insurance and
travel expenses associated with developing our business model and
completing the NextGen Acquisition.
Professional fees
consist primarily of legal and accounting fees and costs associated
with: (i) financing activities; (ii) general corporate
matters; (iii) acquisitions; (iv) the preparation of
quarterly and annual financial statements; and (v) the filing
of regulatory reports required for public reporting purposes.
Professional fees increased $112,903 or 282% to $152,876 for the
year ended December 31, 2016, as compared to the thirteen-month
period ended December 31, 2015. This increase was primarily a
result of legal, accounting and other professional fees and
expenses incurred in connection with the: (i) change of
control transaction in August 2016; (ii) the 2016 Private
Placement; (iii) NextGen Acquisition; and (iv) various
corporate matters resulting from the discontinuation of our prior
business strategy and the adoption of our current business plan.
For additional information, see
Item 1 Business “Background Overview”, and Note 11
“Subsequent Events” in the Notes to the Consolidated
Financial Statements.
Interest
expense-related party consist of interest on the convertible
note-related party and the note payable-related party. Interest
expense-related party increased $3,722 or 47% to $11,698 as a
result of higher level debt outstanding for the year ended December
31, 2016, as compared to the thirteen-month period ended December
31, 2015. Included in interest expense is $1,282 of interest
related to the beneficial conversion feature on the convertible
note payable-related party.
Liquidity and Capital Resources
The
following table provides a summary of our cash flows for the year
ended December 31, 2016, for the month ended December 31, 2015, and
for the year ended November 30, 2015:
|
|
|
December
31,
2016
|
|
December
31,
2015
|
|
November
30,
2015
|
||||||
|
Net
cash used in operating activities
|
|
$
|
(19,976
|
)
|
|
$
|
(5,850
|
)
|
|
$
|
(32,632
|
)
|
|
Net
cash used in investing activities
|
|
|
(45,515
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Net
cash provided by financing activities
|
|
|
1,412,358
|
|
|
|
8,000
|
|
|
|
28,000
|
|
|
Net
increase/(decrease) in cash
|
|
$
|
1,346,867
|
|
|
$
|
2,150
|
|
|
$
|
(4,632
|
)
|
Operating Activities
Net
cash used in operating activities decreased $18,506 or 48% to
$19,976 for the year ended December 31, 2016, as compared to the
thirteen-month period ended December 31, 2015. The decrease in net
cash used is primarily due to a $172,042 increase in our net loss
offset by an increase in net working capital of $208,635. The
increase in the net loss for the year ended December 31, 2016 was a
result of beginning to incur startup costs and expenses in
connection with the development of our current business
plan.
Investing Activities
Net
cash used in investing activities increased $45,515 for the year
ended December 31, 2016, as compared to the thirteen-month period
ended December 31, 2015. The cash used in investment activities was
for the purchase of various domain names. There was no cash used in
investing activities for the month ended December 31, 2015 and for
the year ended November 30, 2015.
Financing Activities
Net
cash provided by financing activities increased $1,376,358 to
$1,412,358 for the year ended December 31, 2016, compared with net
cash provided by financing activities of $36,000 during the
thirteen-month period ended December 31, 2015. This increase is
primarily a result of the: (i) issuance of a $197,358
convertible note payable to Berrard Holdings Limited Partnership;
(ii) issuance of $17,000 in notes payable to E. Venture
Resources Inc. and (iii) sale of $1,354,000 of common stock in
a private placement. These amounts were offset by a $158,000
repayment of the notes payable to E. Venture Resources Inc., cash
requirements and financing transactions.
On
November 28, 2016, we completed the 2016 Private Placement with
three accredited investors, with respect to the sale of an
aggregate of 900,000 shares of our common stock at a purchase price
of $1.50 per share for total consideration of $1,350,000. In
connection with the 2016 Private Placement, we also entered into
loan agreements with the purchasers pursuant to which each
purchaser agreed to loan us their pro rata share of up to
$1,350,000 in the aggregate upon our request at any time on or
after January 31, 2017 and before November 1, 2020.
As of
December 31, 2016, we had a total of $1,350,580 in available cash.
If we were to not receive any additional funds, we could not
continue in business for the next 12 months with our currently
available capital. Since inception, we have financed our cash flow
requirements through debt and equity financing. As we expand our
activities, we may, and most likely will, continue to experience
net negative cash flows from operations, pending our ability to
generate sustainable cash flow from the implementation of our
current business strategy and utilization of our e-commerce
platform.
Historically, we
have funded our business activities through a series of promissory
notes with E. Venture Resources, Inc., totaling $158,000. The terms
of the promissory notes provide for an interest rate of 6% per
annum with all accrued balances due and payable within 24 months of
the date of the promissory note. During July 2016, we repaid the
entire amount of principal and accrued interest to E. Venture
Resources, Inc. During July 2016, we executed a convertible
promissory note with Berrard Holdings Limited Partnership for a
total of $197,358. The terms of the promissory notes provide for an
interest rate of 6% per annum with all accrued balances due and
payable in July 2026. The debt was convertible into shares of our
common stock at a per share price of $0.75.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS FOR NEXTGEN
Background and Business Overview
On
January 8, 2017, we, NextGen, Halcyon, and the members of Halcyon
entered into an Asset Purchase Agreement. The agreement provides
that, upon the terms and subject to the conditions set forth in the
agreement, we would acquire all of NextGen’s assets,
properties and rights of whatever kind, tangible and intangible,
other than the excluded assets under the terms of the agreement. We
also would assume liability only for certain post-closing
contractual obligations pursuant to the terms of the agreement,
primarily related to operating and maintaining the CyclePro
application. Additionally, we agreed to be responsible for certain
payroll costs and operating expenses of NextGen incurred after
January 16, 2017 and through the closing of the NextGen
Acquisition, and benefit from all revenue earned from January 16,
2017 forward. On February 8, 2017, before the closing of the
NextGen Acquisition, we assigned to NextGen Pro the right to
acquire NextGen’s assets and liabilities (but not any other
rights or obligations under the agreement). The transaction closed
on February 8, 2017.
On the
Closing Date, we and NextGen Pro completed the NextGen Acquisition
in exchange for approximately $750,000 in cash, the NextGen Shares,
the NextGen Note, and the other consideration described above. The
NextGen Note matures on the Maturity Date. Interest accrues and
will be paid semi-annually (i) at a rate of 6.5% annually from the
Closing Date through the second anniversary of such date and (ii)
at a rate of 8.5% annually from the second anniversary of the
Closing Date through the Maturity Date. Our obligations under the
NextGen Note are secured by substantially all the assets of NextGen
Pro pursuant to the Guaranty Agreement, by and among NextGen and
NextGen Pro, and a related Security Agreement between the parties,
each dated as of the Closing Date. Under the terms of the Guaranty
Agreement, NextGen Pro has agreed to guarantee the performance of
all of our obligations under the NextGen Note.
Critical Accounting Policies and Estimates
The
preparation of financial statements in conformity with GAAP
requires estimates and assumptions that affect the reported amounts
of assets and liabilities, revenue and expenses, and related
disclosures of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. The SEC
has defined a company’s critical accounting policies as the
ones that are most important to the portrayal of the
company’s financial condition and results of operations,
and which require the company to make its most difficult and
subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this
definition, we have identified the critical accounting policies and
judgments addressed below. We also have other key accounting
policies, which involve the use of estimates, judgments, and
assumptions that are significant to understanding our results.
Although we believe that our estimates, assumptions, and judgments
are reasonable, they are based upon information presently
available. Actual results may differ significantly from these
estimates under different assumptions, judgments, or
conditions.
Use of Estimates
The
preparation of financial statements in conformity with 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. Actual results could differ from those estimates. Any
adjustments applied to estimated amounts are recognized in the year
such adjustments are determined.
Software Capitalization
NextGen
capitalizes the costs associated with the development of its
software solutions and website pursuant to ASC Topic 350,
Intangibles – Goodwill and
Other
. Other costs related to the maintenance of the
software are expensed as incurred. Amortization is provided over
the estimated useful lives of seven years using the straight-line
method for financial statement purposes.
Revenue Recognition
NextGen
recognizes revenue when all of the following conditions are
satisfied: (1) there is persuasive evidence of an arrangement; (2)
the product or service has been provided to the customer; (3) the
amount of fees to be paid by the customer is fixed or determinable;
and (4) the collection of its fees is probable. Dealers typically
pay monthly subscription fees to access some or all modules on an a
la carte basis, as well as, in certain cases, implementation or
training fees.
Marketing and Advertising Costs
NextGen
expenses marketing and advertising costs as incurred.
Newly Issued Accounting Pronouncements
No
recently adopted or new accounting pronouncements have had, or are
expected to have, a material effect on NextGen’s net loss,
financial position or cash flows.
NextGen Results of Operations for the Year Ended December 31, 2016
and for the Period from December 10, 2015 through December 31,
2015
The
following table provides NextGen’s results of operations for
the year ended December 31, 2016, and for the period from December
10, 2015 (inception) and ended on December 31, 2015, or the
“period ended December 31, 2015. This financial information
should be read in conjunction with NextGen’s audited
Consolidated Financial Statements and Notes to the Consolidated
Financial Statements included elsewhere in this
prospectus.
|
|
For the
year
ended
December
31,
2016
|
For the
period
ended
December
31,
2015
|
|
Revenue:
|
|
|
|
Gross
revenue
|
$
138,141
|
$
6,257
|
|
|
|
|
|
Cost
and Expenses:
|
|
|
|
Cost of goods
sold
|
332,559
|
17,857
|
|
General and
administrative expenses
|
1,586,002
|
96,608
|
|
|
1,918,561
|
114,465
|
|
Operating
Loss
|
(1,780,420
)
|
(108,208
)
|
|
|
|
|
|
Other
Income
|
644
|
-
|
|
|
|
|
|
Net
Loss
|
$
(1,779,776
)
|
$
(108,208
)
|
Revenue
Revenue
consists of: (i) monthly subscription fees paid by dealers for
access to some (a la carte basis) or all modules that NextGen
offers; and (ii) implementation and training fees. Subscription
fees comprised approximately 80% of total revenue for the year
ended December 31, 2016, while implementation accounted for the
majority of the balance. Revenue increased $131,884 to $138,141 for
the year ended December 13, 2016 as compared to 2015 primarily as a
result of 2015 containing only 21 days in the period and an
increase in new customers during the year ended December 31,
2016.
Cost of Goods Sold
Cost of
sales consists of amount paid by NextGen for: (i) various data
feeds from third parties; (ii) hosting of the customer facing
website; (iii) commissions for new sales; (iv) labor
incurred in
development activities
which include payroll and third-party contractors involved in
application, content, production, maintenance, operation, and
platform development of internal-use software and general website
development; and (v)
implementation and training of new
and existing customers. These costs and expenses are
charged to cost of goods sold as incurred.
For the year ended December 31, 2016 training costs and hosting
costs represented approximately 62% and 10%, respectively of cost
of goods sold, with the cost of data feeds from information
providers or integrated software vendors representing the balance
of costs.
General and administrative
General
and administrative expenses for the year ended December 31, 2016
and the period ended December 31, 2015 consisted of the
following:
|
|
For the year
ended
December 31,
2016
|
%
|
For the period ended
December 31,
2015
|
%
|
|
Payroll
|
$
548,299
|
35
%
|
$
24,000
|
25
%
|
|
Technology
costs
|
384,442
|
24
%
|
6,495
|
7
%
|
|
Depreciation
and amortization
|
253,468
|
16
%
|
9,369
|
10
%
|
|
Marketing
|
100,035
|
6
%
|
-
|
0
%
|
|
Rent
|
87,305
|
6
%
|
4,314
|
4
%
|
|
Other
|
212,453
|
13
%
|
52,430
|
54
%
|
|
|
$
1,586,002
|
100
%
|
$
96,608
|
100
%
|
Technology
expenditures include those costs that are not capitalized pursuant
to ASC 350,
Intangibles —
Goodwill and Other
.
Depreciation and amortization is primarily comprised of the
amortization of capitalized software and website. Marketing
includes the monthly fees and sales commissions earned by
NextGen’s marketing partner under a Marketing Services
Agreement.
For additional information,
see Note 3 “Related Party Transactions”
in the
Notes to the Consolidated Financial Statements for
NextGen.
Liquidity and Capital Resources
The
following table provides NextGen’s cash flows from operations
for the year ended December 31, 2016 and for the period ended
December 2015:
|
|
For the
year
ended
December
31,
2016
|
For the
period
ended
December
31,
2015
|
|
Net cash used in
operating activities
|
$
(1,111,190
)
|
$
-
|
|
Net cash used in
investing activities
|
(341,919
)
|
-
|
|
Net cash provided
by financing activities
|
-
|
1,500,000
|
|
Net
increase/(decrease) in cash
|
$
(1,453,109
)
|
$
1,500,000
|
Operating Activities
Net
cash used in operating activities increased to $1,111,190 for the
year ended December 31, 2016, as compared to the period ended
December 31, 2015. The increase in net cash used is primarily due
to a $1,671,568 increase in our net loss, offset by an increase in
net working capital of $408,860. The increase in the net loss for
the year ended December 31, 2016 was a result of continuing to
incur startup cost and expenses in connection with the development
of the NextGen business plan.
Investing Activities
Net
cash used in investing activities increased $341,919 for the year
ended December 31, 2016, as compared to the period ended December
31, 2015. The cash used in investment activities was for the
capitalized costs and expenses associated with the development of
NextGen’s software solutions and website in accordance with
ASC Topic 350,
Intangibles —
Goodwill and Other
. There was no cash used in investing
activities for the period ended December 31, 2015.
Financing Activities
There
was no net cash provided by financing activities for the year ended
December 31, 2016. NextGen financially sustained its activities for
the year ended December 31, 2016 from the initial contribution of
$1,500,000 from an investor in December 2015
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On
December 16, 2016, our Board approved the dismissal of Seale and
Beers, CPAs as our independent registered public accounting firm,
effective December 16, 2016.
Seale
and Beers audited our financial statements for the years ended
November 30, 2015 and November 30, 2014. Seale and Beers’
reports on our financial statements for the years ended November
30, 2015 and November 30, 2014 did not contain any adverse opinion
or disclaimer of opinion, nor were the reports qualified or
modified as to uncertainty, audit scope or accounting principles.
However, the Seale and Beers’ reports on our financial
statements for the years ended November 30, 2015 and November 30,
2014 each contained an explanatory paragraph noting there was
substantial doubt as to our ability to continue as a going
concern.
In
connection with Seale and Beers’ audit of our financial
statements for the fiscal years ended November 30, 2015 and
November 30, 2014 and through the subsequent interim period ended
December 16, 2016, we have had no disagreement with Seale and Beers
on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Seale and
Beers, would have caused Seale and Beers to make a reference to the
subject matter of the disagreements in connection with its reports
on the financial statements for the fiscal year ended November 30,
2015 and November 30, 2014.
On
December 20, 2016, our Board also approved the engagement of Scharf
Pera & Co., PLLC as our independent registered public
accounting firm for the fiscal year ending December 31, 2016. The
engagement of Scharf Pera was effective December 20, 2016. During
the fiscal years ended November 30, 2014 and November 30, 2015, and
the subsequent interim period through December 20, 2016, neither we
nor anyone on our behalf consulted with Scharf Pera regarding
either (i) the application of accounting principles to a specific
completed or proposed transaction or the type of audit opinion that
might be rendered on our financial statements, and Scharf Pera did
not provide written reports or oral advice that was an important
factor considered by us in reaching a decision as to any
accounting, auditing or financial reporting issue during such
periods or (ii) any matter that was either the subject of a
disagreement (as defined in Item 304(a)(i)(iv) of Regulation S-K
and related instructions to such item) or a reportable event (as
described in Item 304(a)(i)(v) of Regulation S-K).
MANAGEMENT
Directors and Executive Officers
Below
are the names of and certain information regarding our executive
officers and directors:
|
Name
|
|
Age
|
|
Position
|
|
Marshall
Chesrown
|
|
59
|
|
Chief
Executive Officer and Chairman
|
|
Steven
R. Berrard
|
|
63
|
|
Chief
Financial Officer, Secretary and Director
|
|
Denmar
Dixon
|
|
55
|
|
Director
|
|
Kartik
Kakarala
|
|
39
|
|
Director
|
|
Mitch
Pierce
|
|
60
|
|
Director
|
|
Kevin
Westfall
|
|
61
|
|
Director
|
|
Richard
A. Gray
|
|
69
|
|
Director
|
Marshall Chesrown
has served as our
Chief Executive Officer and Chairman since October 24, 2016. Mr.
Chesrown has over 35 years of leadership experience in the
automotive retail sector. From December 2014 to September 2016, Mr.
Chesrown served as Chief Operating Officer and as a director of
Vroom.com, or Vroom, an online direct car retailer. Mr. Chesrown
served as Chief Operating Officer of AutoAmerica, an automotive
retail company, from May 2013 to November 2014. Previously, Mr.
Chesrown served as the President of Chesrown Automotive Group from
January 1985 to May 2013, which was acquired by AutoNation, Inc., a
leading automotive retail company, in 1997. Mr. Chesrown served as
Senior Vice President of Retail Operations for AutoNation from 1997
to 1999. From 1999 to 2013, Mr. Chesrown served as the Chairman and
Chief Executive Officer of Blackrock Development, a real estate
development company widely known for development of the nationally
recognized Golf Club at Black Rock. Mr. Chesrown filed for
personal bankruptcy in May 2013, which petition was discharged in
January 2017.
We
believe that Mr. Chesrown possesses attributes that qualify him to
serve as a member of our Board, including his extensive experience
in the automotive retail sector.
Steven R. Berrard
has served as our
Chief Financial Officer since January 9, 2017 and served as Interim
Chief Financial Officer from July 13, 2016 through January 9, 2017
and as Chief Executive Officer from July 13, 2016 through October
24, 2016. Mr. Berrard has also served as Secretary and a director
of our company since July 13, 2016. Mr. Berrard served as a
director of Walter Investment Management Corp. (“Walter
Investment”) from 2010 until May 2017. M
r. Berrard served on the Board of Directors
of Swisher Hygiene Inc., a publicly traded industry leader in
hygiene solutions and products, from 2004 until May 2014.
Mr. Berrard is the Managing Partner of New River Capital
Partners, a private equity fund he co-founded in 1997.
Mr. Berrard was the co-founder and Co-Chief Executive Officer
of AutoNation from 1996 to 1999. Prior to joining AutoNation,
Mr. Berrard served as President and Chief Executive Officer of
the Blockbuster Entertainment Group, at the time the world’s
largest video store operator. Mr. Berrard served as President
of Huizenga Holdings, Inc., a real estate management and
development company, and served in various positions with
subsidiaries of Huizenga Holdings, Inc. from 1981 to 1987.
Mr. Berrard was employed by Coopers & Lybrand (now
PricewaterhouseCoopers LLP (“PwC”)) from 1976 to 1981.
Mr. Berrard currently serves on the Board of Directors of
Pivotal Fitness, Inc., a chain of fitness centers operating in a
number of markets in the United States. He has previously served on
the Boards of Directors of Jamba, Inc., (2005 – 2009),
Viacom, Inc., (1987 – 1996), Birmingham Steel
(1999 – 2002), HealthSouth (2004 – 2006), and
Boca Resorts, Inc. (1996 – 2004). Mr. Berrard
earned his B.S. in Accounting from Florida Atlantic
University.
We
believe that Mr. Berrard’s management experience and
financial expertise is beneficial in guiding our strategic
direction. He has served in senior management and/or on the Board
of several prominent, publicly traded companies. In several
instances, he has led significant growth of the businesses he has
managed. In addition, Mr. Berrard has served as the Chairman of the
audit committee of several boards of directors.
Denmar Dixon
has served on our Board
since January 9, 2017. Mr. Dixon served as a director of Walter
Investment from April 2009 (and for its predecessor since December
2008) until June 2016. Effective October 2015, Mr. Dixon was
appointed Chief Executive Officer and President of Walter
Investment and served until his resignation effective June 2016.
Mr. Dixon previously served as Vice Chairman of the Board of
Directors and Executive Vice President of Walter Investment since
January 2010 and Chief Investment Officer of Walter Investment
since August 2013. Before becoming an executive officer of Walter
Investment, also served as a member of Walter Investment's Audit
Committee and Nominating and Corporate Governance Committee and as
Chairman of the Compensation and Human Resources Committee (Mr.
Dixon resigned from each of these committee positions immediately
before his appointment as the Vice Chairman of the Board and
Executive Vice President of our company). Before serving on the
Board of Walter Investment, Mr. Dixon was elected to the board of
managers of JWH Holding Company, LLC, a wholly-owned subsidiary of
Walter Industries, Inc., in anticipation of the spin-off of Walter
Investment Management, LLC from Walter Industries, Inc. (now known
as Walter Energy, Inc.). In 2008, Mr. Dixon founded Blue Flame
Capital, LLC, a consulting, financial advisory and investment firm.
Before forming Blue Flame, Mr. Dixon spent 23 years with Banc of
America Securities, LLC and its predecessors. At the time of his
retirement, Mr. Dixon was a Managing Director in the Corporate and
Investment Banking group and held the position of Global Head of
the Basic Industries Group of Banc of America
Securities.
We
believe that Mr. Dixon possesses attributes that qualify him to
serve as a member of our Board, including his extensive business
development, mergers and acquisitions and capital
markets/investment banking experience within the financial services
industry. As a director, he provides significant input into, and is
actively involved in, leading our business activities and strategic
planning efforts. Mr. Dixon has significant experience in the
general industrial, consumer and business services
industries.
Kartik Kakarala
was appointed to our
Board immediately following the completion of the NextGen
Acquisition in February 2017. Mr. Kakarala is the Chief Executive
Officer of Halcyon Technologies, a global software solutions
company. He is responsible for sales, business development and
innovation, as well as the creation of technology assets. He has
been responsible for the growth of a number of strategic,
horizontal competencies, and vertical business units like
automotive, utilities, finance and healthcare practices. Mr.
Kakarala served as the Chief Executive Officer and President of
NextGen from January 2016 to February 2017, which was acquired by
us in February 2017, providing inventory management solutions to
the power sports, recreational vehicle and marine sectors in North
America. He served as Chief Executive Officer and President of
NextGenAuto from July 2013 to December 2015. Mr. Kakarala served as
Co-Founder and Managing Partner of Red Bumper from July 2010 to
August 2014, a company which provided used car inventory management
solutions used by thousands of automotive dealers across North
America and which was later acquired by ADP in 2014. Mr. Kakarala
served as Director/Co-Founder of GridFirst solutions since 2012, a
company providing home automation solutions to energy customers.
Mr. Kakarala holds a Master’s degree in Computer Science from
University of Houston.
We
believe that Mr. Kakarala possesses attributes that qualify him to
serve as a member of our Board, as he is regarded as a pioneer in
developing several systems in the automotive industry including
CRM, ERP, inventory management and financial
applications.
Mitch Pierce
has served on our Board
since January 9, 2017. Mr. Pierce has over 35 years of leadership
experience in the automotive retail sector. Mr. Pierce served as
the President of Tempe Toyota Group from January 1985 to June 1997,
which was acquired by AutoNation in 1997. Mr. Pierce served as a
Regional Vice President of Retail Operations for AutoNation from
1997 to 2003. Mr. Pierce currently owns one of the five largest
Toyota stores in United States and is a partner in six other major
auto dealerships. Mr. Pierce is a board member of the Southern
California Toyota Dealers. He served on the National Dealer Council
for Toyota Dealers in 1996-97. He is Past Chairman of the Arizona
Automobile Dealer Association.
We
believe that Mr. Pierce possesses attributes that qualify him to
serve as a member of our Board, including his more than 30 years of
executive experience in the automotive retail sector and broad base
of business knowledge and experience.
Kevin Westfall
has served on our Board
since January 9, 2017. Mr. Westfall was a co-founder and served as
Chief Executive Officer of Vroom from January 2012 through November
2015. Previously, from March 1997 through November 2011, Mr.
Westfall served as Senior Vice President of Sales and Senior Vice
President of Automotive Finance at AutoNation. Mr. Westfall was a
founder of BMW Financial Services in 1990 and served as its
President until March 1997. Mr. Westfall also served as Retail
Lease Manager of Chrysler Credit Corporation from 1987 until 1990
and as President of World Automotive Imports and Leasing from 1980
until 1987.
We
believe that Mr. Westfall possesses attributes that qualify him to
serve as a member of our Board, including his more than 30 years of
executive experience in automotive retail and finance
operations.
Richard A. Gray, Jr.
, was appointed
to our Board and
the Audit Committee
and the Nominating and Corporate Governance Committee
,
effective October 1, 2017. Mr. Gray has served as President of Gray
& Co. Realtors, Inc., a licensed real estate service provider
he founded, since 1987. Gray & Co. Realtors has been involved
in the development, liquidation, the joint venture, and management
of commercial real estate, representing both U.S. investors and
foreign investors, and since 1998, has also been involved in
raising venture capital for startup and additional round funding
for public companies in the technology sector. Before Gray &
Co. Realtors, he served as a broker at Wiggins Gray Interests, a
company focused on development of retail and office properties in
Dallas Fort Worth Metroplex, as well as office, industrial, land
and retail brokerage from 1985 to 1987. Before Wiggins Gray
Interests, he served at Hudson & Hudson Realtors from 1973 to
1985, Murray Investment Company from 1971 to 1973, and Borden
Chemical Company from 1969 to 1971. Mr. Gray has also served as a
director of the Cystic Fibrosis Foundation, Migra Tech, and
Equitable Bank. Mr. Gray received his BBA from Texas Tech
University.
We believe that Mr.
Gray possesses attributes that qualify him to serve as a member of
our Board, including his extensive experience in funding technology
sector public companies.
