Overview
RumbleOn,
Inc., a Nevada corporation,
is a technology driven, motor vehicle dealer and e-commerce
platform provider disrupting the vehicle supply chain using
innovative technology that aggregates, processes and distributes
inventory in a faster and more cost-efficient manner.
We
operate an infrastructure-light platform that facilitates the
ability of all participants in the supply chain, including
RumbleOn, other dealers and consumers to
Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to
transform the way VIN-specific pre-owned vehicles are bought and
sold by providing users with the most comprehensive, efficient,
timely and transparent transaction experiences. While our initial
customer facing emphasis through most of 2018 was on motorcycles
and other powersports, in 2019 we enhanced our platform to
accommodate nearly any VIN-specific vehicle, and via our October
2018 acquisition of Wholesale, Inc., we made a concerted effort to
grow our cars and light truck categories.
In this
Annual Report on Form 10-K (this "Form 10-K"), we refer to RumbleOn, Inc., as
"RumbleOn," "RMBL,"
the "Company," "we,"
"us," and "our,"
and similar words. All share amounts included in this Form 10-K
have been adjusted for the one-for-twenty reverse stock split of
our Class A Common Stock and Class B Common Stock, effective May
20, 2020.
Our Model
RumbleOn's goal is
to disrupt the inefficient, friction-laden pre-owned vehicle supply
chain through the use of innovative technology. We have created a
modern, technology-based platform to acquire and distribute
inventory transparently and efficiently at value-oriented prices.
We intend to leverage this platform to maximize the overall profit
and return on vehicles that RumbleOn buys/sells for its own
account, as well to provide both dealers and consumers
technology-based tools, financing and logistics-based solutions to
simplify their business or aid them through the complex process of
buying/selling a vehicle.
Our
model is anchored on powerful technology that enables RumbleOn to
efficiently acquire, process (including reconditioning, photos and
inspection), market and distribute vehicles to dealers and
consumers. Collectively, this allows us to maximize inventory value
and reduce inventory risk as we effect the entire vehicle supply
chain in a faster and more cost-efficient manner. There are two
critical inputs that are key to understanding how we do this: 1)
our innovative technology and 2) our inventory
management.
Innovative Technology
Technology
underpins everything at RumbleOn. If you want to disrupt an
industry, you have to have answer two fundamental
questions:
1)
What can we do to
eliminate existing customer pain points?
2)
How do we remove
friction from a marketplace?
We
leverage technology to drive change in an industry that is as old
as the automobile or motorcycle itself. At a high-level, we believe
there are two main areas where leveraging these innovations
provides us a competitive advantage and eliminates existing
customer pain points and removes friction from a marketplace
– 1) our proprietary supply chain and distribution software
and 2) and our mobile-first web application strategy.
We
utilize internally developed software and real time API's to look
at the overall supply chain and reconfigure inventory for the
purpose of acquisition and distribution. Our technology aggregates
multiple data sources in real-time, tracking and cataloging
inventory across the country.
We
analyze real-time market data to inform our acquisition decisions,
continually capturing and archiving such data using advanced
algorithms, to calibrate pricing and estimate freight and
reconditioning expenses. The values are then used in our Cash Offer
tool to quickly determine a fair and reasonable, non-negotiable
offer.
Lastly,
we continue to enhance our website and mobile application to
provide not only a compelling user experience, from the front-end
user interface and powerful search tools to enabling secure data,
document and payment exchanges between parties, but also to help
optimize search engine marketing and lower overall cost of customer
acquisition. For example, the RumbleOn app has features such as
auto-populating details into the Cash Offer tool when a customer
scans their VIN, we introduced simplified uploading of vehicle
photos by app users, we integrate technologies to try and block
inappropriate content on our Classifieds site, and we are creating
fun social experiences like our Road Trip Planner and successful
blog campaigns.
Inventory Management
We
believe our ability to access and acquire inventory efficiently and
cost effectively, from both consumers and dealers, is a key
differentiator for RumbleOn. Using pre-owned retail and wholesale
vehicle market data obtained from a variety of internal and
external data sources, we evaluate a significant number of vehicles
daily across both online and traditional auction/dealer-based
channels to determine their fit with end-buyer demand, internal
profitability targets and our existing inventory needs by make,
model, condition and price point.
The
supply of pre-owned 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 pre-owned vehicles; the
number of pre-owned vehicles sold or remarketed through our
consumer and dealer channels; model-year changes; fleet turnover;
seasonality; natural disasters; and economic
downturns.
As
such, we are very focused on nimbly managing our overall inventory,
and strive to maintain our current average days to sale under 30
days. We believe this not only minimizes potential impacts on
profits from the items described above but also provides us
significant competitive benefits; namely: i) we have flexibility to
adjust our inventory in response to unforeseen market dynamics
– such as adverse weather conditions, including tornadoes and
hurricanes, or other events or conditions that impact purchasing
decisions, including disruptions in the domestic and global economy
due to the COVID-19 pandemic (discussed below); and ii) we can make
swift decisions to capitalize on market anomalies or leverage
arbitrage opportunities that may benefit our volume and margins in
a more consistent fashion.
To
support our emphasis on inventory management and reduction of
capital investment needs, we leverage a robust partner network that
manages the reconditioning, inspections and distribution of our
inventory. Our current regional partners are located in the cities
below:
Cincinnati, OH; Dallas, TX; Las Vegas, NV;
Atlanta,
GA; Statesville, NC; Philadelphia, PA; Nashville, TN;
Orlando,
FL; San Diego, CA; San Francisco, CA;
West
Palm Beach, FL
Every
unit of inventory we acquire is posted immediately to both our
website and Dealer Direct virtual inventory tool, as well as sent
to one of our regional partners who then uploads photos, prepares
detailed inspection reports, reconditions the vehicle to a dealer's
expectation and sets the vehicle for live auction sale in the near
future. If the vehicle is sold to a consumer, it is reconditioned
to the appropriate level for the buyer, which reduces unnecessary
reconditioning costs and enables us to protect our margin when
selling directly to a dealer who might prefer to manage or perform
much of the reconditioning to their standards. More importantly, we
are able to quickly establish new regional partners as needed to
reduce our cost of sales and freight expense while creating more
capacity for over-all sales growth. Currently, there are hundreds
of potential expansion locations that welcome the opportunity for
their business. These are owned by the likes of Cox Automotive
(Manheim); Copart (National Powersports Auctions); KARS (Adesa
auctions) just to name a few.
Competitive Positioning
We
believe we are disrupting a massive opportunity in the market and
unlike others, we are using this data-powered technology to serve
consumers, dealers and service providers across the entire supply
chain. Our comprehensive offering includes the
following:
Dealers
|
|
Consumers
|
|
Other
|
Dealer
to Consumer Sales
|
|
Consumer
to Consumer Sales
|
|
Lender
Listing Site
|
Dealer
to Dealer Sales
|
|
Online
Cash Offers from RumbleOn
|
|
Dealer
Listing Site
|
Online
Cash Offers from RumbleOn
|
|
Classifieds
(including transaction support)
|
|
Data
Aggregation
|
Inventory
Management
|
|
Finance
a Purchase
|
|
Auction
Locations
|
Dealer
Branded Cash Offers
|
|
Warranty
Products
|
|
Transport
Providers
|
Dealer
Listing Site
|
|
Inspection
Services
|
|
Inspection
Services
|
Logistics
Support
|
|
Logistics
Support
|
|
Peer-to-Peer
Payment
|
Presently we are
buying and selling our entire inventory and delivering the same
customer experience across our websites – rumbleon.com,
RumbleOn Dealer Direct and
other URL's also represented as
powered by RumbleOn - providing us with a strategic
advantage of having vertical brands. These solutions exist as
separate websites and each fills a gap in the legacy buying and
selling experience while taking advantage of vertical search of the
same inventory across multiple consumer and dealer
channels.
RumbleOn.com is our primary national
online consumer facing platform. Consumers can currently get a real
Cash Offer for their vehicle as well as purchase vehicles through
this website. Customers can pay for their vehicle using cash or
they may select from a range of finance options from unrelated
third parties such as banks or credit unions, as well as RumbleOn
Finance, our own financing platform. Additionally, customers have
the option to protect their vehicle with Extended Protection Plans
("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 as well as other traditional protection
products.
RumbleOn Dealer Direct is currently
being used by multiple dealers which allows them to leverage the
RumbleOn inventory as a virtual inventory of their own at wholesale
prices without having to wait for auction day.
Wholesale Inc. and AutoSport, Powered by
RumbleOn (as well as any
other sub-brands we may utilize) – The significant local brand
awareness these parallel sites provide allows us to take advantage
of existing organic search benefits and customer goodwill by
creating a locally branded website with most of the same
functionality as RumbleOn.com.
RumbleOn Classifieds was launched in
December 2018 and is a one-stop free listing site for consumers who
wish to pursue peer-to-peer transactions, similar to Craigslist.
