Attached files
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2016
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission
file number 000-54219
RumbleON,
INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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46-3951329
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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4521 Sharon Road, Suite 370, Charlotte, North Carolina
28211
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(Address
of principal executive offices)
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(704)
448-5240
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Class B Common Stock, $0.001 par value
(Title
of Class)
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☒ No
☐
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate by check
mark whether the registrant a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act.
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
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Smaller
reporting company ☒
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Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ☐ No ☒
As of
June 30, 2016, the aggregate market value of shares held by
non-affiliates of the registrant (computed by reference to the
price at which the common equity was last sold) was approximately
$122,500.
The
number of shares of Class B Common Stock, $0.001 par value,
outstanding on February 13, 2017 was 6,923,809 shares. In addition,
1,000,000 shares of Class A Common Stock, $0.001 par value, were
outstanding on February 13, 2017.
RUMBLEON, INC.
Table of Contents to Annual Report on Form 10-K
for
the Year Ended December 31, 2016
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PART I
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Item 1.
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Business.
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1
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Item 1A.
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Risk Factors
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6
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Item 1B.
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Unresolved staff comments.
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17
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Item 2.
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Properties.
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17
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Item 3.
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Legal Proceedings.
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17
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Item 4.
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Mine Safety Disclosures
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17
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PART II
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Item 5.
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Market For Registrant’s Common Equity And Related Stockholder
Matters And Small Business Issuer Purchase Of Equity
Securities
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17
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Item 6.
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Selected Financial Data.
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17
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Item 7.
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Management’s Discussion And Analysis Of Financial Condition
And Results Of Operations.
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18
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Item 7.
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Management’s Discussion And Analysis Of Financial Condition
And Results Of Operations.
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18
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Item 7A.
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Quantitative And Qualitative Disclosures About Market
Risk.
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27
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Item 8.
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Financial Statements And Supplementary Data.
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27
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Item 9.
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Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure.
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27
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Item 9A.
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Control And Procedures.
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28
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Item 9B.
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Other Information.
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28
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PART III
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Item 10.
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Directors, Executive Officers And Corporate
Governance.
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33
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Item 11.
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Executive Compensation.
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35
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Item 12.
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Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters.
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36
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Item 13.
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Certain Relationships And Related Transactions, And Director
Independence.
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37
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Item 14.
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Principal Accounting Fees And Services.
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38
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules.
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39
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Item
16
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Form 10-K
Summary
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39
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i
PART
I
Item
1.
Business.
Background
and Overview
RumbleON,
Inc., a Nevada
corporation, is an early stage company with a business plan to
create a unique, capital light, and disruptive e-commerce platform
facilitating the ability of both consumers and dealers to
Buy-Sell-Trade-Finance pre-owned recreation vehicles. It is our
goal to have the platform recognized as the most trusted and
effective solution for the sale, acquisition, and distribution of
recreation vehicles and provide users an efficient, fast,
transparent, and engaging experience. Our initial focus is the
market for 650cc and larger on road motorcycles, particularly those
concentrated in the Harley Davidson brand; we will look to extend
to other brands and additional vehicle types and products as the
platform matures. In this Annual Report on Form 10-K, we refer to
RumbleON, Inc. as "RumbleON," "RMBL," the "Company," "we," "us,"
and "our," and similar words.
Serving
both consumers and dealers, RumbleON will make such consumers or
dealers a cash offer for the purchase of their vehicle or will
provide them the flexibility to trade, list, consign, or auction
their vehicle through the website and mobile app of RumbleON and
our partner dealers. In addition, RumbleON will offer a large
inventory of vehicles for sale on its website and will offer
financing and associated products. RumbleON operations are designed
to be highly scalable by working through an infrastructure and
capital light model created by forging a synergistic relationship
with dealers. RumbleON will utilize partner dealers in the
acquisition of motorcycles as well as to provide inspection,
reconditioning and distribution services. Correspondingly, RumbleON
will earn fees and transaction income, and partner dealers will
earn incremental revenue and enhance profitability through
increased sales, leads, and fees from inspection, reconditioning
and distribution programs.
RumbleON will be
driven by a proprietary technology platform, designed by an
experienced development team. RumbleON acquired this platform on
February 8, 2017 through its acquisition of NextGen (the
"NextGen Acquisition"), as more fully described below, and
anticipates the platform will be fully implemented by the RumbleON
team in partnership with the developer over the next 60 days. The
system provides integrated accounting, appraisal, inventory
management, CRM, lead and call center management, equity mining,
and other key services necessary to drive the online marketplace.
Over the past 16 years, the developers of the software have
designed and built, for large multi-national clients, a number of
successful dealer and high quality online software applications
solutions including applications for vehicle appraisal and
inventory management, credit reporting and compliance, CRM and lead
management, and a vehicle purchase platform. The product suite
currently has modules supporting the motorcycle, RV, and marine and
auto segments and is easily expandable for additional products in
the future.
Our
principal executive offices are located at 4521 Sharon Road, Suite
370, Charlotte, North Carolina 28211 and our telephone number is
(704) 448-5240. Our Internet website is www.rumbleon.com. The
website address provided in this
Annual Report on Form 10-K for the year ended
December 31, 2016 (this "Form 10-K") is not intended to
function as a hyperlink and information obtained on the website is
not and should not be considered part of this Form 10-K and is not
incorporated by reference in this Form 10-K or any filing with the
Securities and Exchange Commission (the "SEC"). 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 Exchange Act of 1934, as
amended, are available, free of charge, on our Investor Relations
website at www.rumbleon.com as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the
SEC. You may also read and copy any materials we file with the SEC
at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website located at www.sec.gov
that contains the information we file or furnish electronically
with the SEC.
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. ("Smart
Server"). Smart Server was formed to engage in the business of
designing and developing computer application software for smart
phones and tablet computers to provide customers at participating
restaurants, bars, and clubs the ability to pay their bill with
their smartphone without having to ask for the check. Smart Server
ceased its software development activities in 2015 and, having no
operations and no or nominal assets, met the definition of a "shell
company" under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder. Smart
Server continued as a public shell company through the year ended
December 31, 2016, however Smart Server engaged in no business or
operations during 2016.
In
July 2016, Berrard Holdings Limited Partnership ("Berrard
Holdings") acquired 5,475,000 shares of common stock of Smart
Server 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 Smart
Server’s issued and outstanding shares of common stock.
Steven Berrard, a director and our Chief Financial Officer and
Secretary, has voting and dispositive control over Berrard
Holdings. The aggregate purchase price of the shares was $148,141.
In addition, at the closing, Berrard Holdings loaned Smart Server,
and Smart Server executed a promissory note, in the principal
amount of $191,858 payable to Berrard Holdings. Effective August
31, 2017, the note was amended to increase the principal amount by
$5,500 to $197,358 in aggregate amount payable to Berrard
Holdings.
In
October 2016, Berrard Holdings sold an aggregate of 3,312,500
shares of Smart Server common stock to Marshall Chesrown, our
Chairman of the Board and Chief Executive Officer, and certain
other purchasers pursuant to letter agreements (each, a "Purchase
Agreement"), dated October 24, 2016. The 2,412,500 shares acquired
by Mr. Chesrown represented 43.9% of Smart Server’s
issued and outstanding shares of common stock. The remaining shares
owned by Berrard Holdings after giving effect to the transaction
represented 39.3% of Smart Server’s issued and outstanding
shares of common stock. The aggregate purchase price for the shares
sold in this transaction was $139,125.
On
November 28, 2016, RumbleON completed a private placement (the
"Private Placement") with certain accredited investors (the
"Purchasers"), with respect to the sale of an aggregate of 900,000
shares of Smart Server common stock at a purchase price of $1.50
per share for total consideration of $1,350,000. In connection with
the Private Placement, Smart Server also entered into loan
agreements with the Purchasers pursuant to which the Purchasers
will loan the Company their pro rata share of up to $1,350,000 in
the aggregate upon the request of the Company at any time on or
after January 31, 2017 and before November 1, 2020, pursuant to the
terms of the convertible promissory note attached to each of the
Loan Agreements.
On January 8, 2017,
Smart Server 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 1,523,809 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. On February 8, 2017, the Company assigned to
NextGen Pro, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of the Company ("NextGen Pro"), the right
to acquire NextGen's assets and liabilities (but not any other
rights or obligations under the NextGen Agreement). NextGen and the
Halcyon Parties are collectively referred to as the "Seller
Parties."
On
January 9, 2017, the Company's Board of Directors (the "Board") and
stockholders holding 6,375,000 of the Company's issued and
outstanding shares of common stock approved an amendment to the
Company's Articles of Incorporation (the "Certificate of
Amendment") to change the name Smart Server, Inc. to RumbleON, Inc.
and to create an additional class of Company common stock. The
Certificate of Amendment became effective on February 13, 2017
(the "Effective Date"), after the notice and accompanying
Information Statement describing the amendment was furnished to
non-consenting stockholders of the Company in accordance with
Nevada and Federal securities law.
Immediately before
approving the Certificate of Amendment, the Company had authorized
100,000,000 shares of common stock, $0.001 par value (the
"Authorized Common Stock"), including 6,400,000 issued and
outstanding shares of common stock (the "Outstanding Common Stock,"
and together with the Authorized Common Stock, the "Common Stock").
Pursuant to the Certificate of Amendment, the Company designated
1,000,000 shares of Authorized Common Stock as Class A Common Stock
(the "Class A Common Stock"), which Class A Common Stock ranks pari
passu with all of the rights and privileges of the Common Stock,
except that holders of Class A Common Stock will be entitled to 10
votes per share of Class A Common Stock issued and outstanding and
(ii) all other shares of Common Stock, including all shares of
Outstanding Common Stock shall be deemed Class B Common Stock (the
"Class B Common Stock"), which Class B Common Stock will be
identical to the Class A Common Stock in all respects, except that
holders of Class B Common Stock will be entitled to one vote per
share of Class B Common Stock issued and outstanding.
Also on
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Mr. Chesrown of 875,000 shares
of Class A Common Stock in exchange for an equal number of shares
of Class B Common Stock held by Mr. Chesrown, and (ii) Mr. Berrard
of 125,000 shares of Class A Common Stock in exchange for an equal
number of shares of Class B Common Stock held by Mr.
Berrard.
Also, on February
8, 2017 (the "Closing Date"), RumbleON and 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 matures on the third
anniversary of the Closing Date (the "Maturity Date"). Interest
accrues and will be paid semi-annually (i) at a rate of 6.5%
annually from the Closing Date through the second anniversary of
such date and (ii) at a rate of 8.5% annually from the second
anniversary of the Closing Date through the Maturity Date. 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 NextGen and NextGen Pro, and a related Security Agreement
between the parties, each dated as of the Closing Date. Under the
terms of the Guaranty Agreement, NextGen Pro has agreed to
guarantee the performance of all of the Company's obligations under
the Acquisition Note. The descriptions of the Guaranty Agreement
and Security Agreement are qualified by reference to copies of
these agreements, which are attached as Exhibit 10.12 and 10.13 to
this Form 10-K and are incorporated herein by
reference
On February 14,
2017, the Company filed a press release announcing completion of
the NextGen Acquisition. The press release is attached as Exhibit
99.1 to this Form 10-K and is incorporated herein by
reference.
2
On
February 13, 2017, the Effective Date, the Company filed the
Certificate of Amendment with the Secretary of State of the State
of Nevada changing the Company's name to RumbleON, Inc. and
creating the Class A and Class B Common Stock. Also on the
Effective Date, the Company issued an aggregate of 1,000,000 shares
of Class A Common Stock to Messrs. Chesrown and Berrard in exchange
for an aggregate of 1,000,000 shares of Class B Common Stock held
by them. Also on the Effective Date, the Company amended its bylaws
to reflect the name change to RumbleON, Inc. and to reflect the
Company's primary place of business as Charlotte, North
Carolina.
Our
Strategy
RumbleON's strategy
is to provide a complete online, direct, pre-owned recreational
vehicle marketplace solution for both consumers and dealers, while
providing dealers access to additional software solutions and
services allowing them to earn incremental revenue and enhance
profitability through increased sales leads, and fees earned from
inspection, reconditioning and distribution programs. The
recognition of the need for RMBL solutions is the result of our
management team gaining a clear understanding of the key drivers of
complete supply chain solutions to create a different and
disruptive way to both acquire and distribute cars and trucks
online from their deep experience in the automotive sector with
disruptive businesses such as: AutoNation, Auto America, and Vroom.
We believe that there is a significant opportunity to disrupt the
pre-owned marketplace in recreational vehicles as it suffers from
many of the same negative consumer sentiments and dealer practices
that existed in the automotive sector prior to the advent of and
the significant influx of new entrants with improved business
models. In addition, the recreation vehicle segment lacks the
significant competition that exists in the automotive sector due to
its fragmented dealer network, relative size and the niche nature
of its products. Management believes consumers prefer to transact
through a well-designed online/mobile solution, with a broad
selection of vehicles at highly competitive prices. RumbleON
applications will provide appraisal, cash-offer, vehicle listing or
consignment, financing options, and logistics/delivery solutions
designed to provide an exceptional consumer experience. We intend
to replicate and improve upon the positive attributes of the
various "Sell us your car" and other related programs that have
proven successful in automotive retail for entities such as
AutoNation, CarMax, Carvana, Vroom and others.
RumbleON dealer
strategy is focused on creating a synergistic relationship wherein
dealers have the ability to leverage the RumbleON marketplace and
dealer services offerings to drive increased revenue through the
purchase or sale of vehicles via the online platform and the
ability to earn fees from inspection, reconditioning and
distribution programs. Dealer partners will have the ability to
show the complete RumbleON vehicle inventory on their website and
will have access to preferred pricing on the acquisition of
vehicles. Management believes that partners utilizing the platform
will significantly enhance their existing online retail strategies.
RumbleON has agreed to add multiple dealers to its network and is
in discussions with several other dealers regarding joining the
network. RumbleON operations, designed to be both capital and
infrastructure light, will leverage the dealer network to provide
inspection, reconditioning and distribution, thus alleviating the
need for RumbleON to operate multiple warehouse locations,
reconditioning centers and logistics facilities. RumbleON plans on
operating a centralized headquarters, warehouse and call center
model while decentralizing inspection and reconditioning
activities.
RumbleON's initial
focus on pre-owned Harley Davidson motorcycles provides a targeted,
identifiable segment to establish the functionality of the platform
and the RumbleON brand. Harley is a highly regarded and dominant
brand (approximately 50% market share of new 650 cc+ on road
motorcycles according to both Harley-Davidson public filings and
the Motorcycle Industry Council) in the motorcycle market with a
base of over 3 million preowned motorcycles registered for use in
the United States. Management estimates that each year
approximately 400,000 preowned Harleys are sold with Harley dealers
selling approximately 125,000 units, 250,000 units sold in private
consumer and independent dealer transactions, and 25,000 via other
means. As Harley-Davidson has discussed in its public filings,
Harley’s efforts to grow ridership, including increasing its
marketing spend by 65% ($75 million worldwide) in 2016 and driving
brand awareness among all customers via dealer hosted experiences
and the Harley Davidson Riding Academy, are designed to capitalize
on the fact that the percentage of first time motorcycle buyers who
purchase a Harley-Davidson has increased from 26% in 2011 to 33% in
2015. This not only is expected to provide a stable market of like
equipment and a more informed buyer, but also allows RumbleON to
potentially enjoy a halo effect from Harley’s advertising as
not all young new buyers will purchase new motorcycles. RumbleON
extension into the "metric" brands (Honda, Yamaha, Kawasaki,
Suzuki, etc.) essentially doubles the available market and is a
natural extension as these vehicles are often sold or traded for
Harley vehicles. The metric market and dealer profile closely
mirrors that of the Harley market although it is more highly
fragmented. In addition, many of the metric dealers also retail
ATVs, UTVs, snowmobiles and personal watercraft providing the next
natural product extension after motorcycles leveraging existing
dealer relationships.
RumbleON initially
intends to gain market share by targeting the significant number of
private consumer transactions. We believe we can drive RumbleON
brand recognition and awareness at a relatively low expense by
utilizing aggressive digital, social media and guerrilla marketing
techniques, as there are few national competitors and consumers are
very brand focused and loyal. For example, approximately 15 key
motorcycle events such as Daytona Bike Week and the Sturgis Bike
Rally attract roughly 4.8 million attendees, many of whom are
both motorcycle enthusiasts and Harley consumers. RumbleON intends
on having a significant presence at several of these events, with
onsite advertising and sales facilities to build brand awareness.
In addition, we anticipate engaging with or sponsoring many of the
active Harley Owner Group ("HOG") chapters, providing us a targeted
audience to which to market RumbleON and showcase the ease with
which they can buy, sell, or trade motorcycles. Once motorcycle
enthusiasts have sampled the RumbleON website, we believe the
unique experience will be compelling and drive organic growth. Over
time, management believes RumbleON will be able to build a
proprietary database of customers and their interests, which will
facilitate customer retention and cross-sell
activities.
3
Our
Market
We
operate in a market with significant scale and breadth of products.
The Motorcycle Industry Council estimates that 9.2 million people
own 10.1 million motorcycles in the United States; 87% of these are
on highway models, our initial targeted segment. Used motorcycle
registrations were 1.1 million units in 2015 with new unit sales of
approximately 500,000 or approximately $7 billion in new vehicle
sales. The owner demographic is favorable to the market outlook as
millennials and baby boomers are maturing into the median ranges.
The owner group is characterized by brand loyal riding enthusiasts.
The median owner age is 47 years with a median income of $62,170
which is approximately 10% above the US average. The dealer market
is fragmented with an estimated 5,000 new vehicle retail outlets in
the motorcycle segment.
The
ATV, UTV, side-by-side, snowmobile and personal watercraft vehicle
("PWC") markets (collectively with motorcycles,
“Powersports”) 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 Powersports
Business’ 2016 Market Data Book, 2015 registrations for new
and used side-by-sides were approximately 250,000 units and ATV
unit sales represented an additional 228,000 units. Snowmobile
sales were estimated at 57,000 units with PWC sales estimated at an
additional 40,000 units.
As we
look to further extend the platform the two largest adjacent
segments are represented by the recreational boating industry which
generated sales of $26.7 billion in 2015 for boats and trailers and
the recreational vehicle (motor
vehicle or trailer equipped with living space and amenities found
in a home) market which had estimated 2015 retail sales of
approximately $16.5 billion.
Competition
We will
face competition in all of our business segments. The U.S. used
recreational vehicle marketplace is highly fragmented, and we face
competition from franchised dealers, who sell both new and used
vehicles; independent dealers; online and mobile sales platforms;
and private parties. We believe that the principal competitive
factors in our industry are delivering an outstanding consumer
experience, competitive sourcing of vehicles, breadth and depth of
product selection, and value pricing. Our competitors vary in size
and breadth of their product offerings. We believe that our
principal competitive advantages in used vehicle retailing will include our ability to
provide a high degree of customer satisfaction with the buying
experience by virtue of our low, no-haggle prices and our
customer-friendly sales process; our breadth of selection of the
most popular makes and models available on our website. In
addition, we believe our willingness to appraise and purchase a
customer’s vehicle, whether or not the customer is buying a
vehicle from us, provides a competitive sourcing advantage for
retail vehicles. We believe the principal competitive
factors for our ancillary products and services include an ability
to offer a full suite of products at competitive prices delivered
in an efficient manner to the customer. We will compete with a
variety of entities in offering these products including banks,
finance companies, insurance and warranty providers and extended
vehicle service contract providers. We believe our competitive
strengths in this category will include our ability to deliver
products in an efficient manner to customers utilizing our
technology and our ability to partner with key participants in each
category to offer a full suite of products at competitive prices.
Lastly, additional competitors may enter the businesses in which we
will operate.
Intellectual Property and Proprietary Rights
Our
brand image is a critical element of our business
strategy. Our principal trademark, RumbleON has an
application pending with the U.S. Patent and Trademark
Office.
Government
Regulation
Various
aspects of our business are or may be subject, directly or
indirectly, to U.S. federal and state laws and regulations. Failure
to comply with such laws or regulations may result in the
suspension or termination of our ability to do business in affected
jurisdictions or the imposition of significant civil and criminal
penalties, including fines or the award of significant damages
against us and our dealers in class action or other civil
litigation.
State Motor Vehicle Sales, Advertising and Brokering
Laws
The
advertising and sale of new or used motor vehicles is highly
regulated by the states in which we do business. Although we do not
anticipate selling new vehicles, state regulatory authorities or
third parties could take the position that some of the regulations
applicable to dealers or to the manner in which recreational
vehicles are advertised and sold generally are directly applicable
to our business. If our products and services are determined to not
comply with relevant regulatory requirements, we could be subject
to significant civil and criminal penalties, including fines, or
the award of significant damages in class action or other civil
litigation as well as orders interfering with our ability to
continue providing our products and services in certain states. In
addition, even absent such a determination, to the extent dealers
are uncertain about the applicability of such laws and regulations
to our business, we may lose, or have difficulty increasing the
number of dealers in our network, which would affect our future
growth.
4
Several
states have laws and regulations that strictly regulate or prohibit
the brokering of motor recreational vehicles or the making of
so-called "bird-dog" payments by dealers to third parties in
connection with the sale of motor vehicles through persons other
than licensed salespersons. If our products or services are
determined to fall within the scope of such laws or regulations, we
may be forced to implement new measures, which could be costly, to
reduce our exposure to those obligations, including the
discontinuation of certain products or services in affected
jurisdictions. Additionally, such a determination could subject us
to significant civil or criminal penalties, including fines, or the
award of significant damages in class action or other civil
litigation.
In
addition to generally applicable consumer protection laws, many
states in which we may do business either have or may implement
laws and regulations that specifically regulate the advertising for
sale of new or used recreational vehicles. These state advertising
laws and regulations may not be uniform from state to state,
sometimes imposing inconsistent requirements on the advertiser of a
new or used recreational vehicle. If the content displayed on the
websites we operate is determined or alleged to be inaccurate or
misleading, we could be subject to significant civil and criminal
penalties, including fines, or the award of significant damages in
class action or other civil litigation. Moreover, such allegations,
even if unfounded or decided in our favor, could be extremely
costly to defend, could require us to pay significant sums in
settlements, and could interfere with our ability to continue
providing our products and services in certain states.
Federal Advertising Regulations
The
Federal Trade Commission ("FTC"), has authority to take actions to
remedy or prevent advertising practices that it considers to be
unfair or deceptive and that affect commerce in the United States.
If the FTC takes the position in the future that any aspect of our
business constitutes an unfair or deceptive advertising practice,
responding to such allegations could require us to pay significant
damages, settlements, and civil penalties, or could require us to
make adjustments to our products and services, any or all of which
could result in substantial adverse publicity, loss of
participating dealers, lost revenue, increased expenses, and
decreased profitability.
Federal Antitrust Laws
The
antitrust laws prohibit, among other things, any joint conduct
among competitors that would lessen competition in the marketplace.