Corporate Governance Principles and Code of Ethics
Our
Board is committed to sound corporate governance principles and
practices. Our Board’ core principles of corporate governance
are set forth in our Corporate Governance Principles, which were
adopted by our Board in May 2017. In order to clearly set forth our
commitment to conduct our operations in accordance with our high
standards of business ethics and applicable laws and regulations,
our Board also adopted a Code of Business Conduct and Ethics, which
is applicable to all directors, officers and employees. A copy of
the Code of Business Conduct and Ethics and the Corporate
Governance Principles are available on our corporate website at
www.rumbleon.com. You also may obtain a printed copy of the Code of
Ethics and Corporate Governance Principles by sending a written
request to: Investor Relations, RumbleOn, Inc., 4521 Sharon Road,
Suite 370, Charlotte, North Carolina 28211.
Board of Directors
The
business and affairs of our company are managed by or under the
direction of the Board. Currently, the Board is composed of
six members. Effective October 1, 2017, the Board will
be composed of seven members. The Board has not
appointed a lead independent director; instead the presiding
director for each executive session is rotated among the Chairs of
the committees of our Board.
Our
directors are expected to attend our Annual Meeting of
Stockholders. Any director who is unable to attend our Annual
Meeting is expected to notify the Chairman of the
Board in advance of the Annual Meeting.
Board Committees
Pursuant to our
bylaws, our Board may establish one or more committees of the Board
however designated, and delegate to any such committee the full
power of the Board, to the fullest extent permitted by
law.
Our
Board has established three separately designated standing
committees to assist the Board in discharging its responsibilities:
the Audit Committee, the Compensation Committee, and the Nominating
and Corporate Governance Committee. The charters for our Board
committees set forth the scope of the responsibilities of that
committee. The Board will assess the effectiveness and contribution
of each committee on an annual basis. The charters for our Board
committees were adopted by the Board in May 2017. These
charters are available at
www.rumbleon.com
, and you may
obtain a printed copy of any of these charters by sending a written
request to: Investor Relations, RumbleOn, Inc.
Audit Committee
. The Board, by
unanimous consent, established an Audit Committee in January 2017.
Effective October 1, 2017, the members of this
committee will be Messrs. Dixon (chair),
Westfall, and Gray. The Board has determined that Mr.
Dixon is an “audit committee financial
expert,” as defined in Item 407 of Regulation
S-K, and is the Chairman of the Audit Committee.
The
primary function of the Audit Committee is to assist the Board in
fulfilling its responsibilities by overseeing our accounting and
financial processes and the audits of our financial statements. The
independent auditor is ultimately accountable to the Audit
Committee, as representatives of the stockholders. The Audit
Committee has the ultimate authority and direct responsibility for
the selection, appointment, compensation, retention and oversight
of the work of our independent auditor that is engaged for the
purpose of preparing or issuing an audit report or performing other
audit, review or attest services for us (including the resolution
of disagreements between management and the independent auditors
regarding financial reporting), and the independent auditor must
report directly to the Audit Committee. The Audit Committee also is
responsible for the review of proposed transactions between us and
related parties. For a complete description of the Audit
Committee’s responsibilities, you should refer to the Audit
Committee Charter.
Compensation Committee
. In January
2017, the Board, by unanimous consent, established a Compensation
Committee. Effective October 1, 2017, the members of
the Compensation Committee will be Messrs. Westfall
(chair), Dixon, and Pierce. The
Compensation Committee was established to, among other things,
administer and approve all elements of compensation and awards for
our executive officers. The Compensation Committee has the
responsibility to review and approve the business goals and
objectives relevant to each executive officer’s compensation,
evaluate individual performance of each executive in light of those
goals and objectives, and determine and approve each
executive’s compensation based on this evaluation. For a
complete description of the Compensation Committee’s
responsibilities, you should refer to the Compensation Committee
Charter.
Nominating and Corporate Governance
Committee
. In January 2017, the Board, by unanimous consent,
established a Nominating and Corporate Governance Committee.
Effective October 1, 2017, the current
members of the Nominating and Corporate Governance Committee
will be Messrs. Pierce (chair), Gray, and
Dixon. The Nominating Committee is responsible for
identifying individuals qualified to become members of the Board or
any committee thereof; recommending nominees for election as
directors at each annual stockholder meeting; recommending
candidates to fill any vacancies on the Board or any committee
thereof; and overseeing the evaluation of the Board. For a complete
description of the Nominating and Corporate Governance
Committee’s responsibilities, you should refer to the
Nominating and Corporate Governance Committee Charter.
The
Nominating and Corporate Governance Committee will consider all
qualified director candidates identified by various sources,
including members of the Board, management and stockholders.
Candidates for directors recommended by stockholders will be given
the same consideration as those identified from other sources. The
Nominating and Corporate Governance Committee is responsible for
reviewing each candidate’s biographical information, meeting
with each candidate and assessing each candidate’s
independence, skills and expertise based on a number of factors.
While we do not have a formal policy on diversity, when considering
the selection of director nominees, the Nominating and Corporate
Governance Committee considers individuals with diverse
backgrounds, viewpoints, accomplishments, cultural background and
professional expertise, among other factors.
Board Leadership
The
Board has no policy regarding the need to separate or combine the
offices of Chairman of the Board and Chief Executive Officer and
instead the Board remains free to make this determination from time
to time in a manner that seems most appropriate for us. The
positions of Chairman of the Board and Chief Executive Officer are
currently held by Marshall Chesrown. The Board believes the Chief
Executive Officer is in the best position to direct the independent
directors’ attention on the issues of greatest importance to
us and our stockholders. As a result, we do not have a lead
independent director. Our overall corporate governance
policies and practices combined with the strength of our
independent directors and our internal controls minimize any
potential conflicts that may result from combining the roles of
Chairman and Chief Executive Officer.
Board Oversight of Enterprise Risk
The
Board is actively involved in the oversight and management of risks
that could affect our company. This oversight and management is
conducted primarily through the committees of the Board identified
above but the full Board has retained responsibility for general
oversight of risks. The Audit Committee is primarily responsible
for overseeing the risk management function, specifically with
respect to management’s assessment of risk exposures
(including risks related to liquidity, credit, operations and
regulatory compliance, among others), and the processes in place to
monitor and control such exposures. The other committees of the
Board consider the risks within their areas of responsibility. The
Board satisfies its oversight responsibility through full reports
by each committee chair regarding the committee’s
considerations and actions, as well as through regular reports
directly from officers responsible for oversight of particular
risks within our company.
Director Independence
We are
not currently subject to listing requirements of any national
securities exchange that has requirements that a majority of the
Board be “independent.” Nevertheless, our Board has
determined that all of our directors, other than Messrs. Chesrown,
Berrard, and Kakarala, qualify as “independent”
directors in accordance with the listing requirements of The NASDAQ
Stock Market. The NASDAQ independence definition includes a series
of objective tests regarding a director’s independence and
requires that the Board make an affirmative determination that a
director has no relationship with us that would interfere with such
director’s exercise of independent judgment in carrying out
the responsibilities of a director. There are no family
relationships among any of our directors or executive
officers.
EXECUTIVE AND DIRECTOR COMPENSATION
Summary Compensation
Pamela
Elliott, who served as our President, CEO, Secretary, Treasurer,
and sole Director from January 1, 2014 through July 13, 2016, has
not received any compensation for her service to us, except for
$1,500 and $1,200 paid in the fiscal years ended November 30, 2015
and 2014, respectively. No other compensation was earned or paid
during the three years ended December 31, 2016.
Executive Employment Arrangements
Marshall Chesrown
We have
not entered into an employment agreement or arrangement with Mr.
Chesrown. Accordingly, he is employed as our Chief Executive
Officer on an at-will basis. Mr. Chesrown currently receives no
annual base salary.
Mr.
Chesrown is eligible for equity compensation under our equity
compensation plans, as determined from time to time by the
compensation committee of our Board, however through the date of
this filing, no grants of equity awards have been made to Mr.
Chesrown.
Steven Berrard
We have
not entered into an employment agreement or arrangement with Mr.
Berrard. Accordingly, he is employed as our Chief Financial Officer
on an at-will basis. Mr. Berrard currently receives no annual base
salary.
Mr.
Berrard is eligible for equity compensation under our equity
compensation plans, as determined from time to time by the
compensation committee of our Board, however through the date of
this filing, no grants of equity awards have been made to Mr.
Berrard.
Non-Employee Director Compensation
We have
not yet established a policy for non-employee director
compensation. As of December 31, 2016, no compensation had been
paid to our non-employee directors, except consulting fees paid to
our director Kartik Kakarala under the terms of a consulting
agreement with us, which we further describe under “Certain
Relationships and Related Party Transactions.”
Employee Benefit Plans
2017 Stock Incentive Plan
On
January 9, 2017, the Board approved the adoption of the RumbleOn,
Inc. 2017 Stock Incentive Plan, or the Plan, subject to stockholder
approval at our 2017 Annual Meeting of Stockholders. On June 30,
2017, the Plan was approved by our stockholders at the 2017 Annual
Meeting of Stockholders. The purposes of the Plan are to attract,
retain, reward and motivate talented, motivated and loyal employees
and other service providers, or the Eligible Individuals, by
providing them with an opportunity to acquire or increase a
proprietary interest in our company and to incentivize them to
expend maximum effort for the growth and success of our company, so
as to strengthen the mutuality of the interests between such
persons and our stockholders. The Plan allows us to grant a variety
of stock-based and cash-based awards to Eligible Individuals.
Twelve percent of our issued and outstanding shares of Class B
Common Stock from time to time are reserved for issuance under the
Plan. As of June 30 2017, 9,018,541 shares of our Class B
Common Stock were issued and outstanding, resulting in up to
1,082,225 shares of our Class B Common Stock available for issuance
under the Plan. The foregoing description of the Plan does not
purport to be complete and is qualified in its entirety by the Plan
included as an exhibit to the registration statement of which this
prospectus is a part.
On
March 31, 2017, we granted each of Messrs. Dixon,
Pierce, and Westfall 35,000 restricted stock units
under the Plan, subject to stockholder approval of the
Plan.
We have
not maintained any other equity compensation plans since our
inception.
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
We have
been a party to the following transactions since January 1, 2015,
in which the amount involved exceeds $120,000 and in which any
director, executive officer, or holder of more than 5% of any class
of our voting stock, or any member of the immediate family of or
entities affiliated with any of them, had or will have a material
interest.
Related Party Loans Before Change in Control
As of
December 31, 2015, we had loans of $141,000 and accrued interest of
$13,002 due to an entity that is owned and controlled by a family
member of Pamela Elliot, a former officer and director of our
company. All convertible notes and related party notes
outstanding, including interest, of $175,909 as of July 13, 2016
were paid in full in July 2016 in connection with the change in
control.
2016 Financing
On July
13, 2016, Berrard Holdings acquired 5,475,000 shares of our common
stock from our former sole director and executive officer. The
shares acquired by Berrard Holdings represented 99.5% of our issued
and outstanding common stock. The aggregate purchase price for the
shares was $148,141.75, which Berrard Holdings paid from cash on
hand. In addition, at the closing, Berrard Holdings loaned us, and
we and issued to Berrard Holdings the BHLP Note, pursuant to
which we were required to repay $191,858 on or before July 13, 2026
plus interest at 6% per annum. The BHLP Note was convertible into
common stock at any time before maturity at the greater of $0.06
per share or 50% of the price per share of the next
“qualified financing,” which was defined as an offering
resulting in net proceeds to us of $500,000 or greater. Effective
August 31, 2016, the principal amount of the BHLP Note was amended
to include an additional $5,500 loaned to us. On November 28, 2016,
we completed a qualified financing at $1.50 per share, which
established the conversion price per share for the BHLP Note of
$0.75 per share. On March 31, 2017, we issued 275,312 shares
of common stock upon conversion of the BHLP Note, which on such
date had an aggregate principal amount, including accrued interest,
of $206,484.
November 2016 Private Placement
On
November 28, 2016, we completed the 2016 Private Placement of an
aggregate of 900,000 shares of common stock at a purchase price of
$1.50 per share for total consideration of $1,350,000. In
connection with the 2016 Private Placement, the Company also
entered into loan agreements with the investors pursuant to which
the investors would loan the Company their pro rata share of up to
$1,350,000 in the aggregate upon our request any time on or after
January 31, 2017 and before November 1, 2020, pursuant to the
terms of a convertible promissory note attached to the loan
agreements.
In
connection with the 2016 Private Placement, Blue Flame, an entity
controlled by Denmar Dixon, one of the Company’s directors,
paid $250,000 for 166,667 shares of the Company’s Class B
Common Stock. Also, in connection with the private placement, Ralph
Wegis, a holder of more than 5% of our common stock, paid
$799,999.50 for 533,333 shares of the Company’s Class B
Common Stock.
On
March 31, 2017, we completed funding of the second tranche of the
2016 Private Placement, pursuant to which the investors each
received their pro rata share of (1) 1,161,920 shares of common
stock and (2) the Private Placement Notes, in consideration of
cancellation of loan agreements having an aggregate principal
amount committed by the purchasers of $1,350,000. The Private
Placement Note was not convertible. As a result, Blue Flame
received 645,512 shares of Class B Common Stock and a promissory
note in the principal amount of $370,556, and Mr. Wegis received
258,204 shares of Class B Common Stock, and a promissory note in
the principal amount of $148,222.
Test Dealer
A
key component of our business model is to use dealer partners in
the acquisition of motorcycles as well as utilize these dealer
partners to provide inspection, reconditioning and distribution
services. Correspondingly, we will earn fees and transaction
income, and the dealer partner will earn incremental revenue and
enhance profitability through increased sales, leads, and fees from
inspection, reconditioning and distribution programs. These dealer
partners will be designated by us as Select Dealers. In connection
with the development of the Select Dealer program, we have already
been testing various aspects of the program by utilizing a
dealership, or the Test Dealer, to which Mr. Chesrown has provided
financing in the form of a $400,000 convertible promissory note.
The note matures on May 1, 2019, interest is payable monthly at 5%
per annum and can be converted into a 25% ownership interest in the
Test Dealer at any time. The Test Dealer is expected to be named a
Select Dealer by an agreement with the same material terms as our
other pending Select Dealer agreements.
In
addition, we presently intend to secure warehouse space from the
Test Dealer that is separate and distinct from the location of the
Test Dealer, on the same terms as paid by the Test Dealer. This
facility would then serve as our northwestern regional distribution
center.
Consulting Agreement
In
connection with the NextGen Acquisition, on February 8, 2017, we
entered into a Consulting Agreement with Kartik Kakarala, who
formerly served as the Chief Executive Officer of NextGen and now
serves as a director on our Board. Under the Consulting Agreement,
Mr. Kakarala serves as our consultant. The Consulting Agreement may
be cancelled by either party, effective upon delivery of a written
notice to the other party. Mr. Kakarala’s compensation
pursuant to the Consulting Agreement is $5,000 per month.
During the six months ended June 30, 2017, we paid a total of
$15,000 under the Consulting Agreement.
Services Agreement
In
connection with the NextGen Acquisition, on February 8, 2017, we
entered into a Services Agreement with Halcyon, to provide
development and support services to us. Mr. Kakarala currently
serves as the Chief Executive Officer of Halcyon. Pursuant to the
Services Agreement, we pay Halcyon hourly fees for specific
services, set forth in the Services Agreement, and such fees may
increase on an annual basis, provided that the rates may not be
higher than 110% of the immediately preceding year’s rates.
We reimburse Halcyon for any reasonable travel and pre-approved
out-of-pocket expenses incurred in connection with its
services to us. During the six months ended June 30, 2017, we paid
a total of $471,966 under the Services Agreement. For
information relating to the NextGen Acquisition and Halcyon and
payments made to Halcyon, see Description of Business - Corporate
History.
March 2017 Private Placement
On
March 31, 2017, we completed the 2017 Private Placement of
620,000 shares of our Class B Common Stock at a price of $4.00 per
share for aggregate proceeds of $2.48 million. We sold an
additional 37,500
shares in connection with the 2017
Private Placement on April 30, 2017. Our officers and directors
acquired 175,000 shares of Class B Common Stock in the 2017 Private
Placement as follows: Mr. Chesrown – 62,500 shares, Mr.
Berrard (through Berrard Holdings) – 62,500 shares, Mr.
Pierce (through Pierce Family Trust) – 37,500
shares, and Mr. Westfall – 12,500 shares.
2017
Bridge Note
Financing
Effective September 5, 2017, we completed a Bridge Note financing,
which included certain of our executive officers and directors, in
the aggregate principal amount of $1,650,000, which includes an
aggregate original issue discount of $150,000. The proceeds to the
Company from the Bridge Notes, net of the original issuance
discount, were $1,500,000.
The following
executive officers and directors participated in the Bridge Note
financing in the principal amounts set forth
below:
|
Name
|
|
Position
|
Principal Amount
|
Original Issue Discount
|
|
Steven
R. Berrard (1)
|
|
CFO
and Director
|
$
275,000
|
$
25,000
|
|
Denmar
Dixon (2)
|
|
Director
|
$
275,000
|
$
25,000
|
|
Kartik
Kakarla
|
|
Director
|
$
137,500
|
$
12,500
|
|
Mitch
Pierce (3)
|
|
Director
|
$
275,000
|
$
25,000
|
(1) Through Berrard
Holdings and through his wife.
(2) Through Blue
Flame Capital, LLC.
(3) Through Pierce
Family Trust.
Related Party Transaction Policy
In May
2017, our Board adopted a formal policy that our executive
officers, directors, holders of more than 5% of any class of our
voting securities, and any member of the immediate family of and
any entity affiliated with any of the foregoing persons, are not
permitted to enter into a related party transaction with us without
the prior consent of the Audit Committee, or other independent
members of our Board if it is inappropriate for the Audit Committee
to review such transaction due to a conflict of interest. Any
request for us to enter into a transaction with an executive
officer, director, principal stockholder, or any of their immediate
family members or affiliates, in which the amount involved exceeds
$120,000 must first be presented to the Audit Committee for review,
consideration and approval. In approving or rejecting any such
proposal, the Audit Committee is to consider the relevant facts and
circumstances available and deemed relevant to the audit committee,
including, whether the transaction is on terms no less favorable
than terms generally available to an unaffiliated third party under
the same or similar circumstances and the extent of the related
party’s interest in the transaction. The related party
transactions described above were entered into prior to the
adoption of this policy.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities. In accordance with the SEC rules, shares of our common
stock that may be acquired upon exercise or vesting of equity
awards within 60 days of the date of the table below are deemed
beneficially owned by the holders of such options and are deemed
outstanding for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage of ownership of any other
person.
As of
September 26, 2017, 1,000,000 shares of Class A Common
Stock and 9,018,541 shares of Class B Common Stock were issued and
outstanding. Immediately after completion of this offering, we will
have 11,018,541 shares of Class B Common Stock issued
and outstanding. The following table sets forth information with
respect to the beneficial ownership of our common stock as of
September
26
, 2017 and as adjusted to
reflect the sale of 2,000,000 shares of our Class B
Common Stock offered by us in this offering, by (i) each of our
directors and executive officers, (ii) all of our directors and
executive officers as a group, and (iii) each stockholder known by
us to be the beneficial owner of more than 5% of our common stock.
To the best of our knowledge, except as otherwise indicated, each
of the persons named in the table has sole voting and investment
power with respect to the shares of common stock beneficially owned
by such person, except to the extent such power may be shared with
a spouse. To our knowledge, none of the shares listed below are
held under a voting trust or similar agreement, except as noted. To
our knowledge, there is no arrangement, including any pledge by any
person of our securities or any of our parents, the operation of
which may at a subsequent date result in a change in control of our
company.
Unless
otherwise noted below, the address of each person listed on the
table is c/o RumbleOn, Inc., 4521 Sharon Road, Suite 370,
Charlotte, NC 28211.
|
|
Before and After
Offering
|
Before
Offering
|
After
Offering
|
|||
|
Name
and Address of Beneficial Owner
|
No. of Shares of
Class A Common Stock Owned
|
Percentage
of
Class
A
Ownership
(1)(2)
|
No. of Shares of
Class B Common Stock Owned
|
Percentage of Class
B Ownership
(1)(3)
|
No. of Shares of
Class B Common Stock Owned
|
Percentage of Class
B Ownership
(1)(4)
|
|
Named
Executive Officers and Directors:
|
|
|
|
|
|
|
|
Marshall
Chesrown(5)
|
875,000
|
87.5
%
|
1,737,656
|
19.3
%
|
1,737,656
|
15.8
%
|
|
Steven R.
Berrard(6)
|
125,000
|
12.5
%
|
1,970,000
|
21.8
%
|
1,970,000
|
17.9
%
|
|
Denmar
Dixon(7)
|
-
|
-
|
962,179
|
10.7
%
|
962,179
|
8.7
%
|
|
Kartik
Kakarala(8)
|
-
|
-
|
1,523,809
|
16.9
%
|
1,523,809
|
13.8
%
|
|
Mitch
Pierce(9)
|
-
|
-
|
37,500
|
*
|
37,500
|
*
|
|
Kevin
Westfall
|
-
|
-
|
12,500
|
*
|
12,500
|
*
|
|
Richard A.
Gray (10)
|
-
|
-
|
25,000
|
*
|
25,000
|
*
|
|
All directors and
executive officers as a group (6
persons)(11)
|
1,000,000
|
100.0
%
|
6,243,644
|
69.2
%
|
6,243,644
|
56.7
%
|
|
5%
Stockholders:
|
|
|
|
|
|
|
|
Ralph
Wegis(11)
|
-
|
-
|
891,537
|
9.9
%
|
891,537
|
8.1
%
|
|
NextGen Dealer
Solutions, LLC(8)
|
-
|
-
|
1,523,809
|
16.9
%
|
1,523,809
|
13.8
%
|
____________
*Represents
beneficial ownership of less than 1%.
(1)
Calculated in
accordance with applicable rules of the SEC.
(2)
Based on 1,000,000
shares of Class A Common Stock issued and outstanding as of
September 26, 2017. The Class A Common Stock has ten
votes for each share outstanding compared to one vote for each
share of Class B Common Stock outstanding. As of September
26, 2017, the holders of the Class A Common Stock has in
aggregate, including shares of Class B Common Stock held by them,
voting power representing 72.1% of our outstanding
common stock on a fully diluted basis.
(3)
Based on 9,018,541
shares of Class B Common Stock issued and outstanding as of
September 26, 2017.
(4)
Based on
11,018,541
shares of Class B Common Stock issued and outstanding after this
offering.
(5)
As of
September 26, 2017, Mr. Chesrown had voting power
representing approximately 55.1% of our outstanding common stock on
a fully diluted basis. After this offering, Mr. Chesrown will have
voting power representing approximately 49.9% of our
outstanding common stock on a fully diluted basis.
(6)
Shares are owned
directly through Berrard Holdings, a limited partnership controlled
by Steven R. Berrard. Mr. Berrard has the sole power to vote and
the sole power to dispose of each of the shares of common stock
which he may be deemed to beneficially own. As of September
26, 2017, Mr. Berrard had voting power representing
approximately 16.9% of our outstanding common stock on a fully
diluted basis. After this offering, Mr. Berrard will have voting
power representing approximately 15.3% of our
outstanding common stock on a fully diluted basis.
(7)
Shares are owned
directly through Blue Flame Capital, LLC, an entity controlled by
Mr. Dixon. Mr. Dixon has the sole power to vote and the sole power
to dispose of each of the shares of common stock which he may be
deemed to beneficially own. As of September 26, 2017,
Mr. Dixon had voting power representing approximately 5.1% of our
outstanding common stock on a fully diluted basis. After this
offering, Mr. Dixon will have voting power representing
approximately 4.6% of our outstanding common stock on
a fully diluted basis.
(8)
Shares are owned
indirectly through NextGen Dealer Solutions, LLC, a limited
liability company of which Mr. Kakarala is the Manager. Mr.
Kakarala has the sole power to vote and the sole power to dispose
of each of the shares of common stock he may be deemed to
beneficially own. As of September 26, 2017, Mr.
Kakarala had voting power representing approximately 8.0% of our
outstanding common stock on a fully diluted basis. After this
offering, Mr. Kakarala will have voting power representing
approximately 7.2% of our outstanding common stock on
a fully diluted basis.
(9)
Held through Pierce
Family Trust.
(10)
Mr. Gray was
appointed a director of the Company, effective October 1,
2017.
(11)
As of
September 26, 2017, all directors and executive
officers as a group had voting power representing approximately
85.4% of our outstanding common stock on a fully diluted basis.
After this offering, all directors and executive officers as a
group will have voting power representing approximately
77.3% of our outstanding common stock on a fully
diluted basis.
(12)
As of
September 26, 2017, Mr. Wegis had voting power
representing approximately 4.7% of our outstanding common stock on
a fully diluted basis. After this offering, Mr. Wegis will have
voting power representing approximately 4.2% of our
outstanding common stock on a fully diluted basis.
DESCRIPTION OF CAPITAL STOCK
Common Stock
Our
Articles of Incorporation authorize the
issuance of 100,000,000 shares of
common stock, $0.001 par value per share, of which 1,000,000 shares
are designated as Class A Common Stock and all other shares of
common stock are designated as Class B Common Stock. The Class A
Common Stock ranks pari passu with all of the rights and privileges
of the Class B Common Stock, except that holders of the Class A
Common Stock are entitled to ten votes per share of Class A Common
Stock issued and outstanding. The Class B Common Stock are
identical to the Class A Common Stock in all respects, except that
holders of the Class B Common Stock will be entitled to one vote
per share of Class B Common Stock issued and outstanding. Our Class
B Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. As of September 26, 2017,
1,000,000 shares of Class A Common Stock and 9,018,541
shares of Class B Common Stock
were issued and outstanding.
Holders
of shares of common stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the
Board in its discretion, from funds legally available to be
distributed. In the event of a liquidation, dissolution or winding
up of our company, the holders of shares of common stock are
entitled to share pro rata all assets remaining after payment in
full of all liabilities and the prior payment to the preferred
stockholders if any. Holders of common stock have no preemptive
rights to purchase our common stock. There are no conversion rights
or redemption or sinking fund provisions with respect to the common
stock.
Preferred Stock
Our
Articles of Incorporation authorize the issuance of 10,000,000
shares of preferred stock, $0.001 par value per share, of which no
shares were outstanding as of the date of this prospectus. The
preferred stock may be issued from time to time by the Board as
shares of one or more classes or series.