Consumers list the vehicle at the price they wish. RumbleOn then
offers both buyers and sellers a suite of option tools to
facilitate the transaction process, including assistance with
titles, documentation, third-party inspection, financing,
funds-transfer, and logistics. Classifieds allows us to not only
buy more inventory from unsuccessful listings, but more importantly
provide consumers who were unwilling to accept the RumbleOn Cash
Offer price an opportunity to stay in the RumbleOn
network.
RumbleOn Finance is our wholly owned
consumer finance entity that provides vehicle buyers competitive
borrowing alternatives fully underwritten internally. During the
second half of 2019, RumbleOn Finance began originating finance
transactions on powersports.
Our Market / Competition
We
participate in both the automotive and powersports
markets.
Automotive
The
U.S. used car marketplace is highly fragmented, and we face
competition from franchised dealers, who sell both new and used
vehicles; independent used car dealers; online and mobile sales
platforms; and private parties. There are approximately 18,000
franchised automotive dealerships, which sell both new and used
vehicles, as well as approximately 43,000 used car independents in
the U.S. according to NADA and Borrell Associates' 2017 Outlook,
respectively. Moreover, the top 100 car retailers control
approximately 8.6% of the used car market share in 2018 according
to AutomotiveNews.
Collectively, there
were approximately 273 million registered vehicles in operation in
2018. Additionally, in 2019 automakers sold approximately 17
million new cars and approximately 41 million used cars were sold,
many of which were accompanied by trade-ins. Lastly, the National
Auto Auction Association and Cox Automotive estimate there are more
than 16 million vehicles annual sold through wholesale channels,
with approximately 9.6 million sold through auctions , the vast
majority of which are run through the two largest auction
participants, Manheim and Adesa, 4.9 million dealer-to-dealer and
2.1 direct to consumer or offsite/online.
Based
on the large number of new and used vehicles being sold each year,
coupled with the relatively small market share of any single used
car seller, we believe that both sources of used vehicles, and our
ability to sell them, will continue to be sufficient to meet our
current and future needs.
Powersports
We
currently operate in the powersports and recreational vehicle
market with significant scale and breadth of products. The
Motorcycle Industry Council estimates that in 2018, 10.1 million
U.S. households owned the 12.2 million motorcycles. Of these, 87%
of these were on-highway models, our initial targeted segment.
According to the Powersports Business 2016 Market Data Book, or the
2020 Market Data book, pre-owned motorcycle registrations were 1.1
million units in 2015 with new unit sales of approximately 281,000.
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.
Additionally, the dealer market is fragmented with an estimated
10,000 outlets authorized to sell powersports and recreation
vehicles that include new and pre-owned motorcycles, scooter, and
all-terrain vehicles.
Our
initial focus was on pre-owned Harley-Davidson motorcycles as it
provided a targeted, identifiable segment to establish the
functionality of the platform and the RumbleOn brand.
Harley-Davidson is a highly regarded and dominant brand in the
motorcycle market, (representing approximately 50% market share of
new 601cc+ on-road motorcycles according to both Harley-Davidson
public filings and the Motorcycle Industry Council) and there were
approximately 3.1 million Harley Davidson riders in 2019, up
approximately 55,00 from the prior year per the IHS Markit
Motorcycles in Operations data. As our business has evolved we have
expanded into other powersports and recreational vehicle with a
strong emphasis on the "metric" brands of motorcycles (Honda, Yamaha,
Kawasaki, Suzuki, etc.), which essentially doubled 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 mirror that of the Harley-Davidson market
although it is more highly fragmented and the average pre-owned
vehicle selling price is less than a pre-owned Harley Davidson. In
addition, many of the metric dealers also retail other powersport
vehicles including ATVs, UTVs, snowmobiles and personal watercraft
providing RumbleOn an opportunity for product extensions by
leveraging existing regional partner relationships.
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 estimates from Polaris,
approximately 770,000 ATV/UTV/side-by-sides and 100,000 snowmobiles
sold in North America in 2018, and there are estimated to be
approximately 1.2 million snowmobiles registered in the United
States with another 600,000 in Canada. Lastly, according the
National Marine Manufacturers Association and the Personal
Watercraft Industry Association, in 2016 there were more than
59,000 new PWCs sold in the United States and there are currently
more than 1.1 million PWCs registered in the United
States.
The
United States pre-owned powersports and recreational vehicle
marketplace is highly fragmented, and we face competition from
franchised dealers, who sell both new and pre-owned 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 pre-owned vehicle retailing includes our
ability to provide a high degree of customer satisfaction with the
buying experience by virtue of our low, no-haggle prices and our
100% online marketplace platform including our website and mobile
application and our ability to make a cash offer to purchase a
vehicle 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 make a cash
offer to 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 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.
The
supply of pre-owned vehicles, including automobiles, light trucks
and powersports, 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 pre-owned vehicles; and the number of
pre-owned vehicles sold or remarketed through our consumer and
dealer channels. Based on the large number of new and used vehicles
being sold each year, coupled with the relatively small market
share of any single used car seller, we believe that both sources
of used vehicles, and our ability to sell them, will continue to be
sufficient to meet our current and future needs.
Seasonality
Historically, both
the automotive and powersport industries have been seasonal with
traffic and sales strongest in the spring and summer quarters.
Sales and traffic are typically slowest in the winter quarter but
increase typically in February and March, coinciding with tax
refunds and improved weather conditions. Given this seasonality,
coupled with the fact that we are a growing company, leads
us to expect our quarterly results of operations, including our
revenue, gross profit, profit/loss, and cash flow to vary
significantly in the future, based in part on vehicle buying
patterns. Over time, we expect to normalize to seasonal trends in
both markets, with the corresponding impact that may result from
the overall economic conditions.
Nashville Tornado
In the
early morning hours of March 3, 2020, a severe tornado struck the
greater Nashville area causing significant damage to our facilities
in Nashville. We maintain insurance coverage for damage to our
facilities and inventory, as well as business interruption
insurance. We continue in the process of reviewing damages and
coverages with our insurance carriers. The loss comprises three
components: (1) inventory loss, currently assessed by the insurance
carrier at approximately $13,000,000; (2) building and personal
property loss, primarily impacting our leased facilities, currently
assessed by the insurance carrier at $3,369,087; and (3) loss of
business income, for which we have coverage in the amount of
$6,000,000.
All
three components of our loss claim have been submitted to its
insurers. Our inventory claim is subject to a dispute with the
carrier as to the policy limits applicable to the loss. The
building insurer has agreed to pay $3,369,087 on the building and
personal property loss, reflecting a complete recovery, net of
$5,000 reflecting our deductible. The insurer has made an interim
payment on the building and personal property loss of $2,269,507
and has an outstanding balance of $1,094,580 which is expected to
be paid during the second quarter of 2020. The loss of business
income claim is ongoing and remains in the process of negotiation,
however, the insurer has advanced $250,000 against the final
settlement. We believe there will be a full recovery of all three
loss components, however no assurance can be given regarding the
amounts, if any, that will be ultimately recovered.
COVID-19 Pandemic
On
March 11, 2020, the World Health Organization declared the outbreak
of COVID-19 a global pandemic and recommended containment and
mitigation measures worldwide. The global outbreak of COVID-19 has
led to severe disruptions in general economic activities,
particularly retail operations, as businesses and federal, state,
and local governments take increasingly broad actions to mitigate
this public health crisis. We have experienced significant
disruption to our business, both in terms of disruption of our
operations and the adverse effect on overall economic conditions.
These conditions will significantly negatively impact all aspects
of our business. Our business is also dependent on the continued
health and productivity of our associates throughout this
crisis.
The
COVID-19 situation has created an unprecedented and challenging
time. Our current focus is on positioning the Company for a strong
recovery when this crisis is over. We have taken steps to reduce
our inventory and align our operating expenses to the state of the
business. We plan to continue to operate as permitted to support
our customers’ needs for reliable vehicles and to provide as
many jobs as possible for our associates. Effective April 9, 2020,
169 associates were temporarily laid-off effective, however our
receipt of PPP funds, as discussed below will allow us to gradually
recall these associates over time. All ongoing employment
determinations are subject to change due to the COVID-19 situation
future government mandates, as well as future business conditions.
We will continue to monitor the COVID-19 situation and look for
ways to preserve cash and reduce our operating expenses as we are
able, however, we expect the consequences of the COVID-19 outbreak
will likely have a significant negative impact on our business,
sales, results of operations, financial condition, and
liquidity.
Intellectual Property and Proprietary Rights
Our
brand image and intellectual property are an important element of
our business strategy. As of December 31, 2019, we
have a trademark registration for "RumbleOn", a patent covering near field
communications to store and retrieve vehicle information, and
various applications 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 pre-owned 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 new vehicle dealers or to the manner in which
automobiles, powersports and 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 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 pre-owned automobiles, powersports and recreational
vehicles. These state advertising laws and regulations may not be
uniform from state to state, sometimes imposing inconsistent
requirements on the advertiser. 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 ("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
pre-owned 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
anticompetitive 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. Further, investigations by government
agencies, including the FTC, into allegedly anticompetitive,
unfair, deceptive or other business practices by us, could cause us
to incur additional expenses and, if adversely concluded, could
result in substantial civil or criminal penalties and significant
legal liability.