Some of the information that we may obtain from dealers may be
sensitive and, if disclosed inappropriately, could potentially be
used by dealers to impede competition or otherwise diminish
independent pricing activity. A governmental or private civil
action alleging the improper exchange of information, or unlawful
participation in price maintenance or other unlawful or
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.
Other
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, 2016, the Company had two full-time
employees.
Available
Information
We file
annual, quarterly and other reports and other information with the
SEC. You can read these SEC filings and reports over the Internet
at the SEC's website at www.sec.gov. You can also obtain copies of
the documents at prescribed rates by writing to the Public
Reference Section of the SEC at 100 F Street, NE, Washington, DC
20549 on official business days between the hours of 10:00 am and
3:00 pm. Please call the SEC at (800) SEC-0330 for further
information on the operations of the public reference facilities.
We will provide a copy of our annual report to security holders,
including audited financial statements, at no charge upon receipt
of a written request to us at RumbleON, Inc., 4521 Sharon Road,
Suite 370, Charlotte, NC, 28211.
5
Item
1A.
Risk
Factors
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 no operating history and we cannot assure you the Company
will achieve or maintain profitability.
Our
business model is unproven and we have no operating history. We are
only in the initial development stage of our business. We expect to
make significant investments in the further development and
expansion of our business and these investments may not result in
the successful development, operation, or growth of our business on
a timely basis or at all. We may not generate sufficient revenue
and we may incur significant losses in the future for a number of
reasons, including a lack of demand for our products and services,
increasing competition, weakness in the motorcycle, power sport,
and other recreational vehicle industries generally, as well as
other risks described in these Risk Factors, and we may encounter
unforeseen expenses, difficulties, complications and delays, and
other unknown factors relating to the development and operation of
our business. Accordingly, we may not be able to successfully
develop and operate our business, generate revenue, or achieve or
maintain profitability.
The initial development and growth of our business over the first
24 months of operations, and such growth may not be indicative of
our future growth and, if we continue to grow rapidly, we may not
be able to manage our growth effectively.
We
expect that, in the future, as our revenue increases, our rate of
growth will decline. In addition, we will not be able to grow as
fast or at all if we do not accomplish the following:
●
maintain and grow
our dealer relationships and network;
●
increase the number
of users of our products and services, and in particular the number
of unique visitors to our website and our branded mobile
applications;
●
further improve the
quality of our existing products and services, and introduce high
quality new products and services;
●
increase the number
of transactions between our users and both RumbleON and our dealer
networks; and
●
introduce third
party ancillary products and services.
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, 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.
Our auditor’s report reflects the fact that the ability of
the Company to continue as a going concern is dependent upon its
ability to raise additional capital from the sale of common stock
and, ultimately the achievement of significant operating revenue.
If we are unable to continue as a going concern, you will lose your
investment.
Our financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Our auditor’s
report reflects that the ability of the Company to continue as a
going concern is dependent upon our ability to raise additional
capital from the sale of common stock or through other debt or
equity financings
and, ultimately, the achievement of significant operating revenue.
If we are unable to continue as a going concern, stockholders will
lose their investment. We will be required to seek additional
capital to fund future growth and expansion. No assurance can be
given that such financing will be available or, if available, that
it will be on commercially favorable terms acceptable to us.
Moreover, favorable financing may be dilutive to
investors.
6
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.
If key industry participants, including recreation vehicle dealers
and recreation vehicle manufacturers, perceive us in a negative
light or our relationships with them suffer harm, our ability to
operate and grow our business and our financial performance may be
damaged.
We
anticipate that we will derive a significant portion of or revenue
from fees paid by existing recreation vehicle dealers for dealer
services we may provide them. In addition, we intend to utilize a
select set of dealers to perform services for our benefit,
including, among other things, vehicle reconditioning, vehicle
storage and vehicle photography. If our relationships with our
network of dealers suffer harm in a manner that leads to the
departure of these dealers from our network, then our ability to
operate our business, grow revenue, and lower our costs will be
adversely affected.
We
cannot assure you that we will maintain strong relationships with
the dealers in our network or that we will not suffer dealer
attrition in the future. We may also have disputes with dealers
from time to time, including relating to the collection of fees
from them and other matters. We may need to modify our products,
change pricing or take other actions to address dealer concerns in
the future. If we are unable to create and maintain a compelling
value proposition for dealers to become and remain dealers, our
dealer network will not grow and may begin to decline. If a
significant number of these dealers decided to leave our network or
change their financial or business relationship with us, then our
business, growth, operating results, financial condition and
prospects would suffer. Additionally, if we are unable to add
dealers to our network, our growth could be impaired.
We may be unable to maintain or grow relationships with information
data providers or may experience interruptions in the data feeds
they provide, which may limit the information that we are able to
provide to our users and dealers as well as adversely affect the
timeliness of such information and may impair our ability to
attract or retain consumers and our dealers and to timely invoice
all parties.
We
expect to receive data from third-party data providers, including
our network of dealers, dealer management system data feed
providers, data aggregators and integrators, survey companies,
purveyors of registration data and possibly others. There may be
some instances in which we use this information to 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, particularly
dealer management system data feed providers, in a manner that
affects our ability to timely invoice the dealers in our network.
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.
7
If we suffer a significant interruption in our ability to gain
access to third-party data, our business and operating results will
suffer.
Our
business also relies on our ability to analyze significant amounts
of data in a timely manner. The effectiveness of our user
acquisition efforts depends in part on the availability of data
relating to existing and potential users of our platform. If we
experience a material disruption in the data provided to us or if
third-party data providers terminate their relationship with us,
the quality of this information may suffer, and our business,
results of operations and financial conditions could be materially
and adversely affected.
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 a sufficient users
visiting our website and mobile applications such that we may
recover these costs by attaining corresponding revenue growth. If
we are unable to recover our marketing and advertising costs
through increases in user traffic and in the number of transactions
by users of our platform, it could have a material adverse effect
on our growth, results of operations and financial
condition.
The failure to develop and maintain our brand could harm our
ability to grow unique visitor traffic and to expand our dealer
network.
Developing and
maintaining the RumbleON brand will depend largely on the success
of our efforts to maintain the trust of our users and dealers and
to deliver value to each of our users and dealers. If our potential
users perceive that we are not focused primarily on providing them
with a better recreation vehicle buying experience, our reputation
and the strength of our brand will be adversely
affected.
Complaints or
negative publicity about our business practices, our marketing and
advertising campaigns, our compliance with applicable laws and
regulations, the integrity of the data that we provide to users,
data privacy and security issues, and other aspects of our
business, irrespective of their validity, could diminish users' and
dealers' confidence in and the use of our products and services and
adversely affect our brand. There can be no assurance that we will
be able to develop, maintain or enhance our brand, and failure to
do so would harm our business growth prospects and operating
results.
We will 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 will
depend in part on Internet search engines such as Google™,
Bing™, and Yahoo!™ to drive traffic to our website. For
example, when a user searches the internet for a particular type of
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 optimization 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 modify their search algorithms in ways that
are detrimental to us, or if our competitors' efforts are more
successful than ours, overall growth in our user base could slow or
our user base could decline. 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.
8
Problems faced by
any third-party web hosting providers we may utilize could
adversely affect the experience of our consumers. Any third-party
web hosting providers could close their facilities without adequate
notice. Any financial difficulties, up to and including bankruptcy,
faced by any third-party web hosting providers or any of the
service providers with whom they contract may have negative effects
on our business, the nature and extent of which are difficult to
predict. If our third-party web hosting providers are unable to
keep up with our growing capacity needs, our business could be
harmed.
Any
errors, defects, disruptions, or other performance or reliability
problems with our network operations could cause interruptions in
access to our products as well as delays and additional expense in
arranging new facilities and services and could harm our
reputation, business, operating results, and financial
condition.
If we are unable to provide a compelling recreation vehicle buying
experience to our users, the number of transactions between our
users, RumbleON and dealers will decline and our revenue and
results of operations will suffer harm.
We
cannot assure you that we are able to provide a compelling
recreation vehicle buying experience to our users, and our failure
to do so will mean that the number of transactions between our
users, RumbleON and dealers will decline and we will be unable to
effectively monetize our user traffic. We believe that our ability
to provide a compelling recreation vehicle buying experience is
subject to a number of factors, including:
●
our ability to
launch new products that are effective and have a high degree of
consumer engagement; and
●
compliance of the
dealers within our dealer network with applicable laws, regulations
and the rules of our platform.
The growth of our business relies significantly on our ability to
increase the number of dealers in our network such that we are able
to increase the number of transactions between our users and
dealers. Failure to do so would limit our growth.
Our
ability to grow the number of dealers in our network is an
important factor in growing our business. We are a new participant
in the recreational vehicle industry, our business may be viewed in
a negative light by recreation vehicle dealerships, and there can
be no assurance that we will be able to maintain or grow the number
of recreation vehicle dealers in our network.
Our ability to grow our complementary product offerings may be
limited, which could negatively impact our development, growth,
revenue and financial performance.
As we
introduce or expand additional offerings for our platform, such as
recreation vehicle trade-ins, lead management, transaction
processing, financing, leasing, maintenance and insurance, we may
incur losses or otherwise fail to enter these markets successfully.
Our expansion into these markets may place us in competitive and
regulatory environments with which we are unfamiliar and involves
various risks, including the need to invest significant resources
and the possibility that returns on such investments will not be
achieved for several years, if at all. In attempting to establish
such new product offerings, we may incur significant expenses and
face various other challenges, such as expanding our sales force
and management personnel to cover these markets and complying with
complicated regulations that apply to these markets. In addition,
we may not successfully demonstrate the value of these ancillary
products to consumers or dealers, and failure to do so would
compromise our ability to successfully expand into these additional
revenue streams.
We will be relying on third-party financing providers to finance a
significant portion of our customers’ vehicle
purchases.
We will
be relying on third-party financing providers to finance a
significant portion of our customers’ vehicle purchases.
Accordingly, our revenue and results of operations are partially
dependent on the actions of these third parties. We will 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
will rely on third-party providers to supply Extended Protection
Plan ("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.
9
Retail sales of recreational vehicles by the Company may be
adversely impacted by increased supply of and/or declining prices
for used recreational vehicles and excess supply of new
recreational vehicles.
Retail
sales of recreational vehicles by the Company may be adversely
impacted by increased supply of and/or declining prices for used
recreational vehicles and excess supply of new recreational
vehicles. The Company believes that when prices for used
recreational vehicles have declined, it can have the effect of
reducing demand among retail purchasers for new recreational
vehicles (at or near manufacturer’s suggested retail prices).
Further, the manufacturers of recreational vehicles can and do take
actions that influence the markets for new and used recreational
vehicles. For example, introduction of new models with
significantly different functionality, technology or other customer
satisfiers can result in increased supply of used recreational
vehicles, and a decrease in the inventory of used recreational
vehicles available for sale at dealers in the U.S. could result in
an increased supply or decreased demand in the market for used
recreational vehicles, which could result in declining prices for
used recreational vehicles, and prior model-year new recreational
vehicles. Also, while historically manufacturers have taken steps
designed to balance production volumes for its new recreational
vehicles with demand, those steps may not be effective, or further
manufacturers could choose to supply new recreational vehicles to
the market in excess of demand at reduced prices which could also
have the effect of reducing demand for used recreational vehicles.
Ultimately, reduced demand among retail purchasers for new
recreational vehicles leads to reduced shipments by the
Company.
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 suppliers may experience
adverse economic conditions due to difficulties in the global
economy that could lead to difficulties supporting our operations.
In light of the amount and types of functions that we will
outsource, these service provider risks could have a material
adverse effect on our business and results of
operations.
We participate in a highly competitive market, and pressure from
existing and new companies may adversely affect our business and
operating results.
We face
significant competition from companies that provide listings,
information, lead generation, and recreation vehicle buying
services designed to reach consumers and enable dealers to reach
these consumers. We will compete for a share of overall recreation
vehicle purchases as well as recreation vehicle dealer’s
marketing and technology spend. To the extent that recreation
vehicle dealers view alternative strategies to be superior to
RumbleON, we may not be able to maintain or grow the number of
dealers in our network, we may sell fewer recreation vehicles to
users of our platform, and our business, operating results and
financial condition will be harmed.
We also
expect that new competitors will continue to enter the online
recreation vehicle retail industry with competing products and
services, which could have an adverse effect on our revenue,
business and financial results.
Our
competitors could significantly impede our ability to expand our
network of dealers and to reach consumers. Our competitors may also
develop and market new technologies that render our existing or
future products and services less competitive, unmarketable or
obsolete. In addition, if our competitors develop products or
services with similar or superior functionality to our solutions,
we may need to decrease the prices for our solutions in order to
remain competitive. If we are unable to maintain our current
pricing structure due to competitive pressures, our revenue will be
reduced and our operating results will be negatively
affected.
Our
current and potential competitors may have significantly more
financial, technical, marketing and other resources than we have,
and the ability to devote greater resources to the development,
promotion, and support of their products and services.
Additionally, they may have more extensive 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'
recreation 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,
motorcycles and motorcycle dealers represent a large percentage of
our revenue. Our business will also be impacted by cyclical trends
affecting the overall economy, specifically the retail recreation
vehicle industry, as well as by actual or threatened severe weather
events.
10
We collect, process, store, share, disclose and use personal
information and other data, and our actual or perceived failure to
protect such information and data could damage our reputation and
brand and harm our business and operating results.
We
collect, process, store, share, disclose and use personal
information and other data provided by consumers and dealers. We
rely on encryption and authentication technology licensed from
third parties to effect secure transmission of such information. We
may need to expend significant resources to protect against
security breaches or to address problems caused by breaches. Any
failure or perceived failure to maintain the security of personal
and other data that is provided to us by consumers and dealers
could harm our reputation and brand and expose us to a risk of loss
or litigation and possible liability, any of which could harm our
business and operating results. In addition, from time to time, it
is possible that concerns will be expressed about whether our
products, services, or processes compromise the privacy of our
users. Concerns about our practices with regard to the collection,
use or disclosure of personal information or other privacy related
matters, even if unfounded, could harm our business and operating
results.
There
are numerous federal, state and local laws around the world
regarding privacy and the collection, processing, storing, sharing,
disclosing, using and protecting of personal information and other
data, the scope of which are changing, subject to differing
interpretations, and which may be costly to comply with and may be
inconsistent between countries and jurisdictions or conflict with
other rules. We generally comply with industry standards and are
subject to the terms of our privacy policies and privacy-related
obligations to third parties. We strive to comply with all
applicable laws, policies, legal obligations and industry codes of
conduct relating to privacy and data protection, to the extent
possible. However, it is possible that these obligations may be
interpreted and applied in new ways or in a manner that is
inconsistent from one jurisdiction to another and may conflict with
other rules or our practices or that new regulations could be
enacted. Any failure or perceived failure by us to comply with our
privacy policies, our privacy-related obligations to consumers or
other third parties, or our privacy-related legal obligations, or
any compromise of security that results in the unauthorized release
or transfer of sensitive information, which may include personally
identifiable information or other user data, may result in
governmental enforcement actions, litigation or public statements
against us by consumer advocacy groups or others and could cause
consumers and recreation vehicle dealers to lose trust in us, which
could have an adverse effect on our business. Additionally, if
vendors, developers or other third parties that we work with
violate applicable laws or our policies, such violations may also
put consumer or dealer information at risk and could in turn harm
our reputation, business and operating results.
Failure to adequately protect our intellectual property could harm
our business and operating results.
A
portion of our success may be dependent on our intellectual
property, the protection of which is crucial to the success of our
business. We expect to rely on a combination of patent, trademark,
trade secret and copyright law and contractual restrictions to
protect our intellectual property. In addition, we will attempt to
protect our intellectual property, technology, and confidential
information by requiring our employees and consultants to enter
into confidentiality and assignment of inventions agreements and
third parties to enter into nondisclosure agreements. These
agreements may not effectively prevent unauthorized use or
disclosure of our confidential information, intellectual property,
or technology and may not provide an adequate remedy in the event
of unauthorized use or disclosure of our confidential information,
intellectual property, or technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our website features, software, and functionality
or obtain and use information that we consider
proprietary.
Competitors may
adopt service names similar to ours, thereby harming our ability to
build brand identity and possibly leading to user confusion. In
addition, there could be potential trade name or trademark
infringement claims brought by owners of other registered
trademarks or trademarks that incorporate variations of the term
"RumbleON” or "RMBL."
We
currently hold the "RumbleON.com" Internet domain name and 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.
11
In
addition, we use open source software in our products and will use
open source software in the future. From time to time, we may face
claims against companies that incorporate open source software into
their products, claiming ownership of, or demanding release of, the
source code, the open source software or derivative works that were
developed using such software, or otherwise seeking to enforce the
terms of the applicable open source license. These claims could
also result in litigation, require us to purchase a costly license
or require us to devote additional research and development
resources to change our platform or services, any of which would
have a negative effect on our business and operating
results.
Even if
these matters do not result in litigation or are resolved in our
favor or without significant cash settlements, these matters, and
the time and resources necessary to litigate or resolve them, could
harm our business, our operating results and our
reputation.
We depend on key personnel to operate our business, and if we are
unable to retain, attract and integrate qualified personnel, our
ability to develop and successfully grow our business could be
harmed.
We
believe our success will depend on the efforts and talents of our
executives and employees, including Marshall Chesrown, our Chairman
and Chief Executive Officer, and Steven R. Berrard, our Chief
Financial Officer and Secretary. Our future success depends on our
continuing ability to attract, develop, motivate and retain highly
qualified and skilled employees. Qualified individuals are in high
demand, and we may incur significant costs to attract and retain
them. In addition, the loss of any of our senior management or key
employees could materially adversely affect our ability to execute
our business plan and strategy, and we may not be able to find
adequate replacements on a timely basis, or at all. Our executive
officers are at-will employees, which means they may terminate
their employment relationship with us at any time, and their
knowledge of our business and industry would be extremely difficult
to replace. We cannot ensure that we will be able to retain the
services of any members of our senior management or other key
employees. If we do not succeed in attracting well-qualified
employees or retaining and motivating existing employees, our
business could be materially and adversely affected.
We may acquire other companies or technologies, which could divert
our management's attention, result in additional dilution to our
stockholders and otherwise disrupt our operations and harm our
operating results.
Our
success will depend, in part, on our ability to grow our business
in response to the demands of consumers, dealers and other
constituents within the recreation vehicle industry as well as
competitive pressures. In some circumstances, we may determine to
do so through the acquisition of complementary businesses and
technologies rather than through internal development. The
identification of suitable acquisition candidates can be difficult,
time-consuming, and costly, and we may not be able to successfully
complete identified acquisitions. The risks we face in connection
with acquisitions include:
●
diversion of
management time and focus from operating our business to addressing
acquisition integration challenges;
●
coordination of
technology, research and development and sales and marketing
functions;
●
transition of the
acquired company's users to our website and mobile
applications;
●
retention of
employees from the acquired company;
●
cultural challenges
associated with integrating employees from the acquired company
into our organization;
●
integration of the
acquired company's accounting, management information, human
resources, and other administrative systems;
●
the need to
implement or improve controls, procedures, and policies at a
business that prior to the acquisition may have lacked effective
controls, procedures, and policies;
●
potential
write-offs of intangibles or other assets acquired in such
transactions that may have an adverse effect our operating results
in a given period;
●
liability for
activities of the acquired company before the acquisition,
including patent and trademark infringement claims, violations of
laws, commercial disputes, tax liabilities, and other known and
unknown liabilities; and
●
litigation or other
claims in connection with the acquired company, including claims
from terminated employees, consumers, former stockholders, or other
third parties.
Our
failure to address these risks or other problems encountered in
connection with our future acquisitions and investments could cause
us to fail to realize the anticipated benefits of these
acquisitions or investments, cause us to incur unanticipated
liabilities, and harm our business generally. Future acquisitions
could also result in dilutive issuances of our equity securities,
the incurrence of debt, contingent liabilities, amortization
expenses, or the impairment of goodwill, any of which could harm
our financial condition. Also, the anticipated benefits of any
acquisitions may not materialize to the extent we anticipate or at
all.
12
We may not be able to protect our proprietary
technology.
Our
success will depend, in part, on our ability to obtain patents,
protect our trade secrets and operate without infringing on the
proprietary rights of others. We may rely upon a combination of
patents, trade secret protection, and confidentiality agreements to
protect the intellectual property of our products and services.
Patents might not be issued or granted with respect to our patent
applications that are currently pending, and issued or granted
patents might later be found to be invalid or unenforceable, be
interpreted in a manner that does not adequately protect our
business, or fail to otherwise provide us with any competitive
advantage. As such, we do not know the degree of future protection,
if any, that we will have on what we consider our intellectual
property, if any, and a failure to obtain adequate intellectual
property protection with respect to our technology and marketplace
solutions could have a material adverse impact on our
business.
If we
must spend significant time and money protecting or enforcing our
intellectual property rights our business, results of operations
and financial condition may be harmed.
Risks
Related to Ownership of our Common Stock
There has been a limited public market for our common stock, and we
do not know if one will develop that will provide you with adequate
liquidity. The trading price for our common stock may be volatile
and could be subject to wide fluctuations.
Although our common
stock is listed for trading on the Over-the-Counter Pink Sheets
("OTCPK") under the trading symbol "RMBL," and we intend to apply
for the Over-the-Counter Quotation Board ("OTCQB"), we cannot
assure you that we will meet OTCQB's listing requirements, and
therefore may not be able to meet the standards for such listing.
Furthermore, we cannot assure you that an active trading market for
our common stock will develop. The liquidity of any market for the
shares of our 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.
Historically, the
market for equity securities has also been subject to disruptions
that have caused substantial volatility in the prices of these
securities, which may not have corresponded to the business or
financial success of the particular company. We cannot assure you
that the market for the shares of our common stock will be free
from similar disruptions. Any such disruptions could have an
adverse effect on stockholders. In addition, the price of the
shares of our common stock could decline significantly if our
future operating results fail to meet or exceed the expectations of
market analysts and investors.
Even if
an active trading market develops, the market price for our common
stock may be highly volatile and could be subject to wide
fluctuations. Some of the facts that could negatively affect our
share price include:
●
actual or
anticipated variations in our quarterly operating
results.
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.
Following the
NextGen Acquisition and the Effective Date, our executive officers
and directors beneficially own approximately 81.6% of our voting stock,
representing
91.1%
in aggregate voting power, including
80.2%
in aggregate voting power held by Messrs. Chesrown and Berrard as
the only holders of our 1,000,000 outstanding shares of Class A
Common Stock, which has 10 votes for each one share outstanding. As
a result, these stockholders have the ability to determine all
matters requiring stockholder approval. For example, these
stockholders are able to control elections of directors, amendments
of our organizational documents, or 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.
The pro forma financial statements were presented for illustrative
purposes only and may not be an indication of our financial
condition or results of operations following the NextGen
Acquisition.