Our
Board, subject to the provisions of our Articles of Incorporation
and limitations imposed by law, is authorized to:
|
|
●
|
adopt
resolutions;
|
|
|
●
|
to
issue shares;
|
|
|
●
|
to fix
the number of shares;
|
|
|
●
|
to
change the number of shares constituting any series;
and
|
|
|
●
|
to
provide for or change the following:
|
|
|
●
|
the
voting powers;
|
|
|
●
|
designations;
|
|
|
●
|
preferences;
and
|
|
|
●
|
relative,
participating, optional or other special rights, qualifications,
limitations or restrictions, including the following:
|
|
|
●
|
dividend
rights (including whether dividends are cumulative);
|
|
|
●
|
dividend
rates;
|
|
|
●
|
terms
of redemption (including sinking fund provisions);
|
|
|
●
|
redemption
prices;
|
|
|
●
|
conversion
rights; and
|
|
|
●
|
liquidation
preferences of the shares constituting any class or series of the
preferred stock.
|
In
each of the listed cases, other than authorizing or issuing
additional shares of Class A Common Stock, which requires the
affirmative written consent of a majority of the holders of Class A
Common Stock, we will not need any further action or vote by
the stockholders.
One
of the effects of undesignated preferred stock may be to enable the
Board to render more difficult or to discourage an attempt to
obtain control of us by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of our
management. The issuance of shares of preferred stock pursuant to
the Board’s authority described above may adversely affect
the rights of holders of common stock. For example, preferred stock
issued by us may rank prior to the common stock as to dividend
rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may
discourage bids for the common stock at a premium or may otherwise
adversely affect the market price of the common stock.
Nevada Laws
The
Nevada Business Corporation Law contains a provision governing
“Acquisition of Controlling Interest.” This law
provides generally that any person or entity that acquires 20% or
more of the outstanding voting shares of a publicly-held Nevada
corporation in the secondary public or private market may be denied
voting rights with respect to the acquired shares, unless a
majority of the disinterested stockholders of the corporation
elects to restore such voting rights in whole or in part. The
control share acquisition act provides that a person or entity
acquires “control shares” whenever it acquires shares
that, but for the operation of the control share acquisition act,
would bring its voting power within any of the following three
ranges:
|
|
●
|
20 to
33%;
|
|
|
●
|
33% to
50%; and
|
|
|
●
|
more
than 50%.
|
A
“control share acquisition” is generally defined as the
direct or indirect acquisition of either ownership or voting power
associated with issued and outstanding control shares. The
stockholders or board of directors of a corporation may elect to
exempt the stock of the corporation from the provisions of the
control share acquisition act through adoption of a provision to
that effect in the articles of incorporation or bylaws of the
corporation. Our Articles of Incorporation and bylaws do exempt our
common stock from the control share acquisition act.
Market Information
Our
Class B Common Stock currently trades on the OTCQB under the symbol
“RMBL.” We have applied for the listing of our Class B
common stock on the NASDAQ Capital Market under the symbol
“RMBL.” The closing of this offering is
contingent on the successful listing of our Class B Common Stock on
The NASDAQ Capital Market.
Holders
As of
September 26, 2017, we had approximately 44
stockholders of record of 9,018,541 issued and outstanding shares
of Class B Common Stock and two holders of record of 1,000,000
issued and outstanding shares of Class A Common Stock.
Transfer Agent and Registrar
The
transfer agent and registrar for our Class A Common Stock and Class
B Common Stock is West Coast Stock Transfer, Inc.
SHARES AVAILABLE FOR FUTURE SALES
Future
sales of our Class B Common Stock in the public market, or the
availability of such shares for sale in the public market, could
adversely affect market prices prevailing from time to time. As
described below, the sale of a portion of our shares will be
limited after this offering due to contractual and legal
restrictions on resale. Nevertheless, sales of our Class B Common
Stock in the public market after such restrictions lapse, or the
perception that those sales may occur, could adversely affect the
prevailing market price at such time and our ability to raise
equity capital in the future.
Based
on the number of shares of Class B Common Stock as of
September 26, 2017, upon the completion of this
offering,
11,018,541
shares of our Class B Common Stock will be outstanding, assuming
2,000,000 shares of Class B Common Stock are
issued in this offering, and assuming no exercise of the
underwriters’ remaining over-allotment option, or
11,318,541 shares of our Class B Common Stock will be
outstanding, assuming 2,300,000 shares of Class B Common Stock are
issued in this offering and the underwriters’ over-allotment
option is exercised in full.
Except
for shares of our Class B Common Stock subject to lock-up
agreements, upon consummation of this offering, substantially all
of our outstanding shares will be freely tradable, except that any
shares held by our affiliates (as that term is defined in Rule 144
under the Securities Act), may only be sold in compliance with Rule
144, including the volume limitations described below. An aggregate
of 7,112,500 shares of Class B Common Stock are
subject to lock-up agreements that restrict the sale of these
shares through December 31, 2017. Also, an aggregate of
shares of Class B
Common Stock will be subject to lock-up agreements to be entered
into in connection with this offering that restrict the sale of
these shares through
,
2018. For information concerning the number of shares of Class B
Common Stock beneficially owned by our directors, officers and
principal stockholders following completion of this offering, see
the section of this prospectus entitled “Security Ownership
of Certain Beneficial Owners and Management.”
Rule 144
In
general, under Rule 144 of the Securities Act, as in effect on the
date of this prospectus, any person who is not our affiliate at any
time during the preceding three months, and who has beneficially
owned their shares for at least six months (including the holding
period of any prior owner other than one of our affiliates), would
be entitled to sell shares of our common stock, subject to the
provisions of Rule 144, including the volume limitations set forth
below, provided current public information about us is available,
and after owning such shares for at least one year (including the
holding period of any prior owner other than one of our
affiliates), would be entitled to sell an unlimited number of
shares of our common stock without restriction, provided current
public information about us is available.
A
person who is our affiliate or who was our affiliate at any time
during the preceding three months, and who has beneficially owned
restricted securities for at least six months, including the
affiliates, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
●
1% of the number of
shares of our common stock then outstanding, which will equal
approximately
shares,
or
shares if the
underwriters exercise their over-allotment option in full,
immediately following this offering, based on the number of shares
of our common stock outstanding as of
, 2017; or
●
the average weekly
trading volume of our common stock on the OTCQB during the four
calendar weeks preceding the filing of a Form 144 notice with
respect to the sale.
Sales
under Rule 144 by our affiliates are also subject to manner of sale
provisions and notice requirements and all sales of our securities
pursuant to Rule 144 are subject to the availability of current
public information about us.
UNDERWRITING
We have
entered into an underwriting agreement dated , 2017 with Roth
Capital Partners, LLC and Maxim Group LLC, acting as
the representatives for the underwriters named below.
Subject to the terms and conditions of the underwriting agreement,
the underwriters named below have agreed to purchase, and we have
agreed to sell to them, the number of shares of Class B Common
Stock at the public offering price, less the underwriting discounts
and commissions, as set forth on the cover page of this prospectus
and as indicated below:
|
Underwriter
|
Number of Shares
|
|
Roth Capital
Partners, LLC
|
|
|
Maxim Group
LLC
|
|
|
Aegis Capital
Corp.
|
|
|
Total
|
2,000,000
|
All of
the shares to be purchased by the underwriters will be purchased
from us.
The
underwriting agreement provides that the obligations of the
underwriters to pay for and accept delivery of the shares of Class
B Common Stock offered by this prospectus are subject to various
conditions and representations and warranties, including the
approval of certain legal matters by their counsel and other
conditions specified in the underwriting agreement. The shares of
Class B Common Stock are offered by the underwriters, subject to
prior sale, when, as and if issued to and accepted by them. The
underwriters reserve the right to withdraw, cancel or modify the
offer to the public and to reject orders in whole or in part. The
underwriters are obligated to take and pay for all of the shares of
Class B Common Stock offered by this prospectus if any such shares
of Class B Common Stock are taken, other than those shares of Class
B Common Stock and warrants covered by the over-allotment option
described below.
Over-Allotment Option
We have
granted to the underwriters an option, exercisable no later than 30
calendar days after the closing of this offering, to purchase up to
an additional
300,000
shares of Class B
Common Stock (15% of the shares of Class B Common Stock sold in
this offering) from us to cover over-allotments, if any, at a price
per share of Class B Common Stock of $9.49 (the last sale
prices of our Class B Common Stock on the OTCQB on September 26,
2017), less the underwriting discounts and commissions. The
underwriters may exercise this option only to cover over-allotments
made in connection with this offering. If the underwriters exercise
this option in whole or in part, then the underwriters will be
severally committed, subject to the conditions described in the
underwriting agreement, to purchase these additional shares of
Class B Common Stock. If any additional shares of Class B Common
Stock are purchased, the underwriters will offer the additional
shares of Class B Common Stock on the same terms as those on which
the shares of Class B Common Stock are being offered
hereby.
Discounts and Commissions
The representative has advised us that the underwriters propose to
offer the shares of Class B Common Stock to the public at the
initial public offering price per share set forth on the cover page
of this prospectus. The underwriters may offer shares to securities
dealers at that price less a concession of not more than
$ per
share, of which up to
$ per
share may be re-allowed to other dealers. After the initial
offering to the public, the public offering price and other selling
terms may be changed by the representative.
The
following table summarizes the public offering price, underwriting
discounts and commissions and proceeds before expenses to us
assuming both no exercise and full exercise by the underwriters of
their over-allotment option:
|
|
Per Share
|
Total Without
Over-
Allotment
|
Total With
Over-Allotment
|
|
Public offering
price
|
$
|
$
|
$
|
|
Underwriting
discounts and commissions (7%)
|
$
|
$
|
$
|
|
Proceeds, before
expenses, to us
|
$
|
$
|
$
|
We have
also agreed to pay the reasonable out of pocket expenses of the
underwriters relating to the offering, including the
underwriters’ legal fees incurred in connection with this
offering, in an amount up to $150,000.
We
estimate the expenses of this offering payable by us, not including
underwriting discounts and commissions and the
$150,000 advisory fee payable to Roth Capital
Partners, will be approximately
$247,075.
Representatives' Warrants and Advisory
Fees
Upon
closing of this offering, we have agreed to issue to the
representatives of the underwriters as compensation
warrants to purchase a number of shares of Class B Common Stock
equal to 7.5% of the aggregate number of shares of Class B Common
Stock sold in this public offering, or the Representatives'
Warrants. The Representatives' Warrants will be exercisable at a
per share exercise price equal to 115% of the public offering price
per share of the shares of Class B Common Stock sold in this
offering. The Representatives' Warrants are exercisable at any time
and from time to time, in whole or in part, during the four-year
period commencing one year from the effective date of the
registration statement related to this offering.
The
Representatives' Warrants and the shares of Class B Common Stock
underlying the Representatives' Warrants have been deemed
compensation by FINRA and are, therefore, subject to a 180-day
lock-up pursuant to FINRA Rule 5110(g)(1). The representative, or
permitted assignees under such rule, may not sell, transfer,
assign, pledge, or hypothecate the Representatives' Warrants or the
securities underlying the Representatives' Warrants, nor will the
representative engage in any hedging, short sale, derivative, put,
or call transaction that would result in the effective economic
disposition of the Representatives' Warrants or the underlying
shares of Class B Common Stock for a period of 180 days from the
effective date of the registration statement. Additionally, the
Representatives' Warrants may not be sold transferred, assigned,
pledged or hypothecated for a 180-day period following the
effective date of the registration statement except to any
underwriter and selected dealer participating in the offering and
their bona fide officers or partners. The Representatives' Warrants
will provide for adjustment in the number and price of the
Representatives' Warrants and the shares of Class B Common Stock
underlying such Representatives' Warrants in the event of
recapitalization, merger, stock split or other structural
transaction, or a future financing undertaken by us.
Upon the
closing of this offering, we have also agreed to pay Roth Cpaital
Partners, LLC as compensation a one-time advisory fee in the amount
of $150,000
.
NASDAQ Listing
We have
applied to list the shares of our Class B Common Stock on The
NASDAQ Capital Market under the symbol “RMBL.”
The closing of this offering is contingent on the successful
listing of our Class B Common Stock on The NASDAQ Capital
Market.
Lock-Up Agreements
We,
each of our directors and officers and all of our stockholders
holding 10% or more of our common stock as of the date of this
prospectus have agreed, for a period of 180 days after the date of
this prospectus and subject to certain exceptions,
not to
directly
or indirectly:
|
|
●
|
issue
(in the case of us), offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of any shares of our Class B Common
Stock or other capital stock or any securities convertible into or
exercisable or exchangeable for our Class B Common Stock or other
capital stock; or
|
|
|
●
|
in the
case of us, file or cause the filing of any registration statement
under the Securities Act with respect to any shares of our Class B
Common Stock or other capital stock or any securities convertible
into or exercisable or exchangeable for our Class B Common Stock or
other capital stock; or
|
|
|
●
|
in
the case of us, complete any offering of our debt
securities, other than entering into a line of credit with a
traditional bank; or
|
|
|
●
|
enter
into any swap or other agreement, arrangement, hedge or transaction
that transfers to another, in whole or in part, directly or
indirectly, any of the economic consequences of ownership of our
Class B Common Stock or other capital stock or any securities
convertible into or exercisable or exchangeable for our Class B
Common Stock or other capital stock, whether any transaction
described in any of the foregoing bullet points is to be settled by
delivery of our Class B Common Stock or other capital stock, other
securities, in cash or otherwise, or publicly announce an intention
to do any of the foregoing.
|
Price Stabilization, Short Positions and Penalty Bids
In
connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price
of our Class B Common Stock. Specifically, the underwriters may
over-allot in connection with this offering by selling more shares
than are set forth on the cover page of this prospectus. This
creates a short position in our Class B Common Stock for its own
account. The short position may be either a covered short position
or a naked short position. In a covered short position, the number
of shares of Class B Common Stock over-allotted by the underwriters
is not greater than the number of shares of Class B Common Stock
that they may purchase in the over-allotment option. In a naked
short position, the number of shares of Class B Common Stock
involved is greater than the number of shares Class B Common Stock
in the over-allotment option. To close out a short position, the
underwriters may elect to exercise all or part of the
over-allotment option. The underwriters may also elect to stabilize
the price of our Class B Common Stock or reduce any short position
by bidding for, and purchasing, Class B Common Stock in the open
market.
The
underwriters may also impose a penalty bid. This occurs when a
particular underwriter or dealer repays selling concessions allowed
to it for distributing shares of Class B Common Stock in this
offering because the underwriter repurchases the shares of Class B
Common Stock in stabilizing or short covering
transactions.
Finally, the
underwriters may bid for, and purchase, shares of our Class B
Common Stock in market making transactions, including
“passive” market making transactions as described
below.
These
activities may stabilize or maintain the market price of our Class
B Common Stock at a price that is higher than the price that might
otherwise exist in the absence of these activities. The
underwriters are not required to engage in these activities, and
may discontinue any of these activities at any time without notice.
These transactions may be effected on NASDAQ, in the
over-the-counter market, or otherwise.
In
connection with this offering, the underwriters and selling group
members, if any, or their affiliates may engage in passive market
making transactions in our Class B Common Stock immediately prior
to the commencement of sales in this offering, in accordance with
Rule 103 of Regulation M under the Exchange Act. Rule 103 generally
provides that:
●
a passive market
maker may not effect transactions or display bids for our Class B
Common Stock in excess of the highest independent bid price by
persons who are not passive market makers;
●
net purchases by a
passive market maker on each day are generally limited to 30% of
the passive market maker’s average daily trading volume in
our Class B Common Stock during a specified two-month prior period
or 200 shares, whichever is greater, and must be discontinued when
that limit is reached; and
●
passive market
making bids must be identified as such.
Indemnification
We have
agreed to indemnify the underwriters against liabilities relating
to the offering arising under the Securities Act and the Exchange
Act, liabilities arising from breaches of some or all of the
representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may
be required to make for these liabilities.
Electronic Distribution
A
prospectus in electronic format may be made available on a website
maintained by one or more underwriters, or selling group members,
if any, participating in this offering. The underwriters may agree
to allocate a number of shares to underwriters and selling group
members for sale to their online brokerage account holders.
Internet distributions will be allocated by the representative of
the underwriters to underwriters and selling group members that may
make internet distributions on the same basis as other allocations.
In connection with the offering, the underwriters or syndicate
members may distribute prospectuses electronically. No forms of
electronic prospectus other than prospectuses that are printable as
Adobe® PDF will be used in connection with this
offering.
The
underwriters have informed us that they do not intend to confirm
sales to accounts over which they exercise discretionary authority
in excess of five percent of the total number of shares of Class B
Common Stock offered by them.
Other
than the prospectus in electronic format, the information on any
underwriter’s website and any information contained in any
other website maintained by an underwriter is not part of the
prospectus or the registration statement of which this prospectus
is a part, has not been approved and/or endorsed by us or any
underwriter in its capacity as underwriter and should not be relied
upon by investors.
Selling Restrictions
No
action has been taken in any jurisdiction (except in the United
States) that would permit a public offering of our common stock, or
the possession, circulation or distribution of this prospectus
supplement, the accompanying prospectus or any other material
relating to us or our common stock in any jurisdiction where action
for that purpose is required. Accordingly, our common stock may not
be offered or sold, directly or indirectly, and none of this
prospectus or any other offering material or advertisements in
connection with our common stock may be distributed or published,
in or from any country or jurisdiction, except in compliance with
any applicable rules and regulations of any such country or
jurisdiction.
LEGAL MATTERS
The
validity of the shares of Class B Common Stock offered through this
prospectus has been passed on by Akerman LLP. Certain legal matters
in connection with this offering will be passed upon for the
underwriters by Troutman Sanders LLP, Irvine,
California.
EXPERTS
The
financial statements of RumbleOn, Inc. (formerly Smart Server,
Inc.) as of December 31, 2016, December 31, 2015 and November 30,
2015 included in this prospectus have been audited by Scharf
Pera & Co., PLLC, independent registered public
accountants, and are included herein in reliance upon the authority
of such firm as experts in accounting and auditing in giving such
report.
The
consolidated financial statements of NextGen Dealer Solutions, LLC
as of December 31, 2016 and December 31, 2015 included in this
prospectus have been audited by Scharf Pera & Co., PLLC,
independent registered public accountants, and are included herein
in reliance upon the authority of such firm as experts in
accounting and auditing in giving such report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the shares of Class B
Common Stock being offered by this prospectus. This prospectus does
not contain all of the information in the registration statement of
which this prospectus is a part and the exhibits to such
registration statement. For further information with respect to us
and the Class B Common Stock offered by this prospectus, we refer
you to the registration statement of which this prospectus is a
part and the exhibits to such registration statement. Statements
contained in this prospectus as to the contents of any contract or
any other document are not necessarily complete, and in each
instance, we refer you to the copy of the contract or other
document filed as an exhibit to the registration statement of which
this prospectus is a part. Each of these statements is qualified in
all respects by this reference.
You may read and copy the registration statement of which this
prospectus is a part, as well as our reports, proxy statements and
other information, at the SEC’s Public Reference Room at 100
F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information about the operation of the
Public Reference Room. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC, including RumbleOn, Inc. The SEC’s Internet site can be
found at http://www.sec.gov. You may also request a copy of these
filings, at no cost, by writing us at:
RumbleOn,
Inc.
4521
Sharon Road
Suite
370
Charlotte, North
Carolina 28211
Attn:
Secretary
We are subject to the information and reporting requirements of the
Exchange Act and, in accordance with this law, file periodic
reports, proxy statements and other information with the SEC. These
periodic reports, proxy statements and other information are
available for inspection and copying at the SEC’s public
reference facilities and the website of the SEC referred to above.
We also maintain a website at www.rumbleon.com. You may access
these materials free of charge as soon as reasonably practicable
after they are electronically filed with, or furnished to, the SEC.
Information contained on our website is not a part of this
prospectus and the inclusion of our website address in this
prospectus is an inactive textual reference only.
Index to Financial Statements
|
RumbleON, Inc. (formerly Smart
Server, Inc.) Financial Statements
|
|
|
Financial Statements as of December 31, 2016, December 31, 2015 and
November 30, 2015
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Balance Sheets
|
F-3
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Statements of
Operations
|
F-4
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Statement of Stockholders'
Equity (Deficit)
|
F-5
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Statements of Cash
Flows
|
F-6
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Notes to Financial
Statements
|
F-7
|
|
Condensed Consolidated Financial Statements (Unaudited) as of June
30, 2017 and December 31, 2016,
|
|
|
and for the Three-Months and Six-Months Ended June 30, 2017 and
2016
|
|
|
RumbleON, Inc. (formerly Smart Server, Inc.) Condensed Consolidated
Balance Sheets
|
F-15
|
|
RumbleON, Inc. (formerly Smart Server, Inc.) Condensed Consolidated
Statements of Operations
|
F-16
|
|
RumbleON, Inc. (formerly Smart Server, Inc.) Condensed Consolidated
Statement of Stockholders’ Equity
|
F-17
|
|
RumbleON, Inc.
(formerly Smart Server, Inc.) Condensed Consolidated Statements of
Cash Flows
|
F-18
|
|
RumbleON, Inc.
(formerly Smart Server, Inc.) Notes to the Condensed Consolidated
Financial Statements
|
F-19
|
|
NextGen
Dealer Solutions, LLC Financial Statements
|
|
|
Financial
Statemens as of December 31, 2016 and December 31,
2015
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-32
|
|
NextGen
Dealer Solutions, LLC Balance Sheets
|
F-33
|
|
NextGen
Dealer Solutions, LLC Statements of Operations and Changes in
Members’ Equity
|
F-34
|
|
NextGen
Dealer Solutions, LLC Statements of Cash Flows
|
F-35
|
|
NextGen
Dealer Solutions, LLC Notes to Financial Statements
|
F-36
|
RumbleON, Inc.
(formerly Smart Server, Inc.) Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders of
RumbleON, Inc.
We have
audited the accompanying balance sheets of RumbleON, Inc. as of
December 31, 2016, December 31, 2015, and November 30, 2015, and
the related statements of income, stockholders’ equity, and
cash flows for the twelve months ended December 31, 2016 and
November 30, 2015, and for the month ended December 31, 2015.
RumbleON, Inc.’s management is responsible for these
financial statements. Our responsibility is to express an opinion
on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The company is not required to have, nor
werewe engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RumbleON, Inc.
as of December 31, 2016, December 31, 2015, and November 30, 2015,
and the results of its operations and its cash flows for the twelve
months ended December 31, 2016 and November 30, 2015, and for the
month ended December 31, 2015, in conformity with accounting
principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Since the Company has not
generated revenue from operations substantial doubt exists about
its ability to continue on as a going concern. Management’s
plans concerning these matters are described in Note 2 to the
financial statements. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
Scharf
Pera & Co., PLLC
Charlotte, North
Carolina
February 14,
2017
RumbleON, Inc.
(formerly Smart Server, Inc.)
Balance Sheets
|
|
December
31,
|
November
30,
|
|
|
|
2016
|
2015
|
2015
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
|
$
1,350,580
|
$
3,713
|
$
1,563
|
|
Prepaid
expense
|
1,667
|
-
|
-
|
|
Total current
assets
|
1,352,247
|
3,713
|
1,563
|
|
|
|
|
|
|
Other
assets
|
45,515
|
2,692
|
2,850
|
|
|
|
|
|
|
Total
assets
|
$
1,397,762
|
$
6,405
|
$
4,413
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
$
139,083
|
$
8,799
|
$
11,799
|
|
Accounts
payable-related party
|
80,018
|
-
|
-
|
|
Current portion of
note payable-related party
|
-
|
100,000
|
100,000
|
|
Accrued interest
payable-current portion
|
-
|
11,137
|
10,627
|
|
Total current
liabilities
|
219,101
|
119,936
|
122,426
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
Accrued interest
payable - related party
|
5,508
|
1,865
|
1,656
|
|
Note
payable-related party
|
|
41,000
|
33,000
|
|
Convertible note
payable - related party, net
|
1,282
|
-
|
-
|
|
Deferred tax
liability
|
78,430
|
-
|
-
|
|
Total long-term
liabilities
|
85,220
|
42,865
|
34,656
|
|
|
|
|
|
|
Total
liabilities
|
304,321
|
162,801
|
157,082
|
|
|
|
|
|
|
Commitments and
Contingencies (Notes 3, 6, 9, 10)
|
-
|
-
|
-
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
Preferred stock,
$0.001 par value, 10,000,000 shares
|
|
|
|
|
authorized, no
shares issued and outstanding
|
|
|
|
|
as of December 31,
2016, December 31, 2015 and November 30, 2015
|
-
|
-
|
-
|
|
Common stock,
$0.001 par value, 100,000,000 shares
|
|
|
|
|
authorized,
6,400,000, 5,500,000 and 5,500,000 shares issued and
outstanding
|
|
|
|
|
as of December 31,
2016, December 31, 2015 and November 30, 2015
|
6,400
|
5,500
|
5,500
|
|
Additional paid-in
capital
|
1,534,015
|
64,500
|
64,500
|
|
Subscriptions
receivable
|
(1,000
)
|
(5,000
)
|
(5,000
)
|
|
Accumulated
deficit
|
(445,974
)
|
(221,396
)
|
(217,669
)
|
|
Total stockholders'
equity (deficit)
|
1,093,441
|
(156,396
)
|
(152,669
)
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity (deficit)
|
$
1,397,762
|
$
6,405
|
$
4,413
|
See Accompanying
Notes to Financial Statements.
|
RumbleON, Inc.
(formerly Smart Server, Inc.)