Employees
As of
December 31, 2019, we had approximately 300
full time and 4 part time employees.
Corporate History
RumbleOn, Inc. was
originally incorporated in the State of Nevada in October 2013 as a
development stage company under the name Smart Server, Inc. In
July 2016, Berrard
Holdings Limited Partnership ("Berrard Holdings") acquired 273,750 shares of common stock
of the Company 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 the
Company's then issued and
outstanding shares of common stock. Steven Berrard, a director and
our Chief Financial Officer, has voting and dispositive control
over Berrard Holdings.
In
October 2016, Berrard
Holdings sold an aggregate of 165,625 shares of the
Company's common stock to
Marshall Chesrown, our Chairman of the Board and Chief
Executive Officer, and certain other purchasers. The 120,625 shares
acquired by Mr. Chesrown
represented 43.9% of the Company's then issued and outstanding shares of
common stock. The remaining shares owned by Berrard Holdings after
giving effect to the transaction represented 39.3% of the
Company's then issued and
outstanding shares of common stock.
On
January 8, 2017, the Company entered into an Asset Purchase
Agreement (the "NextGen
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") pursuant to which
NextGen agreed to sell to the Company substantially all of the
assets of NextGen in exchange for a payment of approximately
$750,000 in cash, the issuance to NextGen of 76,191 unregistered
shares of Company common stock (the "Purchaser Shares"), the issuance of a subordinated secured
promissory note issued by the Company in favor of NextGen in the
amount of $1,333,333 (the "Acquisition Note") and the assumption by the Company of
certain specified post-closing liabilities of NextGen under the
contracts being assigned to the Company as part of the transaction
(the "NextGen
Acquisition").
On
January 9, 2017, the Company's
Board of Directors (the "Board") and stockholders holding 318,750 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, 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
5,000,000 shares of common stock, $0.001 par value (the
"Authorized Common
Stock"), including 320,000
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 50,000 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 are 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 were
deemed Class B Common Stock (the "Class B Common Stock"), which Class B Common Stock are
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.
On
January 9, 2017, the Company's
Board and stockholders holding 318,750 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Mr. Chesrown of 43,750 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
6,250 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 and its wholly
owned subsidiary NextGen Pro, LLC ("NextGen Pro") completed the
NextGen Acquisition in exchange for approximately $750,000 in cash,
the Purchaser Shares, the Acquisition Note, and the other
consideration described above. The Acquisition Note was originally
set to mature on the third anniversary of the Closing Date (the
"Maturity Date"). Interest accrues and is paid
semi-annually originally (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. In January 2020, the Acquisition Note was
amended to extend the Maturity Date to January 31, 2021, modify the
interest rate to 10% annually and also provide the holder the
option to convert the Acquisition Note at any time at a price of
$3.00 per share of Class B Common Stock. The Company's obligations under the Acquisition Note
are secured by substantially all the assets of the NextGen Pro
pursuant to an Unconditional Guaranty Agreement (the "Guaranty Agreement"), by and among Halcyon and NextGen Pro,
and a related Security Agreement between the parties, each dated as
of the Closing Date, as amended in January 2020. Under the terms of
the Guaranty Agreement, NextGen Pro has agreed to guarantee the
performance of all of the Company's obligations under the Acquisition
Note.
On
October 26, 2018, we entered into an Agreement and Plan of Merger
(as amended, the "Merger Agreement") by and among the Company, the
Company's newly-formed acquisition subsidiary RMBL Tennessee, LLC,
a Delaware limited liability company ("Merger Sub"), Wholesale
Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale,
LLC, a Tennessee limited liability company ("Wholesale"), Steven
Brewster and Janelle Brewster (each a "Stockholder," and together
the "Stockholders"), Steven Brewster, a Tennessee resident, as the
representative of each Stockholder (the "Representative"), and
Marshall Chesrown and Steven Berrard, providing for the merger (the
"Wholesale Merger") of Holdings with and into Merger Sub, with
Merger Sub surviving the Wholesale Merger as a wholly-owned
subsidiary of the Company. On October 29, 2018, we entered into an
Amendment to the Merger Agreement making a technical correction to
the definition of "Parent Consideration Shares" contained in the
Merger Agreement.
Also,
on October 26, 2018, we entered into a Membership Interest Purchase
Agreement (the "Purchase Agreement"), by and among the Company,
Steven Brewster and Justin Becker (together the "Express Sellers"),
and Steven Brewster as representative of the Express Sellers,
pursuant to which we acquired all of the membership interests (the
"Express Acquisition") in Wholesale Express, LLC, a Tennessee
limited liability company ("Wholesale Express").
Wholesale Inc. is one of the largest independent
distributors of pre-owned vehicles in the United States and Wholesale
Express, LLC is a related logistics company. The Wholesale Merger
and the Express Acquisition were both completed on October 30, 2018
(the "Wholesale Closing Date"). As consideration for the Wholesale
Merger, we (i) paid cash consideration of $12,353,941, subject to
certain customary post-closing adjustments and (ii) issued to the
Stockholders 1,317,329 shares (the "Stock Consideration") of our
previously designated Series B Non-Voting Convertible Preferred
Stock, par value $0.001 (the "Series B Preferred"). As
consideration for the Express Acquisition, we paid cash
consideration of $4,000,000, subject to certain customary
post-closing adjustments. Net proceeds from a private placement
completed in October 2018 and $5,000,000 funded under our credit
facility were used to partially fund the cash consideration of the
Wholesale Merger and the Express Acquisition. Each share of Series
B Preferred automatically converted on a one-for-one basis into
shares of the Company's Class B Common Stock on March 4,
2019.
On February 3, 2019, the Company completed the
acquisition of all of the equity interests of Autosport USA, Inc.
("Autosport"), an independent
pre-owned vehicle distributor, pursuant to a Stock Purchase Agreement, dated
February 1, 2019 (the "Stock Purchase Agreement"), by and among
RMBL Express, LLC, a wholly owned subsidiary of Company, Scott
Bennie (the "Seller") and Autosport. Aggregate consideration for
the Acquisition consisted of (i) a closing cash payment of
$600,000, plus (ii) a fifteen-month $500,000 promissory note in
favor of the Seller, plus (iii)
a three-year $1,536,000 convertible promissory note in favor of the
Seller, plus (iv) contingent earn-out payments payable in the form
of cash and/or the Company's Class B Common Stock for up to an
additional $787,500 if Autosport achieves certain performance
thresholds. In connection with the Acquisition, the Company also
paid outstanding debt of Autosport of $235,000 and assumed
additional debt of $257,933 pursuant to a promissory note payable
to Seller. The fair value of the contingent earn-out payment was
considered immaterial at the date of acquisition and was excluded
from the purchase price allocation. As of December 31, 2019, there
have been no payments earned under the performance
thresholds.
Available Information
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 Securities
and Exchange Act of 1934, as amended (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. Additionally,
the SEC maintains a website located at www.sec.gov
that contains the information we file or furnish electronically
with the SEC.
Investing in our
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 Annual Report on Form 10-K, 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 common
stock. If any of the events or developments described below occur,
our business, financial condition, or results of operations could
be materially or adversely affected. As a result, the market price
of our 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
automotive, powersports and 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 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;
●
a shift in the mix
and type of vehicles we sell which could result in lower sales
price and lower gross profit;
●
weather, which may
impact the ability or desire for potential end customers to
consider whether they wish to own a powersports and recreational
vehicle;
●
the timing and cost
of, and level of investment in, development activities relating to
our software development and 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.
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 regional partner 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
regional partners;
●
introduce third
party ancillary products and services;
●
acquire sufficient
number of pre-owned vehicles at attractive cost; and
●
sell sufficient
number of pre-owned 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.
There is substantial doubt about our ability to continue as a going
concern.
Our
audited financial statements for the year ended December 31, 2019
were prepared under the assumption that we would continue our
operations as a going concern, which assumes the continuity of
operations, the realization of assets and the satisfaction of
liabilities as they come due in the normal course of
business. Our independent registered public accounting firm
for the year ended December 31, 2019 included a “going
concern” paragraph in its report on our financial statements
as of, and for the year ended December 31, 2019, indicating
that the Company has incurred recurring losses from operations and
negative cash flows from operations, and these conditions, along
with the uncertainty arising from the impact of COVID-19 and other
matters set forth in Note 1 to our audited financial statements,
raise substantial doubt about the Company’s ability to
continue as a going concern. If the Company is unable to
generate sufficient liquidity from the actions taken in respect of
the COVID-19 pandemic, current working capital, results of
operations, and expected continued inventory financing, there is no
assurance that sufficient financing will be available to us when
needed to allow us to continue as a going
concern.
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) the Company's
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 the Company to the
risk of increased interest rates; (c) the Company 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 the Company's 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.