The pro
forma financial statements we have filed with the SEC in connection
with the NextGen Acquisition were presented for illustrative
purposes only and may not be an indication of our financial
condition or results of operations following the NextGen
Acquisition for several reasons. For example, the pro forma
financial statements were derived from our historical financial
statements and NextGen’s, and certain adjustments and
assumptions have been made regarding us after giving effect to the
NextGen Acquisition. The information upon which these adjustments
and assumptions have been made is preliminary, and these kinds of
adjustments and assumptions are difficult to make with accuracy.
Moreover, our actual financial condition and results of operations
following the NextGen Acquisition may not be consistent with, or
evident from, the pro forma financial statements.
13
In
addition, the assumptions used in preparing the pro forma financial
data may not prove to be accurate, and other factors may affect our
financial condition or results of operations following the NextGen
Acquisition. Any potential decline in our financial condition or
results of operations may cause significant variations in the
trading price of our securities.
Because our common stock is deemed a low-priced "penny" stock, an
investment in our common stock should be considered high risk and
subject to marketability restrictions.
Since
our common stock is a penny stock, as defined in Rule 3a51-1 under
the Exchange Act, it will be more difficult for investors to
liquidate their investment even if and when a market develops for
the common stock. Until the trading price of the common stock rises
above $5.00 per share, if ever, trading in the common stock is
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, the
penny stock rules may restrict the ability or willingness of
broker-dealers to sell the common stock and may affect the ability
of holders to sell their 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.
Our internal controls may be inadequate which could cause our
financial reporting to be unreliable and lead to misinformation
being disseminated to the public.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. As defined in Exchange
Act Rule 13a-15(f), internal control over financial reporting is a
process designed by, or under the supervision of, the principal
executive and principal financial officer and effected by the board
of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The
Exchange Act rule includes those policies and procedures that: (i)
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial
statements.
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 common stock will be influenced by the
research and reports that industry or securities analysts publish
about us or our business. We do not currently have and may never
obtain research coverage by securities and industry analysts. If no
or few securities or industry analysts commence coverage of us, the
trading price for our stock would be negatively impacted. In the
event we obtain securities or industry analyst coverage, if any of
the analysts who cover us issue an adverse or misleading opinion
regarding us, our business model, our intellectual property or our
stock performance, or if our operating results fail to meet the
expectations of analysts, our stock price would likely decline. If
one or more of these analysts cease coverage of us or fail to
publish reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
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:
14
●
a change in
consumer discretionary spending;
●
weather, which may
impact the ability or desire for potential end customers to
consider whether they wish to own a recreation
vehicle;
●
the timing and cost
of, and level of investment in, research and development activities
relating to our software services, which may change from time to
time;
●
our ability to
attract, hire and retain qualified personnel;
●
expenditures that
we will or may incur to acquire or develop additional product and
service offerings;
●
future accounting
pronouncements or changes in our accounting policies;
and
●
the changing and
volatile U.S., European and global economic
environments.
If our
annual or quarterly operating results fall below the expectations
of investors or securities analysts, the price of our 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.
Raising additional funds through debt or equity financing could be
dilutive and may cause the market price of our common stock to
decline.
To the
extent that we raise additional capital through the sale of equity
or convertible debt securities, your ownership interest may be
diluted, and the terms of these securities may include liquidation
or other preferences that adversely affect your rights as a
stockholder. Debt financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take
certain actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaborations, strategic collaborations or partnerships,
or marketing, distribution or licensing arrangements with third
parties, we may be required to limit valuable rights to our
intellectual property, technologies, or future revenue streams, or
grant licenses or other rights on terms that are not favorable to
us. Furthermore, any additional fundraising efforts may divert our
management from their day-to-day activities, which may adversely
affect our ability to develop and grow our business.
Sales of a substantial number of shares of our common stock in the
public market could cause our stock price to fall.
Sales
of a substantial number of shares of our common stock in the public
market or the perception that these sales might occur, could
depress the market price of our common stock and could impair our
ability to raise capital through the sale of additional equity
securities. We are unable to predict the effect that sales may have
on the prevailing market price of our common stock.
In
connection with the NextGen Acquisition, stockholders
holding 7,898,809 shares of our common stock have
entered into an Amended and Restated Stockholders Agreement (the
"Stockholders Agreement") restricting the stockholders’
ability to transfer shares of our common stock through the earlier
of (i) October 19, 2017, or (ii) the date on which the Company
receives at least $3,500,000 in proceeds of any equity financing
(the "Restricted Period"), subject to certain exceptions. The
Stockholders Agreement limits the number of shares of our common
stock that may be sold immediately following the NextGen
Acquisition. Subject to certain limitations, including sales volume
limitations with respect to shares held by our affiliates,
substantially all of our outstanding shares prior to the NextGen
Acquisition will become eligible for sale upon expiration of the
Restricted Period. Sales of stock by these stockholders could have
a material adverse effect on the trading price of our common
stock.
Future sales and issuances of our common stock or rights to
purchase our common stock could result in additional dilution of
the percentage ownership of our stockholders and could cause our
stock price to fall.
We
expect that additional capital will be needed in the future to
continue our planned operations, particularly to fund inventory
purchases or develop additional software. To the extent we raise
additional capital by issuing equity securities, our stockholders
may experience substantial dilution. We may sell our common stock,
convertible securities or other equity securities in one or more
transactions at prices and in a manner we determine from time to
time. If we sell our common stock, convertible securities or other
equity securities in more than one transaction, investors may be
materially diluted by subsequent sales. These sales may also result
in material dilution to our existing stockholders, and new
investors could gain rights superior to our existing
stockholders.
15
We do not intend to pay dividends on our common stock so any
returns will be limited to the value of our stock.
We have
never declared or paid any cash dividends on our common stock. We
currently anticipate that we will retain future earnings for the
development, operation and expansion of our business and do not
anticipate declaring or paying any cash dividends for the
foreseeable future. Any return to stockholders will therefore be
limited to the appreciation of their stock.
We are an "emerging growth company" under the JOBS Act of 2012, and
we cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies will make our common stock
less attractive to investors.
We are
an "emerging growth company," as defined in the Jumpstart Our
Business Startups Act of 2012 ("JOBS Act"), and we may take
advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not
"emerging growth companies" including, but not limited to, not
being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not
previously approved. We cannot predict if investors will find our
common stock less attractive because we may rely on these
exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our
common stock and our stock price may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an
"emerging growth company" can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities
Act of 1933, as amended (the "Securities Act") for complying with
new or revised accounting standards. In other words, an "emerging
growth company" can delay the adoption of certain accounting
standards until those standards would otherwise apply to private
companies. We are choosing to take advantage of the extended
transition period for complying with new or revised accounting
standards. As a result, our financial statements may not be
comparable to those of companies that comply with public company
effective dates.
We will
remain an "emerging growth company" for up to five years, although
we will lose that status sooner if our revenue exceeds $1 billion,
if we issue more than $1 billion in non-convertible debt in a
three-year period, or if the market value of our common stock that
is held by non-affiliates exceeds $700 million.
Even if we no longer qualify as an "emerging growth company", we
may still be subject to reduced reporting requirements so long as
we are considered a "smaller reporting company."
Many of
the exemptions available for emerging growth companies are also
available to smaller reporting companies like us that have less
than $75 million of worldwide common equity held by non-affiliates.
So, although we may no longer qualify as an emerging growth
company, we may still be subject to reduced reporting
requirements.
We may not be able to adequately protect our intellectual property
rights or may be accused of infringing intellectual property rights
of third parties.
We
regard our trademarks, service marks, copyrights, trade dress,
trade secrets, proprietary technology, and similar intellectual
property as critical to our success, and we rely on trademark,
copyright, and patent law, trade secret protection, and
confidentiality and/or license agreements with our employees,
customers, and others to protect our proprietary rights. Effective
intellectual property protection may not be available in every
market in which our products and services are made available. We
also may not be able to acquire or maintain appropriate domain
names in all markets in which we do business. Furthermore,
regulations governing domain names may not protect our trademarks
and similar proprietary rights. We may be unable to prevent third
parties from acquiring domain names that are similar to, infringe
upon, or diminish the value of our trademarks and other proprietary
rights.
We may
not be able to discover or determine the extent of any unauthorized
use of our proprietary rights. Third parties that license our
proprietary rights also may take actions that diminish the value of
our proprietary rights or reputation. The protection of our
intellectual property may require the expenditure of significant
financial and managerial resources. Moreover, the steps we take to
protect our intellectual property may not adequately protect our
rights or prevent third parties from infringing or misappropriating
our proprietary rights.
We also
cannot be certain that others will not independently develop or
otherwise acquire equivalent or superior technology or other
intellectual property rights.
Other
parties also may claim that we infringe their proprietary rights.
We may be subject to claims and legal proceedings regarding alleged
infringement by us of the intellectual property rights of third
parties. Such claims, whether or not meritorious, may result in the
expenditure of significant financial and managerial resources,
injunctions against us or the payment of damages. We may need to
obtain licenses from third parties who allege that we have
infringed their rights, but such licenses may not be available on
terms acceptable to us or at all. In addition, we may not be able
to obtain or utilize on terms that are favorable to us, or at all,
licenses or other rights with respect to intellectual property we
do not own. These risks have been amplified by the increase in
third parties whose sole or primary business is to assert such
claims.
16
Item
1B.
Unresolved staff comments.
None.
Item
2.
Properties.
We
currently maintain an office at 4521 Sharon Road, Suite 370,
Charlotte, NC 28211. We currently have no monthly rent, nor do we
accrue any expense for monthly rent. We do not believe that we will
need to obtain additional office space at any time in the
foreseeable future, approximately 12 months, until our business
plan is more fully implemented. In the future, we anticipate
requiring additional office space and additional personnel;
however, it is unknown at this time how much space or how many
individuals will be required.
Item
3.
Legal
Proceedings.
We are
not a party to any material legal proceedings.
Item
4.
Mine
Safety Disclosures.
Not
Applicable.
PART
II
Item
5.
Market
For Registrant’s Common Equity And Related Stockholder
Matters And Small Business Issuer Purchase Of Equity
Securities
Market
Information
Our
common stock is traded in the OTC Markets PK (“OTCPK”),
under the symbol “RMBL.” We have been eligible to
participate in the OTCPK since July 1, 2014 and through December
31, 2016 our common stock has not traded, except for 5,000 shares,
which traded on the OTCPK on January 22, 2016 at a price of $0.245
per share.
Holders
of Common Stock
As of
February 13, 2017, we had approximately 13 stockholders of record
of 6,923,809 issued and outstanding shares of Class B Common Stock
and two holders of record of 1,000,000 issued and outstanding
shares of Class A Common Stock.
Dividends
We have
never declared or paid any cash dividends. We currently do not
intend to pay cash dividends in the foreseeable future on the
shares of common stock. We intend to reinvest any earning in the
development and expansion of our business. Any cash dividends in
the future to common stockholders will be payable when, as and if
declared by our board of directors, based upon the Board’s
assessment of:
●
our financial
condition;
●
earnings;
●
need for
funds;
●
capital
requirements;
●
prior claims of
preferred stock to the extent issued and outstanding;
and
●
other factors,
including any applicable law.
Therefore, there
can be no assurance that any dividends on the common stock will
ever be paid.
Item
6.
Selected
Financial Data.
This
item is not applicable, as we are considered a smaller reporting
company.
17
Item
7.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
We
provide under this Item 7, management's discussion and analysis of
financial condition and results of operations for (i) RumbleON,
Inc. (“RumbleON”) for the year ended December 31, 2016,
for the month ended December 31, 2015, and for the year ended
November 30, 2015 and (ii) NextGen Dealer Solutions, LLC,
(“NextGen”) which we acquired on February 8, 2017, as
described elsewhere in this 2016 Form 10-K as of and for the year
ended December 31, 2016 and as of and for the period from December
10, 2015 and ended December 31, 2015. The MD&A for both these
entities should be read in conjunction with their respective
audited financial statements and accompanying notes beginning on
page F-2 and F-16 respectively.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations for RumbleON
Background and Business Overview
RumbleON, Inc. was
originally incorporated in the State of Nevada in October 2013 as a
development stage company under the name Smart Server, Inc. Smart
Server was formed to engage in the business of designing and
developing computer application software for smart phones and
tablet computers (“mobile payment application”) to
provide customers at participating restaurants, bars, and clubs the
ability to pay their bill with their smartphone without having to
ask for the check. Smart Server ceased its software development
activities in 2014 and, having no operations and no or nominal
assets, met the definition of a "shell company" under the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.
In
July 2016, Berrard Holdings Limited Partnership ("Berrard
Holdings") acquired 99.5% of the common stock of Smart Server from
the prior owner of such shares and efforts began on the development
of a unique, capital light, and disruptive e-commerce platform
facilitating the ability of both consumers and dealers to
Buy-Sell-Trade-Finance pre-owned recreation vehicles. It is our
goal to have the platform recognized as the most trusted and
effective solution for the sale, acquisition, and distribution of
recreation vehicles and provide users an efficient, fast,
transparent, and engaging experience. Our initial focus is the
market for 650cc and larger on road motorcycles, particularly those
concentrated in the Harley Davidson brand; we will look to extend
to other brands and additional vehicle types and products as the
platform matures. In February 2017, the Company’s name was
changed to RumbleON, Inc.
Serving
both consumers and dealers, RumbleON will make such consumers or
dealers a cash offer for the purchase of their vehicle or will
provide them the flexibility to trade, list, consign, or auction
their vehicle through the website and mobile app of RumbleON and
our partner dealers. In addition, RumbleON will offer a large
inventory of vehicles for sale on its website and will offer
financing and associated products. RumbleON operations are designed
to be highly scalable by working through an infrastructure and
capital light model created by forging a synergistic relationship
with dealers. RumbleON will utilize partner dealers in the
acquisition of motorcycles as well as to provide inspection,
reconditioning and distribution services. Correspondingly, RumbleON
will earn fees and transaction income, and partner dealers will
earn incremental revenue and enhance profitability through
increased sales, leads, and fees from inspection, reconditioning
and distribution programs.
RumbleON will be
driven by a proprietary technology platform, designed by an
experienced development team. RumbleON acquired this platform on
February 8, 2017 through its acquisition of NextGen and anticipates
the platform will be fully implemented by the RumbleON team in
partnership with the developer over the next 60 days. The system
provides integrated accounting, appraisal, inventory management,
CRM, lead and call center management, equity mining, and other key
services necessary to drive the online marketplace. Over the past
16 years, the developers of the software have designed and built,
for large multi-national clients, a number of successful dealer and
high quality online software applications solutions including
applications for vehicle appraisal and inventory management, credit
reporting and compliance, CRM and lead management, and a vehicle
purchase platform. The product suite currently has modules
supporting the motorcycle, RV, marine, and auto segments and is
easily expandable for additional products in the future. For
additional information see Item 1 Business, “Background and
Overview” and Item 8 of Part II, Note 11 “Subsequent
Events.”
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles of the United States
(“GAAP”) requires estimates and assumptions that affect
the reported amounts of assets and liabilities, revenue and
expenses, and related disclosures of contingent assets and
liabilities in the consolidated financial statements and
accompanying notes. The Securities and Exchange Commission (the
"SEC") has defined a company’s critical accounting policies
as the ones that are most important to the portrayal of the
company’s financial condition and results of operations,
and which require the company to make its most difficult and
subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this
definition, we have identified the critical accounting policies and
judgments addressed below. We also have other key accounting
policies, which involve the use of estimates, judgments, and
assumptions that are significant to understanding our results. For
additional information, see Item 8 of Part II, Financial
Statements Note 1 “Description of Business and Accounting
Policies.” Although we believe that our estimates,
assumptions, and judgments are reasonable, they are based upon
information presently available. Actual results may differ
significantly from these estimates under different assumptions,
judgments, or conditions.
18
Purchase Accounting for Business Combinations
The
Company will account for acquisitions by allocating the fair value
of the consideration transferred to the fair value of the assets
acquired and liabilities assumed on the date of the acquisition and
any remaining difference will be recorded as goodwill. Adjustments
may be made to the preliminary purchase price allocation when facts
and circumstances that existed on the date of the acquisition
surface during the allocation period subsequent to the preliminary
purchase price allocation, not to exceed one year from the date of
acquisition. Contingent consideration will be recorded at fair
value based on the facts and circumstances on the date of the
acquisition and any subsequent changes in the fair value are
recorded through earnings each reporting period. Transactions that
occur in conjunction with or subsequent to the closing date of the
acquisition will be evaluated and accounted for based on the facts
and substance of the transactions.
Goodwill
Goodwill will not
be amortized but rather tested for impairment at least annually.
The Company will test goodwill for impairment annually during the
fourth quarter of each year. Goodwill will also be tested for
impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of the
reporting unit below its carrying amount. Impairment testing for
goodwill will be done at the reporting unit level. A reporting unit
is an operating segment or one level below an operating segment
(also known as a component). A component of an operating segment is
a reporting unit if the component constitutes a business for which
discrete financial information is available, and segment management
regularly reviews the operating results of that component. The
Company has concluded that currently it has one reporting
unit.
Determining fair
value includes the use of significant estimates and assumptions.
Management will utilize an income approach, specifically the
discounted cash flow technique as a means for estimating fair
value. This discounted cash flow analysis requires various
assumptions including those about future cash flows, transactional
and customer growth rates and discount rates. Expected cash flows
will be based on historical customer growth and the growth in
transactions, including attrition, future strategic initiatives and
continued long-term growth of the business. The discount rates used
for the analysis will reflect a weighted average cost of capital
based on industry and capital structure adjusted for equity risk
and size risk premiums. These estimates can be affected by factors
such as customer and transaction growth, pricing, and economic
conditions that can be difficult to predict.
Other Intangible Assets
Identifiable
intangible assets may include customer relationships, non-compete
agreements, trademarks, trade names and internet domain names. The
estimated fair value of these intangible assets at the time of
acquisition will be based upon various valuation techniques
including replacement cost and discounted future cash flow
projections. Customer relationships will be amortized on a
straight-line basis over the expected average life of the acquired
accounts, which will be based upon several factors, including
historical longevity of customers and contracts acquired and
historical retention rates. Non-compete agreements will be
amortized on a straight-line basis over the term of the agreement,
which will generally not exceed five years. The Company will review
the recoverability of these assets if events or circumstances
indicate that the assets may be impaired and will periodically
reevaluate the estimated remaining lives of these
assets.
Trademarks, trade
names and internet domain names are considered to be indefinite
lived intangible assets unless specific evidence exists that a
shorter life is more appropriate. Indefinite lived intangible
assets will be tested, at a minimum, on an annual basis using an
income approach or sooner whenever events or changes in
circumstances indicate that an asset may be impaired.
Long-Lived Assets
Fixed
assets will be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. Recoverability of assets to be
held and used will be measured by a comparison of the carrying
amount of an asset to the future net cash flows expected to be
generated by the asset. If such assets or asset groups are
considered to be impaired, the impairment to be recognized will be
measured by the amount by which the carrying amount of the assets
or asset groups exceeds the related fair values. The Company will
also perform a periodic assessment of the useful lives assigned to
the long-lived assets.
Technology and Content
Technology costs for the RumbleON technology
platform will be accounted for pursuant to ASC 350,
Intangibles — Goodwill and
Other and will consist
principally of development activities including payroll and related
expenses for employees and third-party contractors involved in
application, content, production, maintenance, operation, and
platform development for new and existing products and services, as
well as other technology infrastructure expenses. Technology and
content costs for design or maintenance of internal-use software
and general website development will be expensed as incurred. Costs
incurred to develop new website functionality as well as new
software products for resale and significant upgrades to existing
platforms or modules will be capitalized and amortized over seven
years.
19
Beneficial Conversion Feature
From
time to time, the Company may issue convertible notes that may have
conversion prices that create an embedded beneficial conversion
feature pursuant to the guidelines established by the Financial
Accounting Standards Board’s (“FASB”) Accounting
Standards Codification (“ASC”) Topic 470-20,
Debt with Conversion and Other
Options.
The
Beneficial Conversion Feature ("BCF") of a convertible security is
normally characterized as the convertible portion or feature of
certain securities that provide a rate of conversion that is below
market value or in-the-money when issued. The Company records a BCF
related to the issuance of a convertible security when issued and
also records the estimated fair value of any conversion feature
issued with those securities. Beneficial conversion features that
are contingent upon the occurrence of a future event are recorded
when the contingency is resolved.
The BCF
of a convertible note is measured by allocating a portion of the
note's proceeds to the conversion feature, if applicable, and as a
reduction of the carrying amount of the convertible note equal to
the intrinsic value of the conversion feature, both of which are
credited to additional paid-in-capital. The Company calculates the
fair value of the conversion feature embedded in any convertible
security using either a) the Black Scholes valuation model, or b) a
discount cash flow analysis tested for sensitivity to key Level 3
inputs using the Monte Carlo simulation.
The
value of the proceeds received from the convertible security are
then allocated between the conversion features and the underlying
security on a relative fair value basis. The allocated fair value
is recorded in the financial statements as a debt discount from the
face amount of the security with a corresponding amount to
additional paid in capital. The debt discount is amortized to
interest expense over the life of the note using the effective
interest method.
Revenue Recognition
We will
recognize revenue when all of the following conditions are
satisfied: (i) there is persuasive evidence of an arrangement;
(ii) the product or service has been provided to the customer;
(iii) the amount of the product sale or fees to be paid by the
customer is fixed or determinable; and (iv) the collection of
our sales proceeds or fees are probable.
Valuation Allowance for Accounts Receivable
We will
estimate the allowance for doubtful accounts for accounts
receivable by considering a number of factors, including overall
credit quality, age of outstanding balances, historical write-off
experience and specific account analysis that projects the ultimate
collectability of the outstanding balances. Ultimately, actual
results could differ from these assumptions.
Income Taxes
The
Company follows ASC Topic
740, Income
Taxes for
recording the provision for income taxes. Deferred tax assets and
liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the
asset or liability each period. If available evidence suggests that
it is more likely than not that some portion or all of the deferred
tax assets will not be realized, a valuation allowance is required
to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the
period of change. Deferred income taxes may arise from
temporary differences resulting from income and expense items
reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which
they relate. Deferred taxes arising from temporary differences that
are not related to an asset or liability are classified as current
or non-current depending on the periods in which the temporary
differences are expected to reverse.
The
Company applies a more-likely-than-not recognition threshold for
all tax uncertainties. ASC Topic 740 only allows the recognition of
those tax benefits that have a greater than fifty percent
likelihood of being sustained upon examination by the taxing
authorities. As of December 31, 2016, December 31, 2015 and
November 30, 2015, the Company reviewed its tax positions and
determined there were no outstanding, or retroactive tax positions
with less than a 50% likelihood of being sustained upon examination
by the taxing authorities, therefore this standard has not had a
material effect on the Company.
20
Stock Based Compensation
We will
measure and recognize all stock based compensation at fair value at
the date of grant and recognize compensation expense over the
service period for awards expected to vest. Determining the fair
value of stock based awards at the grant date requires judgment,
including estimating the share volatility, the expected term the
award will be outstanding, and the amount of the awards that are
expected to be forfeited. We will utilize the Black-Scholes option
pricing model or other industry accepted valuation model, as
necessary, to determine the fair value.