Statements of Operations
|
|
|
|
|
For
the
year
ended
December
31,
2016
|
For
the
month
ended
December
31,
2015
|
For
the
year
ended
November
30,
2015
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
General and
administrative
|
57,825
|
-
|
2,529
|
|
Depreciation and
amortization
|
1,900
|
158
|
1,900
|
|
Impairment of
assets
|
792
|
-
|
-
|
|
Professional
fees
|
152,876
|
2,850
|
37,123
|
|
Total operating
expenses
|
213,393
|
3,008
|
41,552
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
Interest expense -
related party
|
11,698
|
719
|
7,257
|
|
Total other
expense
|
11,698
|
719
|
7,257
|
|
|
|
|
|
|
Net loss before
provision for income taxes
|
(225,091
)
|
(3,727
)
|
(48,809
)
|
|
|
|
|
|
|
Benefit for income
taxes
|
513
|
-
|
-
|
|
|
|
|
|
|
Net
loss
|
$
(224,578
)
|
$
(3,727
)
|
$
(48,809
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common
|
|
|
|
|
shares outstanding
- basic
|
5,581,370
|
5,500,000
|
3,513,699
|
|
shares outstanding
- diluted
|
5,581,370
|
5,500,000
|
3,513,699
|
|
|
|
|
|
|
Net loss per share
- basic
|
$
(0.04
)
|
$
(0.00
)
|
$
(0.01
)
|
|
Net loss per share
- diluted
|
$
(0.04
)
|
$
(0.00
)
|
$
(0.01
)
|
See Accompanying Notes to Financial
Statements.
|
RumbleON,
Inc.
(formerly
Smart Server, Inc.)
Statement
of Stockholders' Equity (Deficit)
|
||||||||
|
|
Preferred
Shares
|
Common
Shares
|
Additional
Paid
|
Subscription
|
Accumulated
|
Total
Stockholders'
Equity
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
In
Capital
|
Receivable
|
Deficit
|
(Deficit)
|
|
Balance, November
30, 2014
|
-
|
$
-
|
5,500,000
|
$
5,500
|
$
64,500
|
$
-
|
$
(168,860
)
|
$
(98,860
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchased and
cancellation of common stock
|
-
|
-
|
(5,000,000
)
|
(5,000
)
|
-
|
-
|
-
|
(5,000
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock
|
-
|
-
|
5,000,000
|
5,000
|
-
|
(5,000
)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(48,809
)
|
(48,809
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November
30, 2015
|
-
|
$
-
|
5,500,000
|
$
5,500
|
$
64,500
|
$
(5,000
)
|
$
(217,669
)
|
$
(152,669
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,727
)
|
(3,727
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
-
|
$
-
|
5,500,000
|
$
5,500
|
$
64,500
|
$
(5,000
)
|
$
(221,396
)
|
$
(156,396
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received for
subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
5,000
|
-
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donated
capital
|
-
|
-
|
-
|
-
|
2,000
|
-
|
-
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock
|
-
|
-
|
900,000
|
900
|
1,349,100
|
(1,000
)
|
-
|
1,349,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature, net of deferred taxes
|
-
|
-
|
-
|
-
|
118,415
|
-
|
-
|
118,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(224,578
)
|
(224,578
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2016
|
-
|
$
-
|
6,400,000
|
$
6,400
|
$
1,534,015
|
$
(1,000
)
|
$
(445,974
)
|
$
1,093,441
|
See
Accompanying Notes to Financial Statements.
|
RumbleON, Inc.
(formerly Smart Server, Inc.)
Statements of Cash Flows
|
See
Accompanying Notes to Financial Statements.
NOTES
TO FINANCIAL STATEMENTS
Note
1 –Description of Business and Significant Accounting
Policies
Organization
RumbleON, Inc. (the
“Company”) was incorporated in October, 2013 under the
laws of the State of Nevada, as Smart Server, Inc. (“Smart
Server”). On February 13, 2017, the Company changed its name
from Smart Server, Inc. to RumbleON, Inc.
Description
of Business
Smart
Server was formed to engage in the business of designing and
developing computer application software for smart phones and
tablet computers (“
mobile
payment application”)
to provide customers at
participating restaurants, bars, and clubs the ability to pay their
bill with their smartphone without having to ask for the check.
Smart Server ceased its software development activities in 2014
and, having no operations and no or nominal assets, met the
definition of a "shell company" under the Securities Exchange Act
of 1934, as amended, and the rules and regulations
thereunder.
In
July 2016, Berrard Holdings Limited Partnership ("Berrard
Holdings") acquired 99.5% of the common stock of Smart Server from
the prior owner of such shares and efforts began on the development
of a unique, capital light, and disruptive e-commerce platform
facilitating the ability of both consumers and dealers to
Buy-Sell-Trade-Finance pre-owned recreation vehicles. It is our
goal to have the platform recognized as the most trusted and
effective solution for the sale, acquisition, and distribution of
recreation vehicles and provide users an efficient, fast,
transparent, and engaging experience. Our initial focus is the
market for 650cc and larger on road motorcycles, particularly those
concentrated in the Harley-Davidson brand; we will look to extend
to other brands and additional vehicle types and products as the
platform matures.
RumbleON intends to
both make consumers or dealers a cash offer for the purchase of
their vehicle and provide them the flexibility to trade, list,
consign, or auction their vehicle through the websites and mobile
apps of RumbleON and our partner dealers. In addition, RumbleON
will offer a large inventory of vehicles for sale on its website
and will offer financing and associated products. RumbleON will
earn fees and transaction income, and partner dealers will earn
incremental revenue and enhance profitability through increased
sales leads, and fees from inspection, reconditioning and
distribution programs. RumbleON will be driven by a proprietary
technology platform that was acquired on February 8, 2017 from
NextGen Dealer Solutions, LLC. The NextGen platform provides
integrated accounting, appraisal, inventory management, CRM, lead
and call center management, equity mining, and other key services
necessary to drive the online marketplace.
For additional information,
see Note 11
“Subsequent Events.”
As of
December 31, 2016, the Company had a total of $1,350,580 in
available cash. If we were to not receive any additional funds, we
could not continue in business for the next 12 months with our
currently available capital. Since inception, we have financed our
cash flow requirements through debt and equity financing. As we
expand our activities, we may, and most likely will, continue to
experience net negative cash flows from operations, pending the
Company’s ability to generate sustainable cash flow from the
implementation of its business strategy and utilization of its
e-commerce platform.
Year
end
In
October 2016, the Company changed its fiscal year-end from
November 30 to December 31.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP
requires estimates and assumptions that affect the reported amounts
of assets and liabilities, revenue and expenses, and related
disclosures of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. Estimates
are used for, but not limited to, inventory valuation, depreciable
lives, carrying value of intangible assets, sales returns,
receivables valuation, restructuring-related liabilities, taxes,
and contingencies. Actual results could differ materially from
those estimates.
Earnings
(Loss) Per Share
The
Company follows the FASB Accounting Standards Codification ("ASC")
Topic 260-
Earnings per
share
. Basic earnings per common share ("EPS") calculations
are determined by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the
year. Diluted earnings (loss) per common share calculations are
determined by dividing net income (loss) by the weighted average
number of common shares and dilutive common share equivalents
outstanding. During periods when common stock equivalents, if any,
are anti-dilutive they are not considered in the
computation.
Revenue
Recognition
We
recognize revenue when all of the following conditions are
satisfied: (1) there is persuasive evidence of an arrangement;
(2) the product or service has been provided to the customer;
(3) the amount to be paid by the customer is fixed or
determinable; and (4) the collection of our payment is
probable.
Purchase
Accounting for Business Combinations
The
Company will account for acquisitions by allocating the fair value
of the consideration transferred to the fair value of the assets
acquired and liabilities assumed on the date of the acquisition and
any remaining difference will be recorded as goodwill. Adjustments
may be made to the preliminary purchase price allocation when facts
and circumstances that existed on the date of the acquisition
surface during the allocation period subsequent to the preliminary
purchase price allocation, not to exceed one year from the date of
acquisition. Contingent consideration is recorded at fair value
based on the facts and circumstances on the date of the acquisition
and any subsequent changes in the fair value are recorded through
earnings each reporting period. Transactions that occur in
conjunction with or subsequent to the closing date of the
acquisition are evaluated and accounted for based on the facts and
substance of the transactions.
Goodwill
Goodwill is not
amortized but rather tested for impairment at least annually. The
Company will test goodwill for impairment annually during the
fourth quarter of each year. Goodwill will also be tested for
impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of the
reporting unit below its carrying amount. Impairment testing
for goodwill will be done at the reporting unit level. A reporting
unit is an operating segment or one level below an operating
segment (also known as a component). A component of an operating
segment is a reporting unit if the component constitutes a business
for which discrete financial information is available, and segment
management regularly reviews the operating results of that
component. The Company has concluded that currently it has
one reporting unit.
Determining fair
value includes the use of significant estimates and
assumptions. Management will utilize an income approach,
specifically the discounted cash flow technique as a means for
estimating fair value. This discounted cash flow analysis requires
various assumptions including those about future cash flows,
transactional and customer growth rates and discount rates.
Expected cash flows are based on historical customer growth and the
growth in transactions, including attrition, future strategic
initiatives and continued long-term growth of the business. The
discount rates used for the analysis will reflect a weighted
average cost of capital based on industry and capital structure
adjusted for equity risk and size risk premiums. These estimates
can be affected by factors such as customer and transaction growth,
pricing, and economic conditions that can be difficult to
predict.
Other
Assets
Included in
“Other Assets” on our balance sheet will be
identifiable intangible assets including customer relationships,
non-compete agreements, trademarks, trade names and internet domain
names, net of amortization. The estimated fair value of these
intangible assets at the time of acquisition will be based upon
various valuation techniques including replacement cost and
discounted future cash flow projections. Customer
relationships will be amortized on a straight-line basis over the
expected average life of the acquired accounts, which will be based
upon several factors, including historical longevity of customers
and contracts acquired and historical retention rates. Non-compete
agreements will be amortized on a straight-line basis over the term
of the agreement, which will generally not exceed five years. The
Company will review the recoverability of these assets if events or
circumstances indicate that the assets may be impaired and will
periodically reevaluate the estimated remaining lives of these
assets.
Trademarks, trade
names and internet domain names are considered to be indefinite
lived intangible assets unless specific evidence exists that a
shorter life is more appropriate. Indefinite lived intangible
assets will be tested, at a minimum, on an annual basis using an
income approach or sooner whenever events or changes in
circumstances indicate that an asset may be impaired.
Long-Lived
Assets
Fixed
assets will be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. Recoverability of assets
to be held and used will be measured by a comparison of the
carrying amount of an asset to the future net cash flows expected
to be generated by the asset. If such assets or asset groups
are considered to be impaired, the impairment to be recognized will
be measured by the amount by which the carrying amount of the
assets or asset groups exceeds the related fair values. The
Company will also perform a periodic assessment of the useful lives
assigned to the long-lived assets.
Inventories
Inventories will be
stated at the lower of cost or market.
Valuation
Allowance for Accounts Receivable
We will
estimate the allowance for doubtful accounts for accounts
receivable by considering a number of factors, including overall
credit quality, age of outstanding balances, historical write-off
experience and specific account analysis that projects the ultimate
collectability of the outstanding balances. Ultimately, actual
results could differ from these assumptions.
Cash
and Cash Equivalents
For the
statements of cash flows, all highly liquid investments with an
original maturity of three months or less are considered to be cash
equivalents. The carrying value of these investments approximates
fair value.
Marketing and Advertising Costs
Marketing costs primarily consist of targeted
online advertising, television advertising, public relations
expenditures, and payroll and related expenses for personnel
engaged in marketing and selling activities and will be expensed as
incurred
. There were no marketing costs included in general
and administrative expenses for the year ended December 31, 2016,
for the month ended December 31, 2015 and for the year ended
November 30, 2015.
Technology and Content
Technology costs for the RumbleON technology
platform will be accounted for
pursuant to ASC Topic
350-
Intangibles — Goodwill
and Other
and will
consist
principally of development activities including payroll and related
expenses for employees and third-party contractors involved in
application, content, production, maintenance, operation, and
platform development for new and existing products and services, as
well as other technology infrastructure expenses. Technology and
content costs for design or maintenance of internal-use software
and general website development will be expensed as incurred. Costs
incurred to develop new website functionality as well as new
software products for resale and significant upgrades to existing
platforms or modules will be capitalized and amortized over seven
years.
The
costs associated with the development of the Smart Server mobile
payment application website were capitalized pursuant to ASC Topic
350-
Intangibles — Goodwill
and Other
. Other costs related to the maintenance of the
website were expensed as incurred. The Company commenced
amortization upon the completion of the Company’s fully
operational mobile payment application website. Amortization was
provided over the estimated useful lives of three years using the
straight-line method for financial statement purposes. Amortization
expense for the year ended December 31, 2016, for the month ended
December 31, 2015 and for the year ended November 30, 2015 was
$1,900, $158 and $1,900, respectively. In December, 2016 the
Company evaluated its mobile payment application website and
recorded $792 of impairment. The carrying value of this website as
of December 31, 2016, was $0.
Property and Equipment, Net
Property
and equipment will be stated at cost less accumulated depreciation.
Equipment will include assets such as furniture and fixtures, heavy
equipment, servers, networking equipment, internal-use software and
website development. Depreciation will be recorded on a
straight-line basis over the estimated useful lives of the
assets.
Fair
Value of Financial Instruments
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
December 31, 2016, December 31, 2015 and November 30, 2015. The
respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash, prepaid expenses and accounts payable.
Fair values were assumed to approximate carrying values for cash
and payables because they are short term in nature and their
carrying amounts approximate fair values or they are payable on
demand.
ASC
Topic 820-10-30-2
-Fair Value
Measuement
establishes a fair value hierarchy for inputs
used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring
the most observable inputs be used when available. Observable
inputs are from sources independent of the Company, whereas
unobservable inputs reflect the Company’s assumptions about
the inputs market participants would use in pricing the asset or
liability developed on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level
1: The preferred inputs to valuation efforts are "quoted prices in
active markets for identical assets or liabilities," with the
caveat that the reporting entity must have access to that market.
Information at this level is based on direct observations of
transactions involving the same assets and liabilities, not
assumptions, and thus offers superior reliability. However,
relatively few items, especially physical assets, actually trade in
active markets.
Level
2: FASB acknowledged that active markets for identical assets and
liabilities are relatively uncommon and, even when they do exist,
they may be too thin to provide reliable information. Inputs other
than quoted market prices included in Level 1, that are observable
for the asset or liability, either directly or indirectly, are
Level 2 inputs.
Level
3: If inputs from levels 1 and 2 are not available, FASB
acknowledges that fair value measures of many assets and
liabilities are less precise. The board describes Level 3 inputs as
"unobservable," and limits their use by saying they "shall be used
to measure fair value to the extent that observable inputs are not
available." This category allows "for situations in which there is
little, if any, market activity for the asset or liability at the
measurement date". Earlier in the standard, FASB explains that
"observable inputs" are gathered from sources other than the
reporting company and that they are expected to reflect assumptions
made by market participants.
Beneficial
Conversion Feature
From
time to time, the Company may issue convertible notes that may have
conversion prices that create an embedded beneficial conversion
feature pursuant to the guidelines established by the ASC Topic
470-20,
Debt with Conversion and
Other Options
. The Beneficial Conversion Feature ("BCF") of
a convertible security is normally characterized as the convertible
portion or feature of certain securities that provide a rate of
conversion that is below market value or in-the-money when issued.
The Company records a BCF related to the issuance of a convertible
security when issued and also records the estimated fair value of
any conversion feature issued with those securities. Beneficial
conversion features that are contingent upon the occurrence of a
future event are recorded when the contingency is
resolved.
The BCF
of a convertible note is measured by allocating a portion of the
note's proceeds to the conversion feature, if applicable, and as a
reduction of the carrying amount of the convertible note equal to
the intrinsic value of the conversion feature, both of which are
credited to additional paid-in-capital. The debt discount is
amortized to interest expense over the life of the note using the
effective interest method. The Company calculates the fair value of
the conversion feature embedded in any convertible security using
either a) the Black Scholes valuation model, or b) a discount cash
flow analysis tested for sensitivity to key Level 3 inputs using
Monte Carlo simulation.
Stock-Based
Compensation
The
Company records stock based compensation in accordance with the
guidance in ASC Topic 505-
Equity
and 718
-
Compensation, Stock Expense
which
requires the Company to recognize expenses related to the fair
value of its employee stock option awards. This eliminates
accounting for share-based compensation transactions using the
intrinsic value and requires instead that such transactions be
accounted for using a fair-value-based method. The Company
recognizes the cost of all share-based awards on a graded vesting
basis over the vesting period of the award.
The
Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in
accordance with ASC Topic 718-10 and the conclusions reached by the
ASC Topic 505-50. Costs are measured at the estimated fair market
value of the consideration received or the estimated fair value of
the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for
consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance
by the provider of goods or services as defined by ASC Topic
505-50.
Income
Taxes
The
Company follows ASC Topic 740-
Income Taxes
for recording the
provision for income taxes. Deferred tax assets and liabilities are
computed based upon the difference between the financial statement
and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is
expected to be realized or settled. Deferred income tax expenses or
benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of
change. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for
financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending
on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or
non-current depending on the periods in which the temporary
differences are expected to reverse.
The
Company applies a more-likely-than-not recognition threshold for
all tax uncertainties. ASC Topic 740 only allows the recognition of
those tax benefits that have a greater than fifty percent
likelihood of being sustained upon examination by the taxing
authorities. As of December 31, 2016, December 31, 2015 and
November 30, 2015, the Company reviewed its tax positions and
determined there were no outstanding, or retroactive tax positions
with less than a 50% likelihood of being sustained upon examination
by the taxing authorities, therefore this standard has not had a
material effect on the Company.
The
Company does not anticipate any significant changes to its total
unrecognized tax benefits within the next 12
months.
The
Company classifies tax-related penalties and net interest as income
tax expense. As of December 31, 2016, December 31, 2015 and
November 30, 2015, no income tax expense has been
incurred.
Recent
Pronouncements
The
Company has evaluated the recent accounting pronouncements through
January 2017 and believes that none of them will have a material
effect on the company’s financial statements.
Note
2 – Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates
the recoverability of assets and the satisfaction of liabilities in
the normal course of business. As noted above, the Company is in
the development stage and, accordingly, has not yet generated
revenue from operations. Since its inception, the Company has been
engaged substantially in financing activities and developing its
mobile payment application business plan and incurring start-up
costs and expenses, resulting in an accumulated net losses from
inception (October 24, 2013) through the period ended December 31,
2016 of $445,974. The Company’s development activities since
inception have been financially sustained through debt and equity
financing.
The
ability of the Company to continue as a going concern is dependent
upon its continued ability to raise additional capital from the
sale of common stock and, ultimately, the achievement of
significant operating revenue. These financial statements do not
include any material adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this
uncertainty.
Note
3 – Notes Payable – Related Party
During
2013, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $30,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in November
2015.
During
2014, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $70,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in August
2015.
During
2015, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $41,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in February
2016.
During
2016, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $17,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in February
2018.
In
July, 2016, the Company repaid the total outstanding principal and
accrued interest of $175,909 on the unsecured promissory note with
the related party.
Interest expense on
this note for the year ended December 31, 2016, for the month ended
December 31, 2015 and for the year ended November 30, 2015 was
$5,626, $719 and $7,257, respectively.
Note
4 – Other Assets
At
December 31, 2016, other assets consisted of $45,515 of costs to
acquire domain names to be used in connection
with the launch of the
Company’s e-commerce platform
.
As of December 31, 2015, and November
30, 2015 other assets was $0.
Note
5 – Income Taxes
At
December 31, 2016, December 31, 2015 and November 30, 2015, the
Company has operating loss carryforwards of $230,564, $221,396 and
$217,669, respectively, which begin to expire in 2033. We believe
that it is more likely than not that the benefit from our operating
loss carryforwards will not be realized. In recognition of this
risk, we have provided a valuation allowance on the deferred tax
assets relating to these operating loss carryforwards of $87,614,
$77,489 and $76,184 for the periods ended December 31, 2016,
December 31, 2015 and November 30, 2015, respectively. In
assessing the recovery of the deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those
temporary differences become deductible. Management
considers the scheduled reversals of future deferred tax assets,
projected future taxable income, and tax planning strategies in
making this assessment.
The
Company’s effective tax rate benefit for the year ended
December 31, 2016 was .01% and was a result of the amortization of
the debt discount on the convertible note payable-related party.
For the year ended December 31, 2016, there was a $78,943 deferred
tax liability associated with the beneficial conversion feature on
the convertible note payable-related party.
For additional information,
see Note 6
“Convertible Notes Payable-Related Party.”
Note 6 – Convertible Notes Payable
– Related Party
On July
13, 2016, the Company entered into unsecured Convertible Note
(“Note”) with Berrard Holdings Limited Partnership
(“BHLP”), an entity owned and controlled by a current
officer and director, Mr. Berrard, pursuant to which the Company
received $191,858. The Note is due on July 13, 2026 and bears
interest at 6% per annum. The Note is convertible into common
stock, in whole at any time prior to maturity at the option of the
holder at the greater of $0.06 per share or 50% of the price per
share of the next qualified financing which is defined as $500,000
or greater. The Note is due on July 13, 2026 and bears interest at
6% per annum.
Effective August
31, 2016, the principal amount of the Note was amended to include
an additional $5,500 loaned to the Company, on the same terms as
the original Note. As of August 31, 2016, the total amount owed was
$197,358.
On
November 28, 2016, the Company completed its qualified financing at
$1.50 per share which established the conversion price per share
for the Note of $0.75 per share, resulting in the principal amount
of the Note being convertible into 263,144 shares of common stock.
As such, November 28, 2016 became the “commitment date”
for purposes of determining the value of the Note conversion
feature. Given that there was no trading in the Company common
stock since July, 2014, other than the purchase by BHLP of 99.5% of
the shares in a single transaction, the Company used the Monte
Carlo simulation to determine the intrinsic value of the conversion
feature of the Note which resulted in a value in excess of the
principal amount of the Note. Thus, the Company recorded as a Note
discount of $197,358 with the corresponding amount as an addition
to paid in capital. The Note discount will be amortized to interest
expense until the Note matures in July, 2026 using the effective
interest method. The effective interest rate at December 31, 2016
was 7.4%.
As of
December 31, 2016, the balance of the note consists
of:
|
|
December
31,
2016
|
|
Principal
|
$
197,358
|
|
Less: Debt
discount
|
(196,076
)
|
|
|
$
1,282
|
Interest expense on
this note for the year ended December 31, 2016 was $5,508 and the
amortization of the beneficial conversion feature was $1,282. The
holder of the Note has indicated to the Company despite being
permitted under the terms of the Note, he will neither request
payment of, nor consent to prepayment by the Company of any accrued
and unpaid interest.
The
debt discount related to the Note creates a timing difference for
taxes and results in the creation of a deferred tax liability and a
reduction in paid-in-capital of $78,943 assuming a tax rate of 40%
of the $197,358 Note discount. Correspondingly, the $1,282 of debt
discount amortization in 2016 yields a $513 reduction in the
deferred tax liability and is correspondingly reflected as an
income tax benefit in the statements of operations.
Note
7 – Stockholders’ Equity
At
December 31, 2016, the Company was authorized to issue 100,000,000
shares of its $0.001 par value common stock and 10,000,000 shares
of its $0.001 par value preferred stock. For additional
information, see Note 11, "Subsequent Events."
On
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Marshall Chesrown of 875,000
shares of Class A Common Stock in exchange for an equal number of
shares of Class B Common Stock held by Mr. Chesrown, and (ii)
Steven R. Berrard of 125,000 shares of Class A Common Stock in
exchange for an equal number of shares of Class B Common Stock held
by Mr. Berrard, effective at the time the Certificate of Amendment
was filed with the Secretary of State of Nevada.
On June
24, 2015, the Company repurchased and cancelled 5,000,000 shares of
common stock from a former officer and director of the Company for
$5,000.
On July
24, 2015, the Company issued 5,000,000 shares of common stock for
services to an officer and director. The Company and the officer
and director mutually agreed to rescind the
transaction.
On
November 16, 2015, the Company sold 5,000,000 shares of common
stock to an officer and director for subscriptions receivable of
$5,000. In February 2016, the Company received $5,000.
In July
2016, the Company received donated capital of $2,000 from a
shareholder of the Company.
On
November 28, 2016, the Company sold 900,000 shares of common stock
to three investors for cash of $1,349,000 and subscriptions
receivable of $1,000.
On
November 28, 2016, the Company recorded a beneficial conversion
feature of $197,358 related to the convertible note with an entity
owned and controlled by a current officer and director, Steven
Berrard.
For additional
information,
see Note 6, “Convertible Notes Payable
– Related Party.”
Note
8 – Warrants and Options
As of
December 31, 2016, December 31, 2015 and November 30, 2015, there
were no warrants or options outstanding to acquire any additional
shares of common stock.
Note
9 – Related Party Transactions
As of
December 31, 2016, the Company had convertible notes payable of
$197,358 and accrued interest totaling $5,508 due to an entity that
is owned and controlled by a current officer and director of the
Company.
For additional
information,
see Note 6 “Convertible Notes Payable
– Related Party.”
As of
December 31, 2015, and November 30, 2015, the Company had loans
totaling $141,000 and $133,000 and accrued interest totaling
$13,002 and $12,283 due to an entity that is owned and controlled
by a family member of an officer and director of the Company.
During the year ended December 31, 2016, month ended December 31,
2015 and for the year ended November 30, 2015, the interest expense
was $4,907, $719 and $7,257, respectively. In March 2015, there was
a new officer and director appointed and the lender is now
considered a related party. All convertible notes and related party
notes outstanding as of July 13, 2016, were paid in full in July,
2016.
Note
10 – Commitments and Contingencies
We may
be involved in litigation from time to time in the ordinary course
of business. If any such litigation arises, we may not be able to
provide assurance that the ultimate resolution of any such legal or
administrative proceedings or disputes will not have a material
adverse effect on our business, financial condition and results of
operations. As of December 31, 2016, December 31, 2015 and November
30, 2015 we were not aware of any threatened or pending
litigation.