We may fail to maintain our listing on The Nasdaq Stock
Market.
Our
Class B Common Stock is listed for trading on NASDAQ under the
trading symbol "RMBL" For our Class B Common Stock to continue to
be listed on NASDAQ, we must meet NASDAQ's continued listing
standards. A failure to meet these standards, including our failure
to meet the minimum bid price requirement, could result in our
Class B Common Stock being delisted, which could adversely affect
the market liquidity of our Class B Common Stock, impair the value
of your investment, and harm our business. We can provide no
assurance that we will continue to satisfy NASDAQ's continued
listing standards and maintain our listing on NASDAQ.
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 and advertising to increase the
visibility of this brand with potential users of our products and
services.
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 regional
partner 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 pre-owned 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 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 Internet search engines and social media such as
Google™, Bing™, and Facebook™ to drive traffic to our website.
For example, when a user searches the internet for a particular
type of powersports or recreational vehicle, we will rely on a high
organic search ranking of our webpages 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' Internet
search engine and social media efforts may result in their websites
receiving a higher search result page ranking than ours, or
Internet search engines could revise their methodologies in a way
that would adversely affect our search result rankings. If Internet
search engines or social media companies modify their search
algorithms or display technologies 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. Internet search
engine providers could provide 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 through Internet
search engines 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.
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 regional partners as well as adversely
affect the timeliness of such information and may impair our
ability to attract or retain consumers and our regional partners
and to timely invoice all parties.
We
expect to receive data from third-party data providers, including
our partner network, 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 collect a transaction fee from
those dealers and recognize revenue from the related
transactions.
From
time to time, we may experience interruptions in one or more data
feeds that we receive from third-party data providers, in a manner
that affects our ability to operate our business. These
interruptions may occur for a number of reasons, including changes
to the software used by these data feed providers and difficulties
in renewing our agreements with third-party data feed providers.
Additionally, when an interruption ceases, we may not always be
able to collect the appropriate fees and any such shortfall in
revenue could be material to our operating results.
If we are unable to provide a compelling 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 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 powersport and 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 our
network partners with applicable laws, regulations and the rules of
our platform.
If key industry participants, including powersports and recreation
vehicle dealers and regional auctions, 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 by existing vehicle dealers for dealer services we may provide
them. In addition, we utilize a select set of regional partners to
perform services for our benefit, including, among other things,
vehicle reconditioning, vehicle storage and vehicle photography. If
our relationships with our network of regional partners suffer harm
in a manner that leads to the departure of these regional partners
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 regional partners in our network or that we will not suffer
partner attrition in the future. We may also have disputes with
regional partners 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 regional partner concerns in the future. If we are unable
to create and maintain a compelling value proposition for regional
partners to become and remain in our network, our network will not
grow and may begin to decline. If a significant number of these
regional partners decided to leave our network or change their
financial or business relationship with us, then our business,
growth, operating results, financial condition and prospects could
suffer. Additionally, if we are unable to attract regional partners
to our network, our growth could be impaired.
The growth of our business relies significantly on our ability to
increase the number of regional partners in our network such that
we are able to increase the number of transactions between our
users and regional partners. Failure to do so would limit our
growth.
Our
ability to grow the number of regional partners in our network is
an important factor in growing our business. We may be viewed in a
negative light by vehicle dealers, and there can be no assurance
that we will be able to maintain or grow the number of regional
partners 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
recreation vehicle trade-ins, lead management, transaction
processing, financing, 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 portion of
our customers' vehicle purchases.
We rely
on third-party financing providers to finance a 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 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 powersports/recreation vehicles may be adversely
impacted by increased supply of and/or declining prices for
pre-owned vehicles and excess supply of new vehicles.
We
believe when prices for pre-owned vehicles have declined, it can
have the effect of reducing demand among retail purchasers for new
vehicles (at or near manufacturer's suggested retail prices). Further,
vehicle manufacturers can and do take actions that influence the
markets for new and pre-owned vehicles. For example, introduction
of new models with significantly different functionality,
technology or other customer satisfiers can result in increased
supply of pre-owned vehicles, and a corresponding decrease in price
of pre-owned vehicles. Also, while historically manufacturers have
taken steps designed to balance production volumes for new vehicles
with demand, those steps have not always proven effective. In other
instances, manufacturers have chosen to supply new vehicles to the
market in excess of demand at reduced prices which has the effect
of reducing demand for pre-owned vehicles.
We rely on a number of third parties to perform certain operating
and administrative functions for the Company.
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 third parties 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 vehicle buying services designed
to reach consumers and enable dealers to reach these consumers. We
will compete for a share of overall vehicle purchases as well as
vehicle dealer's marketing and
technology spend. To the extent that 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 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
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 regional auctions 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 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. We may not be able to compete
successfully against current or future competitors, and competitive
pressures may harm our revenue, business and financial
results.
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' vehicle buying
patterns. While different types of 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, powersport and recreation
vehicles represent a large percentage of our revenue. Historically,
the used vehicle industry has been seasonal with traffic and sales
strongest in the spring and summer quarters. Sales and traffic are
typically slowest in the fall quarter but increase in February and
March, coinciding with tax refund season. Our business will also be
impacted by cyclical trends affecting the overall economy, 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, dealers and
auctions. 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 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 various 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 operate in a highly regulated industry and are subject to a wide
range of federal, state and local laws and regulations. Failure to
comply with these laws and regulations could have a material
adverse effect on our business, results of operations and financial
condition.
We are
subject to a wide range of federal, state and local laws and
regulations. Our sale and purchase of pre-owned vehicles and
related activities, including the sale of complementary products
and services, are subject to state and local licensing
requirements, federal and state laws regulating advertising of
vehicles and related products and services, state laws related to
title and registration and state laws regulating the sale of
vehicles and related products and services. The applicability of
these regulatory and legal compliance obligations is dependent on
the evolving interpretations of these laws and regulations and how
our operations are, or are not, subject to them. The financing we
resell customers is subject to federal and state laws regulating
the provision of consumer finance. Our facilities and business
operations are subject to laws and regulations relating to
environmental protection and health and safety. In addition to
these laws and regulations that apply specifically to our business,
we are also subject to laws and regulations affecting public
companies, including securities laws and Nasdaq listing rules. The
violation of any of these laws or regulations could result in
administrative, civil or criminal penalties or in a
cease-and-desist order against our business operations, any of
which could damage our reputation and have a material adverse
effect on our business, sales and results of operations. We have
incurred and will continue to incur capital and operating expenses
and other costs to comply with these laws and
regulations.
We
currently provide transportation services and rely upon third-party
logistics and transportation providers to move vehicles between and
among customers, our distribution network partners and auction
partners; we and these transportation providers are subject to the
regulatory jurisdiction of the United States Department of
Transportation (the "DOT") and individual states through which our
vehicles travel, which have broad administrative powers with
respect to our logistics operations. Vehicle dimensions, driver
alcohol and drug testing and driver hours of service are also
subject to both federal and state regulation. More restrictive
limitations on vehicle weight and size, trailer length and
configuration, methods of measurement, driver qualifications or
driver hours of service would increase our costs, and if we are
unable to pass these cost increases on to our customers, our
operating expenses may increase and adversely affect our financial
condition, operating results and cash flows. If we or our providers
fail to comply with the DOT regulations or regulations become more
stringent, we could be subject to increased inspections, audits or
compliance burdens. Regulatory authorities could take remedial
action including imposing fines or shutting down our operations. If
any of these events occur, our financial condition, operating
results and cash flows would be adversely affected.
Our
sale of pre-owned vehicles, related products and services and
third-party finance products is subject to the state and local
licensing requirements of the jurisdictions in which we operate.
Regulators of jurisdictions where our customers reside but in which
we do not have a dealer or financing license could require that we
obtain a license or otherwise comply with various state
regulations. Despite our belief that we are not subject to the
licensing requirements of those jurisdictions, regulators may seek
to impose punitive fines for operating without a license or demand
we seek a license in those jurisdictions, any of which may inhibit
our ability to do business in those jurisdictions, increase our
operating expenses and adversely affect our financial condition and
results of operations.
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 evolving interpretations and
continuous change.
We provide transportation services and rely on external logistics
to transport vehicles. Thus, we are subject to business risks and
costs associated with the transportation industry. Many of these
risks and costs are out of our control, and any of them could have
a material adverse effect on our business, financial condition and
results of operations.
We
provide transportation services and rely on external logistics to
transport vehicles between and among customers or distribution
network providers, and auction partners. As a result, we are
exposed to risks associated with the transportation industry such
as weather, traffic patterns, gasoline prices, recalls affecting
our vehicle fleet, local and federal regulations, vehicular
crashes, insufficient internal capacity, rising prices of external
transportation vendors, fuel prices, taxes, license and
registration fees, insurance premiums, self-insurance levels,
difficulty in recruiting and retaining qualified drivers,
disruption of our technology systems, and increasing equipment and
operational costs. Our failure to successfully manage our logistics
and fulfillment process could cause a disruption in our inventory
supply chain and distribution, which may adversely affect our
operating results and financial condition.