Newly Issued Accounting Pronouncements
No
recently adopted or new accounting pronouncements have had, or are
expected to have, a material effect on the Company's net loss,
financial position or cash flows.
RESULTS
OF OPERATIONS
The
following table provides our results of operations for the year
ended December 31, 2016, for the month ended December 31, 2015, and
for the year ended November 30, 2015. As of December 31, 2016, the
Company has not generated any revenue. This financial information
should be read in conjunction with our audited Financial Statements
and Notes thereto.
|
Operating
expenses:
|
December
31,
2016
|
December
31,
2015
|
November
30,
2015
|
|
General and
administrative
|
$57,825
|
$-
|
$2,529
|
|
Depreciation and
amortization
|
1,900
|
158
|
1,900
|
|
Impairment of
assets
|
792
|
-
|
-
|
|
Professional
fees
|
152,876
|
2,850
|
37,123
|
|
|
|
|
|
|
Total operating
expenses
|
$213,393
|
$3,008
|
$41,552
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
Interest expense -
related party
|
11,698
|
719
|
7,257
|
|
Total other
expense
|
$11,698
|
$719
|
$7,257
|
|
|
|
|
|
|
Net loss
before provision for income taxes
|
$225,091
|
$3,727
|
$48,809
|
Operating Expenses
Operating expenses
increased $168,833 or 379% to $213,393 for the year ended December
31, 2016 as compared to the thirteen-month period ended December
31, 2015. The significant components of this change were increases
in general and administrative expenses and professional fees.
General and administrative expenses increased $55,296 to $57,825
for the year ended December 31, 2016, as compared to the
thirteen-month period ended December 31, 2015. The components of
this change were an increase in licenses and permits, insurance and
travel expenses associated with developing the RumbleON business
model and completing the NextGen Acquisition.
Professional fees
consist primarily of legal and accounting fees and costs associated
with: (i) financing activities; (ii) general corporate matters;
(iii) acquisitions; (iv) the preparation of quarterly and annual
financial statements; and (v) the filing of regulatory reports
required of the Company for public reporting purposes. Professional
fees increased $112,903 or 282% to $152,876 for the year ended
December 31, 2016, as compared to the thirteen-month period ended
December 31, 2015. This increase was primarily a result of legal,
accounting and other professional fees and expenses incurred in
connection with the: (i) change of control transaction in August
2016; (ii) private placement of common stock and convertible loan
agreement transaction completed in November 2016; (iii) NextGen
Acquisition; and (iv) various corporate matters resulting from the
discontinuation of the Smart Server business strategy and the
adoption of the RumbleON business plan. For additional information, see Item 1
Business "Background Overview", and Note 11 "Subsequent Events" in
the Notes to the Consolidated Financial Statements.
Interest
expense-related party consist of interest on the convertible
note-related party and the note payable-related party. Interest
expense-related party increased $3,722 or 47% to $11,698 as a
result of higher level debt outstanding for the year ended December
31, 2016, as compared to the thirteen-month period ended December
31, 2015. Included in interest expense is $1,282 of interest
related to the beneficial conversion feature on the convertible
note payable-related party.
21
Liquidity
and Capital Resources
The
following table sets forth a summary of our cash flows for the year
ended December 31, 2016, for the month ended December 31, 2015, and
for the year ended November 30, 2015:
|
|
December
31,
2016
|
December
31,
2015
|
November
30,
2015
|
|
Net cash used in
operating activities
|
$(19,976)
|
$(5,850)
|
$(32,632)
|
|
Net cash used in
investing activities
|
(45,515)
|
-
|
-
|
|
Net cash provided
by financing activities
|
1,412,358
|
8,000
|
28,000
|
|
Net
increase/(decrease) in cash
|
$1,346,867
|
$2,150
|
$(4,632)
|
Operating Activities
Net
cash used in operating activities decreased $18,506 or 48% to
$19,976 for the year ended December 31, 2016, as compared to the
thirteen-month period ended December 31, 2015. The decrease in net
cash used is primarily due to a $172,042 increase in our net loss
offset by an increase in net working capital of $208,635. The
increase in the net loss for the year ended December 31, 2016 was a
result of beginning to incur startup costs and expenses in
connection with the development of the RumbleON business
plan.
Investing Activities
Net
cash used in investing activities increased $45,515 for the year
ended December 31, 2016, as compared to the thirteen-month period
ended December 31, 2015. The cash used in investment activities was
for the purchase of various domain names. There was no cash used in
investing activities for the month ended December 31, 2015 and for
the year ended November 30, 2015.
Financing Activities
Net
cash provided by financing activities increased $1,376,358 to
$1,412,358 for the year ended December 31, 2016, compared with net
cash provided by financing activities of $36,000 during the
thirteen-month period ended December 31, 2015. This increase is
primarily a result of the: (i) issuance of a $197,358 convertible
note payable to Berrard Holdings Limited Partnership; (iii)
issuance of $17,000 in notes payable to E. Venture Resources Inc.
and (ii) sale of $1,354,000 of common stock in a private placement.
These amounts were offset by a $158,000 repayment of notes payable
E. Venture Resources Inc. Cash Requirements and Financing
Transactions
As of
December 31, 2016, the Company had a total of $1,350,580 in
available cash. If we were to not receive any additional funds, we
could not continue in business for the next 12 months with our
currently available capital. Since inception, we have financed our
cash flow requirements through debt and equity financing. As we
expand our activities, we may, and most likely will, continue to
experience net negative cash flows from operations, pending the
Company’s ability to generate sustainable cash flow from the
implementation of its business strategy and utilization of its
e-commerce platform. See Item 1 Business "Background Overview" for
a further discussion of the Company’s business
strategy.
Since
the completion of the Company’s initial public offering it
has funded its business activities through a series of promissory
notes with E. Venture Resources, Inc., totaling $158,000. The terms
of the promissory notes provide for an interest rate of 6% per
annum with all accrued balances due and payable within 24 months of
the date of the promissory note. During July 2016, the Company
repaid the entire amount of principal and accrued interest to E.
Venture Resources, Inc. During July 2016, the Company executed a
convertible promissory note with Berrard Holdings Limited
Partnership for a total of $197,358. The terms of the promissory
notes provide for an interest rate of 6% per annum with all accrued
balances due and payable in July 2026. The debt is convertible into
shares of common stock at a per share price of $0.75.
On
November 28, 2016, RumbleON completed a private placement (the
"Private Placement") with certain accredited investors (the
"Purchasers"), with respect to the sale of an aggregate of 900,000
shares of common stock of the Company at a purchase price of $1.50
per share for total consideration of $1,350,000. In connection with
the Private Placement, the Company also entered into loan
agreements with the Purchasers pursuant to which the Purchasers
will loan to the Company their pro rata share of up to $1,350,000
in the aggregate upon the request of the Company at any time on or
after January 31, 2017 and before November 1, 2020, pursuant to the
terms of the convertible promissory note attached to each of the
Loan Agreements.
Our
cash requirements for the next twelve months are significant and
will consist primarily of funds needed for: (i) our day-to-day
operations; (ii) capital expenditures associated with computer
equipment and software development; and (iii) the purchase of
inventory held for sale. 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.
22
Even
though we expect to begin generating revenue, we can make no
assurances and therefore we may incur operating losses in the next
twelve months. Our limited operating history makes predictions of
future operating results difficult to ascertain. Our prospects must
be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving
markets. Such risks for us include, but are not limited to, an
evolving business model, advancement of technology and the
management of growth. To address these risks, we must, among other
things, continue our development of relevant applications, stay
abreast of changes in the marketplace, as well as implement and
successfully execute our business and marketing strategy. There can
be no assurance that we will be successful in addressing such
risks, and the failure to do so can have a material adverse effect
on our business prospects, financial condition and results of
operations.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations for NextGen
Background and Business Overview
On January 8, 2017,
NextGen, Halcyon Consulting, LLC (“Halcyon”), and
members of Halcyon signatory thereto (“Halcyon Members”
and together with Halcyon, the “Halcyon Parties”)
entered into an Asset Purchase Agreement with Smart Server, Inc.
(“Smart Server”). NextGen and the Halcyon Parties are
collectively referred to as the “Seller Parties.” The
Agreement provides that, upon the terms and subject to the
conditions set forth in the Agreement, Smart Server would acquire
all of NextGen's assets, properties and rights of whatever kind,
tangible and intangible, other than the excluded assets under the
terms of the Agreement. Smart Server also would assume liability
only for certain post-closing contractual obligations pursuant to
the terms of the Agreement, primarily related to operating and
maintaining the CyclePro application. Additionally, Smart Server
agreed to be responsible for certain payroll costs and operating
expenses of NextGen
incurred after January 16, 2017 and through the
closing of the NextGen Acquisition, and 2) benefit from all revenue
earned from January 16, 2017 forward. On February 8, 2017, prior to
the closing of the NextGen Acquisition, Smart Server assigned to
NextGen Pro, LLC the right to acquire NextGen's assets and
liabilities (but not any other rights or obligations under the
NextGen Agreement). The transaction closed on February 8,
2017.
NextGen Pro, LLC acquired
substantially all of the assets of NextGen in exchange for the
payment of approximately $750,000 in cash, the issuance to NextGen of
1,523,809 unregistered shares of common stock of the Company (the
"Purchaser Shares"), the issuance of a
subordinated secured promissory note by Smart Server in favor of
the Company in the amount of $1,333,333 (the "Acquisition Note"),
and the assumption by NextGen Pro, LLC of certain specified
liabilities of NextGen. The Acquisition Note matures on the third
anniversary of the date the Acquisition Note is entered into (the
"Maturity Date"). Interest will accrue on the Acquisition Note (i)
at a rate of 6.5% annually from the date the Acquisition Note is
entered into through the second anniversary of such date and (ii)
at a rate of 8.5% annually from the second anniversary of the date
the Acquisition Note is entered into through the Maturity
Date.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles of the United States
(“GAAP”) requires estimates and assumptions that affect
the reported amounts of assets and liabilities, revenue and
expenses, and related disclosures of contingent assets and
liabilities in the consolidated financial statements and
accompanying notes. The Securities and Exchange Commission (the
"SEC") has defined a company’s critical accounting policies
as the ones that are most important to the portrayal of the
company’s financial condition and results of operations,
and which require the company to make its most difficult and
subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this
definition, we have identified the critical accounting policies and
judgments addressed below. We also have other key accounting
policies, which involve the use of estimates, judgments, and
assumptions that are significant to understanding our results.
Although we believe that our estimates, assumptions, and judgments
are reasonable, they are based upon information presently
available. Actual results may differ significantly from these
estimates under different assumptions, judgments, or
conditions.
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Any
adjustments applied to estimated amounts are recognized in the year
such adjustments are determined.
Software Capitalization
NextGen capitalizes
the costs associated with the development of its software solutions
and website pursuant to ASC Topic 350, Intangibles – Goodwill and
Other. Other costs related to the maintenance of the
software are expensed as incurred. Amortization is provided over
the estimated useful lives of seven years using the straight-line
method for financial statement purposes.
23
Revenue Recognition
NextGen
recognizes revenue when all of the following conditions are
satisfied: (1) there is persuasive evidence of an arrangement; (2)
the product or service has been provided to the customer; (3) the
amount of fees to be paid by the customer is fixed or determinable;
and (4) the collection of our fees is probable. Dealers typically
pay monthly subscription fees to access some or all modules on an a
la carte basis, as well as, in certain cases, implementation or
training fees.
Marketing and Advertising Costs
NextGen
expenses marketing and advertising costs as incurred.
Newly Issued Accounting Pronouncements
No
recently adopted or new accounting pronouncements have had, or are
expected to have, a material effect on NextGen's net loss,
financial position or cash flows.
RESULTS
OF OPERATIONS
The
following table provides our results of operations for the year
ended December 31, 2016, and for the period from December 10, 2015
(inception) ended on December 31, 2015. This financial information
should be read in conjunction with NextGen's audited Consolidated
Financial Statements and Notes to the Consolidated Financial
Statements included in Item 8.
|
|
For the year
ended
December 31,
2016
|
For
the
period
from
December 10,
2015
thru
December 31,
2015
|
|
Revenue:
|
|
|
|
Gross
revenue
|
$138,141
|
$6,257
|
|
|
|
|
|
Cost
and Expenses:
|
|
|
|
Cost of goods
sold
|
332,559
|
17,857
|
|
General and
administrative expenses
|
1,586,002
|
96,608
|
|
|
1,918,561
|
114,465
|
|
Operating
Loss
|
(1,780,420)
|
(108,208)
|
|
|
|
|
|
Other
Income
|
644
|
-
|
|
|
|
|
|
Net
Loss
|
$(1,779,776)
|
$(108,208)
|
|
|
|
|
Revenue
Revenue
consists of: (i) monthly subscription fees paid by dealers for
access to some (a la carte basis) or all modules that the Company
offers; and (ii) implementation and training fees. Subscription
fees comprised approximately 80% of total revenue for the year
ended December 31, 2016, while implementation accounted for the
majority of the balance. Revenue increased $131,884 to $138,141 for
the year ended December 13, 2016 as compared to 2015 primarily as a
result of 2015 containing only 21 days in the period and an
increase in new customers during the year ended December 31,
2016.
Cost of Goods Sold
Cost of
sales consists of amount paid by NextGen for: (i) various data
feeds from third parties; (ii) hosting of the customer facing
website; (iii) commissions for new sales; (iii) labor incurred in
development activities which include
payroll and third-party contractors involved in application,
content, production, maintenance, operation, and platform
development of internal-use software and general website
development; and (iv) implementation and training of new and
existing customers. These costs and expenses are charged to cost of goods sold as incurred.
For the year ended December 31, 2016 training costs and hosting
costs represented approximately 62% and 10%, respectively of Cost
of goods sold, with the cost of data feeds from information
providers or integrated software vendors representing the balance
of costs.
24
General and administrative
General
and administrative for the year ended December 31, 2016 consisted
of the following:
|
|
December 31,
|
|
December 31,
|
|
|
|
2016
|
%
|
2015
|
%
|
|
Payroll
|
$548,299
|
35%
|
$24,000
|
25%
|
|
Technology
costs
|
384,442
|
24%
|
6,495
|
7%
|
|
Depreciation
and amortization
|
253,468
|
16%
|
9,369
|
10%
|
|
Marketing
|
100,035
|
6%
|
-
|
0%
|
|
Rent
|
87,305
|
6%
|
4,314
|
4%
|
|
Other
|
212,453
|
13%
|
524,430
|
54%
|
|
|
$1,586,002
|
100%
|
$96,608
|
100%
|
Technology
expenditures include those costs that are not capitalized pursuant
to ASC 350, Intangibles —
Goodwill and Other.
Depreciation and amortization is primarily comprised of the
amortization on capitalized software and website. Marketing
includes the monthly fees and sales commissions earned by the
Company’s Marketing Partner under a Marketing Services
Agreement. For additional information,
see Note 3 “Related Party Transactions” in the
Notes to the Consolidated Financial Statements for
NextGen.
Liquidity
and Capital Resources
The
following table summarizes cash flows from operations for the years
ended December 31, 2016 and 2015:
|
|
For the year
ended
December 31,
2016
|
For
the
period
from
December 10,
2015
through
December 31,
2015
|
|
Net cash used in
operating activities
|
$(1,111,190)
|
$-
|
|
Net cash used in
investing activities
|
(341,919)
|
-
|
|
Net cash provided
by financing activities
|
-
|
1,500,000
|
|
Net
increase/(decrease) in cash
|
$(1,453,109)
|
$1,500,000
|
Operating Activities
Net
cash used in operating activities increased to $1,111,190 for the
year ended December 31, 2016, as compared to the same period in
2015. The increase in net cash used is primarily due to a
$1,671,568 increase in our net loss, offset by an increase in net
working capital of $408,860. The increase in the net loss for the
year ended December 31, 2016 was a result of continuing to incur
startup cost and expenses in connection with the development of the
NextGen business plan.
Investing Activities
Net
cash used in investing activities increased $341,919 for the year
ended December 31, 2016, as compared to the same period of 2015.
The cash used in investment activities was for the capitalized
costs and expenses associated with the development of the
Company’s software solutions and website in accordance with
ASC Topic 350, Intangibles —
Goodwill and Other. There was no cash used in investing
activities for the period ended December 31, 2015.
Financing Activities
There
was no net cash provided by financing activities for the year ended
December 31, 2016. The Company financially sustained its activities
for the year ended December 31, 2016 from the initial contribution
of $1,500,000 from an investor in December, 2015
25
Forward-Looking
Statements
This
Annual Report on Form 10-K contains forward-looking statements and
involves risks and uncertainties that could materially affect
expected results of operations, liquidity, cash flows, and business
prospects. These statements include, among other things, statements
that:
●
We have no
operating history and we cannot assure you the Company will achieve
or maintain profitability;
●
The initial
development and growth of our business over the first 24 months of
operations, and such growth may not be indicative of our future
growth and, if we continue to grow rapidly, we may not be able to
manage our growth effectively;
●
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;
●
If key industry
participants, including recreation vehicle dealers and recreation
vehicle manufacturers, perceive us in a negative light or our
relationships with them suffer harm, our ability to operate and
grow our business and our financial performance may be
damaged;
●
We may be unable to
maintain or grow relationships with information data providers or
may experience interruptions in the data feeds they provide, which
may limit the information that we are able to provide to our users
and dealers as well as adversely affect the timeliness of such
information and may impair our ability to attract or retain
consumers and our dealers and to timely invoice all
parties;
●
If we suffer a
significant interruption in our ability to gain access to
third-party data, our business and operating results will
suffer;
●
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;
●
The failure to
develop and maintain our brand could harm our ability to grow
unique visitor traffic and to expand our dealer
network;
●
We will 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;
●
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;
●
If we are unable to
provide a compelling recreation vehicle buying experience to our
users, the number of transactions between our users, RumbleON and
dealers will decline and our revenue and results of operations will
suffer harm;
●
The growth of our
business relies significantly on our ability to increase the number
of dealers in our network such that we are able to increase the
number of transactions between our users and dealers. Failure to do
so would limit our growth;
●
Our ability to grow
our complementary product offerings may be limited, which could
negatively impact our development, growth, revenue and financial
performance;
●
We will be relying
on third-party financing providers to finance a significant portion
of our customers’ vehicle purchases;
●
Retail sales of
recreational vehicles by the Company may be adversely impacted by
increased supply of and/or declining prices for used recreational
vehicles and excess supply of new recreational
vehicles;
●
We rely on a number
of third parties to perform certain operating and administrative
functions for the Company;
●
We participate in a
highly competitive market, and pressure from existing and new
companies may adversely affect our business and operating
results;
●
Seasonality or
weather trends may cause fluctuations in our unique visitors,
revenue and operating results;
●
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;
●
Failure to
adequately protect our intellectual property could harm our
business and operating results;
●
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 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 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;
26
●
We may not be able
to protect our proprietary technology;
●
There has been a
limited public market for our common stock, and we do not know if
one will develop that will provide you with adequate liquidity. The
trading price for our common stock may be volatile and could be
subject to wide fluctuations;
●
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;
●
The pro forma
financial statements were presented for illustrative purposes only
and may not be an indication of our financial condition or results
of operations following the NextGen Acquisition;
●
Because our common
stock is deemed a low-priced "penny" stock, an investment in our
common stock should be considered high risk and subject to
marketability restrictions;
●
Our internal
controls may be inadequate which could cause our financial
reporting to be unreliable and lead to misinformation being
disseminated to the public;
●
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;
●
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;
●
Raising additional
funds through debt or equity financing could be dilutive and may
cause the market price of our common stock to decline;
●
Sales of a
substantial number of shares of our common stock in the public
market could cause our stock price to fall;
●
Future sales and
issuances of our common stock or rights to purchase our common
stock could result in additional dilution of the percentage
ownership of our stockholders and could cause our stock price to
fall;
●
We do not intend to
pay dividends on our common stock so any returns will be limited to
the value of our stock;
●
We are an "emerging
growth company" under the JOBS Act of 2012, and we cannot be
certain if the reduced disclosure requirements applicable to
emerging growth companies will make our common stock less
attractive to investors;
●
Even if we no
longer qualify as an "emerging growth company", we may still be
subject to reduced reporting requirements so long as we are
considered a "smaller reporting company";
●
We may not be able
to adequately protect our intellectual property rights or may be
accused of infringing intellectual property rights of third
parties;
●
Our auditor’s
report reflects the fact that the ability of the Company to
continue as a going concern is dependent upon its ability to raise
additional capital from the sale of common stock and, ultimately
the achievement of significant operating revenue. If we are unable
to continue as a going concern, you will lose your
investment;
●
other risks and
uncertainties detailed in this report;
as well
as other statements regarding our future operations, financial
condition and prospects, and business strategies. Forward-looking
statements may appear throughout this report, including without
limitation, the following sections: Item 1 "Business," Item 1A
"Risk Factors," and Item 7. "Management’s Discussion and
Analysis of Financial Condition and Results of Operations."
Forward-looking statements generally can be identified by words
such as "anticipates," "believes," "estimates," "expects,"
"intends," "plans," "predicts," "projects," "will be," "will
continue," "will likely result," and similar expressions. These
forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties, which
could cause our actual results to differ materially from those
reflected in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed in this Annual Report on Form 10-K, and
in particular, the risks discussed under the caption "Risk Factors"
in Item 1A and those discussed in other documents we file with the
Securities and Exchange Commission (SEC). We undertake no
obligation to revise or publicly release the results of any
revision to these forward-looking statements, except as required by
law. Given these risks and uncertainties, readers are cautioned not
to place undue reliance on such forward-looking
statements.
Item
7A.
Quantitative
and Qualitative Disclosures About Market Risk.
This
item in not applicable as we are currently considered a smaller
reporting company.
Item
8.
Financial
Statements and Supplementary Data.
See
Index to Financial Statements and Financial Statement Schedules
beginning on page F-1 of this Form 10-K.
Item
9.
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure.
On
December 16, 2016, the Board approved the dismissal of Seale and
Beers, CPAs (“Seale and Beers”) as the Company’s
independent registered public accounting firm, effective December
16, 2016.
Seale and Beers audited the
Company’s financial statements for the years ended November
30, 2015 and November 30, 2014. Seale and Beers’ reports on
the Company’s financial statements for the years ended
November 30, 2015 and November 30, 2014 did not contain any adverse
opinion or disclaimer of opinion, nor were the reports qualified or
modified as to uncertainty, audit scope or accounting principles.
However, the Seale and Beers’ reports on the Company’s
financial statements for the years ended November 30, 2015 and
November 30, 2014 each contained an explanatory paragraph noting
there was substantial doubt as to the Company’s ability to
continue as a going concern.