Note
11 – Subsequent Events
On
January 8, 2017, RumbleON entered into an Asset Purchase
Agreement with NextGen Dealer Solutions, LLC ("NextGen"), Halcyon
Consulting, LLC ("Halcyon"), and members of Halcyon signatory
thereto ("Halcyon Members," and together with Halcyon, the "Halcyon
Parties"), as amended by that certain Assignment, dated February 8,
2017, between the Company and NextGen Pro, LLC (the "NextGen
Agreement"). NextGen and the Halcyon Parties are collectively
referred to as the "Seller Parties." NextGen has developed a
proprietary technology platform that will underpin the operations
of the Company. The Agreement provides that, upon the terms and
subject to the conditions set forth in the Agreement, the Company
will acquire all of NextGen's assets, properties and rights of
whatever kind, tangible and intangible, other than the excluded
assets under the terms of the Agreement. The Company will assume
liability only for certain post-closing contractual obligations
pursuant to the terms of the Agreement. The transaction closed in
the first quarter of 2017.
The
Agreement provides that the Company will acquire substantially all
of the assets of NextGen in exchange for approximately $750,000 in
cash, plus 1,523,809 unregistered shares of common stock of the
Company (the "Purchaser Shares"), and a subordinated secured
promissory note issued by the Company in favor of NextGen in the
amount of $1,333,333 (the "Acquisition Note"). The Acquisition Note
matures on the third anniversary of the date the Acquisition Note
is entered into (the "Maturity Date"). Interest will accrue and be
paid semi-annually on the Acquisition Note (i) at a rate of 6.5%
annually from the date the Acquisition Note is entered into through
the second anniversary of such date and (ii) at a rate of 8.5%
annually from the second anniversary of the date the Acquisition
Note is entered into through the Maturity Date. In connection with
the closing of the transaction, the Company has agreed with certain
investors to accelerate the funding of the second tranche of their
investment totaling $1.35 million by issuing such investors
1,161,920 shares of the Company's common stock and a note in the
amount of $667,000, to be issued on the closing date.
On
January 9, 2017, the Company’s Board of Directors approved
the adoption of the RumbleON, Inc. 2017 Stock Incentive Plan (the
"Plan"), subject to stockholder approval at the Company's next
Annual Meeting of Stockholders. The purposes of the Plan are to
attract, retain, reward and motivate talented, motivated and loyal
employees and other service providers ("Eligible Individuals") by
providing them with an opportunity to acquire or increase a
proprietary interest in the Company and to incentivize them to
expend maximum effort for the growth and success of the Company, so
as to strengthen the mutuality of the interests between such
persons and the stockholders of the Company. The Plan will allow
the Company to grant a variety of stock-based and cash-based awards
to Eligible Individuals. Twelve percent (12%) of the Company's
issued and outstanding shares of common stock from time to time are
reserved for issuance under the Plan. As of the date of this
report, 6,400,000 shares are issued and outstanding, resulting in
768,000 shares available for issuance under the Plan.
On
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved an amendment to the Company's Articles of
Incorporation (the "Certificate of Amendment"), to change the name
of the Company to RumbleON, Inc. and to create an additional class
of common stock of the Company, which was effective on
February 13, 2017 (the "Effective Date").
Immediately before
approving the Certificate of Amendment, the Company had authorized
100,000,000 shares of common stock, $0.001 par value (the
"Authorized Common Stock"), including 6,400,000
issued and outstanding shares of
common stock (the "Outstanding Common Stock, and together with the
Authorized Common Stock, the "Common Stock"). Pursuant to the
Certificate of Amendment, the Company designated 1,000,000 shares
of Authorized Common Stock as Class A Common Stock (the "Class A
Common Stock"), which Class A Common Stock ranks pari passu with
all of the rights and privileges of the Common Stock, except that
holders of the Class A Common Stock are entitled to ten votes per
share of Class A Common Stock issued and outstanding, and (ii) all
other shares of Common Stock, including all shares of Outstanding
Common Stock shall be deemed Class B Common Stock (the "Class B
Common Stock"), which Class B Common Stock will be identical to the
Class A Common Stock in all respects, except that holders of the
Class B Common Stock are entitled to one vote per share of Class B
Common Stock issued and outstanding.
Also on
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Marshall Chesrown of 875,000
shares of Class A Common Stock in exchange for an equal number of
shares of Class B Common Stock held by Mr. Chesrown, and (ii)
Steven R. Berrard of 125,000 shares of Class A Common Stock in
exchange for an equal number of shares of Class B Common Stock held
by Mr. Berrard, effective at the time the Certificate of Amendment
was filed with the Secretary of State of Nevada.
On
February 8, 2017 (the "Closing Date"), RumbleON completed the
NextGen Acquisition in exchange for $750,000 in cash, the Purchaser
Shares, and the Acquisition Note. The Acquisition Note matures on
the third anniversary of the Closing Date (the "Maturity Date").
Interest accrues and will be paid semi-annually (i) at a rate of
6.5% annually from the Closing Date through the second anniversary
of such date and (ii) at a rate of 8.5% annually from the second
anniversary of the Closing Date through the Maturity
Date.
On
February 13, 2017, the Effective Date, the Company filed the
Certificate of Amendment with the Secretary of State of the State
of Nevada changing the Company's name to RumbleON, Inc. and
creating the Class A and Class B Common Stock. Also on the
Effective Date, the Company issued an aggregate of 1,000,000 shares
of Class A Common Stock to Messrs. Chesrown and Berrard in exchange
for an aggregate of 1,000,000 shares of Class B Common Stock held
by them. Also on the Effective Date, the Company amended its bylaws
to reflect the name change to RumbleON, Inc. and to reflect the
Company's primary place of business as Charlotte, North
Carolina.
RumbleOn,
Inc.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
See Notes to the
Condensed Consolidated Financial Statements.
RumbleOn,
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
See Notes to the
Condensed Consolidated Financial Statements.
RumbleOn, Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR
THE SIX-MONTHS ENDED JUNE 30, 2017
(unaudited)
|
|
Preferred Shares
|
Class A Common Shares
|
Class B Common Shares
|
Additional Paid In
|
Subscription
|
Accumulated
|
Total Stockholders’
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Receivable
|
Deficit
|
Equity
|
|
Balance,
December
31, 2016
|
-
|
-
|
-
|
$
-
|
6,400,000
|
$
6,400
|
1,534,015
|
$
(1,000
)
|
$
(445,974
)
|
$
1.093,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of common
stock
|
-
|
-
|
1,000,000
|
1,000
|
(1,000,000
)
|
(1,000
)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock in connection with acquisition
|
-
|
-
|
-
|
-
|
1,523,809
|
1,524
|
2,665,142
|
-
|
-
|
2,666,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock in private placements
|
-
|
-
|
-
|
-
|
657,500
|
658
|
2,629,342
|
-
|
-
|
2,630,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock in connection with loan agreement
|
-
|
-
|
-
|
-
|
1,161,920
|
1,162
|
1,348,878
|
-
|
-
|
1,350,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock in connection with conversion of Note Payable-related
party
|
-
|
-
|
-
|
-
|
275,312
|
275
|
284,639
|
-
|
-
|
284,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
129,787
|
-
|
-
|
129,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,815,120
)
|
(2,815,120
)
|
|
Balance,
June 30,
2017
|
-
|
-
|
1,000,000
|
$
1,000
|
9,018,541
|
$
9,019
|
8,591,803
|
$
(1,000
)
|
$
(3,261,094
)
|
$
5,339,728
|
See Notes to the
Condensed Consolidated Financial Statements.
RumbleOn,
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Six-months ended
June 30,
|
|
|
|
2017
|
2016
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net
loss
|
$
(2,815,120
)
|
$
(26,932
)
|
|
Adjustments to
reconcile net loss
|
|
|
|
to net cash used in
operating activities:
|
|
|
|
Depreciation and
amortization
|
173,420
|
950
|
|
Amortization of
debt discount
|
39,625
|
-
|
|
Interest expense on
conversion of debt
|
196,076
|
-
|
|
Stock-based
compensation expense
|
129,787
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
(Increase) in
inventory
|
(1,283,534
)
|
-
|
|
(Increase) in
prepaid expenses
|
(170,262
)
|
(6,667
)
|
|
(Increase) in other
current assets
|
(107,011
)
|
-
|
|
Increase in
accounts payable and accrued liabilities
|
1,052,119
|
4,000
|
|
Increase in accrued
interest payable
|
38,780
|
4,553
|
|
|
|
|
|
Net
cash used in operating activities
|
(2,746,122
)
|
(24,096
)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
Cash used for
acquisitions
|
(750,000
)
|
-
|
|
Technology
development
|
(290,664
)
|
-
|
|
Purchase of
property and equipment
|
(493,588
)
|
-
|
|
|
|
|
|
Net
cash used in investing activities
|
(1,534,252
)
|
-
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
Proceeds from note
payable
|
667,000
|
17,000
|
|
Proceeds from sale
of common stock
|
3,313,040
|
5,000
|
|
|
|
|
|
Net
cash provided by financing activities
|
3,980,040
|
22,000
|
|
|
|
|
|
NET
CHANGE IN CASH
|
(300,334
)
|
(2,096
)
|
|
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
1,350,580
|
3,713
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
$
1,050,246
|
$
1,617
|
See Notes to the
Condensed Consolidated Financial Statements.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 – BUSINESS DESCRIPTION
Organization
RumbleOn, Inc.
(along with its consolidated subsidiaries, the
“Company”) was incorporated in October 2013 under the
laws of the State of Nevada, as Smart Server, Inc. (“Smart
Server”). On February 13, 2017, the Company changed its name
from Smart Server, Inc. to RumbleOn, Inc.
Nature of Operations
Smart Server was
originally formed to engage in the business of designing and
developing mobile application payment software for smart phones and
tablet computers. After Smart Server ceased its software
development activities in 2014, it had no operations and nominal
assets, meeting the definition of a “shell company”
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and regulations
thereunder.
In July 2016,
Berrard Holdings Limited Partnership (“Berrard
Holdings”) acquired 99.5% of the common stock of the Company
from the principal stockholder. Shortly after the Berrard Holdings
common stock purchase, the Company began exploring the development
of a capital light e-commerce platform facilitating the ability of
both consumers and dealers to Buy-Sell-Trade-Finance pre-owned
recreation vehicles in one online location. The Company’s
goal is for the platform to be widely recognized as the leading
online solution for the sale, acquisition, and distribution of
recreation vehicles by providing users with the most efficient,
timely and transparent experience. The Company’s initial
focus is the market for 650cc and larger on road motorcycles,
particularly those concentrated in the
“Harley-Davidson” brand. The Company will look to
extend to other brands and additional vehicle types and products as
the platform matures.
The Company’s
business plan is currently driven by a technology platform that it
acquired on February 8, 2017 from NextGen Dealer Solutions, LLC
(“NextGen”), which the Company owns and operates
through its wholly-owned subsidiary NextGen Pro, LLC
(“NextGen Pro”). The NextGen’s platform provides
vehicle appraisal, inventory management, customer relationship
management and lead management, equity mining, and other key
services necessary to drive the online marketplace. For additional
information, see Note 4 -
“Acquisitions.”
With its online
platform, the Company offers consumers and dealers cash for the
purchase of their vehicles and provides the flexibility for
consumers or dealers to trade, list, or auction their vehicle
through the Company and its dealer partners. In addition, the
Company offers a large inventory of vehicles for sale on its
website as well as third-party financing and associated products.
The Company earns fees and transaction income, while its dealer
partners can earn incremental revenue and enhance profitability
through increased sales leads as well as income from inspection,
reconditioning and distribution programs.
On March 31,
2017, the Company completed the sale of 620,000 shares of Class B
Common Stock, par value $0.001, at a price of $4.00 per share for
aggregate proceeds of $2,480,000 in the private placement (the
“2017 Private Placement”). Officers and directors of
the Company acquired 175,000 shares of Class B Common Stock in the
2017 Private Placement. Proceeds from the 2017 Private Placement
were used to complete the launch of the Company’s website,
www.rumbleon.com
,
acquire vehicle inventory, continue development of the
Company’s platform, and for working capital
purposes.
On June 30, 2017,
the Company filed a Registration Statement on Form S-1 (the
“Registration Statement”) with the Securities and
Exchange Commission (the "SEC") covering the resale of 8,993,541
shares of Class B Common Stock issued in the NextGen acquisition
and the 2017 Private Placement and other shares previously held by
our stockholders, including our officers and directors. The SEC
declared the Registration Statement effective on July 7, 2017. In
connection with the filing of the Registration Statement, our
officers and directors and certain stockholders entered into a
lock-up agreement restricting, through December 31, 2017, the
resale of an aggregate of 6,848,800 shares of our common stock held
by them and subject to the Registration Statement.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying
Condensed Consolidated Financial Statements have been prepared in
accordance with United States generally accepted accounting
principles (“GAAP”) for interim financial information
and in accordance with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X promulgated by the SEC and therefore do not
contain all of the information and footnotes required by GAAP and
the SEC for annual financial statements. The Company’s
Condensed Consolidated Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) that management
believes are necessary for the fair presentation of their financial
condition, results of operations, and cash flows for the periods
presented.
Certain
prior period amounts have been reclassified to conform to the
current year’s presentation. Amounts and
percentages may not total due to rounding.
The information
at December 31, 2016 in the Company’s Condensed
Consolidated Balance Sheets included in this quarterly report was
derived from the audited Consolidated Balance Sheets included in
the Company’s 2016 Annual Report on Form 10-K filed with the
SEC on February 14, 2017. The Company’s 2016 Annual Report on
Form 10-K, together with the information incorporated by reference
into such report, is referred to in this quarterly report as the
“2016 Annual Report.” This quarterly report should be
read in conjunction with the 2016 Annual Report.
Year-end
In October 2016,
the Company changed its fiscal year-end from November 30 to
December 31.
Use of Estimates
The preparation of
financial statements in conformity with GAAP requires estimates and
assumptions that affect the reported amounts of assets and
liabilities, revenue and expenses, and related disclosures of
contingent assets and liabilities in the financial statements and
accompanying notes. Estimates are used for, but not limited to,
inventory valuation, depreciable lives, carrying value of
intangible assets, sales returns, receivables valuation,
restructuring-related liabilities, taxes, and contingencies. Actual
results could differ materially from those estimates.
Earnings (Loss) Per Share
The Company follows
the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 260,
Earnings per share
. Basic
earnings per common share (“EPS”) calculations are
determined by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the year.
Diluted earnings (loss) per common share calculations are
determined by dividing net income (loss) by the weighted average
number of common shares and dilutive common share equivalents
outstanding. During periods when common stock equivalents, if any,
are anti-dilutive they are not considered in the
computation.
Revenue Recognition
Revenue is derived
from two primary sources: (1) subscription fees; and (2) the
Company's online marketplace. The Company recognizes revenue when
all of the following conditions are satisfied: (i) there is
persuasive evidence of an arrangement; (ii) the product or
service has been provided to the customer; (iii) the amount to
be paid by the customer is fixed or determinable; and (iv) the
collection of the Company’s payment is probable.
Subscription fees
are generated from dealer partners under a license arrangement that
provides access to our software solution and ongoing support.
Dealer partners pay a monthly subscription fee for ongoing support
and access to the RumbleOn software solution which includes: (i) a
vehicle appraisal process; (ii) inventory management system; (iii)
customer relationship and lead management program; and (v) equity
mining.
Dealer partners may also be
charged an initial software installation and training
fee. Dealer partners do not have the contractual right to take
possession of the software and may cancel the license for these
products and services by providing a 30-day notice. Installation
and training do not have value to the user without the license and
ongoing support and maintenance. Because the dealer partner has the
right to cancel the license with 30 days’ notice, revenue for
installation and training is recognized when complete, acceptance
has occurred and collectability of a determinable amount is
probable. Revenue recognition of monthly subscription fees
commences upon completion of installation, acceptance has occurred,
and collectability of a determinable amount is
probable.
The online
marketplace includes: (i) used retail vehicle sales; (ii) wholesale
vehicle sales; (iii) online listing and sales fees; (iv) retail
merchandise sales; (v) vehicle financing; and (vi) vehicle service
contracts.
Used Retail Vehicle Sales
The Company sells
used vehicles directly to its customers through its website.
Revenue from used vehicle retail sales is recognized upon delivery
of the vehicle to the customer, when the sales contract is signed
and the purchase price has been received or financing has been
arranged. Used retail vehicle sales revenue is recognized net of a
reserve for returns.
Wholesale Vehicle Sales
The Company sells
used vehicles to dealer partners, auctions and other third-parties
at wholesale. The source of these vehicles is primarily from the
Company’s Sell Us Your Vehicle Program and customers who
trade-in their existing vehicles when making a used vehicle
purchase. Vehicles sold to dealer partners are sold at a below
market retail price which is the aggregate of: (1) RumbleOn’s
acquisition cost; (2) reconditioning costs; and (3) a customary
profit. Vehicles sold at auction and to other third parties
generally do not meet the Company’s quality standards to list
or be sold through Rumbleon.com.
Revenue from wholesale
vehicle sales is recognized when the vehicle is delivered to a
dealer partner, auction or a third-party, a sales contract is
signed
and the purchase price has been
received.
Online Listing and Sales Fees
The Company charges
a non-refundable fee for sellers to list their vehicle on the
RumbleOn website. During the listing period, the Company manages
all sales leads, handles all the documentation necessary to
complete a sale, accepts a buyer’s trade and provides
financing through third-party providers to the potential buyer, if
necessary.
Upon a
successful sale, the seller pays a selling fee which is based on
the difference between the actual retail sales price of the vehicle
sold and the net proceeds agreed to be paid by RumbleOn to the
seller when the listing agreement was signed. Revenue from
non-refundable online listing fees is recognized once the listing
agreement is signed, the vehicle is listed for sale and the listing
fee has been received. Revenue for selling fees is recognized upon
delivery of the vehicle to the customer, when the sales contract is
signed and the purchase price has been received or financing has
been arranged.
Retail Merchandise Sales
The Company
recognizes sales revenue, net of sales taxes at the time it sells
the merchandise or in the case of online sales when the merchandise
is delivered to the customer and payment has been
received.
Vehicle Financing
Customers can pay for their vehicle
using cash or we offer a range of finance options through unrelated
third-parties such as banks or credit unions. These third-party
providers generally pay us a
fee either in a flat amount or in an amount equal
to the difference between the interest rates charged to customers
over the predetermined interest rates set by the financial
institution.
We may be charged back for commissions in the
event a contract is prepaid, defaulted upon, or terminated.
Revenue for these finance
fees are recognized
upon delivery of the vehicle to the
customer, when the sales contract is signed and the financing has
been arranged.
Vehicle Service Contracts
At the time of
vehicle sale, the Company provides customers, on behalf of
unrelated third parties who are the primary obligors, a range of
other related products and services, including extended protection
plan (“EPP”) products and vehicle appearance
protection. EPP products include extended service plans
(“ESPs”) which is designed to cover unexpected expenses
associated with mechanical breakdowns and guaranteed asset
protection (“GAP”), which is intended to cover the
unpaid balance on a vehicle loan in the event of a total loss of
the vehicle or unrecovered theft. Vehicle appearance protection
includes products aimed at maintaining vehicle appearance.
The Company
receives commissions from the sale of
these product and service contracts and
has no contractual liability to
customers for claims under these products.
The
EPPs and vehicle appearance protection currently offered to
consumers provides coverage up to 60 months (subject to mileage
limitations), while GAP covers the customer for the term of their
finance contract.
As of June 30,
2017, there have been no sales of EPP or vehicle appearance
products but the Company expects to generate revenue from these
products during the second half of 2017. At that time commission
revenue will be recognized at the time of sale,
net of a reserve for estimated contract
cancellations. The reserve for cancellations will be estimated
based upon historical industry experience and recent trends and
will be reflected as a reduction of other sales revenue in the
accompanying Consolidated Statements of Operations and a component
of accounts payable and accrued liabilities in the accompanying
Consolidated Balance Sheets. Our risk related to contract
cancellations is limited to the revenue that we
receive.
Purchase Accounting for Business Combinations
The Company
accounts for acquisitions by allocating the fair value of the
consideration transferred to the fair value of the assets acquired
and liabilities assumed on the date of the acquisition and any
remaining difference is recorded as goodwill. Adjustments may be
made to the preliminary purchase price allocation when facts and
circumstances that existed on the date of the acquisition surface
during the allocation period subsequent to the preliminary purchase
price allocation, not to exceed one year from the date of
acquisition. Contingent consideration is recorded at fair value
based on the facts and circumstances on the date of the acquisition
and any subsequent changes in the fair value are recorded through
earnings each reporting period.
Goodwill
Goodwill is not
amortized but rather tested for impairment at least annually. The
Company tests goodwill for impairment annually during the fourth
quarter of each year. Goodwill will also be tested for impairment
between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of the
reporting unit below its carrying amount. Impairment testing for
goodwill is done at the reporting unit level. A reporting unit is
an operating segment or one level below an operating segment (also
known as a component). A component of an operating segment is a
reporting unit if the component constitutes a business for which
discrete financial information is available, and management
regularly reviews the operating results of that component. The
Company has concluded that currently it has one reporting
unit.
Determining fair
value includes the use of significant estimates and assumptions.
Management utilizes an income approach, specifically the discounted
cash flow technique as a means for estimating fair value. This
discounted cash flow analysis requires various assumptions
including those about future cash flows, transactional and customer
growth rates and discount rates. Expected cash flows are based on
historical customer growth and the growth in transactions,
including attrition, future strategic initiatives and continued
long-term growth of the business. The discount rates used for the
analysis reflect a weighted average cost of capital based on
industry and capital structure adjusted for equity risk and size
risk premiums. These estimates can be affected by factors such as
customer and transaction growth, pricing, and economic conditions
that can be difficult to predict.
Intangible Assets
Included in
“Intangible Assets” on the Company’s Condensed
Consolidated Balance Sheets are identifiable intangible assets
including customer relationships, non-compete agreements,
trademarks, trade names and internet domain names. The estimated
fair value of these intangible assets at the time of acquisition
are based upon various valuation techniques including replacement
cost and discounted future cash flow projections. Trademarks,
trade names and internet domain names are not amortized. Customer
relationships are amortized on a straight-line basis over the
expected average life of the acquired accounts, which are based
upon several factors, including historical longevity of customers
and contracts acquired and historical retention rates. Non-compete
agreements are amortized on a straight-line basis over the term of
the agreement, which will generally not exceed three years. The
Company reviews the recoverability of these assets if events or
circumstances indicate that the assets may be impaired and
periodically reevaluates the estimated remaining lives of these
assets.
Trademarks, trade
names and internet domain names are considered to be indefinite
lived intangible assets unless specific evidence exists that a
shorter life is more appropriate. Indefinite lived intangible
assets are tested for impairment, at a minimum, on an annual basis
using an income approach or sooner whenever events or changes in
circumstances indicate that an asset may be impaired.
Long-Lived Assets
Property and
Equipment are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. Recoverability of assets to be
held and used are measured by a comparison of the carrying amount
of an asset to the future net cash flows expected to be generated
by the asset. If such assets or asset groups are considered to be
impaired, the impairment to be recognized will be measured by the
amount by which the carrying amount of the assets or asset groups
exceeds the related fair values. The Company also performs a
periodic assessment of the useful lives assigned to the long-lived
assets.
Technology Development Costs
Technology
development costs are accounted for pursuant to ASC
350,
Intangibles
— Goodwill and Other.
Technology development costs include internally developed software
and website applications that are used by the Company for its own
internal use and to provide services to its customers, which
include consumers, dealer partners and ancillary service providers.
Under the terms of these customer arrangements the Company retains
the revenue generating technology and hosts the applications on its
servers
and mobile
applications. The customer does not have a contractual right to
take possession of the software during the term of the arrangement
and are not permitted to run the software itself or contract with
another party unrelated to the entity to host the software.
Technology development costs consist principally of (i) development
activities including payroll and related expenses billed by a
third-party contractor involved in application, content,
production, maintenance, operation, and platform development for
new and existing products and services, (ii) technology
infrastructure expenses, and (iii) costs of Company employees
devoted to the development and maintenance of software
products. Technology and content costs for design,
maintenance and post-implementation stages of
internal-use software and general website development are expensed
as incurred. For costs incurred to develop new website
functionality as well as new software products and significant
upgrades to existing internally used platforms or
modules, capitalization begins during the application
development stage and ends when the software is available for
general use. Capitalized technology development is amortized
on a straight-line basis over periods ranging from 3 to 7 years.
The Company will perform periodic assessment of the useful lives
assigned to capitalized software applications. Additionally,
the Company from time-to-time may abandon additional development
activities relating to specific software projects or applications
and charge accumulated costs to technology development expense in
the period such determination is made.
Vehicle Inventory
Vehicle inventory
is accounted for pursuant to ASC 330,
Inventory
and consists of the cost to
acquire and recondition a used vehicle. Reconditioning costs are
billed by third-party providers and includes parts, labor, and
other repair expenses directly attributable to a specific vehicle.
Transportation costs are expensed as incurred. Inventory is stated
at the lower of cost or net realizable value. Vehicle inventory
cost is determined by specific identification. Net realizable value
is the estimated selling price less costs to complete, dispose and
transport the vehicles. Selling prices are derived from historical
data and trends, such as sales price and inventory turn times of
similar vehicles, as well as independent, market resources. Each
reporting period, the Company recognizes any necessary adjustments
to reflect vehicle inventory at the lower of cost or net realizable
value through cost of sales in the accompanying Condensed
Consolidated Statements of Operations.
Valuation Allowance for Accounts Receivable
The Company
estimates the allowance for doubtful accounts for accounts
receivable by considering a number of factors, including overall
credit quality, age of outstanding balances, historical write-off
experience and specific account analysis that projects the ultimate
collectability of the outstanding balances. Ultimately, actual
results could differ from these assumptions.
Cash and Cash Equivalents
For the Condensed
Consolidated Statements of Cash Flows, all highly liquid
investments with an original maturity of three-months or less are
considered to be cash equivalents. The carrying value of these
investments approximates fair value.
Property and Equipment, Net
Property and
equipment is stated at cost less accumulated depreciation and
amortization and consists of capitalized technology development
costs, furniture and equipment. Depreciation and amortization is
recorded on a straight-line basis over the estimated useful life of
the assets. Costs of significant additions, renewals and
betterments, are capitalized and depreciated. Maintenance and
repairs are charged to expense when incurred.
Fair Value of Financial Instruments
Fair value
estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
June 30, 2017. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair
values. These financial instruments include cash, prepaid expenses
and accounts payable. Fair values were assumed to approximate
carrying values for cash and payables because they are short term
in nature and their carrying amounts approximate fair values or
they are payable on demand.