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. 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 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 on 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.
The recent outbreak of COVID-19 will likely have a
significant negative impact on our business, sales, results of
operations, financial condition, and liquidity.
The
global outbreak of COVID-19 has led to severe disruptions in
general economic activities, particularly retail operations, as
businesses and federal, state, and local governments take
increasingly broad actions to mitigate this public health crisis.
We have experienced significant disruption to our business, both in
terms of disruption of our operations and the adverse effect on
overall economic conditions. These conditions will significantly
negatively impact all aspects of our business. Our business is also
dependent on the continued health and productivity of our
associates throughout this crisis. Individually and collectively,
we expect the consequences of the COVID-19 outbreak will likely
have a significant negative impact on our business, sales, results
of operations, financial condition, and liquidity.
Additionally, our
liquidity could be negatively impacted if these conditions continue
for a significant period of time and we may be required to pursue
additional sources of financing to obtain working capital, maintain
appropriate inventory levels, and meet our financial obligations.
Currently capital and credit markets have been disrupted by the
crisis and our ability to obtain any required financing is not
guaranteed and largely dependent upon evolving market conditions
and other factors.
The
extent to which the COVID-19 outbreak ultimately impacts our
business, sales, results of operations, financial condition, and
liquidity will depend on future developments, which are highly
uncertain and cannot be predicted, including the duration and
spread of the outbreak, its severity, the actions to contain the
virus or treat its impact, and how quickly and to what extent
normal economic and operating conditions can resume. Even after the
COVID-19 outbreak has subsided, we may continue to experience
significant impacts to our business as a result of its global
economic impact, including any economic downturn or recession that
has occurred or may occur in the future.
Risks Related to the Acquisitions (the "Acquisitions") of Wholesale
and Wholesale Express (collectively, the "Wholesale
Entities").
We may be unable to realize the anticipated synergies related to
the Acquisitions, which could have a material adverse effect on our
business, financial condition and results of
operations.
We
expect to realize significant synergies related to the
Acquisitions. We also expect to incur costs to achieve these
synergies. While we believe these synergies are achievable, our
ability to achieve such estimated synergies in the amounts and
timeframe expected is subject to various assumptions by our
management based on expectations that are subject to a number of
risks, which may or may not be realized, as well as the incurrence
of other costs in our operations that may offset all or a portion
of such synergies and other factors outside our control. As a
consequence, we may not be able to realize all of these synergies
within the time frame expected or at all, or the amounts of such
synergies could be significantly reduced. In addition, we may incur
additional and unexpected costs to realize these synergies. Failure
to achieve the expected synergies could significantly reduce the
expected benefits associated with the Acquisitions and adversely
affect our business.
We may be unable to successfully integrate the Wholesale Entities'
business and realize the anticipated benefits of the
Acquisitions.
As a
result of the Acquisitions, we are required to devote significant
management attention and resources to integrating the business and
operations of Wholesale. Potential difficulties we may encounter in
the integration process include the following:
●
the inability to
successfully combine our business and the businesses of Wholesale
in a manner that results in the anticipated benefits and synergies
of the Acquisitions not being realized in the time frame currently
anticipated or at all;
●
the loss of sales,
customers or business partners of ours or of the Wholesale
Entities' as a result of such parties deciding not to continue
business at the same or similar levels with us or the Wholesale
Entities after the Acquisitions;
●
challenges
associated with operating the combined business in markets and
geographies in which we do not currently operate;
●
difficulty
integrating our direct sales and distribution channels with the
Wholesale Entities' to effectively sell the vehicles of the
combined company;
●
the complexities
associated with managing our company and integrating personnel from
the Wholesale Entities, resulting in a significantly larger
combined company, while at the same time providing high quality
services to customers;
●
unanticipated
issues in coordinating accounting, information technology,
communications, administration and other systems;
●
difficulty
addressing possible differences in corporate culture and management
philosophies;
●
the failure to
retain key employees of ours or of the Wholesale
Entities;
●
potential unknown
liabilities and unforeseen increased expenses, delays or regulatory
conditions associated with the Acquisitions;
●
performance
shortfalls as a result of the diversion of management's attention
caused by consummating the Acquisitions and integrating the
Wholesale Entities' operations; and
●
managing the
increased debt levels incurred in connection with the
Acquisitions.
An
inability to realize the anticipated benefits and cost synergies of
the Acquisitions, as well as any delays encountered in the
integration process, could have a material adverse effect on the
operating results of the combined company, which may materially
adversely affect the value of our Class B Common
Stock.
In
addition, the actual integration may result in additional and
unforeseen expenses, and the anticipated benefit of our plan for
integration may not be realized. Actual synergies, if achieved at
all, may be lower than what we expect and may take longer to
achieve than anticipated. For example, the elimination of
duplicative costs may not be possible or may take longer than
anticipated, or the benefits from the Acquisitions may be offset by
costs incurred or delays in integrating the companies. If we are
not able to adequately address these challenges, we may be unable
to successfully integrate the Wholesale Entities' operations into
our own or, even if we are able to combine the business operations
successfully, to realize the anticipated benefits of the
integration of the companies.
Our business relationships, those of the Wholesale Entities or the
combined company may be subject to disruption due to uncertainty
associated with the Acquisitions.
Parties
with which we or the Wholesale Entities do business may experience
uncertainty associated with the Acquisitions, including with
respect to current or future business relationships with us, the
Wholesale Entities or the combined company. Our and the Wholesale
Entities' business relationships may be subject to disruption, as
customers, distributors, suppliers, vendors, and others may seek to
receive confirmation that their existing business relations with us
or the Wholesale Entities, as the case may be, will not be
adversely impacted as a result of the Acquisitions or attempt to
negotiate changes in existing business relationships or consider
entering into business relationships with parties other than us,
the Wholesale Entities, or the combined company as a result of the
Acquisitions. Any of these other disruptions could have a material
adverse effect on our or the Wholesale Entities' businesses,
financial condition, or results of operations or on the business,
financial condition or results of operations of the combined
company, and could also have an adverse effect on our ability to
realize the anticipated benefits of the Acquisitions.
If we are unable to maintain effective internal control over
financial reporting for the combined companies, we may fail to
prevent or detect material misstatements in our financial
statements, in which case investors may lose confidence in the
accuracy and completeness of our financial statements.
We may
encounter difficulties and unanticipated issues in combining our
respective accounting systems due to the complexity of the
financial reporting processes. We may also identify errors or
misstatements that could require adjustments. If we are unable to
implement and maintain effective internal control over financial
reporting, we may fail to prevent or detect material misstatements
in our financial statements, in which case investors may lose
confidence in the accuracy and completeness of our financial
reports and the market price of our securities may
decline.
The Wholesale Entities may have liabilities that are not known,
probable or estimable at this time.
As a
result of the Acquisitions, the Wholesale Entities are subsidiaries
of the Company and remain subject to their past, current and future
liabilities. There could be unasserted claims or assessments
against or affecting the Wholesale Entities, including the failure
to comply with applicable laws, regulations, orders and consent
decrees or infringement or misappropriation of third-party
intellectual property or other proprietary rights that we failed or
were unable to discover or identify in the course of performing our
due diligence investigation of the Wholesale Entities. In addition,
there are liabilities of the Wholesale Entities that are neither
probable nor estimable at this time that may become probable or
estimable in the future, including indemnification requests
received from customers of the Wholesale Entities relating to
claims of infringement or misappropriation of third party
intellectual property or other proprietary rights, tax liabilities
arising in connection with ongoing or future tax audits and
liabilities in connection with other past, current and future legal
claims and litigation. Any such liabilities, individually or in the
aggregate, could have a material adverse effect on our financial
results. We may learn additional information about the Wholesale
Entities that adversely affects us, such as unknown, unasserted, or
contingent liabilities and issues relating to compliance with
applicable laws or infringement or misappropriation of third-party
intellectual property or other proprietary rights.
As a result of the Acquisitions, we and the Wholesale Entities may
be unable to retain key employees.
Our
success after the Acquisitions depends in part upon our ability to
retain key employees of ours and the Wholesale Entities. Key
employees may depart because of a variety of reasons relating to
the Acquisitions. If we and the Wholesale Entities are unable to
retain key personnel who are critical to the successful integration
and future operations of the combined company, we could face
disruptions in our operations, loss of existing customers, loss of
key information, expertise or know-how, and unanticipated
additional recruitment and training costs. In addition, the loss of
key personnel could diminish the anticipated benefits of the
Acquisitions.
Risks Related to Ownership of our Common Stock
The trading price for our Class B Common Stock 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 NASDAQ Capital
Market under the trading symbol "RMBL,"
however historically there has been a limited public market for our
Class B Common Stock. 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 common
stock.