In
connection with Seale and Beers' audit of the Company’s
financial statements for the fiscal years ended November 30, 2015
and November 30, 2014 and through the subsequent interim period
ended December 16, 2016, the Company has had no disagreement with
Seale and Beers on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction
of Seale and Beers, would have caused Seale and Beers to make a
reference to the subject matter of the disagreements in connection
with its reports on the financial statements for the fiscal year
ended November 30, 2015 and November 30, 2014.
The
Company provided Seale and Beers a copy of the disclosures it is
making in this report and requested that Seale and Beers furnish a
letter addressed to the SEC stating whether it agrees with the
statements made by the Company in this report and, if not, stating
the respects in which it does not agree. A copy of such letter is
attached as Exhibit 16.1 to this report.
On
December 20, 2016, the Board also approved the engagement of Scharf
Pera & Co., PLLC (“Scharf Pera”) as the
Company’s independent registered public accounting firm for
the fiscal year ending December 31, 2016. The engagement of Scharf
Pera was effective December 20, 2016. During the fiscal years ended
November 30, 2014 and November 30, 2015, and the subsequent interim
period through December 20, 2016, neither the Company nor anyone on
its behalf consulted with Scharf Pera regarding either (i) the
application of accounting principles to a specific completed or
proposed transaction or the type of audit opinion that might be
rendered on the Company’s financial statements, and Scharf
Pera did not provide written reports or oral advice that was an
important factor considered by the Company in reaching a decision
as to any accounting, auditing or financial reporting issue during
such periods or (ii) any matter that was either the subject of a
disagreement (as defined in Item 304(a)(i)(iv) of Regulation S-K
and related instructions to such item) or a reportable event (as
described in Item 304(a)(i)(v) of Regulation S-K).
27
Item
9A.
Controls
and Procedures.
Evaluation of Disclosure Controls and Procedures
Our
Principal Executive Officer and Principal Financial Officer,
Marshall Chesrown and Steven R. Berrard, have evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Exchange Act) as of the end of the
period covered by this Report. Based on their evaluation, Messrs.
Chesrown and Berrard concluded that our disclosure controls and
procedures are designed at a reasonable assurance level and are
effective to provide reasonable assurance that information we are
required to disclose in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to
our management, including our chief executive officer and principal
financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
Management’s Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control, as is defined in the Exchange Act. These internal
controls are designed to provide reasonable assurance that the
reported financial information is presented fairly, that
disclosures are adequate and that the judgments inherent in the
preparation of financial statements are reasonable. There are
inherent limitations in the effectiveness of any system of internal
controls, including the possibility of human error and overriding
of controls. Consequently, an effective internal control system can
only provide reasonable, not absolute, assurance with respect to
reporting financial information.
Our
internal control over financial reporting includes policies and
procedures that: (i) pertain to maintaining records that in
reasonable detail accurately and fairly reflect our transactions;
(ii) provide reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements in accordance
with generally accepted accounting principles and the receipts and
expenditures of company assets are made and in accordance with our
management and directors authorization; and (iii) provide
reasonable assurance regarding the prevention or timely detection
of unauthorized acquisition, use or disposition of assets that
could have a material effect on our financial
statements.
Management has
undertaken an assessment of the effectiveness of our internal
control over financial reporting based on the framework and
criteria established in the Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission ("COSO"). Based upon this evaluation,
management concluded that our internal control over financial
reporting was effective as of December 31, 2016.
This
annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
the temporary rules of the Securities and Exchange Commission that
permit the company to provide only the management’s report in
this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during our most recent fiscal quarter that have
materially affected, or reasonably likely to materially affect, our
internal control over financial reporting.
Item
9B.
Other
Information.
As
described elsewhere in this Form 10-K, on February 8, 2017, the
Closing Date, RumbleON completed its previously announced
acquisition of substantially all of the assets of NextGen in
exchange for $750,000 in cash, the Purchaser Shares and the
Acquisition Note.
Before
the NextGen Acquisition, we were a “shell company” (as
such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended, or the Exchange Act). As a result of the
NextGen Acquisition, we have ceased to be a “shell
company.” The information contained in this Item 9B, together
with other information contained in this Annual Report on Form 10-K
for the year ended December 31, 2016 constitute the current
“Form 10 information” necessary to satisfy the
conditions contained in Rule 144(i)(2) under the Securities Act of
1933, as amended, and Item 2.01(f) of Form 8-K.
This
Item 9B contains summaries of the material terms of various
agreements executed in connection with the NextGen Acquisition
described herein. The summaries of these agreements are subject to,
and are qualified in their entirety by, reference to these
agreements, which are filed as exhibits to this Form 10-K and are
incorporated in this Form 10-K by reference.
28
This
Item 9B and other portions of this Form 10-K also respond to the
following Items in Form 8-K:
Item 1.01.
Entry into a
Material Definitive Agreement.
Item 2.01.
Completion of
Acquisition or Disposition of Assets.
Item
2.03.
Creation of a
Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
Item
3.02.
Unregistered Sales
of Equity Securities.
Item 5.02.
Departure of
Directors or Certain Officers; Election of Directors; Appointment
of Certain Officers; Compensatory Arrangements of Certain
Officers.
Item 5.06.
Change in Shell
Company Status.
Item
9.01.
Financial
Statements and Exhibits.
Agreements
Related to the NextGen Acquisition
Stockholders' Agreement
In
connection with the NextGen Acquisition, the Company, Berrard
Holdings Limited Partnership ("Berrard Holdings"), Steven R.
Berrard, (with Berrard Holdings, the "Berrard Holders"), Marshall
Chesrown, the Seller Parties, and other stockholders of the Company
who are parties to the prior Stockholders' Agreement dated October
24, 2016 (together with Mr. Chesrown and the Berrard Holders, the
"Stockholders") entered into an Amended and Restated Stockholders'
Agreement, dated as of the Closing Date (the “Stockholders'
Agreement”), whereby the parties agreed to take all necessary
actions to (i) set the size of the board of directors of the
Company at six (6) members, (ii) elect to the board of directors of
the Company three (3) directors designated by Mr. Chesrown, until
the date when Mr. Chesrown’s equity holdings in the Company
fall below the Minimum Threshold (as defined in the Stockholders'
Agreement), and (iii) elect to the board of directors of the
Company one (1) director designated by Mr. Berrard, until the date
when Mr. Berrard’s equity holdings in the Company fall below
the Minimum Threshold.
The
Stockholders' Agreement restricts the stockholders’ ability
to transfer shares of our common stock through the earlier of (i)
October 19, 2017, or (ii) the date on which the Company receives at
least $3,500,000 in proceeds of any equity financing (the
"Restricted Period"), subject to certain exceptions. The
Stockholders' Agreement limits the number of shares of our common
stock that may be sold immediately following the NextGen
Acquisition. Subject to certain limitations, including sales volume
limitations with respect to shares held by our affiliates,
substantially all of our outstanding shares prior to the NextGen
Acquisition will become eligible for sale upon expiration of the
Restricted Period.
The Stockholders' Agreement grants
certain major stockholders of the Company the right to require the
other stockholders signatory to the Stockholders' Agreement to
participate in any transaction that constitutes a sale of the
Company's business (whether via merger, asset sale, tender offer or
otherwise). The exercise of the right is subject to certain
customary conditions, limitations and procedural requirements and,
in some circumstances, is conditioned on a prior approval of the
transaction by the Company's Board of Directors. Where the sale of
the Company's business is accomplished through a direct sale of
securities representing more than 50% of the issued and outstanding
common stock of the Company, certain major stockholder have an
obligation to exercise the drag-along rights described in this
paragraph. The drag-along rights, including the obligation to
exercise such rights in certain circumstances, expire on December
31, 2018.
The
Stockholders' Agreement requires each stockholder signatory thereto
(other than Steven Berrard, Berrard Holdings Limited Partnership
and Marshall Chesrown) to make an offer to sell their shares of
stock in the Company to the Company, Steven Berrard, Berrard
Holdings Limited Partnership and Marshall Chesrown prior to seeking
to transfer such shares to any other person. In addition, Steven
Berrard and Berrard Holdings Limited Partnership on the one hand
and Marshall Chesrown on the other hand have agreed that each would
grant the other party the right to purchase its shares of the
Company's stock before transferring such shares to any other
person. The rights described in this paragraph are subject to
certain customary conditions, limitations and procedural
requirements and terminate on the earlier of June 30, 2018 and the
date on which certain stockholders elect to terminate such rights
by written notice to the other stockholders signatory hereto. The
Stockholders' Agreement also contains certain procedural and
information rights related to the election of
directors.
This
description of the Stockholders' Agreement is qualified in its
entirety by reference to the Stockholders' Agreement, a copy of
which is filed as Exhibit 10.1 to this 2016 Form 10-K and is
incorporated into this report by reference.
Registration Rights Agreement
In
connection with the NextGen Acquisition, the Company entered into a
Registration Rights Agreement (the “Registration Rights
Agreement”), with certain of the Seller Parties, as Company
stockholders, pursuant to which the Company will register the
Purchaser Shares for resale. Under the terms of the Registration
Rights Agreement, the Company will be required to file a
registration statement on an appropriate form covering the resale
of the Purchaser Shares no later than June 30, 2017.
This
description of the Registration Rights Agreement is qualified in
its entirety by reference to the Registration Rights Agreement, a
copy of which is filed as Exhibit 10.2 to this 2016 Form 10-K and
is incorporated into this report by reference.
Consulting Agreement
In
connection with the NextGen Acquisition, the Company entered into a
Consulting Agreement with Kartik Kakarala, who formerly served as
the Chief Executive Officer of NextGen and now serves as a director
of the Company (the "Consulting Agreement"). Pursuant to the
Consulting Agreement, Mr. Kakarala will serve as a consultant to
the Company. The Consulting Agreement may be cancelled by either
party, effective upon delivery of a written notice to the other
party. Mr. Kakarala's compensation pursuant to the Consulting
Agreement will be $5,000 per month.
This
description of the Consulting Agreement into this report is
qualified by reference to the Consulting Agreement, a copy of which
is filed with this report as Exhibit 10.3 to this 2016 Form 10-K
and is incorporated into this report by reference.
Services Agreement
In
connection with the NextGen Acquisition, the Company entered into a
Services Agreement with Halcyon to provide development and support
services to the Company (the "Services Agreement"). Pursuant to the
Services Agreement, the Company will pay Halcyon hourly fees for
specific services, set forth in the Services Agreement, and such
fees may increase on an annual basis, provided that the rates may
not be higher than 110% of the immediately preceding year's rates.
The Company will reimburse Halcyon for any reasonable travel and
pre-approved out-of-pocket expenses in connection with its services
to the Company.
29
The
Services Agreement has a term of 24 months from the Closing Date
(the "Initial Term"), and automatically renews thereafter for
additional, consecutive 12-month renewal periods unless either
party provides the other party notice of non-renewal at least 90
days prior to expiration of the then-current term. Either party may
terminate the Services Agreement immediately (i) upon written
notice if the other party materially breaches any of its
obligations and fails to cure such breach within 30 days of notice
thereof or (ii) if the other party makes a general assignment for
the benefit of creditors, is subject of a petition for bankruptcy,
has a receiver appointed or is otherwise declared insolvent or if
the Company is liquidated. The Company may terminate the Services
Agreement immediately by written notice to Halcyon if Halcyon
violates any applicable law in the performance of its services to
the Company. Additionally, the Company and Halcyon may mutually
agree in writing to terminate the Services Agreement at any time.
The Company or Halcyon may terminate the Services Agreement or any
services thereunder at any time after the Initial Term upon 90
days' prior written notice to the other.
This
description of the Services Agreement into this report is qualified
by reference to the Services Agreement, a copy of which is filed
with this report as Exhibit 10.4 and is incorporated into this
report by reference.
Data Agreement
Additionally, and
in connection with the NextGen Acquisition, as described above, the
Company and Cycle Express, LLC ("Cycle Express"), entered into a
Data Confidentiality Agreement, dated February 8, 2017 (the
“Data Agreement”). Among other things, the Data
Agreement allows Cycle Express to provide to the Company certain
non-public confidential auction data ("Confidential Information"),
including an agreed upon number of NPA Value Guide API look-ups per
year, for the agreed upon monthly fee to be used for (i) trade-in
appraisals and inventory valuation in the Company's product known
as “CyclePro” or (ii) the Company's products that
aggregate Confidential Information with other proprietary data
available to the Company and deliver the aggregated data or
analysis derived therefrom to the Company's customers without
attribution of individual sources of data. Other than usual and
customary exceptions, the parties agreed that all Confidential
Information provided to the Company would remain confidential and
would not be used by the Company for any purpose other than the
purposes described above. The Data Agreement has a term of 1 year
unless earlier terminated by Cycle Express pursuant to the terms of
that agreement.
The
above description of the Data Agreement is qualified in its
entirety by reference to the Data Agreement, a copy of which is
attached hereto as Exhibit 10.5 to this Form 10-K and is
incorporated into this report by reference.
Accounting
Treatment
The
NextGen Acquisition will be accounted for by us an asset
acquisition rather than a reverse recapitalization. The Company
considered a number of factors in reaching this conclusion,
including:
●
the Company's
efforts before the acquisition to developing the technology and
business acquired;
●
the Company's
assessment that we did not intend to pursue NextGen’s
business model exclusively but rather that the NextGen Acquisition
would accelerate our efforts to build our business;
●
the Company's
assumption of operating control of NextGen and, that current Board
and executive officers of the Company will continue as management
of the combined company;
●
the Purchaser
Shares paid as part of the consideration to the Seller Parties
represent only 19.2% of the total shares of common stock issued and
outstanding after the transaction; and
●
voting control over
shareholder matters remains with Marshall Chesrown and Steven R.
Berrard (the “Controlling Shareholders”), both of whom
are members of our Board of Directors and executive officers of the
Company and who in aggregate control approximately 80.2% of the
outstanding voting power of the Company as of February 13,
2017.
Change
in Shell Company Status
Before
the NextGen Acquisition, which is described in Part I, Item 1 of
this report, we were a “shell company”. As a result of
the NextGen Acquisition, we have ceased to be a “shell
company.” The information contained in this Form 10-K
constitutes the current “Form 10 information”
necessary to satisfy the conditions contained in
Rule 144(i)(2) under the Securities Act.
Appointment
of Principal Accounting Officer and Director
Effective as of the
Effective Date, the Company's Board of Directors appointed Steven
Berrard, the Company's Chief Financial Officer, Secretary and a
director, as principal accounting officer of the Company, and
Kartik Kakarala as a director of the Company.
30
Sales
of Unregistered Securities
Since
January 1, 2017, the Company has issued the following unregistered
securities:
(1)
On the Closing Date, the Company issued 1,523,809 unregistered
shares of Common Stock to NextGen; and
(2)
On the Effective
Date, the Company issued to (i) Mr. Chesrown 875,000 unregistered
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 125,000 shares of Class A Common Stock in exchange for an
equal number of shares of Class B Common Stock held by Mr.
Berrard.
Neither
of the foregoing transactions involved any underwriters,
underwriting discounts or commissions, or any public offering. We
believe the offer, sale and issuance of the shares in Item (1)
above was exempt from registration under the Securities Act by
virtue of Section 4(a)(2) of the Securities Act and Regulation D
thereunder as an issuance of securities not involving a public
offering, and in Item (2) above by virtue of Section 3(a)(9) of the
Securities Act as a security exchanged by an issuer with existing
security holders where no commission or other remuneration is paid
or given directly or indirectly for soliciting such
exchange.
Description
of Our Securities
General
The
following is a summary of the rights of our Common Stock
and preferred stock and of certain provisions of our Articles of
Incorporation and Bylaws in effect upon the completion of the
NextGen Acquisition. For more detailed information, please see our
Articles of Incorporation and Bylaws, which are filed as exhibits
to this Form 10-K.
Common Stock
Our
Articles of Incorporation authorizes the issuance of 100,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock"), of
which 1,000,000 shares are designated as Class A Common Stock (the
"Class A Common Stock") and all other shares of Common Stock are
designated as Class B Common Stock (the "Class B Common Stock").
The Class A Common Stock ranks pari passu with all of the rights
and privileges of the Class B Common Stock, except that holders of
the Class A Common Stock are entitled to ten votes per share of
Class A Common Stock issued and outstanding. The Class B Common
Stock will be identical to the Class A Common Stock in all
respects, except that holders of the Class B Common Stock will be
entitled to one vote per share of Class B Common Stock issued and
outstanding. Our Class B Common Stock is registered pursuant to
Section 12(g) of the Securities Act. As of February 13, 2017,
1,000,000 shares of Class A Common Stock and 6,923,809 shares of
Class B Common Stock were issued and outstanding.
Holders
of shares of Common Stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the
Board of Directors in its discretion, from funds legally available
to be distributed. In the event of a liquidation, dissolution or
winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment
in full of all liabilities and the prior payment to the preferred
stockholders if any. Holders of Common Stock have no preemptive
rights to purchase our Common Stock. There are no conversion rights
or redemption or sinking fund provisions with respect to the Common
Stock.
Preferred Stock
Our
Articles of Incorporation authorize the issuance of 10,000,000
shares of preferred stock, $0.001 par value per share, of which no
shares were outstanding as of the date of this Report. The
preferred stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series without
further action or vote by the stockholders.
31
One of
the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an
attempt to obtain control of us by means of a tender offer, proxy
contest, merger or otherwise, and thereby to protect the continuity
of our management. The issuance of shares of preferred stock
pursuant to the Board of Director’s authority described above
may adversely affect the rights of holders of common
stock.
Registration Rights
In
connection with the NextGen Acquisition, the Company entered into a
Registration Rights Agreement (the “Registration Rights
Agreement”), with certain of the Seller Parties, as Company
stockholders, pursuant to which the Company will register the
Purchaser Shares for resale. Under the terms of the Registration
Rights Agreement, the Company will be required to file a
registration statement on an appropriate form covering the resale
of the Purchaser Shares no later than June 30, 2017.
This
description of the Registration Rights Agreement is qualified in
its entirety by reference to the Registration Rights Agreement, a
copy of which is filed as Exhibit 10.2 to this report and is
incorporated into this report by reference.
Nevada Laws
The
Nevada Business Corporation Law contains a provision governing
“Acquisition of Controlling Interest.” This law
provides generally that any person or entity that acquires 20% or
more of the outstanding voting shares of a publicly-held Nevada
corporation in the secondary public or private market may be denied
voting rights with respect to the acquired shares, unless a
majority of the disinterested stockholders of the corporation
elects to restore such voting rights in whole or in part. The
control share acquisition act provides that a person or entity
acquires “control shares” whenever it acquires shares
that, but for the operation of the control share acquisition act,
would bring its voting power within any of the following three
ranges:
●
20 to 33%
●
33% to 50%
●
more than 50%.
A “control share
acquisition” is generally defined as the direct or indirect
acquisition of either ownership or voting power associated with
issued and outstanding control shares. The stockholders or board of
directors of a corporation may elect to exempt the stock of the
corporation from the provisions of the control share acquisition
act through adoption of a provision to that effect in the articles
of incorporation or bylaws of the corporation. Our Articles of
Incorporation and Bylaws do exempt our Common Stock
from the control share
acquisition act.
Transfer Agent and Registrar
The
transfer agent and registrar for our Common Stock is West Coast Stock
Transfer, Inc., 721 N. Vulcan Ave., Suite 205, Encinitas, CA
92024.
Indemnification
of Directors and Officers
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 (the “Act”) may be permitted to our directors,
officers and controlling persons pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
No
director of the Company will have personal liability to us or any
of our stockholders for monetary damages for breach of fiduciary
duty as a director involving any act or omission of any such
director since provisions have been made in our Articles of
Incorporation limiting such liability. The foregoing provisions
shall not eliminate or limit the liability of a director
for:
●
any breach of the
director’s duty of loyalty to us or our
stockholders;
●
acts or omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law;
●
under applicable
Sections of the Nevada Revised Statutes;
●
the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statutes; or
●
for any transaction from which the director derived an improper
personal benefit.
The
Bylaws provide for indemnification of our directors, officers, and
employees in most cases for any liability suffered by them or
arising out of their activities as directors, officers, and
employees if they were not engaged in willful misfeasance or
malfeasance in the performance of his or her duties; provided that
in the event of a settlement the indemnification will apply only
when the Board of Directors approves such settlement and
reimbursement as being for our best interests. The Bylaws,
therefore, limit the liability of directors to the maximum extent
permitted by Nevada law (Section 78.751).
Our
officers and directors are accountable to us as fiduciaries, which
means, they are required to exercise good faith and fairness in all
dealings affecting the Company. In the event that a stockholder
believes the officers and/or directors have violated their
fiduciary duties, the stockholder may, subject to applicable rules
of civil procedure, be able to bring a class action or derivative
suit to enforce the stockholder’s rights, including rights
under certain federal and state securities laws and regulations to
recover damages from and require an accounting by management.
Stockholders, who have suffered losses in connection with the
purchase or sale of their interest in the Company in connection
with such sale or purchase, including the misapplication by any
such officer or director of the proceeds from the sale of these
securities, may be able to recover such losses from
us.
32
PART
III
Item
10.
Directors,
Executive Officers and Corporate Governance.
Directors
and Executive Officers
Below
are the names of and certain information regarding our current
executive officers and directors:
|
Name
|
|
Age
|
|
Position
|
|
Marshall
Chesrown
|
|
59
|
|
Chief
Executive Officer and Chairman
|
|
Steven
R. Berrard
|
|
62
|
|
Chief
Financial Officer, Secretary and Director
|
|
Denmar
Dixon
|
|
54
|
|
Director
|
|
Kartik
Kakarala
|
|
39
|
|
Director
|
|
Mitch
Pierce
|
|
59
|
|
Director
|
|
Kevin
Westfall
|
|
61
|
|
Director
|
Marshall Chesrown has served as our
Chief Executive Officer and Chairman since October 24, 2016. Mr.
Chesrown has over 35 years of leadership experience in the
automotive retail sector. From December 2014 to September 2016, Mr.
Chesrown served as Chief Operating Officer and as a director of
Vroom.com, an online direct car retailer. Mr. Chesrown served as
Chief Operating Officer of AutoAmerica, an automotive retail
company, from May 2013 to November 2014. Previously, Mr. Chesrown
served as the President of Chesrown Automotive Group from January
1985 to May 2013, which was acquired by AutoNation, Inc.
(“AutoNation”), a leading automotive retail company, in
1997. Mr. Chesrown served as Senior Vice President of Retail
Operations for AutoNation from 1997 to 1999. From 1999 to 2013, Mr.
Chesrown served as the Chairman and Chief Executive Officer of
Blackrock Development, a real estate development company widely
known for development of the nationally recognized Golf Club at
Black Rock.
We
believe that Mr. Chesrown possesses specific attributes that
qualify him to serve as a member of our board of directors,
including his extensive experience in the automotive retail
sector.