ASC Topic 820,
Fair Value Measurement,
establishes a fair value hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring the most
observable inputs be used when available. Observable inputs are
from sources independent of the Company, whereas unobservable
inputs reflect the Company’s assumptions about the inputs
market participants would use in pricing the asset or liability
developed on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on
the inputs as follows:
Level 1: The
preferred inputs to valuation efforts are “quoted prices in
active markets for identical assets or liabilities,” with the
caveat that the reporting entity must have access to that market.
Information at this level is based on direct observations of
transactions involving the same assets and liabilities, not
assumptions, and thus offers superior reliability. However,
relatively few items, especially physical assets, actually trade in
active markets.
Level 2: FASB
acknowledged that active markets for identical assets and
liabilities are relatively uncommon and, even when they do exist,
they may be too thin to provide reliable information. Inputs other
than quoted market prices included in Level 1, that are observable
for the asset or liability, either directly or indirectly, are
Level 2 inputs.
Level 3: If inputs
from Levels 1 and 2 are not available, FASB acknowledges that fair
value measures of many assets and liabilities are less precise. The
board describes Level 3 inputs as “unobservable,” and
limits their use by saying they “shall be used to measure
fair value to the extent that observable inputs are not
available.” This category allows “for situations in
which there is little, if any, market activity for the asset or
liability at the measurement date”. Earlier in the standard,
FASB explains that “observable inputs” are gathered
from sources other than the reporting company and that they are
expected to reflect assumptions made by market
participants.
Beneficial Conversion Feature
From time to time,
the Company may issue convertible notes that may have conversion
prices that create an embedded beneficial conversion feature
pursuant to the guidelines established by the ASC Topic 470-20,
Debt with Conversion and Other
Options
. The Beneficial Conversion Feature
(“BCF”) of a convertible security is normally
characterized as the convertible portion or feature of certain
securities that provide a rate of conversion that is below market
value or in-the-money when issued. The Company records a BCF
related to the issuance of a convertible security when issued and
also records the estimated fair value of any conversion feature
issued with those securities. Beneficial conversion features that
are contingent upon the occurrence of a future event are recorded
when the contingency is resolved.
The BCF of a
convertible note is measured by allocating a portion of the
note’s proceeds to the conversion feature, if applicable, and
as a reduction of the carrying amount of the convertible note equal
to the intrinsic value of the conversion feature, both of which are
credited to additional paid in capital. The debt discount is
amortized to interest expense over the life of the note using the
effective interest method. The Company calculates the fair value of
the conversion feature embedded in any convertible security using
either a) the Black Scholes valuation model or b) a discount cash
flow analysis tested for sensitivity to key Level 3 inputs using
Monte Carlo simulation.
Cost of Revenue
Cost of vehicle
sales includes the cost to acquire vehicles and the reconditioning
and transportation costs associated with preparing the vehicles for
resale. Vehicle acquisition costs are driven by the mix of vehicles
we acquire, the source of those vehicles, and supply and demand
dynamics in the vehicle market. Reconditioning costs are billed by
third-party providers and include parts, labor, and other repair
expenses directly attributable to specific vehicles. Transportation
costs consist of costs incurred to transport the vehicles from the
point of acquisition or delivery. Cost of sales also includes any
necessary adjustments to reflect vehicle inventory at the lower of
cost or net realizable value.
Cost of
subscription fee revenue includes the (i) various data feeds from
third parties; (ii) hosting of the customer facing website; (iii)
commissions for new sales; and (iv) implementation and training of
new and existing customers. These costs and expenses are charged to
cost of revenue as incurred.
Selling, General and Administrative Expenses
Selling, general
and administrative (“SG&A”) expenses primarily
include compensation and benefits, advertising and marketing;
professional fees, technology development expenses, rent and other
occupancy costs, insurance, travel and other administrative
expenses.
Advertising and Marketing Costs
Advertising and
marketing costs are expensed as incurred and are included in
selling, general and administrative expenses in the accompanying
Condensed Consolidated Statements of Operations. Advertising and
marketing expenses were $242,906 and $269,036, respectively for the
three-month and six-month periods ended June 30, 2017. There was no
advertising and marketing costs incurred for the same periods in
2016.
Stock-Based Compensation
On January 9, 2017,
the Company’s Board of Directors approved, subject to
stockholder approval, the RumbleOn, Inc. 2017 Stock Incentive Plan
(the “Plan”) under which restricted stock units
(“RSUs”) and other equity awards may be granted to
employees and non-employee members of the Board of Directors. On
June 30, 2017, the Plan was approved by the Company's stockholders
at the 2017 Annual Meeting of Stockholders. The Company estimates
the fair value of awards granted under the Plan on the date of
grant. The fair value of an RSU is based on the average of the high
and low market prices of the Company’s Class B Common Stock
on the date of grant and is recognized as an expense on a
straight-line basis over its vesting period; to date, the Company
has only issued RSUs that vest over a three-year period utilizing
the following vesting schedule: (i) 20% on the first anniversary of
the grant date; (ii) 30% on the second anniversary of the grant
date; and (iii) 50% on the third anniversary of the grant date.
During the six-month period ended June 30, 2017, the Company
granted 560,000 RSUs under the Plan to members of the board of
directors, officers and employees. Compensation expense associated
with RSU grants for the three-month and six-month periods ended
June 30, 2017 was $129,787 and is included in selling, general and
administrative expenses in the Condensed Consolidated Statements of
Operations.
Income Taxes
The Company follows
ASC Topic 740,
Income
Taxes,
for recording the provision for income taxes.
Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be
realized or settled. Deferred income tax expenses or benefits are
based on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences
resulting from income and expense items reported for financial
accounting and tax purposes in different periods.
The Company applies
a more-likely-than-not recognition threshold for all tax
uncertainties. ASC Topic 740 only allows the recognition of those
tax benefits that have a greater than fifty percent likelihood of
being sustained upon examination by the taxing authorities. As of
June 30, 2017, the Company reviewed its tax positions and
determined there were no outstanding, or retroactive tax positions
with less than a fifty percent likelihood of being sustained upon
examination by the taxing authorities, therefore this standard has
not had a material effect on the Company.
The Company
classifies tax-related penalties and net interest as income tax
expense. As of June 30, 2017, no income tax expense has been
incurred.
Recent Pronouncements
The Company has
adopted Accounting Standards Update 2015-11 Inventory (Topic 330),
Simplifying the Measurement of
Inventory,
which requires inventory to be stated at the
lower of cost or net realizable value. Vehicle inventory cost is
determined by specific identification. Net realizable value is the
estimated selling price less costs to complete, dispose and
transport the vehicles. Selling prices are derived from historical
data and trends, such as sales price and inventory turn times of
similar vehicles, as well as independent, market resources. Each
reporting period the Company recognizes any necessary adjustments
to reflect vehicle inventory at the lower of cost or net realizable
value through cost of revenue in the accompanying Condensed
Consolidated Statements of Operations.
NOTE
3 – GOING CONCERN
The accompanying
Condensed Consolidated Financial Statements have been prepared
assuming the Company will continue as a going concern, which
contemplates the recoverability of assets and the satisfaction of
liabilities in the normal course of business. The Company has not
yet generated significant revenue from operations. Since its
inception, the Company has been engaged substantially in financing
activities and developing its business plans and incurring start-up
costs and expenses, resulting in accumulated net losses from
October 24, 2013 (inception) through the period ended June 30,
2017 of $3,261,094. As of June 30, 2017, the Company had a total of
$1,050,246 in available cash. Since inception, the Company has
financed its cash flow requirements through debt and equity
financing. As the Company expands its activities, it will continue
to experience net negative cash flow from operations, until the
Company generates sustainable cash flow from the implementation of
its business strategy and utilization of its e-commerce
platform.
The ability of the
Company to continue as a going concern is dependent upon its
continued ability to raise additional capital from the sale of
common stock and debt financing, and ultimately, the achievement of
significant operating revenue and positive cash flow. If the
Company were to not raise additional funds, it may be unable to
continue in business for the next 12 months with its currently
available capital. These Condensed Consolidated Financial
Statements do not include any material adjustments relating to the
recoverability and classification of recorded asset amounts, or
amounts and classification of liabilities that might result from
this uncertainty.
NOTE
4 – ACQUISITIONS
On February 8,
2017, the Company acquired substantially all of the assets of
NextGen in exchange for $750,000 in cash, plus 1,523,809
unregistered shares of Class B Common Stock of the Company, which
were issued at a negotiated fair value of $1.75 per share and a
subordinated secured promissory note issued by the Company in favor
of NextGen in the amount of $1,333,334 (the “NextGen
Note”). The NextGen Note matures on the third anniversary of
the closing date (the “Maturity Date”).
The following table
presents the purchase price consideration as of June 30,
2017:
|
Issuance of
shares
|
$
2,666,666
|
|
Debt
|
1,333,334
|
|
Cash
paid
|
750,000
|
|
|
$
4,750,000
|
|
|
|
|
Net tangible assets
acquired:
|
|
|
Technology
development
|
$
1,400,000
|
|
Customer
contracts
|
10,000
|
|
Non-compete
agreements
|
100,000
|
|
Tangible assets
acquired
|
1,510,000
|
|
Goodwill
|
3,240,000
|
|
Total purchase
price
|
4,750,000
|
|
Less: Issuance of
shares
|
(2,666,666
)
|
|
Less: Debt
issued
|
(1,333,334
)
|
|
|
|
|
Cash
paid
|
$
750,000
|
Supplemental
pro forma information
The results of
operations of NextGen since the acquisition date are included in
the accompanying Condensed Consolidated Financial
Statements.
The following
supplemental pro forma information presents the financial results
as if the acquisition of NextGen was made as of January 1,
2017 for both the three-month and six-month periods ended June 30,
2017 and on January 1, 2016 for both the three-month and
six-month periods ended June 30, 2016.
Pro forma
adjustments for the six-month period ended June 30, 2017 and 2016
primarily include adjustments to reflect additional depreciation
and amortization of $29,866 and $48,788, respectively, related to
technology development and identifiable intangible assets recorded
as part of the acquisition, and interest expense related to the
NextGen Note of $27,353 and $42,833, respectively.
NOTE
5 – PROPERTY AND EQUIPMENT, NET
The following table
summarizes property and equipment, net of accumulated depreciation
and amortization as of June 30, 2017 and December 31,
2016:
|
|
June
30,
2017
|
December 31,
2016
|
|
Vehicles
|
$
387,376
|
$
-
|
|
Furniture and
equipment
|
106,213
|
-
|
|
Technology
development
|
1,690,664
|
-
|
|
Total property and
equipment
|
2,184,253
|
-
|
|
Less: accumulated
depreciation and amortization
|
150,920
|
-
|
|
Property and
equipment, net
|
$
2,033,333
|
$
-
|
At June 30, 2017,
capitalized technology development costs were $1,690,664, which
includes $1,400,000 of software acquired in the NextGen
transaction. For additional information, see Note 4 -
“Acquisitions.” Total technology development costs
incurred for the six-month period ended June 30, 2017
were $471,366, of which $290,664 was capitalized and $186,702
was charged to expense in the accompanying Condensed Consolidated
Statements of Operations. The amortization of capitalized
technology development costs for the three-month and six-month
periods ended June 30, 2017 was $81,698 and $129,945, respectively.
There were no technology development costs incurred and no
amortization of capitalized development costs for the same periods
in 2016. Depreciation expense on vehicles, furniture and equipment
for the three-month and six-month periods ended June 30, 2017 was
$20,388 and $20,974, respectively. Depreciation on vehicles,
furniture and equipment for the three-month and six-month periods
ended June 30, 2016 was $475 and $950, respectively.
NOTE
6 – INTANGIBLE ASSETS, NET
Intangible assets,
net consist of the following at June 30, 2017 and December 31,
2016:
Amortization
expense related to intangible assets for the three-month and
six-month periods ended June 30, 2017 was $11,250 and $22,500,
respectively. The estimated future amortization expenses related to
identifiable intangible assets is as follows:
|
Remainder
through December 31, 2017
|
$
22,500
|
|
2018
|
45,000
|
|
2019
|
20,000
|
|
|
$
87,500
|
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table
summarizes accounts payable and other accrued liabilities as of
June 30, 2017 and December 31, 2016:
|
|
June
30,
2017
|
December 31,
2016
|
|
Accounts
payable
|
$
1,046,225
|
$
219,101
|
|
Sales
taxes
|
717
|
-
|
|
Accrued
compensation and benefits
|
211,951
|
-
|
|
Other
|
3,200
|
-
|
|
Total accounts
payable and accrued liabilities
|
$
1,262,093
|
$
219,101
|
NOTE
8 – NOTES PAYABLE
Notes payable
consisted of the following as of June 30, 2017 and December 31,
2016:
Convertible
Note Payable-Related Party
On July 13, 2016,
the Company entered into an unsecured convertible note (the
“BHLP Note”) with Berrard Holdings, an entity owned and
controlled by a current officer and director, Mr. Berrard, pursuant
to which the Company was required to repay $191,858 on or before
July 13, 2026 plus interest at 6% per annum. The BHLP Note was also
convertible into common stock, in whole, at any time before
maturity at the option of the holder at the greater of $0.06 per
share or 50% of the price per share of the next qualified financing
which is defined as $500,000 or greater. Effective August 31, 2016,
the principal amount of the BHLP Note was amended to include an
additional $5,000 loaned to the Company, on the same terms. On
November 28, 2016, the Company completed its qualified financing at
$1.50 per share which established the conversion price per share
for the BHLP Note of $0.75 per share, resulting in the principal
amount of the BHLP Note being convertible into 263,144 shares of
common stock. As such, November 28, 2016 became the
“commitment date” for determining the value of the BHLP
Note conversion feature. Because there had been no trading in the
Company’s common stock since July 2014, other than the
purchase by Berrard Holdings of 99.5% of the outstanding shares in
a single transaction, the Company used the Monte Carlo simulation
to determine the intrinsic value of the conversion feature of the
BHLP Note, which resulted in a value in excess of the principal
amount of the BHLP Note. Thus, the Company recorded a note discount
of $197,358 with the corresponding amount as an addition to paid in
capital. This note discount was amortized to interest expense until
the scheduled maturity of the BHLP Note in July 2026 or until it
was converted using the effective interest method. The effective
interest rate at March 31, 2017 was 7.4%. Interest expense on the
BHLP Note for the three-month period ended March 31, 2017 was
$2,920 and the amortization of the beneficial conversion feature
was $3,558. On March 31, 2017, the Company issued 275,312 shares of
Class B Common Stock upon full conversion of the BHLP Note, having
an aggregate principal amount, including accrued interest, of
$206,484 and a conversion price of $0.75 per share. In connection
with the conversion of the BHLP Note, the remaining debt discount
of $196,076 was charged to interest expense in the Condensed
Consolidated Statements of Operations and the related deferred tax
liability was credited to additional paid in capital in the
Condensed Consolidated Balance Sheets.
Note
Payable-NextGen
On February 8,
2017, in connection with the acquisition of NextGen, the Company
issued a subordinated secured promissory note in favor of NextGen
in the amount of $1,333,334. The NextGen Note matures on the third
anniversary of the Maturity Date. Interest accrues and will be paid
semi-annually (i) at a rate of 6.5% annually from the closing date
through the second anniversary of such date and (ii) at a rate of
8.5% annually from the second anniversary of the closing date
through the Maturity Date. Upon the occurrence of any event of
default, the outstanding balance under the NextGen Note shall
become immediately due and payable upon election of the holder. The
Company’s obligations under the NextGen Note are secured by
substantially all the assets of NextGen Pro, pursuant to an
Unconditional Guaranty Agreement (the “Guaranty
Agreement”), by and among NextGen and NextGen Pro, and a
related Security Agreement between the parties, each dated as of
February 8, 2017. Under the terms of the Guaranty Agreement,
NextGen Pro has agreed to guarantee the performance of all the
Company’s obligations under the NextGen Note.
Notes
Payable-Private Placement
On March 31, 2017,
the Company completed funding of the second tranche of the 2016
Private Placement. The investors were issued 1,161,920 shares of
Class B Common Stock of the Company and promissory notes (the
“Private Placement Notes”) in the amount of $667,000,
in consideration of cancellation of loan agreements having an
aggregate principal amount committed by the purchasers of
$1,350,000. Under the terms of the Private Placement Notes,
interest shall accrue on the outstanding and unpaid principal
amounts until paid in full. The Private Placement Notes mature on
March 31, 2020. Interest accrues at a rate of 6.5% annually from
the closing date through the second anniversary of such date and at
a rate of 8.5% annually from the second anniversary of the closing
date through the maturity date. Upon the occurrence of any event of
default, the outstanding balance under the Private Placement Notes
shall become immediately due and payable upon election of the
holders. Based on the relative fair values attributed to the Class
B Common Stock and promissory notes issued in the 2016 Private
Placement the Company recorded a debt discount on the promissory
notes of $667,000 with the corresponding amounts as addition to
paid in capital. The debt discount is amortized to interest expense
until the scheduled maturity of the Private Placement Notes in
March 2020 using the effective interest method. The effective
interest rate at March 31, 2017 was 5.9%. Interest expense on the
Private Placement Notes for the three-month and six-month periods
ended June 30, 2017 was $10,809 and the amortization of the debt
discount was $39,625.
NOTE
9 – STOCKHOLDERS’ EQUITY
On January 9, 2017,
the Company’s board of directors approved, subject to
stockholder approval, the adoption of the Plan. On June 30, 2017,
the Plan was approved by the Company’s stockholders at the
2017 Annual Meeting of Stockholders. The purposes of the Plan are
to attract, retain, reward and motivate talented, motivated and
loyal employees and other service providers (“Eligible
Individuals”) by providing them with an opportunity to
acquire or increase a proprietary interest in the Company and to
incentivize them to expend maximum effort for the growth and
success of the Company, so as to strengthen the mutuality of the
interests between such persons and the stockholders of the Company.
The Plan will allow the Company to grant a variety of stock-based
and cash-based awards to Eligible Individuals. Twelve percent (12%)
of the Company’s issued and outstanding shares of Class B
Common Stock from time to time are reserved for issuance under the
Plan. As of the date of this report, 9,018,541 shares are issued
and outstanding, resulting in up to 1,082,225 shares available for
issuance under the Plan. As of June 30, 2017, the Company has
granted 560,000 RSUs under the Plan to certain officers and
employees of the Company. The aggregate fair value of the RSUs was
$2,103,500. The RSUs vest over a three-year period as follows:
(i) 20% on the first anniversary of the grant date;
(ii) 30% on the second anniversary of the grant date; and
(iii) 50% on the third anniversary of the grant date. The fair
value of the grant is amortized over the period from the grant date
through the vesting dates. Compensation expense recognized for
these grants for the three-month and six-month periods ended June
30, 2017 was $129,787. The Company has approximately $1,763,363 in
unrecognized stock-based compensation, with an average remaining
vesting period of three years.
On January 9, 2017,
the Company’s board of directors and stockholders holding
6,375,000 of the Company’s issued and outstanding shares of
common stock approved an amendment to the Company’s Articles
of Incorporation (the “Certificate of Amendment”), to
change the name of the Company to RumbleOn, Inc. and to create an
additional class of common stock of the Company, which was
effective on February 13, 2017 (the “Effective
Date”).
Immediately before
approving the Certificate of Amendment, the Company had authorized
100,000,000 shares of common stock, $0.001 par value (the
“Authorized Common Stock”), including 6,400,000 issued
and outstanding shares of common stock (the “Outstanding
Common Stock, and together with the Authorized Common Stock, the
“Common Stock”). Pursuant to the Certificate of
Amendment, the Company designated 1,000,000 shares of Authorized
Common Stock as Class A Common Stock (the “Class A Common
Stock”), which Class A Common Stock ranks pari passu with all
of the rights and privileges of the Common Stock, except that
holders of the Class A Common Stock are entitled to ten votes per
share of Class A Common Stock issued and outstanding, and all other
shares of Common Stock, including all shares of Outstanding Common
Stock shall be deemed Class B Common Stock (the “Class B
Common Stock”), which Class B Common Stock is identical to
the Class A Common Stock in all respects, except that holders of
the Class B Common Stock are entitled to one vote per share of
Class B Common Stock issued and outstanding.
Also on January 9,
2017, the Company’s board of directors and stockholders
holding 6,375,000 of the Company’s issued and outstanding
shares of common stock approved the issuance to (i) Marshall
Chesrown of 875,000 shares of Class A Common Stock in exchange for
an equal number of shares of Class B Common Stock held by Mr.
Chesrown, and (ii) Steven R. Berrard of 125,000 shares of Class A
Common Stock in exchange for an equal number of shares of Class B
Common Stock held by Mr. Berrard, effective at the time the
Certificate of Amendment was filed with the Secretary of State of
Nevada.
On the Effective
Date, the Company filed the Certificate of Amendment with the
Secretary of State of the State of Nevada changing the
Company’s name to RumbleOn, Inc. and creating the Class A and
Class B Common Stock. Also on the Effective Date, the Company
issued an aggregate of 1,000,000 shares of Class A Common Stock to
Messrs. Chesrown and Berrard in exchange for an aggregate of
1,000,000 shares of Class B Common Stock held by them. Also on the
Effective Date, the Company amended its bylaws to reflect the name
change to RumbleOn, Inc. and to reflect the Company’s primary
place of business as Charlotte, North Carolina.
On March 31,
2017, the Company completed the 2017 Private Placement and the
second tranche of the 2016 Private Placement. For additional
information, see Note 1 - “Business Description,” Note
4 - “Acquisitions,” and Note 8 - “Notes
Payable.”
NOTE
10 – SELLING, GENERAL AND ADMINISTRATIVE
The following table
summarizes the detail of selling, general and administrative
expense for the three-month and six-month periods ended June 30,
2017 and 2016:
|
|
Three-months
ended June 30,
|
Six-months
ended June 30,
|
||
|
|
2017
|
2016
|
2017
|
2016
|
|
Selling,
general and administrative:
|
|
|
|
|
|
Compensation
and related costs
|
801,162
|
-
|
923,092
|
-
|
|
Advertising
and marketing
|
242,906
|
-
|
269,036
|
-
|
|
Professional
fees
|
186,188
|
8,200
|
532,445
|
14,973
|
|
Technology
development
|
108,694
|
-
|
186,702
|
-
|
|
General
and administrative
|
370,017
|
2,625
|
452,899
|
6,456
|
|
|
$
1,708,967
|
$
10,825
|
$
2,364,174
|
$
21,429
|
NOTE
11 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table
includes supplemental cash flow information, including noncash
investing and financing activity for the six-month periods ended
June 30, 2017 and 2016.
|
|
Six-Months
Ended June 30,
|
|
|
|
2017
|
2016
|
|
Cash
paid for interest
|
$
-
|
$
-
|
|
|
|
|
|
Note
payable issued on acquisition
|
$
1,333,334
|
$
-
|
|
|
|
|
|
Conversion
of notes payable-related party
|
$
206,209
|
$
-
|
|
|
|
|
|
Issuance
of shares for acquisition
|
$
2,666,666
|
$
-
|
NOTE
12 – INCOME TAXES
In projecting the
Company’s income tax expense for the year ended December 31,
2017 management has concluded it is not likely to recognize the
benefit of its deferred tax asset, net of deferred tax liabilities,
and as a result a full valuation allowance will be required. As
such, no income tax benefit has been recorded for the three-month
and six-month periods ended June 30, 2017 or 2016.
NOTE
13 — LOSS PER SHARE
Net loss per share
is computed by dividing net loss by the weighted average number of
common shares outstanding during the period. The computation of
diluted net loss per share for the three-month and six-month
periods ended June 30, 2017 did not include 475,000 and
560,000 respectively, of restricted stock units to purchase shares
of Class B Common Stock as their inclusion would be antidilutive.
There were no restricted stock units outstanding for the
three-month and six-month periods ended June 30, 2016.
NOTE
14 – RELATED PARTY TRANSACTIONS
As of December 31,
2016, the Company had the BHLP Note payable of $197,358 and accrued
interest of $5,508 due to an entity that is owned and controlled by
a current officer and director of the Company. On March 31, 2017,
the Company issued 275,312 shares of Class B Common Stock upon full
conversion of the BHLP Note. The accrued interest is included in
accrued interest under Long-term liabilities in the Condensed
Consolidated Balance Sheets. For additional information, see
Note 8 - “Notes Payable.”
As
of December 31, 2015, the Company had loans of $141,000 and accrued
interest of $13,002 due to an entity that is owned and controlled
by a family member of an officer and director of the Company.
Interest expense on these loans for the three-month and six-month
periods ended June 30, 2016 was $2,343 and $4,553, respectively.
All convertible notes and related party notes outstanding as of
July 13, 2016 were paid in full in July 2016.
On March 31, 2017,
the Company completed the sale of 620,000 shares of Class B Common
Stock in the 2017 Private Placement. Officers and directors of the
Company acquired 175,000 shares of Class B Common Stock in the 2017
Private Placement. In May 2017, the Company completed the sale of
an additional 37,500 shares of Class B Common Stock in the 2017
Private Placement. For additional information, see Note 1 -
“Business Description.”
A key component of
the Company’s business model is to use dealer partners in the
acquisition of motorcycles as well as utilize these dealer partners
to provide inspection, reconditioning and distribution services.
Correspondingly, the Company will earn fees and transaction income,
and the dealer partner may earn incremental revenue and enhance
profitability through increased sales, leads, and fees from
inspection, reconditioning and distribution programs. These dealer
partners will be designated by the Company as Select Dealers. In
connection with the development of the Select Dealer program the
Company has already been testing various aspects of the program by
utilizing a dealership (the “Test Dealer”) to which Mr.
Chesrown, the Company’s Chief Executive Officer has provided
financing in the form of a $400,000 convertible promissory note.
The note matures on May 1, 2019, interest is payable monthly at 5%
per annum and can be converted into a 25% ownership interest in the
Test Dealer at any time. The Test Dealer is expected to be named a
Select Dealer by an agreement with the same material terms as the
Company’s other Select Dealer agreements. Revenue generated
by the Company from the Test Dealer for the three-month and
six-month periods ended June 30, 2017 was $1,995 and $86,329,
respectively.