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:
●
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 the
Company's 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
approximately 32.46% in aggregate of our voting power, including
approximately 26.37% in aggregate
voting power held by Messrs. Chesrown and Berrard as the only
holders of our 50,000 outstanding shares of our Class A Common
Stock, which has 10 votes for each one share outstanding. As a
result, these stockholders have the ability to exert significant
control over matters requiring stockholder approval. For example,
these stockholders are able to exert significant control over
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.
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. 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.
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.
When
the trading price of our Class B Common Stock is $5.00 per share or
lower, it is 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 is $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.
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 do not intend to pay cash dividends in the foreseeable
future on the shares of common stock. We intend to reinvest any
earning in the development and expansion of our business. 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 subject to reduced reporting requirements so long as we are
considered a "smaller reporting company" and we cannot be certain
if the reduced disclosure requirements applicable to smaller
reporting companies will make our common stock less attractive to
investors.
We are
subject to reduced reporting requirements so long as we are
considered a "smaller reporting company." 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.
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.
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.
Risks Related to the Company's 6.75% Convertible Senior Notes due
2025 (the "Notes")
Although the Notes are referred to as convertible senior Notes, the
Notes are effectively subordinated to any of our future secured
debt and structurally subordinated to any liabilities of our
subsidiaries.
The
Notes rank senior in right of payment to any of our indebtedness
that is expressly subordinated in right of payment to the Notes,
equal in right of payment with all of our liabilities that is not
so subordinated, effectively junior in right of payment to any of
our secured indebtedness to the extent of the value of the assets
securing such indebtedness, and structurally junior to all
indebtedness and other liabilities (including trade payables) of
our current or future subsidiaries. In the event of our bankruptcy,
liquidation, reorganization, or other winding up, our assets that
secure debt ranking senior or equal in right of payment to the
Notes will be available to pay obligations on the Notes only after
the secured debt has been repaid in full from these assets, and the
assets of our subsidiaries will be available to pay obligations on
the Notes only after all claims senior to the Notes have been
repaid in full. There may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. The
indenture governing the Notes (the "Indenture") does not prohibit
us from incurring additional senior debt or any future secured
debt, nor does it prohibit any of our current or future
subsidiaries from incurring additional liabilities.
As of
December 31, 2019, excluding operating lease liabilities and the
derivative liability, our total consolidated net indebtedness was
approximately $82,585,522, of which an aggregate of $60,494,304 was
secured indebtedness, and approximately $59,160,970 of such secured
indebtedness is directly attributable to the Company's vehicles in
inventory or held for sale, and the security of those lenders
includes all of the vehicles financed by such lenders as well as
all of the assets of our subsidiaries Wholesale Inc. and AutoSport
USA, Inc. As of December 31, 2019, approximately $80,092,280 of our
total consolidated indebtedness was senior
indebtedness.
The Notes are our obligations only and a substantial portion of our
operations are conducted through, and a substantial portion of our
consolidated assets are held by, our subsidiaries.
The
Notes are our obligations exclusively. A substantial portion of our
operations is conducted through, and a substantial portion of our
consolidated assets is held by, our subsidiaries. Accordingly, our
ability to service our debt, including the Notes, depends, in part,
on the results of operations of our subsidiaries and on the ability
of such subsidiaries to provide us with cash, whether in the form
of dividends, loans, or otherwise, to pay amounts due on our
obligations, including the Notes. However, our subsidiaries are
separate and distinct legal entities, are not guaranteeing the
Notes, and have no obligation, contingent or otherwise, to make
payments on the Notes or to make any funds available for that
purpose. In addition, dividends, loans, or other distributions to
us from such subsidiaries may be subject to contractual and other
restrictions and are subject to other business considerations. Our
right to receive any assets of any of our subsidiaries on such
subsidiary's bankruptcy, liquidation, or reorganization, and,
therefore, the right of the holders of Notes to participate in
those assets, will be subject to prior claims of creditors of the
subsidiary, including trade creditors, and such subsidiary may not
have sufficient assets remaining to make any payments to us as a
shareholder or otherwise. We advise holders of Notes that there may
not be sufficient assets remaining to pay amounts due on any or all
the Notes then outstanding.
Operating our business requires a significant amount of cash, and
we may not have sufficient cash flow from our business to pay the
Notes and any other debt.
Our
ability to make payments of the principal of, to pay interest on,
or to refinance the Notes or other indebtedness depends on our
future performance, which is subject to economic, financial,
competitive, and other factors beyond our control. Our business may
not continue to generate cash flow from operations in the future
sufficient to service our debt and make necessary capital
expenditures. If we are unable to generate such cash flow, we may
be required to adopt one or more alternatives, such as selling
assets, restructuring debt, obtaining additional debt financing, or
issuing additional equity securities, any of which may be on terms
that are not favorable to us or, in the case of equity securities,
highly dilutive. Our ability to refinance the Notes or our other
indebtedness will depend on the capital markets, our business, and
our financial condition at such time. We may not be able to engage
in any of these activities or engage in these activities on
desirable terms, which could result in a default on our debt
obligations. In addition, our future debt agreements may contain
restrictive covenants that may prohibit us from adopting any of
these alternatives. Our failure to comply with any such covenants
could result in an event of default which, if not cured or waived,
could result in the acceleration of our debt.
Recent and future regulatory actions and other events may adversely
affect the trading price and liquidity of the Notes.
We
expect that many investors in, and potential purchasers of, the
Notes will employ, or seek to employ, a convertible arbitrage
strategy with respect to the Notes. Investors would typically
implement such a strategy by selling short the Class B Common Stock
underlying the Notes and dynamically adjusting their short position
while continuing to hold the Notes. Investors may also implement
this type of strategy by entering into swaps on our Class B Common
Stock in lieu of or in addition to short selling the Class B Common
Stock.
The SEC
and other regulatory and self-regulatory authorities have
implemented various rules and taken certain actions, and may in the
future adopt additional rules and take other actions, that may
impact those engaging in short selling activity involving equity
securities (including our Class B Common Stock) and securities
convertible into or exchangeable for equity securities. Such rules
and actions include Rule 201 of SEC Regulation SHO, the adoption by
the Financial Industry Regulatory Authority, Inc. and the national
securities exchanges of a "Limit Up-Limit Down" program, the
imposition of market-wide circuit breakers that halt trading of
securities for certain periods following specific market declines,
and the implementation of certain regulatory reforms required by
the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010. Any government or regulatory action that restricts the
ability of investors in or potential purchasers of the Notes to
effect short sales of our Class B Common Stock, borrow our Class B
Common Stock, or enter into swaps on our Class B Common Stock could
adversely affect the trading price and the liquidity of the
Notes.
The trading price for our Class B Common Stock may be volatile and
could be subject to wide fluctuations in per share price which
could adversely impact the trading price of the Notes.
Our
Class B Common Stock is listed for trading on The NASDAQ Capital
Market under the trading symbol "RMBL," however historically there
has been a limited public market for our Class B Common Stock. 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 common
stock.
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:
●
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.
A
decrease in the market price of our Class B Common Stock would
likely adversely impact the trading price of the Notes. The market
price of our Class B Common Stock could also be affected by
possible sales of our Class B Common Stock by investors who view
the Notes as a more attractive means of investing in us and by
hedging or arbitrage trading activity that we expect to develop
involving our Class B Common Stock. This trading activity could
adversely affect the trading price of the Notes.
We may incur substantially more debt in the future or take other
actions which would intensify the risks discussed in these risk
factors.
We and
our subsidiaries may be able to incur substantial additional debt
in the future (including secured debt), subject to the restrictions
contained in our debt instruments. We are not restricted under the
terms of the indenture governing the Notes from incurring
additional debt, securing existing or future debt, refinancing our
debt, repurchasing our stock, pledging our assets, making
investments, paying dividends, guaranteeing debt, or taking a
number of other actions that are not limited by the terms of the
indenture governing the Notes, any of which could have the effect
of diminishing our ability to make payments on the Notes when
due.
We may not have the ability to raise the funds necessary to settle
the Notes in cash on a conversion, to repurchase the Notes on a
fundamental change, or to repay the Notes at maturity. In addition,
the terms of our future debt may contain limitations on our ability
to pay cash on conversion or repurchase of the Notes.
Holders
of the Notes have the right to require us to repurchase all or a
portion of their Notes on the occurrence of a fundamental change at
a fundamental change repurchase price equal to 100% of the
principal amount of the Notes to be repurchased, plus accrued and unpaid interest,
if any, to, but excluding the fundamental change repurchase date,
as described in the Indenture. In addition, on conversion of the
Notes, unless we elect to deliver only shares of our Class B Common
Stock to settle such conversion (other than paying cash in lieu of
delivering any fractional share), we will be required to make cash
payments in respect of the Notes being converted. Moreover, we are
required to repay the Notes in cash at their maturity unless
earlier converted or repurchased. Our ability to meet our
obligations to holders of the Notes depends on our operating
results and cash flow. However, we may not have enough available
funds on hand or be able to obtain financing at the time we are
required to make payments with respect to Notes at maturity, on
surrender for repurchase, or on conversion.