Steven R. Berrard has served as our
Chief Financial Officer since January 9, 2017 and served as Interim
Chief Financial Officer from July 13, 2016 through January 9, 2017
and as Chief Executive Officer from July 13, 2016 through October
24, 2016. Mr. Berrard has also served as Secretary and a director
of the Company since July 13, 2016. Mr. Berrard has served as a director of Walter Investment
Management Corp. (“Walter Investment”) since March
2010. He has served, and continues to serve, on the Compensation
and Human Resources Committee of Walter Investment since March
2010, and he served on the Audit Committee of Walter Investment
from May 2010 until February 2013. He currently also serves on the
Nominating and Corporate Governance Committee and the Finance
Committee of Walter Investment. Mr. Berrard served on the
Board of Directors of Swisher Hygiene Inc., a publicly traded
industry leader in hygiene solutions and products, from 2004 until
May 2014. Mr. Berrard is the Managing Partner of New River
Capital Partners, a private equity fund he co-founded in 1997.
Mr. Berrard was the co-founder and Co-Chief Executive Officer
of AutoNation, Inc. (“AutoNation”), a leading
automotive retail company, from 1996 to 1999. Prior to joining
AutoNation, Mr. Berrard served as President and Chief
Executive Officer of the Blockbuster Entertainment Group, at the
time the world’s largest video store operator.
Mr. Berrard served as President of Huizenga Holdings, Inc., a
real estate management and development company, and served in
various positions with subsidiaries of Huizenga Holdings, Inc. from
1981 to 1987. Mr. Berrard was employed by Coopers &
Lybrand (now PricewaterhouseCoopers LLP (“PwC”)) from
1976 to 1981. Mr. Berrard currently serves on the Board of
Directors of Pivotal Fitness, Inc., a chain of fitness centers
operating in a number of markets in the United States.
Mr. Berrard earned his B.S. in Accounting from Florida
Atlantic University.
We
believe that Mr. Berrard’s management experience and
financial expertise is beneficial in guiding the Company’s
strategic direction. He has served in senior management and/or on
the Board of Directors of several prominent, publicly traded
companies. In several instances, he has led significant growth of
the businesses he has managed. In addition, Mr. Berrard has served
as the Chairman of the audit committee of several boards of
directors.
Denmar Dixon has served on our board of
directors since January 9, 2017. Mr. Dixon has served as a director
of Walter Investment since April 2009 (and its predecessor since
December 2008). Effective October 2015, Mr. Dixon was promoted to
the positions of Chief Executive Officer and President of Walter
Investment. Mr. Dixon has also served as Vice Chairman of the Board
of Directors and Executive Vice President of Walter Investment
since January 2010 and Chief Investment Officer of Walter
Investment since August 2013. Prior to becoming an executive
officer of Walter Investment, he also had served as a member of
Walter Investment's Board of Directors’ Audit Committee and
Nominating and Corporate Governance Committee and as Chairman of
the Compensation and Human Resources Committee (Mr. Dixon resigned
from each of these committee positions immediately prior to his
appointment as the Vice Chairman of the Board of Directors and
Executive Vice President of the Company). Prior to serving on the
Board of Directors of Walter Investment, Mr. Dixon was elected to
the Board of Managers of JWH Holding Company, LLC
(“JWHHC”), a wholly-owned subsidiary of Walter
Industries, Inc., in anticipation of the spin-off of Walter
Investment Management, LLC (“WIM”) from Walter
Industries, Inc. (now known as Walter Energy, Inc.). In 2008, Mr.
Dixon founded Blue Flame Capital, LLC, a consulting, financial
advisory and investment firm. Prior to forming Blue Flame Capital,
LLC, Mr. Dixon spent 23 years with Banc of America Securities, LLC
(“Banc of America”) and its predecessors. At the time
of his retirement, Mr. Dixon was a Managing Director in the
Corporate and Investment Banking group and held the position of
Global Head of the Basic Industries group.
33
We
believe that Mr. Dixon possesses specific attributes that qualify
him to serve as a member of our board of directors, including his
extensive business development, mergers and acquisitions and
capital markets/investment banking experience within the financial
services industry. As a director, he provides significant input
into, and is actively involved in, leading the Company’s
business activities and strategic planning efforts. Mr. Dixon has
significant experience in the general industrial, consumer and
business services industries.
Kartik Kakarala was appointed to our
board of directors immediately following the completion of the
NextGen Acquisition in February 2017. Mr. Kakarala is the Chief
Executive Officer of Halcyon Technologies, a global software
solutions company with over 280 employees worldwide. He is
responsible for sales, business development and innovation, as well
as the creation of technology assets. He has been responsible for
the growth of a number of strategic, horizontal competencies, and
vertical business units like automotive, utilities, finance and
healthcare practices. Mr. Kakarala has served as the Chief
Executive Officer and President of NextGen from January 2016 to
February 2017, which was acquired by the Company in February 2017,
providing inventory management solutions to the powersports,
recreational vehicle and marine sectors in North America. He served
as Chief Executive Officer and President of NextGenAuto from July
2013 to December 2015. Mr. Kakarala served as Chief Executive
Officer of ECarTag solutions since 2014, which provides unique
wireless pricing solutions to automotive dealers. He served as
Director/Co-Founder of Vehicle Systems since 2013 which provides
vehicle purchase program solutions. Mr. Kakarala has served as
Co-Founder and Managing Partner of RedBumper from July 2010 to
August 2014, a company which provided used car inventory management
solutions used by thousands of automotive dealers across North
America and which was later acquired by ADP in 2014. Mr. Kakarala
served as Director/Co-Founder of GridFirst solutions since 2012, a
company providing home automation solutions to energy customers.
Mr. Kakarala holds a Master's degree in Computer Science from
University of Houston.
We
believe that Mr. Kakarala possesses specific attributes that
qualify him to serve as a member of our board of directors, as he
is regarded as a pioneer in developing several systems in the
automotive industry including CRM, ERP, inventory management and
financial applications.
Mitch Pierce has served on our board of
directors since January 9, 2017. Mr. Pierce has over 35 years of
leadership experience in the automotive retail sector. Mr. Pierce
served as the President of Tempe Toyota Group from January 1985 to
June 1997, which was acquired by AutoNation, Inc.
(“AutoNation”), a leading automotive retail company, in
1997. Mr. Pierce served as a Regional Vice President of Retail
Operations for AutoNation from 1997 to 2003. Mr. Pierce currently
owns one of the five largest Toyota stores in United States and is
a partner in six other major auto dealerships. Mr. Pierce is a
board member of the Southern California Toyota Dealers. He served
on the National Dealer Council for Toyota Dealers in 1996-97. He is
Past Chairman of the Arizona Automobile Dealer
Association.
We
believe that Mr. Pierce possesses specific attributes that qualify
him to serve as a member of our board of directors, including his
more than 30 years of executive experience in the automotive retail
sector and broad base of business knowledge and
experience.
Kevin Westfall has served on our board
of directors since January 9, 2017. Mr. Westfall previously held
various executive roles including Senior Vice President of Sales
and Senior Vice President of Automotive Finance at AutoNation,
founder of BMW Financial Services, President of World Automotive
Imports and Leasing and Retail Lease Manager of Chrysler Credit
Corporation.
We
believe that Mr. Westfall possesses specific attributes that
qualify him to serve as a member of our board of directors,
including his more than 30 years of executive experience in
automotive retail and finance operations.
Director
Independence
We are
not currently subject to listing requirements of any national
securities exchange that has requirements that a majority of the
board of directors be “independent.” Nevertheless, we
expect that our board of directors will determine that all of our
directors, other than Messrs. Chesrown, Berrard, and Kakarala,
qualify as “independent” directors in accordance with
listing requirements of The NASDAQ Stock Market, or NASDAQ. Messrs.
Chesrown and Berrard are not considered independent because they
are employees of the Company. The NASDAQ independence definition
includes a series of objective tests, such as that the director is
not, and has not been for at least three years, one of our
employees and that neither the director nor any of his family
members has engaged in various types of business dealings with us.
There are no family relationships among any of our directors or
executive officers.
34
Board Committees
Our
Board currently maintains a standing audit committee, compensation
committee and a nominating and corporate governance
committee.
Audit Committee
Our
Board, by unanimous consent, established an audit committee (the
“Audit Committee”) in January 2017. The initial members
of this committee are Messrs. Dixon (chair) and Westfall. Our Board
of Directors has determined that Mr. Dixon is an “audit
committee financial expert”, as defined in Item 407 of
Regulation S-K, and is the Chairman of the Audit Committee.
Although the Audit Committee has not yet adopted a formal charter,
the Board resolution establishing the Audit Committee authorized
the Audit Committee to operate with the customary responsibilities
and authority typically granted to an audit committee in a formal
charter.
Compensation Committee
In
January 2017, our Board, by unanimous consent, also established a
compensation committee (the “Compensation Committee”).
The initial members of the Compensation Committee are Messrs.
Westfall (Chair) and Dixon. The Compensation Committee was
established to, among other things, administer and approve all
elements of compensation and awards for our executive officers. The
Compensation Committee has the responsibility to review and approve
the business goals and objectives relevant to each executive
officer’s compensation, evaluate individual performance of
each executive in light of those goals and objectives, and
determine and approve each executive’s compensation based on
this evaluation. Although the Compensation Committee has not yet
adopted a formal charter, the Board resolution establishing the
Compensation Committee authorized the Compensation Committee to
operate with the customary responsibilities and authority typically
granted to a compensation committee in a formal
charter.
Nominating and Corporate Governance Committee
In
January 2017, our Board, by unanimous consent, also established a
nominating and corporate governance committee (the
“Nominating and Corporate Governance Committee”). The
initial members of the Nominating and Corporate Governance
Committee are Messrs. Chesrown (Chair), Berrard, Westfall and
Dixon. The Nominating Committee is responsible for identifying
individuals qualified to become members of the Board or any
committee thereof; recommending nominees for election as directors
at each annual stockholder meeting; recommending candidates to fill
any vacancies on the Board or any committee thereof; and overseeing
the evaluation of the Board. Although the Nominating and Corporate
Governance Committee has not yet adopted a formal charter, the
Board resolution establishing the Nominating and Corporate
Governance Committee authorized the Nominating and Corporate
Governance Committee to operate with the customary responsibilities
and authority typically granted to a nominating and corporate
governance committee in a formal charter.
Stockholder Communications
Currently, we do
not have a policy relating to stockholder communications with the
Board or with regard to the consideration of any director
candidates recommended by security holders. To date, no security
holders have made any such recommendations. We intend to approve an
appropriate stockholder communications policy at our next Board
meeting following our 2017 Annual Meeting of
Stockholders.
Code of Ethics
We have
not yet adopted a written code of ethics. We intend to approve an
appropriate written code of ethics at our next Board meeting
following our 2017 Annual Meeting of Stockholders.
Compliance with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires directors and executive officers
of the Company and ten percent stockholders of the Company to file
initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company with the
SEC. Directors, executive officers, and ten percent stockholders
are required to furnish the Company with copies of all Section
16(a) forms they file.
Item
11.
Executive
Compensation.
Summary
Compensation
Pamela
Elliott, who served as the Company's President, CEO, Secretary,
Treasurer, and sole Director from January 1, 2014 through July 13,
2016, has not received any compensation for her service to the
Company, except for $1,500 and $1,200 paid in the fiscal years
ended November 30, 2015 and 2014, respectively.
35
No
other compensation required to be reported pursuant to this Item
was earned or paid during the three years ended December 31,
2016.
Executive
Employment Arrangements
Marshall Chesrown
We have
not entered into an employment agreement or arrangement with Mr.
Chesrown. Accordingly, he is employed as our Chief Executive
Officer on an at-will basis. Mr. Chesrown currently receives no
annual base salary.
Mr.
Chesrown is eligible for equity compensation under our equity
compensation plans, as determined from time to time by the
compensation committee of our Board, however through the date of
this filing, no grants of equity awards have been
made.
Steven Berrard
We have
not entered into an employment agreement or arrangement with Mr.
Berrard. Accordingly, he is employed as our Chief Financial Officer
on an at-will basis. Mr. Berrard currently receives no annual base
salary.
Mr.
Berrard is eligible for equity compensation under our equity
compensation plans, as determined from time to time by the
compensation committee of our Board, however through the date of
this filing, no grants of equity awards have been
made.
Non-Employee
Director Compensation
We have
not yet established a policy for non-employee director
compensation. We intend to establish a non-employee director
compensation policy at our next Board meeting following our 2017
Annual Meeting of Stockholders.
Employee
Benefit Plans
2017 Stock Incentive Plan
On
January 9, 2017, the Company’s Board of Directors approved
the adoption of the RumbleON, Inc. 2017 Stock Incentive Plan (the
"Plan"), subject to stockholder approval at the Company's 2017
Annual Meeting of Stockholders. The purposes of the Plan are to
attract, retain, reward and motivate talented, motivated and loyal
employees and other service providers ("Eligible Individuals") by
providing them with an opportunity to acquire or increase a
proprietary interest in the Company and to incentivize them to
expend maximum effort for the growth and success of the Company, so
as to strengthen the mutuality of the interests between such
persons and the stockholders of the Company. The Plan will allow
the Company to grant a variety of stock-based and cash-based awards
to Eligible Individuals. Twelve percent (12%) of the Company's
issued and outstanding shares of common stock from time to time are
reserved for issuance under the Plan. As of January 9, 2017,
6,400,000 shares were issued and outstanding, resulting in 768,000
shares available for issuance under the Plan. The foregoing
description of the Plan does not purport to be complete and is
qualified in its entirety by the Plan attached as Exhibit 10.6 to
this report and incorporated herein by reference.
We have
not maintained any other equity compensation plans since our
inception.
Item
12.
Security
Ownership Of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. In accordance with
Securities and Exchange Commission rules, shares of our common
stock that may be acquired upon exercise or vesting of equity
awards within 60 days of the date of the table below are deemed
beneficially owned by the holders of such options and are deemed
outstanding for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage of ownership of any other
person.
As of
the Effective Date, 7,923,809 shares of common
stock were issued and outstanding. The following table sets forth
information with respect to the beneficial ownership of our Common
Stock as of the Effective Date, by (i) each of our directors and
executive officers, (ii) all of our directors and executive
officers as a group, and (iii) each stockholder known by us to be
the beneficial owner of more than 5% of our Common Stock (our only
class of voting securities). To the best of our knowledge, except
as otherwise indicated, each of the persons named in the table has
sole voting and investment power with respect to the shares of
Common Stock beneficially owned by such person, except to the
extent such power may be shared with a spouse. To our knowledge,
none of the shares listed below are held under a voting trust or
similar agreement, except as noted. To our knowledge, there is no
arrangement, including any pledge by any person of our securities
or any of our parents, the operation of which may at a subsequent
date result in a change in control of the Company.
36
Unless
otherwise noted below, the address of each person listed on the
table is c/o RumbleON, Inc., 4521 Sharon Road, Suite 370,
Charlotte, NC 28211.
|
|
As of the Effective
Date
|
|||
|
Name
and Address of Beneficial Owner
|
No. of Shares
of Class A Common Stock Owned
|
Percentage of Class
A Ownership (1)(2)
|
No. of Shares of
Class B Common Stock Owned
|
Percentage of Class
B Ownership (1)(3)
|
|
Named
Executive Officers and Directors:
|
|
|
|
|
|
Marshall
Chesrown(4)
|
875,000
|
87.5%
|
1,537,500
|
|
|
Steven R.
Berrard(5)
|
125,000
|
12.5%
|
2,310,013(6)
|
32.1%
|
|
Denmar
Dixon(7)
|
-
|
*
|
316,667
|
4.6%
|
|
Kartik
Kakarala(8)
|
-
|
*
|
1,523,809
|
22.0%
|
|
Mitch
Pierce
|
-
|
*
|
-
|
*
|
|
Kevin
Westfall
|
-
|
*
|
-
|
*
|
|
|
|
|
|
|
|
5%
Stockholders:
|
|
|
|
|
|
Ralph
Wegis(9)
|
-
|
*
|
1,321,878
|
19.1%
|
|
NextGen Dealer
Solutions, LLC
|
-
|
*
|
1,523,809
|
22.0%
|
|
|
|
|
|
|
|
All directors and
executive officers
as a group (6
persons) (10)
|
1,000,000
|
100.0%
|
5,687,989
|
80.9%
|
_______________________
*
Represents
beneficial ownership of less than 1%.
(1)
Calculated in
accordance with applicable rules of the SEC.
Based on 1,000,000
shares of Class A Common Stock issued and outstanding as of the
Effective Time, and additional shares deemed to be outstanding as
to a particular person, in accordance with applicable rules of the
SEC. The Class A Common Stock has 10 votes for each share
outstanding compared to one vote for each share of Class B Common
Stock outstanding. As of the Effective Time, the holders of the
Class A Common Stock will have in aggregate voting power
representing 80.2% of the Company's outstanding Common Stock on a
fully diluted basis.
(3)
Based on 6,923,809
shares of Class B Common Stock issued and outstanding as of the
Effective Time, and additional shares deemed to be outstanding as
to a particular person, in accordance with applicable rules of the
SEC.
(4)
As of the Effective
Time, Mr. Chesrown will have voting power representing
approximately 60.8% of the Company's outstanding Common Stock on a
fully diluted basis.
(5)
Shares are owned
directly through Berrard Holdings Limited Partnership ("BHLP"), a
limited partnership controlled by Steven R. Berrard. Mr. Berrard
has the sole power to vote and the sole power to dispose of each of
the shares of Common Stock which he may be deemed to beneficially
own. As of the Effective Time, Mr. Berrard will have voting power
representing approximately 19.4% of the Company's outstanding
Common Stock on a fully diluted basis, which does not include the
272,513 shares of Class B Common Stock issuable upon conversion of
promissory note held by BHLP.
(6)
Includes 272,513
shares of Class B Common Stock issuable upon conversion of a
promissory note held by BHLP as of the Effective Date.
(7)
Shares are owned
directly through Blue Flame Capital, LLC, an entity controlled by
Mr. Dixon. Mr. Dixon has the sole power to vote and the sole power
to dispose of each of the shares of Common Stock which he may be
deemed to beneficially own. As of the Effective Time, Mr. Dixon
will have voting power representing approximately 1.9% of the
Company's outstanding Common Stock on a fully diluted
basis.
(8)
Shares are owned
indirectly through NextGen Dealer Solutions, LLC, a limited
liability company of which Mr. Kakarala is the Manager. Mr.
Kakarala has the sole power to vote and the sole power to dispose
of each of the shares of Common Stock he may be deemed to
beneficially own. As of the Effective Time, Mr. Kakarala will have
voting power representing approximately 9.0% of the Company's
outstanding Common Stock on a fully diluted basis.
(9)
As of the Effective
Time, Mr. Wegis will have voting power representing approximately
7.8% of the Company's outstanding Common Stock on a fully diluted
basis.
(10)
As of the Effective
Time, all directors and executive officers as a group will have
voting power representing approximately 92.4% of the Company's
outstanding Common Stock on a fully diluted basis.
Item
13.
Certain
Relationships and Related Transactions, and Director
Independence.
We have
been a party to the following transactions since December 1,
2015, in which the amount involved exceeded or will exceed $120,000
and in which any director, executive officer, or holder of more
than 5% of any class of our voting stock, or any member of the
immediate family of or entities affiliated with any of them, had or
will have a material interest. Blue Flame Capital, LLC, a Purchaser
and an entity controlled by Denmar Dixon, one of the Company's
directors, received 166,667 shares of the Company's common stock
for $250,000. Ralph Wegis, a holder of more than 5% of our common
stock and a Purchaser, paid $799,999.50 for 533,333 shares of the
Company's common stock.
37
2016
Financing
In July
2016, BHLP loaned the Company, and the Company executed a
promissory note, in the principal amount of $191,858 payable to
BHLP (the “Note”). Pursuant to the Note, the Company is
obligated to repay $191,858 with interest thereon at the rate of 6%
per annum. The maturity date of the Note is July 13, 2026 (the
"Maturity Date"). Further, the Note provided that from the date of
an equity financing of at least $500,000 through the Maturity Date,
BHLP has the right to convert the outstanding balance under the
Note into shares of capital stock of the Company being issued in
such qualified financing (“Qualified Financing
Securities”) at a conversion price equal to the greater of
(i) $0.06 and (ii) fifty percent (50%) of the price per share at
which the Qualified Financing Securities are sold by the Company in
the qualified financing (the “Conversion Price”). The
November 2016 Private Placement (as described below) was completed
on November 28, 2016 and is considered a qualified financing; as
such, the Conversion Price of the Note has been established at
$0.75.
Effective August
31, 2016, the principal amount of the Note was amended to include
an additional $5,500 loaned to the Company, on the same terms as
the original Note. As of December 31, 2016, the total amount owed
was $197,358 plus accrued interest of $5,580.
November
2016 Private Placement
On
November 28, 2016, the Company completed the Private Placement with
certain Purchasers, with respect to the sale of an aggregate of
900,000 shares of common stock of the Company at a purchase price
of $1.50 per share for total consideration of $1,350,000. In
connection with the Private Placement, the Company also entered
into the Loan Agreements, pursuant to which the Purchasers will
loan to the Company their pro rata share of up to $1,350,000 in the
aggregate (the “Applicable Loan Amount”) upon the
request of the Company at any time on or after January 31, 2017 and
before November 1, 2020.
Related
Party Transaction Policy
Our
Board intends to adopt a formal policy that our executive officers,
directors, holders of more than 5% of any class of our voting
securities, and any member of the immediate family of and any
entity affiliated with any of the foregoing persons, are not
permitted to enter into a related party transaction with us without
the prior consent of our audit committee, or other independent
members of our board of directors if it is inappropriate for our
audit committee to review such transaction due to a conflict of
interest. Any request for us to enter into a transaction with an
executive officer, director, principal stockholder, or any of their
immediate family members or affiliates, in which the amount
involved exceeds $120,000 must first be presented to our audit
committee for review, consideration and approval. In approving or
rejecting any such proposal, our audit committee is to consider the
relevant facts and circumstances available and deemed relevant to
the audit committee, including, but not limited to, whether the
transaction is on terms no less favorable than terms generally
available to an unaffiliated third party under the same or similar
circumstances and the extent of the related party’s interest
in the transaction. The related party transactions described above
were entered into prior to the adoption of this
policy.
Item
14.
Principal
Accounting Fees and Services.
Then
information required by this Item 14 is incorporated by reference
to RumbleON, Inc.'s proxy statement for its 2017 Annual Meeting of
Stockholders to be filed within 120 days of December 31,
2016.
38
PART
IV
Item
15.
Exhibits,
Financial Statement Schedules.
(a)
We have filed the
following documents as part of this Annual Report on Form
10-K:
1.
The financial
statements listed in the "Index to Financial Statements" on page
F-1 are filed as part of this report.
2.
Financial statement
schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
3.