In connection with
the NextGen acquisition the Company entered into a Consulting
Agreement (the “Consulting Agreement”) with Kartik
Kakarala, who formerly served as the Chief Executive Officer of
NextGen and now serves as a director of the Company. Pursuant to
the Consulting Agreement, Mr. Kakarala serves as a consultant to
the Company. The Consulting Agreement may be cancelled by either
party, effective upon delivery of a written notice to the other
party. Mr. Kakarala’s compensation pursuant to the Consulting
Agreement is $5,000 per month. For the three-month and six-month
periods ended June 30, 2017 the Company paid $5,000 and $15,000,
respectively under the Consulting Agreement. These amounts are
included in selling, general and administrative expenses in the
Condensed Consolidated Statements of Operations. For additional
information, see Note 4 - “Acquisitions.”
In connection with
the NextGen acquisition, the Company entered into a Services
Agreement (the “Services Agreement”) with Halcyon
Consulting, LLC (“Halcyon”), to provide development and
support services to the Company. Mr. Kakarala currently serves as
the Chief Executive Officer of Halcyon. Pursuant to the Services
Agreement, the Company will pay Halcyon hourly fees for specific
services, set forth in the Services Agreement, and such fees may
increase on an annual basis, provided that the rates may not be
higher than 110% of the immediately preceding year’s rates.
The Company will reimburse Halcyon for any reasonable travel and
pre-approved out-of-pocket expenses in connection with its services
to the Company. For the three-month and six-month periods ended
June 30, 2017 the Company paid $266,600 and $471,966, respectively
under the Services Agreement.
As of June 30,
2017, the Company had promissory notes of $370,556 and accrued
interest of $6,005 due to an entity controlled by a director and to
the director of the Company. The promissory notes were issued in
connection with the completion of the 2016 Private Placement on
March 31, 2017. Interest expense on the notes was $6,005 and the
amortization of the beneficial conversion feature of the notes was
$22,014 for the three-month and six-month periods ended June 30,
2017. The $6,005 of interest was charged to interest expense in the
Condensed Consolidated Statements of Operations and included in
accrued interest under long-term liabilities in the Condensed
Consolidated Balance Sheets.
NOTE 15 – COMMITMENTS
AND CONTINGENCIES
The Company is
subject to legal proceedings and claims which arise in the ordinary
course of its business. Although occasional adverse decisions (or
settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect
on the Company’s financial position, results of operations or
cash flows.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Members of NextGen Dealer Solutions, LLC
We have
audited the accompanying balance sheets of NextGen Dealer
Solutions, LLC as of December 31, 2016 and 2015, and the related
statements of operations and changes in members’ equity, and
cash flows for the year ended December 31, 2016 and the period
December 10, 2015 to December 31, 2015. NextGen Dealer Solutions,
LLC’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NextGen Dealer
Solutions, LLC as of December 31, 2016, and 2015, and the results
of its operations and its cash flows for the year ended December
31, 2016 and the period December 10, 2015 to December 31, 2015, in
conformity with accounting principles generally accepted in the
United States of America.
|
|
|
| Scharf Pera & Co., PLLC |
|
|
Charlotte,
North Carolina
|
|
|
|
|
|
February
14, 2017
|
|
NextGen Dealer Solutions, LLC
Balance Sheets
|
|
At December
31,
|
|
|
|
2016
|
2015
|
|
Assets:
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$
46,891
|
$
1,500,000
|
|
Prepaid
expenses
|
5,635
|
-
|
|
Total current
assets
|
52,526
|
1,500,000
|
|
|
|
|
|
Property
and Equipment - Net of Accumulated Depreciation
|
1,400,703
|
1,312,252
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
1,453,229
|
$
2,812,252
|
|
|
|
|
|
Liabilities
and Members’ Equity
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
3,445
|
$
21,495
|
|
Due to related
parties
|
516,146
|
77,343
|
|
|
|
|
|
Total current
liabilities
|
519,591
|
98,838
|
|
Commitments
and Contingencies
|
-
|
-
|
|
Members'
Equity
|
933,638
|
2,713,414
|
|
|
|
|
|
Total
liabilities and Members’ equity
|
$
1,453,229
|
$
2,812,252
|
See
Accompanying Notes to Financial Statements
NextGen Dealer Solutions, LLC
Statements of Operations and Changes in Members’
Equity
|
|
For the year
ended
December 31,
2016
|
For
the
period
from
December 10,
2015
through
December 31,
2015
|
|
Revenue:
|
|
|
|
Gross
revenue
|
$
138,141
|
$
6,257
|
|
|
|
|
|
Cost
and Expenses:
|
|
|
|
Cost of goods
sold
|
332,559
|
17,857
|
|
General and
administrative expenses
|
1,586,002
|
96,608
|
|
|
1,918,561
|
114,465
|
|
|
|
|
|
Operating
Loss
|
(1,780,420
)
|
(108,208
)
|
|
|
|
|
|
Other
Income
|
644
|
-
|
|
|
|
|
|
Net
Loss
|
(1,779,776
)
|
(108,208
)
|
|
|
|
|
|
Members'
Equity - Beginning
|
2,713,414
|
-
|
|
|
|
|
|
Contributions
|
-
|
2,821,622
|
|
|
|
|
|
Members'
Equity - Ending
|
$
933,638
|
$
2,713,414
|
See
Accompanying Notes to Financial Statements
|
NextGen Dealer Solutions, LLC
Statements of Cash Flows
|
See
Accompanying Notes to Financial Statements
NextGen
Dealer Solutions, LLC
Notes to Financial
Statements
Note
1 - Description of Business and Significant Accounting
Policies
Organization
NextGen
Dealer Solutions, LLC (“Company”) was formed on
December 10, 2015 as a limited liability company under the laws of
the State of Delaware.
Nature of operations
The
Company has developed a software platform for the powersports
vehicle industry incorporating modules sales, operations, customer
relationship management, equity mining and marketing with dealer
management systems and website providers under the brand name of
CyclePro Solutions. The solution is intended to provide powersports
vehicle dealers with increased visibility and information related
to their sales process, inventory levels, and customer data.
Additionally, the platform offers dealers the ability to more
easily communicate with their customers, with the goal of driving
incremental sales. Dealers typically pay monthly subscription fees
to access some or all modules on an a la carte basis.
Year end
The
Company’s year-end is December 31.
Cash and Cash Equivalents
For the
statements of cash flows, all highly liquid investments with an
original maturity of three months or less are considered to be cash
equivalents. The carrying value of these investments approximates
fair value.
Software Capitalization
The
Company capitalizes the costs associated with the development of
the Company’s software solutions and website pursuant to ASC
Topic 350. Other costs related to the maintenance of the software
are expensed as incurred. Amortization is provided over the
estimated useful lives of 7 years using the straight-line method
for financial statement purposes.
Revenue Recognition
The
Company recognizes revenue when all of the following conditions are
satisfied: (1) there is persuasive evidence of an arrangement; (2)
the product or service has been provided to the customer; (3) the
amount of fees to be paid by the customer is fixed or determinable;
and (4) the collection of our fees is probable. Dealers typically
pay monthly subscription fees to access some or all modules on an a
la carte basis, as well as, in certain cases, implementation or
training fees.
Cost of Sales
Cost of
sales represents amount paid by the Company for hosting of the
customer facing website, various data feeds from third parties, and
the Company’s labor for implementing and training new
customers.
Marketing and Advertising Costs
The
Company expenses marketing and advertising costs as incurred. The
Company’s marketing and advertising costs in the period ended
December 31, 2016, and December 31, 2015 were $100,235 and $0,
respectively, primarily driven by the costs of the marketing
services agreement between the Company and a member of the Company.
For additional information,
see
Note 3 “Related Party Transactions.”
Fair Value of
Financial Instruments
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
December 31, 2016, and 2015. The respective carrying value of
certain on-balance-sheet financial instruments approximated their
fair values. These financial instruments include cash, prepaid
expenses and accounts payable. Fair values approximate carrying
values for cash and payables because they are short term in nature
and their carrying amounts approximate fair values or they are
payable on demand.
NextGen
Dealer Solutions, LLC
Notes to Financial
Statements
FASB
ASC 820-10-30-2 establishes a fair value hierarchy for inputs used
in measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring the most
observable inputs be used when available. Observable inputs are
from sources independent of the Company, whereas unobservable
inputs reflect the Company’s assumptions about the inputs
market participants would use in pricing the asset or liability
developed on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on
the inputs as follows:
Level
1: The preferred inputs to valuation efforts are “quoted
prices in active markets for identical assets or
liabilities,” with the caveat that the reporting entity must
have access to that market. Information at this level is
based on direct observations of transactions involving the same
assets and liabilities, not assumptions, and thus offers superior
reliability. However, relatively few items, especially physical
assets, actually trade in active markets.
Level
2: FASB acknowledged that active markets for identical assets and
liabilities are relatively uncommon and, even when they do exist,
they may be too thin to provide reliable information. Inputs other
than quoted market prices in Level 1 that are observable for the
asset or liability, either directly or indirectly, are considered
Level 2 inputs.
Level
3: If inputs from levels 1 and 2 are not available, FASB
acknowledges that fair value measures of many assets and
liabilities are less precise. The board describes Level 3 inputs as
“unobservable,” and limits their use by saying they
“shall be used to measure fair value to the extent that
observable inputs are not available.” This category allows
“for situations in which there is little, if any, market
activity for the asset or liability at the measurement date”.
Earlier in the standard, FASB explains that “observable
inputs” are gathered from sources other than the reporting
company and that they are expected to reflect assumptions made by
market participants.
Income Taxes
The
Company is a limited liability company and has elected to be taxed
under partnership provisions of the Internal Revenue Code. Under
these provisions, the members are taxed on their share of the
Company's taxable income. The Company bears no liability or expense
for income taxes and none is reflected in these financial
statements. Similar provisions apply for state income
taxes.
The
Company accounts for income taxes in accordance with ASC Topic 740,
“Income Taxes.” ASC 740-10 clarifies the accounting for
income taxes by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the balance
sheet. It also provides guidance on derecognition, measurement and
classification of amounts related to uncertain tax positions,
accounting for and disclosure of interest and penalties, accounting
in interim period disclosures and transition relating to the
adoption of new accounting standards. Under ASC 740-10, the
recognition for uncertain tax positions should be based on a
more-likely-than-not threshold that the tax position will be
sustained upon audit. The tax position is measured as the largest
amount of benefit that has a greater than fifty percent probability
of being realized upon settlement. Management has determined that
adoption of this topic has had no effect on the Company’s
balance sheet. The Company’s tax returns for 2016 and 2015
remain open to potential Internal Revenue Service
investigation.
Use of Estimates
The
preparation of financial statements in conformity with 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. Actual results could differ from those estimates. Any
adjustments applied to estimated amounts are recognized in the year
such adjustments are determined.
Recent
Pronouncements
The
Company has evaluated the recent accounting pronouncements through
January 2017 and believes that none of them will have a material
effect on the company’s financial statements.
Note
2 – Property and Equipment - Software
Capitalization
The
Company capitalizes the costs associated with the development of
the Company’s software solutions and website pursuant to ASC
Topic 350. Other costs related to the maintenance of the software
are expensed as incurred. Additionally, upon formation the
Company determined the fair value of software contributed to the
Company to be $
1,312,252.
Amortization is provided over
the estimated useful lives of 7 years using the straight-line
method for financial statement purposes. The Company capitalized a
total of $341,919 during the twelve months ending December 31,
2016, and incurred amortization expense for the periods ending
December 31, 2016 and December 31, 2015 of $253,468 and $9,370,
respectively.
NextGen
Dealer Solutions, LLC
Notes to Financial
Statements
Note
3 - Related Party Transactions
The Company and a
technology consulting firm (“Developer”) owned and
managed by Company’s majority Member entered into a Services
Agreement in December, 2015 whereby Developer agreed to make
available up to 15 full time equivalent resources to perform
software development, corrections and testing. Additionally, an
entity owned by the majority Member provided billing services and
start-up support to the Company (“Services Provider”).
The total amounts billed by Developer for development fees in the
periods ending December 31, 2016 and December 31, 2015 was $723,475
and $0, respectively. The total amount owed to both the Developer
and the Services Provider as of December
2016 and 2015, was $468,932 and
$49,433, respectively.
Amounts
owed to the Developer will be paid as and when the proceeds from
the sale of the Company’s assets are received.
The Company and its
minority member (“Marketing Partner”) entered into a
Marketing Services Agreement in December, 2015 whereby 1) Marketing
Partner would assist in identifying potential customers for Company
and facilitate in the closing of sales to such prospective
customers; 2) Company would pay Marketing Partner $10,000 per month
plus reasonable out of pocket expenses incurred by the Marketing
Partner’s person(s) assisting Company , and 3) pay to
Marketing Partner a percentage of all receipts by Company from such
prospects equal to 15% for the first year that such prospect is a
customer and 5% for each of the two succeeding years. Amounts
billed to Marketing Partner in the periods ending December 31, 2016
and December 31, 2015 were $60,541 and $0, respectively, and the
balance owed Marketing Partner at December 31, 2016 and 2015
was $47,214 and
$27,910, respectively.
The
Company uses a portion of certain leased premises in Irving, Texas
that are leased by the majority owner of the Company pursuant to a
Sublease Agreement dated October 25, 2016 by and between the
landlord and the majority owner. The sublease ends April 30,
2018. The Company uses the premises on a month to month basis. The
Company pays $3,488 per month for the use of the
premises.
Note
4 – Members’ Equity
The
Company was formed on December 10, 2015 as a limited liability
company under the laws of the State of Delaware. Upon formation on
December 10, 2015, the Company authorized the issuance of up to
80,000 Class A Preferred Units and 10,000 Class B Preferred Units;
on the same date, the Company issued 60,000 Class A Preferred Units
as well as granted a member of the Company an option to purchase
20,000 Class A Preferred Units prior to December 10, 2016. The
option was not exercised, so as of each of December 31, 2016 and
2015 there were 60,000 Class A Preferred Units
outstanding.
Each of
the Class A Preferred Units and Class B Preferred Units are
convertible at any time to Common Units; however the Common Units
have no preferences related to distributions and the like. As of
December 31, 2016, there were no Common Units
outstanding.
During
the period from December 15, 2015 through the period ended December
31, 2016, there have been no other units, preferred or otherwise,
issued, except as noted below.
On
August 1, 2016, the Company approved the NextGen Dealer Solutions,
LLC Incentive Plan providing for the issuance of up to 15,000 Class
C Profit Units; and on the same date, the Company awarded 6,667
Class C Profit Units to one of the Company’s employees,
representing 10% of total issued and outstanding Units post award.
Class C Profit Units have no voting rights, vest over a period of
four (4) years, accelerate vesting upon a change in control and
share in distributions in accordance with the terms set forth in
the Incentive Plan and in the Limited Liability Company Agreement
of the Company dated December 10, 2015. No value or expense
associated with such grant was recorded.
As part
of the initial contributions, one member, in exchange for 40,000
Class A Preferred Units, contributed the sales session management,
inventory management, customer relationship management, equity
mining, and back office and call center business development center
functionality software product and application known as CyclePro,
including all designs, source code, databases, user interfaces, and
derivatives thereof valued at $1,321,622. The other member, in
exchange for 20,000 Class A Preferred Units and an option to
purchase an additional 20,000 Class A Preferred Units prior to
December 10, 2016, contributed $1,500,000.
Note
5- Subsequent Events
On
January 8, 2017, the Company, Halcyon Consulting, LLC
(“Halcyon”), and members of Halcyon signatory thereto
(“Halcyon Members” and together with Halcyon, the
“Halcyon Parties”) entered into an Asset Purchase
Agreement with Smart Server Inc. (“Smart Server”). The
Company and the Halcyon Parties are collectively referred to as the
“Seller Parties.” The Agreement provides that, upon the
terms and subject to the conditions set forth in the Agreement,
Smart Server would acquire all of the Company's assets, properties
and rights of whatever kind, tangible and intangible, other than
the excluded assets under the terms of the Agreement. Smart Server
also would assume liability only for certain post-closing
contractual obligations pursuant to the terms of the Agreement,
primarily related to operating and maintaining the CyclePro
application. Additionally, Smart Server agreed to be responsible
for certain payroll costs and operating expenses incurred after
January 16, 2017, and 2) benefit from all revenue earned from
January 16, 2017 forward. The transaction closed on February 8,
2017.
Smart
Server acquired substantially all of the assets of the Company in
exchange for approximately $750,000 in cash, plus 1,523,809
unregistered shares of common stock of Smart Server (the "Purchaser
Shares"), and a subordinated secured promissory note issued by
Smart Server in favor of the Company in the amount of $1,333,333
(the "Acquisition Note"). The Acquisition Note matures on the third
anniversary of the date the Acquisition Note is entered into (the
"Maturity Date"). Interest will accrue on the Acquisition Note (i)
at a rate of 6.5% annually from the date the Acquisition Note is
entered into through the second anniversary of such date and (ii)
at a rate of 8.5% annually from the second anniversary of the date
the Acquisition Note is entered into through the Maturity
Date.
As of
the date of this filing, Smart Server has changed its name to
RumbleON, Inc.
Index for Pro Forma Financial
Statements
|
Unaudited
Pro Forma Condensed Combined Financial
Statements
|
|
|
RumbleON,
Inc. and Subsidiary Pro Forma Condensed Combined Balance Sheet
(unaudited)
|
PF-4
|
|
RumbleON,
Inc. and Subsidiary Pro Forma Condensed Combined Statement of
Operations (unaudited)
|
PF-5
|
|
Notes
to Unaudited Pro Forma Condensed Combined Financial
Statements
|
PF-6
|
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
On
January 8, 2017, Smart Server, Inc. entered into an Asset
Purchase Agreement with NextGen Dealer Solutions, LLC ("NextGen"),
Halcyon Consulting, LLC ("Halcyon"), and members of Halcyon
signatory thereto ("Halcyon Members," and together with Halcyon,
the "Halcyon Parties"), as amended by that certain Assignment,
dated January 31, 2017, between the Company and NextGen Pro, LLC
(the "NextGen Agreement"). The NextGen Agreement provided that
NextGen Pro, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of the Company, will acquire substantially
all of the assets of NextGen in exchange for approximately $750,000
in cash, plus 1,523,809 unregistered shares of Company common stock
(the "Purchaser Shares"), and a subordinated secured
promissory note issued by the Company in favor of NextGen in the
amount of $1,333,333 (the "Acquisition Note"). NextGen and the
Halcyon Parties are collectively referred to as the "Seller
Parties."
On
January 9, 2017, the Company's Board of Directors (the "Board") and
stockholders holding 6,375,000 of the Company's issued and
outstanding shares of common stock approved an amendment to the
Company's Articles of Incorporation (the "Certificate of
Amendment") to change the name Smart Server, Inc. to RumbleON, Inc.
and to create an additional class of Company common stock. The
Certificate of Amendment became effective on February 13, 2017
(the "Effective Date"), after the notice and accompanying
Information Statement describing the amendment was furnished to
non-consenting stockholders of the Company in accordance with
Nevada and Federal securities law.
Immediately before
approving the Certificate of Amendment, the Company had authorized
100,000,000 shares of common stock, $0.001 par value (the
"Authorized Common Stock"), including 6,400,000 issued and
outstanding shares of common stock (the "Outstanding Common Stock,"
and together with the Authorized Common Stock, the "Common Stock").
Pursuant to the Certificate of Amendment, the Company designated
1,000,000 shares of Authorized Common Stock as Class A Common Stock
(the "Class A Common Stock"), which Class A Common Stock ranks pari
passu with all of the rights and privileges of the Common Stock,
except that holders of Class A Common Stock will be entitled to 10
votes per share of Class A Common Stock issued and outstanding and
(ii) all other shares of Common Stock, including all shares of
Outstanding Common Stock shall be deemed Class B Common Stock (the
"Class B Common Stock"), which Class B Common Stock will be
identical to the Class A Common Stock in all respects, except that
holders of Class B Common Stock will be entitled to one vote per
share of Class B Common Stock issued and outstanding.
Also on
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Mr. Chesrown of 875,000 shares
of Class A Common Stock in exchange for an equal number of shares
of Class B Common Stock held by Mr. Chesrown, and (ii) Mr. Berrard
of 125,000 shares of Class A Common Stock in exchange for an equal
number of shares of Class B Common Stock held by Mr.
Berrard.
On
February 8, 2017 (the "Closing Date"), RumbleON completed the
NextGen Acquisition in exchange for $750,000 in cash, the Purchaser
Shares, and the Acquisition Note. The Acquisition Note matures on
the third anniversary of the Closing Date (the "Maturity Date").
Interest accrues (i) at a rate of 6.5% annually from the Closing
Date through the second anniversary of such date and (ii) at a rate
of 8.5% annually from the second anniversary of the Closing Date
through the Maturity Date.
On
February 13, 2017, the Company agreed with the Purchasers in the
Private Placement to accelerate the funding of the second tranche
of their investment totaling $1.35 million by issuing such
Purchasers 1,161,920 shares of the Company's common stock and a
note in the amount of $667,000 (the "Investor Note") and cancelling
the Loan Agreements.
On
February 13, 2017, the Effective Date, the Company filed the
Certificate of Amendment with the Secretary of State of the State
of Nevada changing the Company's name to RumbleON, Inc. and
creating the Class A and Class B Common Stock. Also on the
Effective Date, the Company issued an aggregate of 1,000,000 shares
of Class A Common Stock to Messrs. Chesrown and Berrard in exchange
for an aggregate of 1,000,000 shares of Class B Common Stock held
by them. Also on the Effective Date, the Company amended its bylaws
to reflect the name change to RumbleON, Inc. and to reflect the
Company's primary place of business as Charlotte, North
Carolina.
The
following Unaudited Pro Forma Condensed Combined Financial
Statements are based on the historical financial statements of
RumbleON and NextGen after giving effect to the
Company’s acquisition of NextGen. The unaudited Pro Forma
Condensed Combined Balance Sheet as of December 31, 2016, gives
effect to the NextGen Acquisition as if it had occurred on that
date. The unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 2016 gives effect to the
NextGen Acquisition as if it had occurred on January 1,
2016.
The
Unaudited Pro Forma Condensed Combined Financial Statements should
be read in conjunction with RumbleON’s historical
consolidated financial statements as of and for the year ended
December 31, 2016 and the accompanying notes thereto, as filed with
this Annual Report on form 10-K, NextGen’s historical
financial statements as of and for the year ended December 31, 2016
and the accompanying notes thereto included with this filing, and
the accompanying Notes to these Unaudited Pro Forma Condensed
Combined Financial Statements.
The
unaudited pro forma financial data are based on the historical
financial statements of RumbleON and NextGen, and on publicly
available information and certain assumptions RumbleON believes are
reasonable, which are described in the notes to the Unaudited Pro
Forma Condensed Combined Financial Statements included in this Form
10-K. RumbleON has not performed a detailed valuation analysis
necessary to determine the fair market values of NextGen’s
assets to be acquired and liabilities to be assumed. For the
purpose of the Unaudited Pro Forma Condensed Combined Financial
Statements, preliminary allocations of estimated acquisition
consideration have been based on the payment of $750,000, issuance
of the Purchaser Shares, and issuance of the Acquisition Note. The
acquisition consideration has been allocated to certain assets and
liabilities using management assumptions as further described in
the accompanying notes. After the closing of the NextGen
Acquisition, RumbleON will complete its valuations of the fair
value of the assets acquired and the liabilities assumed and
determine the useful lives of the assets acquired.
The
Unaudited Pro Forma Condensed Combined Financial Statements are
provided for informational purpose only. The pro forma information
provided is not necessarily indicative of what the combined
company’s financial position and results of operations would
have actually been had the NextGen Acquisition 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 NextGen Acquisition. 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 merged companies. Reclassifications and adjustments may be
required if changes to RumbleON’s financial presentation are
needed to conform RumbleON’s and NextGen Acquisition’s
accounting policies.
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 transaction. These
financial statements also do not include any integration costs the
companies may incur related to the NextGen Acquisition as part of
combining the operations of the companies. The Unaudited Pro Forma
Condensed Combined Statement of Operations do not include an
estimate for transaction costs of approximately
$175,000.
RumbleON,
Inc. and Subsidiary
Pro
Forma Condensed Combined Balance Sheet
(unaudited)
|
|
RumbleON
|
NextGen
|
Pro
Forma
Adjustments
|
|
Pro
Forma
Combined
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
$
1,350,580
|
$
46,891
|
$
(796,891
)
|
A
|
$
600,580
|
|
Prepaid
expense
|
1,667
|
5,635
|
(5,635
)
|
A
|
1,667
|
|
Total current
assets
|
1,352,247
|
52,526
|
(802,526
)
|
|
602,247
|
|
|
|
|
|
|
|
|
Software ,
net
|
-
|
1,400,703
|
-
|
|
1,400,703
|
|
Other
assets
|
45,515
|
-
|
-
|
|
45,515
|
|
Goodwill and other
intangibles
|
-
|
-
|
3,349,297
|
B
|
3,349,297
|
|
|
|
|
|
|
|
|
Total
assets
|
$
1,397,762
|
$
1,453,229
|
$
2,546,771
|
|
$
5,397,762
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
$
139,083
|
$
3,445
|
$
(3,445
)
|
A
|
$
139,083
|
|
Accounts
payable-related party
|
80,018
|
516,146
|
(516,146
)
|
A
|
80,018
|
|
Total current
liabilities
|
219,101
|
519,591
|
(519,591
)
|
|
219,101
|
|
|
|
|
|
|
|
|
Long term
liabilities:
|
|
|
|
|
|
|
Accrued interest
payable - related party
|
5,508
|
-
|
-
|
|
5,508
|
|
Convertible note
payable - related party, net
|
1,282
|
-
|
-
|
|
1,282
|
|
Deferred tax
liability
|
78,430
|
-
|
-
|
|
78,430
|
|
Promissory
note
|
-
|
-
|
1,333,333
|
C
|
1,333,333
|
|
Total long term
liabilities
|
85,220
|
|
1,333,333
|
|
1,418,553
|
|
|
|
|
|
|
|
|
Total
liabilities
|
304,321
|
519,591
|
813,742
|
|
1,637,654
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
Preferred stock,
$0.001 par value, 10,000,000 shares
|
|
|
|
|
|
|
authorized, 7,923,809, shares issued and
outstanding
as of December 31, 2016,
|
6,400
|
-
|
1,524
|
D
|
7,924
|
|
Additional paid-in
capital
|
1,534,015
|
-
|
2,665,143
|
D
|
4,199,158
|
|
Members’
equity
|
-
|
933,638
|
(933,638
)
|
E
|
|
|
Subscriptions
receivable
|
(1,000
)
|
-
|
-
|
|
(1,000
)
|
|
Accumulated
deficit
|
(445,974
)
|
-
|
-
|
|
(445,974
)
|
|
Total stockholders'
equity
|
1,093,441
|
933,638
|
1,733,029
|
|
3,760,108
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity
|
$
1,397,762
|
$
1,453,229
|
$
2,546,771
|
|
$
5,397,762
|
See
Accompanying Notes to Pro Forma Financial
Statements.