In
addition, our ability to repurchase the Notes or to pay cash on
conversions of the Notes may be limited by law, regulations, or
agreements governing our future indebtedness. Our failure to
repurchase Notes at a time when the repurchase is required by the
indenture governing the Notes or to pay any cash payable on future
conversions of the Notes or at maturity as required by such
indenture would constitute a default under such indenture. A
default under such indenture or the fundamental change itself could
also lead to a default under agreements governing our future
indebtedness. If the repayment of the related indebtedness were to
be accelerated after any applicable notice or grace periods, we may
not have sufficient funds to repay the indebtedness and repurchase
the Notes or make cash payments on conversions of the Notes, if
settled in cash.
Redemption may adversely affect the return on the
Notes.
We may
not redeem the Notes prior to January 14, 2023. We may redeem for
cash all or any portion of the Notes, at our option, on or after
January 14, 2023 if the last reported sale price of our Class B
Common Stock has been at least 130% of the conversion price of the
Notes then in effect for at least 20 trading days (whether or not
consecutive), including the trading day immediately preceding the
date on which we provide notice of redemption, during any 30
consecutive trading day period ending on, and including, the
trading day immediately preceding the date on which we provide
notice of redemption, at a redemption price equal to 100% of the
principal amount of Notes to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date. We may choose to
redeem some or all of the Notes, including at times when prevailing
interest rates are relatively low. Holders of the Notes may not be
able to reinvest the proceeds from the redemption of the Notes in a
comparable security at an effective interest rate as high as the
interest rate on the Notes being redeemed.
The conditional conversion feature of the Notes, if triggered, may
adversely affect our financial condition and operating
results.
In the
event the conditional conversion feature of the Notes is triggered,
holders of such Notes will be entitled to convert their Notes at
any time during specified periods at their option. If any holder
elects to convert its Notes, unless we elect to satisfy our
conversion obligation by delivering only shares of our Class B
Common Stock (other than paying cash in lieu of delivering any
fractional share), we would be required to settle a portion or all
of our conversion obligation in cash, which could adversely affect
our liquidity. In addition, even if holders do not elect to convert
their Notes, we could be required under applicable accounting rules
to reclassify all or a portion of the outstanding principal of the
Notes as a current liability rather than a long-term liability,
which would result in a material reduction of our net working
capital and may harm our business.
Conversion of the Notes may dilute the ownership interest of our
stockholders or may otherwise depress the market price of our Class
B Common Stock.
The
conversion of some or all of the Notes may dilute the ownership
interests of our stockholders. On conversion of the Notes, we have
the option to pay or deliver, as the case may be, cash, shares of
our Class B Common Stock, or a combination of cash and shares of
our Class B Common Stock. In addition, in certain circumstances, we
will make an interest make-whole payment to a converting holder
which may be paid in cash or shares of our common stock. If we
elect to settle our conversion obligation (or the interest
make-whole payment) in shares of our Class B Common Stock or a
combination of cash and shares of our Class B Common Stock, any
sales in the public market of our Class B Common Stock issuable on
such conversion could adversely affect prevailing market prices of
our Class B Common Stock. In addition, the existence of the Notes
may encourage short selling by market participants because the
conversion of the Notes could be used to satisfy short positions,
or anticipated conversion of the Notes into shares of our Class B
Common Stock could depress the market price of our Class B Common
Stock.
Future sales of our Class B Common Stock or equity-linked
securities in the public market could lower the market price for
our Class B Common Stock and adversely impact the trading price of
the Notes.
In the
future, we may raise funds by selling additional equity,
equity-linked securities, or debt securities. In addition, a
substantial number of shares of our Class B Common Stock is
reserved for issuance on the exercise of stock options, settlement
of restricted stock units, and conversion of the Notes. We cannot
predict the size of future issuances or the effect, if any, that
they may have on the market price for our Class B Common Stock. The
issuance and sale of substantial amounts of our Class B Common
Stock or equity-linked securities, or the perception that such
issuances and sales may occur, could adversely affect the trading
price of the Notes and the market price of our Class B Common
Stock, and impair our ability to raise capital through the sale of
additional equity or equity-linked securities.
Holders of Notes are not entitled to any rights with respect to our
Class B Common Stock, but they will be subject to all changes made
with respect to them to the extent our conversion obligation
includes shares of our Class B Common Stock.
Holders
of Notes are not entitled to any rights with respect to our Class B
Common Stock (including, without limitation, rights to receive any
dividends or other distributions on our Class B Common Stock) prior
to the conversion date relating to such Notes (if we have elected
to settle the conversion by delivering only shares of our Class B
Common Stock, other than paying cash in lieu of delivering any
fractional share) or the last trading day of the observation period
(if we elect to pay and deliver, as the case may be, a combination
of cash and shares of our Class B Common Stock in respect of the
conversion). But, holders of Notes will be subject to all changes
affecting our Class B Common Stock. For example, if an amendment is
proposed to our certificate of incorporation or bylaws requiring
stockholder approval and the record date for determining the
stockholders of record entitled to vote on the amendment occurs
prior to the conversion date with respect to any Notes surrendered
for conversion, then the holder surrendering such Notes will not be
entitled to vote on the amendment, although such holder will
nevertheless be subject to any changes affecting our Class B Common
Stock.
The conditional conversion feature of the Notes could result in
holders receiving less than the value of our Class B Common Stock
into which the Notes would otherwise be convertible.
Prior
to the close of business on the business day immediately preceding
July 1, 2024, holders may convert their Notes only if specified
conditions are met. If the specific conditions for conversion are
not met, holders will not be able to convert their Notes during
that period, and they may not be able to receive the shares of
Class B Common Stock (or the value of such shares in cash or a
combination of cash and shares of Class B Common Stock) into which
the Notes would otherwise be convertible.
On conversion of the Notes, holders may receive less valuable
consideration than expected because the value of our Class B Common
Stock may decline after holders exercise their conversion rights
but before we settle our conversion obligation.
Under
the Notes, a converting holder will be exposed to fluctuations in
the value of our Class B Common Stock during the period from the
date such holder surrenders Notes for conversion until the date we
settle our conversion obligation.
On
conversion of the Notes, we have the option to pay or deliver, as
the case may be, cash, shares of our Class B Common Stock, or a
combination of cash and shares of our Class B Common Stock
(including, if applicable, any interest make-whole payment we
elect, or are deemed to have elected to satisfy by delivering
shares of our Class B Common Stock). If we elect to satisfy our
conversion obligation in cash or a combination of cash and shares
of our Class B Common Stock, the amount of consideration that
holders will receive on conversion of their Notes will be
determined by reference to the volume-weighted average price of our
Class B Common Stock for each trading day in a 40-trading day
observation period and an interest make-whole payment, if
applicable.
Accordingly, if the
price of our Class B Common Stock decreases during the applicable
period, the amount and value of consideration holders receive will
be adversely affected. In addition, if the market price of our
Class B Common Stock at the end of such period is below the
volume-weighted average price of our Class B Common Stock during
such period, the value of any shares of our Class B Common Stock
that holders will receive in satisfaction of our conversion
obligation will be less than the value used to determine the number
of shares that holders will receive.
If we
elect to satisfy our conversion obligation only in shares of our
Class B Common Stock on conversion of the Notes, we will, subject
to the blocker provisions to the extent applicable, be required to
deliver the shares of our Class B Common Stock, together with cash
for any fractional share, on the second business day following the
conversion date (provided that, with respect to any conversion date
following the regular record date immediately preceding the
maturity date where physical settlement applies to the related
conversion, we will settle any such conversion on the maturity
date). Accordingly, if the price of our Class B Common Stock
decreases during this period, the value of the shares that holders
receive will be adversely affected and would be less than the
conversion value of the Notes on the conversion date.
The increase in the conversion rate for Notes converted in
connection with a make-whole fundamental change or a notice of
redemption may not adequately compensate holders for any lost value
of their Notes as a result of such transaction or
redemption.
If a
make-whole fundamental change occurs prior to the maturity date for
the Notes or if we deliver a notice of redemption with respect to
the Notes, we will, under certain circumstances, increase the
conversion rate for the Notes by a number of additional shares of
our Class B Common Stock for Notes converted in connection with
such make-whole fundamental change or notice of redemption. The
increase in the conversion rate will be determined based on the
date on which the make-whole fundamental change occurs or becomes
effective, or the date we deliver the notice of redemption, as the
case may be, and the price paid (or deemed to be paid) per share of
our Class B Common Stock in the make-whole fundamental change or
determined with respect to the notice of redemption, as the case
may be. The increase in the conversion rate for Notes converted in
connection with a make-whole fundamental change or a notice of
redemption may not adequately compensate you for any lost value of
your Notes as a result of such transaction or redemption. In
addition, if the "stock price" (as defined in the Indenture) is
greater than $1.00 per share or less than the Make-Whole Adjustment
Reference Price (as defined in the Indenture”), no additional
shares of Class B Common Stock will be added to the conversion
rate. Moreover, in no event will the conversion rate per $1,000
principal amount of Notes as a result of this adjustment exceed
61.6523 shares of Class B Common Stock, subject to adjustment in
the same manner as the conversion rate for the Notes.