Exhibits included
or incorporated herein: See index to Exhibits.
|
|
|
|
|
Incorporated by
reference
|
|||||||
|
Exhibit
Number
|
|
Exhibit
Description
|
|
Filed
herewith
|
|
Form
|
|
Exhibit
|
|
Filing
date
|
|
|
2.1
|
|
Asset
Purchase Agreement, dated as of January 8, 2017
|
|
|
|
8-K
|
|
2.1
|
|
01/09/17
|
|
|
2.2
|
|
Assignment
of APA, dated as of January 31, 2017
|
|
X
|
|
|
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation of Smart Server filed on October 24,
2013
|
|
|
|
S-1/A
|
|
3(i)(a)
|
|
03/20/14
|
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|
3.2
|
|
Amended
Bylaws
|
|
X
|
|
|
|
|
|
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|
|
3.3
|
|
Certificate
of Amendment, filed February 13, 2017
|
|
X
|
|
|
|
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|
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|
10.1
|
|
|
X
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||
|
10.2
|
|
Registration
Rights Agreement, dated February 8, 2017
|
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X
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|
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|
|
10.3
|
|
Consulting
Agreement, dated February 8, 2017
|
|
X
|
|
|
|
|
|
|
|
|
10.4
|
|
Services
Agreement, dated February 8, 2017(Portions of this Exhibit have
been omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for Confidential
treatment)
|
|
X
|
|
|
|
|
|
|
|
|
10.5
|
|
Data
Confidentiality Agreement, dated February 8, 2017 (Portions of this
Exhibit have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment.)
|
|
X
|
|
|
|
|
|
|
|
|
10.6
|
|
2017
RumbleON Stock Incentive Plan+
|
|
|
|
8-K
|
|
10.1
|
|
01/09/17
|
|
|
10.7
|
|
Form of
Loan Agreement
|
|
|
|
8-K
|
|
10.1
|
|
12/21/16
|
|
|
10.8
|
|
Form of
Promissory Note
|
|
|
|
8-K
|
|
10.2
|
|
12/21/16
|
|
|
10.9
|
|
Stockholders'
Agreement dated October 24, 2016
|
|
|
|
8-K
|
|
10.1
|
|
10/28/16
|
|
|
10.10
|
|
Promissory
Note, dated July 13, 2016
|
|
|
|
8-K
|
|
10.1
|
|
07/19/16
|
|
|
10.11
|
|
Amendment
to Promissory Note, dated August 31, 2016
|
|
X
|
|
|
|
|
|
|
|
|
10.12
|
|
Unconditional
Guaranty Agreement
|
|
X
|
|
|
|
|
|
|
|
|
10.13
|
|
Security
Agreement
|
|
X
|
|
|
|
|
|
|
|
|
16.1
|
|
Letter from Seale and Beers CPAs
|
|
|
|
8-K
|
|
16.1
|
|
12/21/16
|
|
|
31.1
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
X
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
X
|
|
|
|
|
|
|
|
|
32.1*
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
|
|
|
|
|
|
|
|
|
32.2*
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
|
|
|
|
|
|
|
|
|
99.1
|
|
Press
Release, dated February 14, 2017
|
|
X
|
|
|
|
|
|
|
|
|
101.INS**
|
|
XBRL
Instance Document
|
|
X
|
|
|
|
|
|
|
|
|
101.SCG**
|
|
XBRL
Taxonomy Extension Schema
|
|
X
|
|
|
|
|
|
|
|
|
101.CAL**
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
X
|
|
|
|
|
|
|
|
|
101.DEF**
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
X
|
|
|
|
|
|
|
|
|
101.LAB**
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
X
|
|
|
|
|
|
|
|
|
101.PRE**
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
X
|
|
|
|
|
|
|
|
*
Furnished herewith
**
XBRL (Extensible Business Reporting Language) information is
furnished and not filed or a part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, is deemed not filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, and otherwise
is not subject to liability under these sections.
+
Management Compensatory Plan
Item
16. Form 10-K Summary.
Registrants may
voluntarily include a summary of information required by Form 10-K
under this Item 16. The Company has elected not to include such
summary information.
39
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
RumbleON,
INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Marshall
Chesrown
|
|
|
|
|
Marshall
Chesrown
|
|
|
|
|
Chief Executive
Officer
|
|
Date:
February 14, 2017
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ Marshall
Chesrown
|
Chairman
of the Board of Directors,
|
February
14, 2017
|
|
Marshall
Chesrown
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
/s/ Steven R.
Berrard
|
Director,
Chief Financial Officer and Secretary
|
February
14, 2017
|
|
Steven
R. Berrard
|
(Principal
Financial Officer and
Principal
Accounting Officer)
|
|
|
|
|
|
|
/s/ Denmar
Dixon
|
Director
|
February
14, 2017
|
|
Denmar
Dixon
|
|
|
|
|
|
|
|
/s/ Kartik
Kakarala
|
Director
|
February
14, 2017
|
|
Kartik
Kakarala
|
|
|
|
|
|
|
|
/s/ Mitch
Pierce
|
Director
|
February
14, 2017
|
|
Mitch
Pierce
|
|
|
|
|
|
|
|
/s/ Kevin
Westfall
|
Director
|
February
14, 2017
|
|
Kevin
Westfall
|
|
|
40
Index to Financial Statements
|
RumbleON, Inc. (formerly Smart
Server, Inc.) Financial Statements
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Balance Sheets
|
F-3
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Statements of
Operations
|
F-4
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Statement of Stockholders'
Equity (Deficit)
|
F-5
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Statements of Cash
Flows
|
F-6
|
|
RumbleON,
Inc. (formerly Smart Server, Inc.) Notes to Financial
Statements
|
F-7
|
|
NextGen
Dealer Solutions, LLC Financial Statements
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-15
|
|
NextGen
Dealer Solutions, LLC Balance Sheets
|
F-16
|
|
NextGen
Dealer Solutions, LLC Statements of Operations and Changes in
Members’ Equity
|
F-17
|
|
NextGen
Dealer Solutions, LLC Statements of Cash Flows
|
F-18
|
|
NextGen
Dealer Solutions, LLC Notes to Financial Statements
|
F-19
|
|
Unaudited
Pro Forma Condensed Combined Financial
Statements
|
|
|
RumbleON,
Inc. and Subsidiary Pro Forma Condensed Combined Balance Sheet
(unaudited)
|
PF-3
|
|
RumbleON,
Inc. and Subsidiary Pro Forma Condensed Combined Statement of
Operations (unaudited)
|
PF-4
|
|
Notes
to Unaudited Pro Forma Condensed Combined Financial
Statements
|
PF-5
|
RumbleON, Inc.
(formerly Smart Server, Inc.) Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders of
RumbleON, Inc.
We have
audited the accompanying balance sheets of RumbleON, Inc. as of
December 31, 2016, December 31, 2015, and November 30, 2015, and
the related statements of income, stockholders’ equity, and
cash flows for the twelve months ended December 31, 2016 and
November 30, 2015, and for the month ended December 31, 2015.
RumbleON, Inc.’s management is responsible for these
financial statements. Our responsibility is to express an opinion
on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The company is not required to have, nor
werewe engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RumbleON, Inc.
as of December 31, 2016, December 31, 2015, and November 30, 2015,
and the results of its operations and its cash flows for the twelve
months ended December 31, 2016 and November 30, 2015, and for the
month ended December 31, 2015, in conformity with accounting
principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Since the Company has not
generated revenue from operations substantial doubt exists about
its ability to continue on as a going concern. Management’s
plans concerning these matters are described in Note 2
to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Scharf
Pera & Co., PLLC
Charlotte, North
Carolina
February 14,
2017
F-2
RumbleON, Inc.
(formerly Smart Server, Inc.)
Balance Sheets
|
|
December 31,
|
November 30,
|
|
|
|
2016
|
2015
|
2015
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
|
$1,350,580
|
$3,713
|
$1,563
|
|
Prepaid
expense
|
1,667
|
-
|
-
|
|
Total current
assets
|
1,352,247
|
3,713
|
1,563
|
|
|
|
|
|
|
Other
assets
|
45,515
|
2,692
|
2,850
|
|
|
|
|
|
|
Total
assets
|
$1,397,762
|
$6,405
|
$4,413
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
$139,083
|
$8,799
|
$11,799
|
|
Accounts
payable-related party
|
80,018
|
-
|
-
|
|
Current portion of
note payable-related party
|
-
|
100,000
|
100,000
|
|
Accrued interest
payable-current portion
|
-
|
11,137
|
10,627
|
|
Total current
liabilities
|
219,101
|
119,936
|
122,426
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
Accrued interest
payable - related party
|
5,508
|
1,865
|
1,656
|
|
Note
payable-related party
|
|
41,000
|
33,000
|
|
Convertible note
payable - related party, net
|
1,282
|
-
|
-
|
|
Deferred tax
liability
|
78,430
|
-
|
-
|
|
Total long-term
liabilities
|
85,220
|
42,865
|
34,656
|
|
|
|
|
|
|
Total
liabilities
|
304,321
|
162,801
|
157,082
|
|
|
|
|
|
|
Commitments and
Contingencies (Notes 3, 6, 9, 10)
|
-
|
-
|
-
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
Preferred stock,
$0.001 par value, 10,000,000 shares
|
|
|
|
|
authorized, no
shares issued and outstanding
|
|
|
|
|
as of December 31,
2016, December 31, 2015 and November 30, 2015
|
-
|
-
|
-
|
|
Common stock,
$0.001 par value, 100,000,000 shares
|
|
|
|
|
authorized,
6,400,000, 5,500,000 and 5,500,000 shares issued and
outstanding
|
|
|
|
|
as of December 31,
2016, December 31, 2015 and November 30, 2015
|
6,400
|
5,500
|
5,500
|
|
Additional paid-in
capital
|
1,534,015
|
64,500
|
64,500
|
|
Subscriptions
receivable
|
(1,000)
|
(5,000)
|
(5,000)
|
|
Accumulated
deficit
|
(445,974)
|
(221,396)
|
(217,669)
|
|
Total stockholders'
equity (deficit)
|
1,093,441
|
(156,396)
|
(152,669)
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity (deficit)
|
$1,397,762
|
$6,405
|
$4,413
|
See Accompanying
Notes to Financial Statements.
F-3
|
RumbleON, Inc.
(formerly Smart Server, Inc.)
Statements of Operations
|
|
|
|
|
For
the
year
ended
December
31,
2016
|
For
the
month
ended
December
31,
2015
|
For
the
year
ended
November
30,
2015
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
General and
administrative
|
57,825
|
-
|
2,529
|
|
Depreciation and
amortization
|
1,900
|
158
|
1,900
|
|
Impairment of
assets
|
792
|
-
|
-
|
|
Professional
fees
|
152,876
|
2,850
|
37,123
|
|
Total operating
expenses
|
213,393
|
3,008
|
41,552
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
Interest expense -
related party
|
11,698
|
719
|
7,257
|
|
Total other
expense
|
11,698
|
719
|
7,257
|
|
|
|
|
|
|
Net loss before
provision for income taxes
|
(225,091)
|
(3,727)
|
(48,809)
|
|
|
|
|
|
|
Benefit for income
taxes
|
513
|
-
|
-
|
|
|
|
|
|
|
Net
loss
|
$(224,578)
|
$(3,727)
|
$(48,809)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common
|
|
|
|
|
shares outstanding
- basic
|
5,581,370
|
5,500,000
|
3,513,699
|
|
shares outstanding
- diluted
|
5,581,370
|
5,500,000
|
3,513,699
|
|
|
|
|
|
|
Net loss per share
- basic
|
$(0.04)
|
$(0.00)
|
$(0.01)
|
|
Net loss per share
- diluted
|
$(0.04)
|
$(0.00)
|
$(0.01)
|
See Accompanying Notes to Financial
Statements.
F-4
|
RumbleON,
Inc.
(formerly
Smart Server, Inc.)
Statement
of Stockholders' Equity (Deficit)
|
||||||||
|
|
Preferred
Shares
|
Common
Shares
|
Additional
Paid
|
Subscription
|
Accumulated
|
Total
Stockholders'
Equity
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
In
Capital
|
Receivable
|
Deficit
|
(Deficit)
|
|
Balance, November
30, 2014
|
-
|
$-
|
5,500,000
|
$5,500
|
$64,500
|
$-
|
$(168,860)
|
$(98,860)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchased and
cancellation of common stock
|
-
|
-
|
(5,000,000)
|
(5,000)
|
-
|
-
|
-
|
(5,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock
|
-
|
-
|
5,000,000
|
5,000
|
-
|
(5,000)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(48,809)
|
(48,809)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November
30, 2015
|
-
|
$-
|
5,500,000
|
$5,500
|
$64,500
|
$(5,000)
|
$(217,669)
|
$(152,669)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,727)
|
(3,727)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
-
|
$-
|
5,500,000
|
$5,500
|
$64,500
|
$(5,000)
|
$(221,396)
|
$(156,396)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received for
subscriptions receivable
|
-
|
-
|
-
|
-
|
-
|
5,000
|
-
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donated
capital
|
-
|
-
|
-
|
-
|
2,000
|
-
|
-
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock
|
-
|
-
|
900,000
|
900
|
1,349,100
|
(1,000)
|
-
|
1,349,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature, net of deferred taxes
|
-
|
-
|
-
|
-
|
118,415
|
-
|
-
|
118,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(224,578)
|
(224,578)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2016
|
-
|
$-
|
6,400,000
|
$6,400
|
$1,534,015
|
$(1,000)
|
$(445,974)
|
$1,093,441
|
See
Accompanying Notes to Financial Statements.
F-5
|
RumbleON, Inc.
(formerly Smart Server, Inc.)
Statements of Cash Flows
|
|
|
For
the
year
ended
December
31,
2016
|
For
the
month
ended
December
31,
2015
|
For
the
year
ended
November
30,
2015
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net
loss
|
$(224,578)
|
$(3,727)
|
$(48,809)
|
|
Adjustments to
reconcile net loss
|
|
|
|
|
to net cash used in
operating activities:
|
|
|
|
|
Depreciation and
amortization
|
1,900
|
158
|
1,900
|
|
Impairment of
asset
|
792
|
-
|
-
|
|
Amortization of
beneficial conversion feature
|
1,282
|
-
|
-
|
|
Increase in
deferred tax liability
|
(513)
|
-
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Increase in prepaid
expenses
|
(1,667)
|
-
|
-
|
|
Increase in
accounts payable
|
130,284
|
-
|
-
|
|
Increase (decrease)
in accounts payable - related party
|
80,018
|
(3,000)
|
7,020
|
|
(Decrease) increase
in accrued interest payable - related party
|
(7,494)
|
719
|
7,257
|
|
Net cash used in
operating activities
|
(19,976)
|
(5,850)
|
(32,632)
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
Purchase of other
assets
|
(45,515)
|
-
|
-
|
|
Net
cash used in investing activities
|
(45,515)
|
-
|
-
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Proceeds from note
payable - related party
|
214,358
|
8,000
|
33,000
|
|
Repayments for note
payable - related party
|
(158,000)
|
-
|
-
|
|
Proceeds from sale
of common stock
|
1,354,000
|
-
|
-
|
|
Donated
capital
|
2,000
|
-
|
-
|
|
Payments for the
purchase of treasury stock
|
-
|
-
|
(5,000)
|
|
Net cash provided
by financing activities
|
1,412,358
|
8,000
|
28,000
|
|
|
|
|
|
|
NET INCREASE
(DECREASE) IN CASH
|
1,346,867
|
2,150
|
(4,632)
|
|
|
|
|
|
|
CASH AT BEGINNING
OF PERIOD
|
3,713
|
1,563
|
6,195
|
|
CASH AT END OF
PERIOD
|
$1,350,580
|
$3,713
|
$1,563
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
Interest
paid
|
$17,909
|
$-
|
$-
|
|
Income taxes
paid
|
$-
|
$ -
|
$-
|
See
Accompanying Notes to Financial Statements.
F-6
Notes
to Financial Statements
Note
1 –Description of Business and Significant Accounting
Policies
Organization
RumbleON, Inc. (the
“Company”) was incorporated in October, 2013 under the
laws of the State of Nevada, as Smart Server, Inc. (“Smart
Server”). On February 13, 2017, the Company changed its name
from Smart Server, Inc. to RumbleON, Inc.
Description
of Business
Smart
Server was formed to engage in the business of designing and
developing computer application software for smart phones and
tablet computers (“mobile
payment application”) to provide customers at
participating restaurants, bars, and clubs the ability to pay their
bill with their smartphone without having to ask for the check.
Smart Server ceased its software development activities in 2014
and, having no operations and no or nominal assets, met the
definition of a "shell company" under the Securities Exchange Act
of 1934, as amended, and the rules and regulations
thereunder.
In
July 2016, Berrard Holdings Limited Partnership ("Berrard
Holdings") acquired 99.5% of the common stock of Smart Server from
the prior owner of such shares and efforts began on the development
of a unique, capital light, and disruptive e-commerce platform
facilitating the ability of both consumers and dealers to
Buy-Sell-Trade-Finance pre-owned recreation vehicles. It is our
goal to have the platform recognized as the most trusted and
effective solution for the sale, acquisition, and distribution of
recreation vehicles and provide users an efficient, fast,
transparent, and engaging experience. Our initial focus is the
market for 650cc and larger on road motorcycles, particularly those
concentrated in the Harley Davidson brand; we will look to extend
to other brands and additional vehicle types and products as the
platform matures.
RumbleON intends to
both make consumers or dealers a cash offer for the purchase of
their vehicle and provide them the flexibility to trade, list,
consign, or auction their vehicle through the websites and mobile
apps of RumbleON and our partner dealers. In addition, RumbleON
will offer a large inventory of vehicles for sale on its website
and will offer financing and associated products. RumbleON will
earn fees and transaction income, and partner dealers will earn
incremental revenue and enhance profitability through increased
sales leads, and fees from inspection, reconditioning and
distribution programs. RumbleON will be driven by a proprietary
technology platform that was acquired on February 8, 2017 from
NextGen Dealer Solutions, LLC. The NextGen platform provides
integrated accounting, appraisal, inventory management, CRM, lead
and call center management, equity mining, and other key services
necessary to drive the online marketplace. For additional information, see Note 11
“Subsequent Events.”
As of
December 31, 2016, the Company had a total of $1,350,580 in
available cash. If we were to not receive any additional funds, we
could not continue in business for the next 12 months with our
currently available capital. Since inception, we have financed our
cash flow requirements through debt and equity financing. As we
expand our activities, we may, and most likely will, continue to
experience net negative cash flows from operations, pending the
Company’s ability to generate sustainable cash flow from the
implementation of its business strategy and utilization of its
e-commerce platform.
Year
end
In
October 2016, the Company changed its fiscal year-end from
November 30 to December 31.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP
requires estimates and assumptions that affect the reported amounts
of assets and liabilities, revenue and expenses, and related
disclosures of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. Estimates
are used for, but not limited to, inventory valuation, depreciable
lives, carrying value of intangible assets, sales returns,
receivables valuation, restructuring-related liabilities, taxes,
and contingencies. Actual results could differ materially from
those estimates.
Earnings
(Loss) Per Share
The
Company follows the FASB Accounting Standards Codification ("ASC")
Topic 260-Earnings per
share. Basic earnings per common share ("EPS") calculations
are determined by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the
year. Diluted earnings (loss) per common share calculations are
determined by dividing net income (loss) by the weighted average
number of common shares and dilutive common share equivalents
outstanding. During periods when common stock equivalents, if any,
are anti-dilutive they are not considered in the
computation.
F-7
Revenue
Recognition
We
recognize revenue when all of the following conditions are
satisfied: (1) there is persuasive evidence of an arrangement;
(2) the product or service has been provided to the customer;
(3) the amount to be paid by the customer is fixed or
determinable; and (4) the collection of our payment is
probable.
Purchase
Accounting for Business Combinations
The
Company will account for acquisitions by allocating the fair value
of the consideration transferred to the fair value of the assets
acquired and liabilities assumed on the date of the acquisition and
any remaining difference will be recorded as goodwill. Adjustments
may be made to the preliminary purchase price allocation when facts
and circumstances that existed on the date of the acquisition
surface during the allocation period subsequent to the preliminary
purchase price allocation, not to exceed one year from the date of
acquisition. Contingent consideration is recorded at fair value
based on the facts and circumstances on the date of the acquisition
and any subsequent changes in the fair value are recorded through
earnings each reporting period. Transactions that occur in
conjunction with or subsequent to the closing date of the
acquisition are evaluated and accounted for based on the facts and
substance of the transactions.
Goodwill
Goodwill is not
amortized but rather tested for impairment at least annually. The
Company will test goodwill for impairment annually during the
fourth quarter of each year. Goodwill will also be tested for
impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of the
reporting unit below its carrying amount. Impairment testing
for goodwill will be done at the reporting unit level. A reporting
unit is an operating segment or one level below an operating
segment (also known as a component). A component of an operating
segment is a reporting unit if the component constitutes a business
for which discrete financial information is available, and segment
management regularly reviews the operating results of that
component. The Company has concluded that currently it has
one reporting unit.
Determining fair
value includes the use of significant estimates and
assumptions. Management will utilize an income approach,
specifically the discounted cash flow technique as a means for
estimating fair value. This discounted cash flow analysis requires
various assumptions including those about future cash flows,
transactional and customer growth rates and discount rates.
Expected cash flows are based on historical customer growth and the
growth in transactions, including attrition, future strategic
initiatives and continued long-term growth of the business. The
discount rates used for the analysis will reflect a weighted
average cost of capital based on industry and capital structure
adjusted for equity risk and size risk premiums. These estimates
can be affected by factors such as customer and transaction growth,
pricing, and economic conditions that can be difficult to
predict.
Other
Assets
Included in
“Other Assets” on our balance sheet will be
identifiable intangible assets including customer relationships,
non-compete agreements, trademarks, trade names and internet domain
names, net of amortization. The estimated fair value of these
intangible assets at the time of acquisition will be based upon
various valuation techniques including replacement cost and
discounted future cash flow projections. Customer
relationships will be amortized on a straight-line basis over the
expected average life of the acquired accounts, which will be based
upon several factors, including historical longevity of customers
and contracts acquired and historical retention rates. Non-compete
agreements will be amortized on a straight-line basis over the term
of the agreement, which will generally not exceed five years. The
Company will review the recoverability of these assets if events or
circumstances indicate that the assets may be impaired and will
periodically reevaluate the estimated remaining lives of these
assets.
Trademarks, trade
names and internet domain names are considered to be indefinite
lived intangible assets unless specific evidence exists that a
shorter life is more appropriate. Indefinite lived intangible
assets will be tested, at a minimum, on an annual basis using an
income approach or sooner whenever events or changes in
circumstances indicate that an asset may be impaired.
Long-Lived
Assets
Fixed
assets will be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. Recoverability of assets
to be held and used will be measured by a comparison of the
carrying amount of an asset to the future net cash flows expected
to be generated by the asset. If such assets or asset groups
are considered to be impaired, the impairment to be recognized will
be measured by the amount by which the carrying amount of the
assets or asset groups exceeds the related fair values. The
Company will also perform a periodic assessment of the useful lives
assigned to the long-lived assets.