RumbleON,
Inc. and Subsidiary
Pro
Forma Condensed Combined Statement of Operations
(unaudited
)
See
Accompanying Notes to Pro Forma Financial
Statements.
Notes
to Unaudited Pro Forma
Condensed Combined
Financial Statements
The
following unaudited pro forma financial statements of RumbleON,
Inc. (the “Company”) are based on the historical
financial statements of the Company after giving effect to our
purchase of certain assets (the “NextGen Transaction”)
from NextGen Dealer Solutions, LLC ("NextGen") and the assumptions
and adjustments described in the accompanying notes to the
unaudited pro forma financial statements.
The
unaudited pro forma balance sheet as of December 31, 2016, is
presented as if the NextGen Transaction had occurred on December
31, 2016. The unaudited pro forma statements of operations for the
year ended December 31, 2016 are presented as if the NextGen
Transaction had taken place on January 1, 2016.
The
allocation of the purchase price used in the unaudited pro forma
financial statements is based upon a preliminary valuation. The
estimated fair values of certain assets and liabilities have been
determined with the assistance of a third-party valuation firm and
such firm’s preliminary work. Our estimates and assumptions
are subject to 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 financial statements are not intended to
represent or be indicative of the combined results of operations or
financial position of the Company that would have been reported had
the NextGen Transaction been completed as of the dates presented,
and should not be taken as representative of the future
combined
results of operations or financial position of the
Company.
The
unaudited pro forma financial statements do not reflect any revenue
enhancements, operating efficiencies, or cost savings that we may
achieve. The allocation of the purchase price to the assets and
liabilities acquired reflected in this pro forma financial data is
preliminary. Accordingly, the actual financial position and results
of operations may differ from these pro forma amounts.
Note
1- Basis of Presentation
The
unaudited pro forma financial statements of the Company are based
on the historical financial statements of RumbleON, Inc. after
giving effect to the NextGen Transaction and the assumptions and
adjustments described in the accompanying notes to the unaudited
pro forma financial statements.
The
historical financial statements of NextGen are presented under
United States Generally Accepted Accounting Principles (“US
GAAP”) and as such, the historical statements of income have
been adjusted to remove the impact of any asset sales that qualify
for discontinued operations treatment. The historical statements of
operations present results through income from continuing
operations.
The
unaudited pro forma balance sheet as of December 31, 2016, is
presented as if the NextGen Transaction had occurred on December
31, 2016. The unaudited pro forma statements of operations for the
year ended December 31, 2016 and the year ended December 31, 2016
are presented as if the NextGen Transaction had taken place on
January 1, 2016.
The
allocation of the purchase price used in the unaudited pro forma
financial statements is based upon a preliminary valuation. The
estimated fair values of certain assets and liabilities have been
determined with the assistance of a third-party valuation firm and
such firm’s preliminary work. Our estimates and assumptions
are subject to 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 financial statements are not intended to
represent or be indicative of the
combined
results of operations or financial position of the Company that
would have been reported had the NextGen Transaction been completed
as of the dates presented, and should not be taken as
representative of the future
combined
results of operations or financial position of the
Company.
The
unaudited pro forma financial statements do not reflect any revenue
enhancements, operating efficiencies, or cost savings that we may
achieve. The allocation of the purchase price to the assets and
liabilities acquired reflected in this pro forma financial data is
preliminary. Accordingly, the actual financial position and results
of operations may differ from these pro forma amounts.
Note
2- NextGen Transaction
On
January 8, 2017, NextGen, Halcyon Consulting, LLC
(“Halcyon”), and members of Halcyon signatory thereto
(“Halcyon Members” and together with Halcyon, the
“Halcyon Parties”) entered into an Asset Purchase
Agreement with the Company. NextGen and the Halcyon Parties are
collectively referred to as the “Seller Parties.” The
Agreement provides that, upon the terms and subject to the
conditions set forth in the Agreement, the Company would acquire
all of NextGen's assets, properties and rights of whatever kind,
tangible and intangible, other than the excluded assets under the
terms of the Agreement. The Company also would assume liability
only for certain post-closing contractual obligations pursuant to
the terms of the Agreement, primarily related to operating and
maintaining the CyclePro application. Additionally, The Company
agreed to be responsible for certain payroll costs and operating
expenses incurred after January 16, 2017, and 2) benefit from all
revenue earned from January 16, 2017 forward. The transaction
closed on February 8, 2017.
The
Company acquired substantially all of the assets of NextGen in
exchange for approximately $750,000 in cash, plus 1,523,809
unregistered shares of common stock of the Company (the "Purchaser
Shares"), and a subordinated secured promissory note issued by the
Company in favor of the NextGen in the amount of $1,333,333 (the
"Acquisition Note"). The Acquisition Note matures on the third
anniversary of the date the Acquisition Note is entered into (the
"Maturity Date"). Interest will accrue on the Acquisition Note and
be paid semi-annually (i) at a rate of 6.5% annually from the date
the Acquisition Note is entered into through the second anniversary
of such date and (ii) at a rate of 8.5% annually from the second
anniversary of the date the Acquisition Note is entered into
through the Maturity Date.
For
purposes of the pro forma December 31, 2016 balance sheet, the
total purchase price of $4,750,000 is allocated as
follows:
|
Software,
net
|
$
1,400,703
|
|
Identifiable
intangible assets
|
100,000
|
|
Goodwill
|
3,249,297
|
|
|
$
4,750,000
|
Note
3- Pro Forma Adjustments
The
following pro forma adjustments are included in the unaudited pro
forma financial statements:
(A)
To adjust cash to
reflect the payment of $750,000 portion of the consideration to
NextGen and working capital remaining with NextGen;
(C)
The issuance by the
Company of a Promissory Note in favor of NextGen in the amount of
$1,333,333;
(D)
The account for the
issuance by the Company of 1,523,809 shares of Class B Common Stock
to NextGen;
(E)
To eliminate the
Member’s
Equity of
NextGen;
(F)
To adjust
f
or
depreciation expense
on acquired software over its anticipated seven year useful
life
;
and
(G)
To account for
interest expense related to the Acquisition Note: principal balance
of $1,333,333 and an interest rate of 6.5%.
2,000,000 Shares of Class B Common Stock
PROSPECTUS
Joint
Book - Running Manager
s
Roth
Capital
Partners
Maxim Group
LLC
Co-Manager
Aegis
Capital Corp
,
2017
PART II – INFORMATION NOT REQUIRED IN PROSPECTUS
The
following table sets forth all expenses to be paid by the
registrant, other than underwriting discounts and commissions
and the $150,000 advisory fee payable to Roth Capital
Partners, in connection with this offering. All amounts
shown are estimates except for the registration fee.
|
SEC registration
fee
|
$
2,866
|
|
FINRA filing
fee
|
$
4,209
|
|
Legal fees and
expenses
|
$
225,000
|
|
Accounting fees and
expenses
|
$
10,000
|
|
Miscellaneous
expenses
|
$
5,000
|
|
Total
|
$
247,075
|
No
director of RumbleOn will have personal liability to us or any of
our stockholders for monetary damages for breach of fiduciary duty
as a director involving any act or omission of any such director
since provisions have been made in our Articles of Incorporation
limiting such liability. The foregoing provisions shall not
eliminate or limit the liability of a director for:
●
any breach of the
director’s duty of loyalty to us or our
stockholders;
●
acts or omissions
not in good faith or, which involve intentional misconduct or a
knowing violation of law;
●
the payment of
dividends in violation of Section 78.300 of the Nevada Revised
Statutes; or
●
for any transaction
from which the director derived an improper personal
benefit.
We are
a corporation organized under the laws of the State of Nevada.
Section 78.138 of the Nevada Revised Statutes (“NRS”)
provides that, unless the corporation’s articles of
incorporation provide otherwise, a director or officer will not be
individually liable unless it is proven that (i) the
director’s or officer’s acts or omissions constituted a
breach of his or her fiduciary duties, and (ii) such breach
involved intentional misconduct, fraud, or a knowing violation of
the law.
Section
78.7502 of the NRS permits a company to indemnify its directors and
officers against expenses, judgments, fines, and amounts paid in
settlement actually and reasonably incurred in connection with a
threatened, pending, or completed action, suit, or proceeding, if
the officer or director (i) is not liable pursuant to NRS 78.138,
or (ii) acted in good faith and in a manner the officer or director
reasonably believed to bein or not opposed to the best interests of
the corporation and, if a criminal action or proceeding, had no
reasonable cause to believe the conduct of the officer or director
was unlawful. Section 78.7502 of the NRS requires a corporation to
indemnify a director or officer that has been successful on the
merits or otherwise in defense of any action or suit. Section
78.7502 of the NRS precludes indemnification by the corporation if
the officer or director has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals, to be liable to the
corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court determines that in
view of all the circumstances, the person is fairly and reasonably
entitled to indemnity for such expenses and requires a corporation
to indemnify its officers and directors if they have been
successful on the merits or otherwise in defense of any claim,
issue, or matter resulting from their service as a director or
officer.
Section
78.751 of the NRS permits a Nevada company to indemnify its
officers and directors against expenses incurred by them in
defending a civil or criminal action, suit, or proceeding as they
are incurred and in advance of final disposition thereof, upon
determination by the stockholders, the disinterested board members,
or by independent legal counsel. If so provided in the
corporation’s articles of incorporation, bylaws, or other
agreement, Section 78.751 of the NRS requires a corporation to
advance expenses as incurred upon receipt of an undertaking by or
on behalf of the officer or director to repay the amount if it is
ultimately determined by a court of competent jurisdiction that
such officer or director is not entitled to be indemnified by the
company. Section 78.751 of the NRS further permits the company to
grant its directors and officers additional rights of
indemnification under its articles of incorporation, bylaws, or
other agreement.
Section
78.752 of the NRS provides that a Nevada company may purchase and
maintain insurance or make other financial arrangements on behalf
of any person who is or was a director, officer, employee, or agent
of the company, or is or was serving at the request of the company
as a director, officer, employee, or agent of another company,
partnership, joint venture, trust, or other enterprise, for any
liability asserted against him and liability and expenses incurred
by him in his capacity as a director, officer, employee, or agent,
or arising out of his status as such, whether or not the company
has the authority to indemnify him against such liability and
expenses.
Article
VI of our amended Bylaws provide for indemnification of our
directors, officers, and employees in most cases for any liability
suffered by them or arising out of their activities as directors,
officers, and employees if they were not engaged in willful
misfeasance or malfeasance in the performance of his or her duties;
provided that in the event of a settlement the indemnification will
apply only when the Board of Directors approves such settlement and
reimbursement as being for our best interests. Our Bylaws,
therefore, limit the liability of directors to the maximum extent
permitted by Nevada law (Section 78.751).
Our
officers and directors are accountable to us as fiduciaries, which
means they are required to exercise good faith and fairness in all
dealings affecting RumbleOn. In the event a stockholder believes
the officers or directors have violated their fiduciary duties, the
stockholder may, subject to applicable rules of civil procedure, be
able to bring a class action or derivative suit to enforce the
stockholder’s rights, including rights under certain federal
and state securities laws and regulations to recover damages from
and require an accounting by management. Stockholders who have
suffered losses in connection with the purchase or sale of their
interest in RumbleOn in connection with such sale or purchase,
including the misapplication by any such officer or director of
proceeds from a sale of securities may be able to recover such
losses from us.
At
present, there is no pending litigation or proceeding involving any
of our directors or officers in which indemnification or
advancement is sought. We are not aware of any threatened
litigation that may result in claims for advancement or
indemnification.
We have
been advised that in the opinion of the SEC, insofar as
indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and other persons
pursuant to the foregoing provisions, or otherwise, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event a claim
for indemnification against such liabilities (other than payment of
expenses incurred or paid by a director or officer in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or other person in connection with the
securities being registered, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification is against public policy as expressed
in the Securities Act and will be governed by the final
adjudication of such issue.
Item
15.
Recent Sales of Unregistered Securities
On July
13, 2016, Berrard Holdings acquired 5,475,000 shares of our common
stock from our former sole director and executive officer. The
shares acquired by Berrard Holdings represented 99.5% of our issued
and outstanding common stock. The aggregate purchase price for the
shares was $148,141.75, which Berrard Holdings paid from cash on
hand. In addition, at the closing, Berrard Holdings loaned us, and
we executed and issued to Berrard Holdings the BHLP
Note, pursuant to which we were required to repay $191,858 on
or before July 13, 2026 plus interest at 6% per annum. The BHLP
Note was convertible into common stock at any time before maturity
at the greater of $0.06 per share or 50% of the price per share of
the next “qualified financing,” which was defined as an
offering resulting in net proceeds to us of $500,000 or greater.
Effective August 31, 2016, the principal amount of the BHLP Note
was amended to include an additional $5,500 loaned to us. On
November 28, 2016, we completed a qualified financing at $1.50 per
share, which established the conversion price per share for the
BHLP Note of $0.75 per share. On March 31, 2017, we issued
275,312 shares of common stock upon conversion of the BHLP Note,
which on such date had an aggregate principal amount, including
accrued interest, of $206,484.
On
November 28, 2016, we completed the 2016 Private Placement of an
aggregate of 900,000 shares of common stock at a purchase price of
$1.50 per share for total consideration of $1,350,000. In
connection with the 2016 Private Placement, we also entered into
loan agreements with the investors pursuant to which the investors
would loan us their pro rata share of up to $1,350,000 in the
aggregate upon our request at any time on or after January 31, 2017
and before November 1, 2020, pursuant to the terms of a
convertible promissory note attached to the loan agreements. On
March 31, 2017, we completed funding of the second tranche of the
2016 Private Placement, pursuant to which the investors each
received their pro rata share of (1) 1,161,920 shares of common
stock and (2) the Private Placement Note in the aggregate principal
amount of $667,000, in consideration of cancellation of loan
agreements. The Private Placement Note was not
convertible.
On
January 9, 2017, we approved the Certificate of Amendment to change
our name from Smart Server, Inc. to RumbleOn, Inc. and to create an
additional class of common stock. Pursuant to the Certificate of
Amendment, we designated 1,000,000 shares of authorized common
stock as Class A Common Stock, which ranks pari passu with all of
the rights and privileges of the common stock, except that holders
of Class A Common Stock are entitled to 10 votes per share issued
and outstanding and (ii) all other shares of common stock,
including all then currently outstanding shares of common stock
would be deemed Class B Common Stock, which will be identical to
the Class A Common Stock in all respects, except that holders of
Class B Common Stock will be entitled to one vote per share issued
and outstanding. On February 13, 2017, we filed the Certificate of
Amendment with the Secretary of State of the State of Nevada. Also
on that date, we issued an aggregate of 1,000,000 shares of Class A
Common Stock to Messrs. Chesrown and Berrard in exchange for an
aggregate of 1,000,000 shares of Class B Common Stock held by
them.
On
February 8, 2017, we and NextGen Pro completed the NextGen
Acquisition in exchange for consideration including the issuance of
1,523,809 shares of our Class B Common Stock.
On
March 31, 2017, we completed the 2017 Private Placement of
620,000 shares of our Class B Common Stock at a price of $4.00 per
share for aggregate proceeds of $2.48 million. We sold an
additional 37,500
shares in connection with the 2017
Private Placement on April 30, 2017.
The
following directors and officers of RumbleOn participated in the
2017 Private Placement:
|
Name
|
|
Position
|
|
Shares
|
|
|
Purchase
Price
|
|
Marshall
Chesrown
|
|
Chairman
and CEO
|
|
62,500
|
|
$
|
250,000
|
|
Steven
Berrard
(1)
|
|
Director
and CFO
|
|
62,500
|
|
|
250,000
|
|
Mitch
Pierce
|
|
Director
|
|
37,500
|
|
|
150,000
|
|
Kevin
Westfall
|
|
Director
|
|
12,500
|
|
|
50,000
|
|
Total
|
|
|
|
175,000
|
|
$
|
700,000
|
|
(1) Through
Berrard Holdings.
|
|
|
|
|
|
|
|
Effective September
5, 2017, we completed a Bridge Note financing, which included
certain of our executive officers and directors, in the aggregate
principal amount of $1,650,000, which includes an aggregate
original issue discount of $150,000. The proceeds to us from the
Bridge Notes, net of the original issuance discount, were
$1,500,000.
The following executive officers and
directors participated in the Bridge Note financing in the
principal amounts set forth below:
|
Name
|
|
Position
|
|
Principal Amount
|
Original Issue Discount
|
|
Steven
R. Berrard (1)
|
|
CFO
and Director
|
|
$
275,000
|
$
25,000
|
|
Denmar
Dixon (2)
|
|
Director
|
|
$
275,000
|
$
25,000
|
|
Kartik
Kakarla
|
|
Director
|
|
$
137,500
|
$
12,500
|
|
Mitch
Pierce (3)
|
|
Director
|
|
$
275,000
|
$
25,000
|
(1) Through Berrard
Holdings and through his wife.
(2) Through Blue
Flame Capital, LLC.
(3) Through Pierce
Family Trust.
None of
the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering. We believe the
offer, sale, and issuance of the shares in each of the transactions
described above was exempt from registration under the Securities
Act by virtue of Section 4(a)(2) of the Securities Act and
Regulation D thereunder as an issuance of securities not involving
a public offering, except for (1) the conversion of the BHLP
Note and (2) the Class A Exchange, which transactions were
exempt from registration by virtue of Section 3(a)(9) of the
Securities Act as a security exchanged by an issuer with existing
security holders where no commission or other remuneration is paid
or given directly or indirectly for soliciting such
exchange.
Item
16.
Exhibits
and Financial Statement Schedules
The
exhibits listed on the Index to Exhibits of this Registration
Statement are filed herewith or are incorporated herein by
reference to other filings.
(a)
Exhibits
|
Exhibit Number
|
|
Exhibit Description
|
|
|
|
|
|
|
Form of
Underwriting Agreement.*
|
|
|
|
Asset
Purchase Agreement, dated as of January 8, 2017 (Incorporated by
reference to Exhibit 2.1 in the Company's Current Report on Form
8-K, filed on January 9, 2017).
|
|
|
|
Assignment
of APA, dated as of January 31, 2017 (Incorporated by reference to
Exhibit 2.2 in the Company's Annual Report on Form 10-K, filed on
February 14, 2017).
|
|
|
|
Articles
of Incorporation filed on October 24, 2013 (Incorporated by
reference to Exhibit 3(i)(a) in the Company's Registration
Statement on Form S-1/A, filed on March 20, 2014).
|
|
|
|
By-Laws,
as Amended (Incorporated by reference to Exhibit 3.2 in the
Company's Annual Report on Form 10-K, filed on February 14,
2017).
|
|
|
|
Certificate
of Amendment to Articles of Incorporation, filed on February 13,
2017 (Incorporated by reference to Exhibit 2.2 in the Company's
Annual Report on Form 10-K, filed on February 14,
2017).
|
|
|
|
Amended
and Restated Stockholders Agreement, dated February 8, 2017
(Incorporated by reference to Exhibit 10.1 in the Company's Annual
Report on Form 10-K, filed on February 14, 2017).
|
|
|
|
Registration
Rights Agreement, dated February 8, 2017 (Incorporated by reference
to Exhibit 10.2 in the Company's Annual Report on Form 10-K, filed
on February 14, 2017).
|
|
|
|
Stockholder's
Agreement, dated October 24, 2016 (Incorporated by reference to
Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on
October 28, 2016).
|
|
|
|
Sample
Stock Certificate – Class B Common Stock
|
|
|
4.5
|
|
Form of
representatives' warrants to purchase shares of Class B Common
Stock (contained in Exhibit 1.1).*
|
|
|
Opinion
of Akerman LLP. *
|
|
|
|
Consulting
Agreement, dated February 8, 2017 (Incorporated by reference to
Exhibit 10.3 in the Company's Annual Report on Form 10-K, filed on
February 14, 2017).
|
|
|
|
Services
Agreement, dated February 8, 2017(Portions of this Exhibit have
been omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for Confidential treatment)
(Incorporated by reference to Exhibit 10.4 in the Company's Annual
Report on Form 10-K, filed on February 14, 2017).
|
|
|
|
Data
Confidentiality Agreement, dated February 8, 2017 (Portions of this
Exhibit have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment.) (Incorporated by reference to Exhibit 10.5 in the
Company's Annual Report on Form 10-K, filed on February 14,
2017).
|
|
|
|
2017
RumbleOn, Inc. Stock Incentive Plan + (Incorporated by reference to
Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on
January 9, 2017).
|
|
|
|
Form of
Loan Agreement (Incorporated by reference to Exhibit 10.1 in the
Company's Current Report on Form 8-K, filed on December 21,
2016).
|
|
|
|
Smart
Server, Inc. Form of Promissory Note (Incorporated by reference to
Exhibit 10.2 in the Company's Current Report on Form 8-K, filed on
December 21, 2016).
|
|
|
|
Promissory
Note, dated July 13, 2016 (Incorporated by reference to Exhibit
10.1 in the Company's Current Report on Form 8-K, filed on July 19,
2016).
|
|
|
|
Amendment
to Promissory Note, dated August 31, 2016 (Incorporated by
reference to Exhibit 10.1 in the Company's Annual Report on Form
10-K, filed on February 14, 2017).
|
|
|
|
Unconditional
Guaranty Agreement (Incorporated by reference to Exhibit 10.12 in
the Company's Annual Report on Form 10-K, filed on February 14,
2017).
|
|
|
|
Security
Agreement (Incorporated by reference to Exhibit 10.13 the Company's
Annual Report on Form 10-K, filed on February 14,
2017).
|
|
|
NextGen
Promissory Note, dated February 8, 2017 (Incorporated by reference
to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q,
filed on May 15, 2017).
|
|
|
|
RumbleOn,
Inc. Form of Promissory Note (Incorporated by reference to Exhibit
10.1 in the Company's Current Report on Form 8-K, filed on April 5,
2017).
|
|
|
|
Letter
from Seale and Beers, CPAs (Incorporated by reference to Exhibit
16.1 in the Company's Current Report on Form 8-K, filed on December
21, 2016).
|
|
|
|
Subsidiaries.*
*
|
|
|
|
Consent
of Scharf Pera & Co., PLLC *
|
|
|
|
Consent
of Scharf Pera & Co., PLLC*
|
|
|
23.3
|
|
Consent
of Akerman LLP (included with Exhibit 5.1) *
|
|
24.1
|
|
Power
of Attorney **
|
|
101.INS
|
|
XBRL
Instance Document. *
|
|
101.SCG
|
|
XBRL
Taxonomy Extension Schema. *
|
|
101.CAL
|
|
XBRL
Taxonomy Calculation Linkbase. *
|
|
101.DEF
|
|
XBRL
Taxonomy Definition Linkbase. *
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase. *
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase. *
|
|
|
|
|
| * |
|
Filed
herewith
|
|
**
|
|
Previously filed
|
|
+
|
|
Management
Compensatory Plan
|
(b)
Financial
Statement Schedules
1.
The financial
statements beginning on page F-1 and pro forma Financial
information beginning on page PF-1 are part of this registration
statement.
2.
Financial statement
schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
The
undersigned registrant hereby undertakes:
(1)
That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(2
)
To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the
offering.
(3)
For determining liability of the undersigned
registrant under the Securities Act to any purchaser in the initial
distribution of the securities, the undersigned undertakes that in
a primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell such securities to such purchaser:
(i)
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
(ii)
Any
free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii)
The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv)
Any other communication that is an
offer in the offering made by the undersigned registrant to the
purchaser.
(4)
The
undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of
the registrant’s annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan’s annual
report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5)
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In
the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
(6)
For
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time
it was declared effective.
For
the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(7)
Each
prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included
in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that
it meets all the requirements for filing on Form S-1 and that it
has duly caused this Registration Statement to be filed on behalf
of the undersigned, thereunto authorized, in the City of Charlotte,
state of North Carolina, on the
27th
day of September,
2017.
|
|
RUMBLEON, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Marshall Chesrown
|
|
|
|
|
Marshall
Chesrown
|
|
|
|
|
Chief
Executive Officer and Chairman
|
|
Pursuant to the
requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons, in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Marshall Chesrown
|
|
Chief
Executive Officer and Chairman
(Principal
Executive Officer)
|
|
September
27, 2017
|
|
Marshall
Chesrown
|
|
|
|
|
|
/s/
Steven R. Berrard
|
|
Chief
Financial Officer and Director
(Principal
Financial Officer and
Principal
Accounting Officer)
|
|
September
27, 2017
|
|
Steven
R. Berrard
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
September
27, 2017
|
|
Denmar
Dixon
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
September
27, 2017
|
|
Kartik
Kakarala
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
September
27, 2017
|
|
Mitch
Pierce
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
September
27, 2017
|
|
Kevin
Westfall
|
|
|
|
|
|
* By:
|
/s/ Steven R.
Berrard
|
|
|
|
|
|
|
Steven R.
Berrard
|
|
|
|
|
|
|
Attorney
In-Fact
|
|
|
|
|
II-7