Our
obligation to increase the conversion rate for Notes converted in
connection with a make-whole fundamental change or a notice of
redemption could be considered a penalty, in which case the
enforceability would be subject to general principles of
reasonableness and equitable remedies.
The conversion rate of the Notes may not be adjusted for dilutive
events.
The
conversion rate of the Notes is subject to adjustment for certain
events, including, but not limited to, the issuance of certain
stock dividends on our Class B Common Stock, the issuance of
certain rights or warrants, subdivisions or combinations of our
Class B Common Stock, distributions of capital stock, indebtedness,
or assets, cash dividends, and certain issuer tender or exchange
offers as described under the Indenture. However, the conversion
rate will not be adjusted for other events, such as a third-party
tender or exchange offer or an issuance of Class B Common Stock for
cash, that may adversely affect the trading price of the Notes or
our Class B Common Stock. An event that adversely affects the value
of the Notes may occur, and that event may not result in an
adjustment to the conversion rate. We have no obligation to
consider the specific interests of the holders of the Notes in
engaging in any such offering or transaction.
Some significant restructuring transactions may not constitute a
fundamental change, in which case we would not be obligated to
offer to repurchase the Notes.
On the
occurrence of a fundamental change, you have the right to require
us to repurchase all or a portion of your Notes. However, the
fundamental change provisions do not afford protection to holders
of Notes in the event of other transactions that could adversely
affect the Notes. For example, transactions such as leveraged
recapitalizations, refinancings, restructurings, or acquisitions
initiated by us may not constitute a fundamental change requiring
us to repurchase the Notes. In the event of any such transaction,
the holders would not have the right to require us to repurchase
the Notes, even though each of these transactions could increase
the amount of our indebtedness or otherwise adversely affect our
capital structure or any credit ratings, thereby adversely
affecting the holders of Notes.
Certain provisions in the indenture governing the Notes may delay
or make it more expensive for a third party to acquire
us.
Certain
provisions in the indenture governing the Notes may make it more
difficult or expensive for a third party to acquire us. For
example, the indenture governing the Notes requires us, at the
noteholders' election, to repurchase the Notes for cash on the
occurrence of a fundamental change and, in certain circumstances,
to increase the conversion rate for a holder that converts its
Notes in connection with a make-whole fundamental change. A
takeover of us may trigger the requirement that we repurchase the
Notes or increase the conversion rate, which could make it more
costly for a third party to acquire us. Furthermore, the indenture
for the Notes prohibits us from engaging in certain mergers or
acquisitions unless, among other things, the surviving entity
assumes our obligations under the Notes. These and other provisions
in the indenture could deter or prevent a third party from making
bids to acquire us even when the acquisition may be favorable to
you.
Holders of Notes are not entitled to receive any shares of our
Class B Common Stock otherwise deliverable upon conversion of the
Notes to the extent that such receipt would cause such holders to
become, directly or indirectly, a beneficial owner of shares of our
Class B Common Stock in excess of 4.99% of the total number of the
shares of our Class B Common Stock then issued and
outstanding.
Notwithstanding
anything to the contrary herein, holders of Notes are not entitled
to receive any shares of our Class B Common Stock otherwise
deliverable upon conversion of the Notes to the extent, but only to
the extent, that such receipt would cause such holders to become,
directly or indirectly, the "beneficial owner" (within the
meaning of Section 13(d) under the Exchange Act and the rules
promulgated thereunder) of our Class B Common Stock in excess
4.99% of the total number of the shares of our Class B Common Stock
then issued and outstanding. Any purported delivery of shares of
our Class B Common Stock upon conversion of the Notes shall be void
and have no effect to the extent, but only to the extent, that such
delivery would result in any person becoming the beneficial owner
of shares of our Class B Common Stock outstanding at such time in
excess of the beneficial ownership limits then applicable to such
person.
As a
result of the beneficial ownership limits, shares of Class B Common
Stock otherwise deliverable upon conversion of Notes may be
delayed, or never delivered at all. These limitations on beneficial
ownership may force you to sell shares of our Class B Common Stock
or other securities you own in order to receive shares you would
otherwise be entitled to receive upon conversion. If holders
convert their Notes and do not receive any shares otherwise
deliverable upon conversion, we are not be responsible for any lost
value due to a delayed delivery, or if they are never delivered as
a result of the conversion restrictions described
above.
We cannot assure you that an active trading market will develop for
the Notes.
Prior
to the 2020 Note Offering (as defined below), there has been no
trading market for the Notes, and we do not intend to apply to list
the Notes on any securities exchange or to arrange for quotation on
any automated dealer quotation system. We have been informed by the
initial purchaser that it intended to make a market in the Notes
after the 2020 Note Offering. However, the initial purchaser may
cease its market-making at any time without notice. The liquidity
of the trading market in the Notes, and the market price quoted for
the Notes, may be adversely affected by changes in the overall
market for this type of security and by changes in our financial
performance or prospects or in the prospects for companies in our
industry generally. We cannot assure you that an active trading
market will develop for the Notes. If an active trading market does
not develop or is not maintained, the market price and liquidity of
the Notes may be adversely affected. In that case you may not be
able to sell your Notes at a particular time or you may not be able
to sell your Notes at a favorable price.
Any adverse rating of the Notes may cause their trading price to
fall.
We do
not intend to seek a rating on the Notes. However, if a rating
service were to rate the Notes and if such rating service were to
lower its rating on the Notes below the rating initially assigned
to such Notes or otherwise announce its intention to put such Notes
on credit watch, the trading price of the Notes could
decline.
Unresolved Staff Comments.
None.
Powersports and Automotive Segments
We
currently maintain our corporate offices at 901 W Walnut Hill Lane,
Irving, Texas 75038, that initially comprises 23,337 square feet,
which amount shall increase to (i) 30,337 rentable square feet on
November 1, 2020 and (ii) 37,337 rentable square feet on November
1, 2021. Base rent is currently $60,287 per month and increases to
$78,371 on November 1, 2020 and to $96,454 on November 1, 2021. We
also pay our pro rata share of the building's operating expenses.
This lease expires on April 30, 2023; however we can elect to
extend the term for up to seven years at a rate equal to (i) the
lesser of prevailing rental rates at the time of renewal or (ii) 5%
of the annual Base Rent for the immediately preceding term. We
provided the sublandlord a security deposit of approximately
$10,000. In addition, in March 2019 we entered into a short-term
sublease expiring in October 2019 in Las Colinas, Texas for
approximately 11,000 square feet to support the company's
initiatives.
We are
a co-leasee on a warehouse space in Missouri from which we operate
our licensed dealer operation; total shared monthly rent for the
building is $4,250.
We have
two main facilities in the greater Nashville, TN metropolitan area
that we assumed as part as the acquisitions of Wholesale. One
serves as a general office/administrative location as well as a
staging and reconditioning property, while the other serves as a
retail sales location where we display vehicles and operate a
traditional used car sales lot, with minimal vehicle maintenance
services provided. Each location has a lease term expiring on
October 30, 2021, and for each property we have two (2) renewal
option, each of which provides for five (5) additional years with
ten percent (10%) increase in the base rent. The collective rent
for the two locations is approximately $23,500 per
month.
We also
lease or sub-lease space to support the operations in (i) West Palm
Beach, FL that we assumed as part of the Autosport acquisition and
for which we pay approximately $75,000 per year and (ii) Las Vegas,
NV to support the development of the RumbleOn Finance business and
for which we pay approximately $160,000 per year. Both the FL and
NV ancillary location leases currently expire in the second half of
2020.
The
Company is establishing fulfillment centers in strategic locations
throughout the United States. Initial locations, for which leases
have been executed include Arlington, Texas, Ocoee, Florida and
North Las Vegas, Nevada.
We
moved into the Arlington, Texas center in September 2019. This
location is approximately 7,000 square feet. The lease has an
initial term of 24.5 months and has one three-year renewal option.
We pay approximately $57,000 per year.
The
Ocoee, Florida center is approximately 56,012 square feet and is
scheduled to open in the first half of 2020. This lease has an
initial term of 64 months with one five-year renewal option. Annual
rent will be approximately $470,000.
We
moved into the North Las Vegas center in October 2019. This
location is approximately 43,916 square feet and has an initial
term of 36 months. Annual rent is approximately
$270,000.
Vehicle Logistics and Transportation Services
The
needs of the Vehicle Logistics and Transportation Services segment
of our operations have been serviced out of facilities we lease in
Mesa, AZ, and Detroit, MI, as well as a portion of space we have in
Nashville, TN. Collective annual rent for the MI and AZ locations
is approximately $125,000. In December 2019 we moved into 5,853 of
space in Chandler, Arizona to support our Wholesale Express
operations. The lease has a 39-month term and our annual rent is
approximately $120,000.
We are
not a party to any material legal proceedings other than ordinary
routine litigation incidental to our business.
Not
Applicable.