F-8
Inventories
Inventories will be
stated at the lower of cost or market.
Valuation
Allowance for Accounts Receivable
We will
estimate the allowance for doubtful accounts for accounts
receivable by considering a number of factors, including overall
credit quality, age of outstanding balances, historical write-off
experience and specific account analysis that projects the ultimate
collectability of the outstanding balances. Ultimately, actual
results could differ from these assumptions.
Cash
and Cash Equivalents
For the
statements of cash flows, all highly liquid investments with an
original maturity of three months or less are considered to be cash
equivalents. The carrying value of these investments approximates
fair value.
Marketing and Advertising Costs
Marketing costs primarily consist of targeted
online advertising, television advertising, public relations
expenditures, and payroll and related expenses for personnel
engaged in marketing and selling activities and will be expensed as
incurred. There were no marketing costs included in general
and administrative expenses for the year ended December 31, 2016,
for the month ended December 31, 2015 and for the year ended
November 30, 2015.
Technology and Content
Technology costs for the RumbleON technology
platform will be accounted for pursuant to ASC Topic
350-Intangibles — Goodwill
and Other and will consist
principally of development activities including payroll and related
expenses for employees and third-party contractors involved in
application, content, production, maintenance, operation, and
platform development for new and existing products and services, as
well as other technology infrastructure expenses. Technology and
content costs for design or maintenance of internal-use software
and general website development will be expensed as incurred. Costs
incurred to develop new website functionality as well as new
software products for resale and significant upgrades to existing
platforms or modules will be capitalized and amortized over seven
years.
The
costs associated with the development of the Smart Server mobile
payment application website were capitalized pursuant to ASC Topic
350-Intangibles — Goodwill
and Other. Other costs related to the maintenance of the
website were expensed as incurred. The Company commenced
amortization upon the completion of the Company’s fully
operational mobile payment application website. Amortization was
provided over the estimated useful lives of three years using the
straight-line method for financial statement purposes. Amortization
expense for the year ended December 31, 2016, for the month ended
December 31, 2015 and for the year ended November 30, 2015 was
$1,900, $158 and $1,900, respectively. In December, 2016 the
Company evaluated its mobile payment application website and
recorded $792 of impairment. The carrying value of this website as
of December 31, 2016, was $0.
Property and Equipment, Net
Property
and equipment will be stated at cost less accumulated depreciation.
Equipment will include assets such as furniture and fixtures, heavy
equipment, servers, networking equipment, internal-use software and
website development. Depreciation will be recorded on a
straight-line basis over the estimated useful lives of the
assets.
Fair
Value of Financial Instruments
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
December 31, 2016, December 31, 2015 and November 30, 2015. The
respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash, prepaid expenses and accounts payable.
Fair values were assumed to approximate carrying values for cash
and payables because they are short term in nature and their
carrying amounts approximate fair values or they are payable on
demand.
ASC
Topic 820-10-30-2-Fair Value
Measuement establishes a fair value hierarchy for inputs
used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring
the most observable inputs be used when available. Observable
inputs are from sources independent of the Company, whereas
unobservable inputs reflect the Company’s assumptions about
the inputs market participants would use in pricing the asset or
liability developed on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
F-9
Level
1: The preferred inputs to valuation efforts are "quoted prices in
active markets for identical assets or liabilities," with the
caveat that the reporting entity must have access to that market.
Information at this level is based on direct observations of
transactions involving the same assets and liabilities, not
assumptions, and thus offers superior reliability. However,
relatively few items, especially physical assets, actually trade in
active markets.
Level
2: FASB acknowledged that active markets for identical assets and
liabilities are relatively uncommon and, even when they do exist,
they may be too thin to provide reliable information. Inputs other
than quoted market prices included in Level 1, that are observable
for the asset or liability, either directly or indirectly, are
Level 2 inputs.
Level
3: If inputs from levels 1 and 2 are not available, FASB
acknowledges that fair value measures of many assets and
liabilities are less precise. The board describes Level 3 inputs as
"unobservable," and limits their use by saying they "shall be used
to measure fair value to the extent that observable inputs are not
available." This category allows "for situations in which there is
little, if any, market activity for the asset or liability at the
measurement date". Earlier in the standard, FASB explains that
"observable inputs" are gathered from sources other than the
reporting company and that they are expected to reflect assumptions
made by market participants.
Beneficial
Conversion Feature
From
time to time, the Company may issue convertible notes that may have
conversion prices that create an embedded beneficial conversion
feature pursuant to the guidelines established by the ASC Topic
470-20, Debt with Conversion and
Other Options. The Beneficial Conversion Feature ("BCF") of
a convertible security is normally characterized as the convertible
portion or feature of certain securities that provide a rate of
conversion that is below market value or in-the-money when issued.
The Company records a BCF related to the issuance of a convertible
security when issued and also records the estimated fair value of
any conversion feature issued with those securities. Beneficial
conversion features that are contingent upon the occurrence of a
future event are recorded when the contingency is
resolved.
The BCF
of a convertible note is measured by allocating a portion of the
note's proceeds to the conversion feature, if applicable, and as a
reduction of the carrying amount of the convertible note equal to
the intrinsic value of the conversion feature, both of which are
credited to additional paid-in-capital. The debt discount is
amortized to interest expense over the life of the note using the
effective interest method. The Company calculates the fair value of
the conversion feature embedded in any convertible security using
either a) the Black Scholes valuation model, or b) a discount cash
flow analysis tested for sensitivity to key Level 3 inputs using
Monte Carlo simulation.
Stock-Based
Compensation
The
Company records stock based compensation in accordance with the
guidance in ASC Topic 505-Equity and 718-Compensation, Stock Expense which
requires the Company to recognize expenses related to the fair
value of its employee stock option awards. This eliminates
accounting for share-based compensation transactions using the
intrinsic value and requires instead that such transactions be
accounted for using a fair-value-based method. The Company
recognizes the cost of all share-based awards on a graded vesting
basis over the vesting period of the award.
The
Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in
accordance with ASC Topic 718-10 and the conclusions reached by the
ASC Topic 505-50. Costs are measured at the estimated fair market
value of the consideration received or the estimated fair value of
the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for
consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance
by the provider of goods or services as defined by ASC Topic
505-50.
Income
Taxes
The
Company follows ASC Topic 740-Income Taxes for recording the
provision for income taxes. Deferred tax assets and liabilities are
computed based upon the difference between the financial statement
and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is
expected to be realized or settled. Deferred income tax expenses or
benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of
change. Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for
financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending
on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or
non-current depending on the periods in which the temporary
differences are expected to reverse.
F-10
The
Company applies a more-likely-than-not recognition threshold for
all tax uncertainties. ASC Topic 740 only allows the recognition of
those tax benefits that have a greater than fifty percent
likelihood of being sustained upon examination by the taxing
authorities. As of December 31, 2016, December 31, 2015 and
November 30, 2015, the Company reviewed its tax positions and
determined there were no outstanding, or retroactive tax positions
with less than a 50% likelihood of being sustained upon examination
by the taxing authorities, therefore this standard has not had a
material effect on the Company.
The
Company does not anticipate any significant changes to its total
unrecognized tax benefits within the next 12
months.
The
Company classifies tax-related penalties and net interest as income
tax expense. As of December 31, 2016, December 31, 2015 and
November 30, 2015, no income tax expense has been
incurred.
Recent
Pronouncements
The
Company has evaluated the recent accounting pronouncements through
January 2017 and believes that none of them will have a material
effect on the company’s financial statements.
Note
2 – Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates
the recoverability of assets and the satisfaction of liabilities in
the normal course of business. As noted above, the Company is in
the development stage and, accordingly, has not yet generated
revenue from operations. Since its inception, the Company has been
engaged substantially in financing activities and developing its
mobile payment application business plan and incurring start-up
costs and expenses, resulting in an accumulated net losses from
inception (October 24, 2013) through the period ended December 31,
2016 of $445,974. The Company’s development activities since
inception have been financially sustained through debt and equity
financing.
The
ability of the Company to continue as a going concern is dependent
upon its continued ability to raise additional capital from the
sale of common stock and, ultimately, the achievement of
significant operating revenue. These financial statements do not
include any material adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this
uncertainty.
Note
3 – Notes Payable – Related Party
During
2013, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $30,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in November
2015.
During
2014, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $70,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in August
2015.
During
2015, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $41,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in February
2016.
During
2016, the Company entered into a series of unsecured promissory
notes with a related party for aggregate proceeds of $17,000. Each
unsecured note bears interest at 6% per annum with principal and
interest due at the end of twenty-four months beginning in February
2018.
In
July, 2016, the Company repaid the total outstanding principal and
accrued interest of $175,909 on the unsecured promissory note with
the related party. Interest expense on
this note for the year ended December 31, 2016, for the month ended
December 31, 2015 and for the year ended November 30, 2015 was
$5,626, $719 and $7,257, respectively.
F-11
Note
4 – Other Assets
At
December 31, 2016, other assets consisted of $45,515 of costs to
acquire domain names to be used in connection with the launch of the
Company’s e-commerce platform. As of December 31, 2015, and November
30, 2015 other assets was $0.
Note
5 – Income Taxes
At
December 31, 2016, December 31, 2015 and November 30, 2015, the
Company has operating loss carryforwards of $230,564, $221,396 and
$217,669, respectively, which begin to expire in 2033. We believe
that it is more likely than not that the benefit from our operating
loss carryforwards will not be realized. In recognition of this
risk, we have provided a valuation allowance on the deferred tax
assets relating to these operating loss carryforwards of $87,614,
$77,489 and $76,184 for the periods ended December 31, 2016,
December 31, 2015 and November 30, 2015, respectively. In
assessing the recovery of the deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those
temporary differences become deductible. Management
considers the scheduled reversals of future deferred tax assets,
projected future taxable income, and tax planning strategies in
making this assessment.
The
Company’s effective tax rate benefit for the year ended
December 31, 2016 was .01% and was a result of the amortization of
the debt discount on the convertible note payable-related party.
For the year ended December 31, 2016, there was a $78,943 deferred
tax liability associated with the beneficial conversion feature on
the convertible note payable-related party. For additional information, see Note 6
“Convertible Notes Payable-Related Party.”
Note 6 – Convertible Notes Payable
– Related Party
On July
13, 2016, the Company entered into unsecured Convertible Note
(“Note”) with Berrard Holdings Limited Partnership
(“BHLP”), an entity owned and controlled by a current
officer and director, Mr. Berrard, pursuant to which the Company
received $191,858. The Note is due on July 13, 2026 and bears
interest at 6% per annum. The Note is convertible into common
stock, in whole at any time prior to maturity at the option of the
holder at the greater of $0.06 per share or 50% of the price per
share of the next qualified financing which is defined as $500,000
or greater. The Note is due on July 13, 2026 and bears interest at
6% per annum.
Effective August
31, 2016, the principal amount of the Note was amended to include
an additional $5,500 loaned to the Company, on the same terms as
the original Note. As of August 31, 2016, the total amount owed was
$197,358.
On
November 28, 2016, the Company completed its qualified financing at
$1.50 per share which established the conversion price per share
for the Note of $0.75 per share, resulting in the principal amount
of the Note being convertible into 263,144 shares of common stock.
As such, November 28, 2016 became the “commitment date”
for purposes of determining the value of the Note conversion
feature. Given that there was no trading in the Company common
stock since July, 2014, other than the purchase by BHLP of 99.5% of
the shares in a single transaction, the Company used the Monte
Carlo simulation to determine the intrinsic value of the conversion
feature of the Note which resulted in a value in excess of the
principal amount of the Note. Thus, the Company recorded as a Note
discount of $197,358 with the corresponding amount as an addition
to paid in capital. The Note discount will be amortized to interest
expense until the Note matures in July, 2026 using the effective
interest method. The effective interest rate at December 31, 2016
was 7.4%.
As of
December 31, 2016, the balance of the note consists
of:
|
|
December
31,
2016
|
|
Principal
|
$197,358
|
|
Less: Debt
discount
|
(196,076)
|
|
|
$1,282
|
Interest expense on
this note for the year ended December 31, 2016 was $5,508 and the
amortization of the beneficial conversion feature was $1,282. The
holder of the Note has indicated to the Company despite being
permitted under the terms of the Note, he will neither request
payment of, nor consent to prepayment by the Company of any accrued
and unpaid interest.
F-12
The
debt discount related to the Note creates a timing difference for
taxes and results in the creation of a deferred tax liability and a
reduction in paid-in-capital of $78,943 assuming a tax rate of 40%
of the $197,358 Note discount. Correspondingly, the $1,282 of debt
discount amortization in 2016 yields a $513 reduction in the
deferred tax liability and is correspondingly reflected as an
income tax benefit in the statements of operations.
Note
7 – Stockholders’ Equity
At
December 31, 2016, the Company was authorized to issue 100,000,000
shares of its $0.001 par value common stock and 10,000,000 shares
of its $0.001 par value preferred stock. For additional
information, see Note 11, "Subsequent Events."
On
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Marshall Chesrown of 875,000
shares of Class A Common Stock in exchange for an equal number of
shares of Class B Common Stock held by Mr. Chesrown, and (ii)
Steven R. Berrard of 125,000 shares of Class A Common Stock in
exchange for an equal number of shares of Class B Common Stock held
by Mr. Berrard, effective at the time the Certificate of Amendment
was filed with the Secretary of State of Nevada.
On June
24, 2015, the Company repurchased and cancelled 5,000,000 shares of
common stock from a former officer and director of the Company for
$5,000.
On July
24, 2015, the Company issued 5,000,000 shares of common stock for
services to an officer and director. The Company and the officer
and director mutually agreed to rescind the
transaction.
On
November 16, 2015, the Company sold 5,000,000 shares of common
stock to an officer and director for subscriptions receivable of
$5,000. In February 2016, the Company received $5,000.
In July
2016, the Company received donated capital of $2,000 from a
shareholder of the Company.
On
November 28, 2016, the Company sold 900,000 shares of common stock
to three investors for cash of $1,349,000 and subscriptions
receivable of $1,000.
On
November 28, 2016, the Company recorded a beneficial conversion
feature of $197,358 related to the convertible note with an entity
owned and controlled by a current officer and director, Steven
Berrard. For additional
information, see Note 6, “Convertible Notes Payable
– Related Party.”
Note
8 – Warrants and Options
As of
December 31, 2016, December 31, 2015 and November 30, 2015, there
were no warrants or options outstanding to acquire any additional
shares of common stock.
Note
9 – Related Party Transactions
As of
December 31, 2016, the Company had convertible notes payable of
$197,358 and accrued interest totaling $5,508 due to an entity that
is owned and controlled by a current officer and director of the
Company. For additional
information, see Note 6 “Convertible Notes Payable
– Related Party.”
As of
December 31, 2015, and November 30, 2015, the Company had loans
totaling $141,000 and $133,000 and accrued interest totaling
$13,002 and $12,283 due to an entity that is owned and controlled
by a family member of an officer and director of the Company.
During the year ended December 31, 2016, month ended December 31,
2015 and for the year ended November 30, 2015, the interest expense
was $4,907, $719 and $7,257, respectively. In March 2015, there was
a new officer and director appointed and the lender is now
considered a related party. All convertible notes and related party
notes outstanding as of July 13, 2016, were paid in full in July,
2016.
Note
10 – Commitments and Contingencies
We may
be involved in litigation from time to time in the ordinary course
of business. If any such litigation arises, we may not be able to
provide assurance that the ultimate resolution of any such legal or
administrative proceedings or disputes will not have a material
adverse effect on our business, financial condition and results of
operations. As of December 31, 2016, December 31, 2015 and November
30, 2015 we were not aware of any threatened or pending
litigation.
F-13
Note
11 – Subsequent Events
On
January 8, 2017, RumbleON entered into an Asset Purchase
Agreement with NextGen Dealer Solutions, LLC ("NextGen"), Halcyon
Consulting, LLC ("Halcyon"), and members of Halcyon signatory
thereto ("Halcyon Members," and together with Halcyon, the "Halcyon
Parties"), as amended by that certain Assignment, dated February 8,
2017, between the Company and NextGen Pro, LLC (the "NextGen
Agreement"). NextGen and the Halcyon Parties are collectively
referred to as the "Seller Parties." NextGen has developed a
proprietary technology platform that will underpin the operations
of the Company. The Agreement provides that, upon the terms and
subject to the conditions set forth in the Agreement, the Company
will acquire all of NextGen's assets, properties and rights of
whatever kind, tangible and intangible, other than the excluded
assets under the terms of the Agreement. The Company will assume
liability only for certain post-closing contractual obligations
pursuant to the terms of the Agreement. The transaction closed in
the first quarter of 2017.
The
Agreement provides that the Company will acquire substantially all
of the assets of NextGen in exchange for approximately $750,000 in
cash, plus 1,523,809 unregistered shares of common stock of the
Company (the "Purchaser Shares"), and a subordinated secured
promissory note issued by the Company in favor of NextGen in the
amount of $1,333,333 (the "Acquisition Note"). The Acquisition Note
matures on the third anniversary of the date the Acquisition Note
is entered into (the "Maturity Date"). Interest will accrue and be
paid semi-annually on the Acquisition Note (i) at a rate of 6.5%
annually from the date the Acquisition Note is entered into through
the second anniversary of such date and (ii) at a rate of 8.5%
annually from the second anniversary of the date the Acquisition
Note is entered into through the Maturity Date. In connection with
the closing of the transaction, the Company has agreed with certain
investors to accelerate the funding of the second tranche of their
investment totaling $1.35 million by issuing such investors
1,161,920 shares of the Company's common stock and a note in the
amount of $667,000, to be issued on the closing date.
On
January 9, 2017, the Company’s Board of Directors approved
the adoption of the RumbleON, Inc. 2017 Stock Incentive Plan (the
"Plan"), subject to stockholder approval at the Company's next
Annual Meeting of Stockholders. The purposes of the Plan are to
attract, retain, reward and motivate talented, motivated and loyal
employees and other service providers ("Eligible Individuals") by
providing them with an opportunity to acquire or increase a
proprietary interest in the Company and to incentivize them to
expend maximum effort for the growth and success of the Company, so
as to strengthen the mutuality of the interests between such
persons and the stockholders of the Company. The Plan will allow
the Company to grant a variety of stock-based and cash-based awards
to Eligible Individuals. Twelve percent (12%) of the Company's
issued and outstanding shares of common stock from time to time are
reserved for issuance under the Plan. As of the date of this
report, 6,400,000 shares are issued and outstanding, resulting in
768,000 shares available for issuance under the Plan.
On
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved an amendment to the Company's Articles of
Incorporation (the "Certificate of Amendment"), to change the name
of the Company to RumbleON, Inc. and to create an additional class
of common stock of the Company, which was effective on
February 13, 2017 (the "Effective Date").
Immediately before
approving the Certificate of Amendment, the Company had authorized
100,000,000 shares of common stock, $0.001 par value (the
"Authorized Common Stock"), including 6,400,000 issued and outstanding shares of
common stock (the "Outstanding Common Stock, and together with the
Authorized Common Stock, the "Common Stock"). Pursuant to the
Certificate of Amendment, the Company designated 1,000,000 shares
of Authorized Common Stock as Class A Common Stock (the "Class A
Common Stock"), which Class A Common Stock ranks pari passu with
all of the rights and privileges of the Common Stock, except that
holders of the Class A Common Stock are entitled to ten votes per
share of Class A Common Stock issued and outstanding, and (ii) all
other shares of Common Stock, including all shares of Outstanding
Common Stock shall be deemed Class B Common Stock (the "Class B
Common Stock"), which Class B Common Stock will be identical to the
Class A Common Stock in all respects, except that holders of the
Class B Common Stock are entitled to one vote per share of Class B
Common Stock issued and outstanding.
Also on
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Marshall Chesrown of 875,000
shares of Class A Common Stock in exchange for an equal number of
shares of Class B Common Stock held by Mr. Chesrown, and (ii)
Steven R. Berrard of 125,000 shares of Class A Common Stock in
exchange for an equal number of shares of Class B Common Stock held
by Mr. Berrard, effective at the time the Certificate of Amendment
was filed with the Secretary of State of Nevada.
On
February 8, 2017 (the "Closing Date"), RumbleON completed the
NextGen Acquisition in exchange for $750,000 in cash, the Purchaser
Shares, and the Acquisition Note. The Acquisition Note matures on
the third anniversary of the Closing Date (the "Maturity Date").
Interest accrues and will be paid semi-annually (i) at a rate of
6.5% annually from the Closing Date through the second anniversary
of such date and (ii) at a rate of 8.5% annually from the second
anniversary of the Closing Date through the Maturity
Date.
On
February 13, 2017, the Effective Date, the Company filed the
Certificate of Amendment with the Secretary of State of the State
of Nevada changing the Company's name to RumbleON, Inc. and
creating the Class A and Class B Common Stock. Also on the
Effective Date, the Company issued an aggregate of 1,000,000 shares
of Class A Common Stock to Messrs. Chesrown and Berrard in exchange
for an aggregate of 1,000,000 shares of Class B Common Stock held
by them. Also on the Effective Date, the Company amended its bylaws
to reflect the name change to RumbleON, Inc. and to reflect the
Company's primary place of business as Charlotte, North
Carolina.
F-14
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Members of NextGen Dealer Solutions, LLC
We have
audited the accompanying balance sheets of NextGen Dealer
Solutions, LLC as of December 31, 2016 and 2015, and the related
statements of operations and changes in members’ equity, and
cash flows for the year ended December 31, 2016 and the period
December 10, 2015 to December 31, 2015. NextGen Dealer Solutions,
LLC’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NextGen Dealer
Solutions, LLC as of December 31, 2016, and 2015, and the results
of its operations and its cash flows for the year ended December
31, 2016 and the period December 10, 2015 to December 31, 2015, in
conformity with accounting principles generally accepted in the
United States of America.
|
|
|
| Scharf Pera & Co., PLLC |
|
|
Charlotte,
North Carolina
|
|
|
|
|
|
February
14, 2017
|
|
F-15
NextGen Dealer Solutions, LLC
Balance Sheets
|
|
At
December 31,
|
|
|
|
2016
|
2015
|
|
Assets:
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$46,891
|
$1,500,000
|
|
Prepaid
expenses
|
5,635
|
-
|
|
Total current
assets
|
52,526
|
1,500,000
|
|
|
|
|
|
Property
and Equipment - Net of Accumulated Depreciation
|
1,400,703
|
1,312,252
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$1,453,229
|
$2,812,252
|
|
|
|
|
|
Liabilities
and Members’ Equity
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$3,445
|
$21,495
|
|
Due to related
parties
|
516,146
|
77,343
|
|
|
|
|
|
Total current
liabilities
|
519,591
|
98,838
|
|
Commitments
and Contingencies
|
-
|
-
|
|
Members'
Equity
|
933,638
|
2,713,414
|
|
|
|
|
|
Total
liabilities and Members’ equity
|
$1,453,229
|
$2,812,252
|
See
Accompanying Notes to Financial Statements
F-16
NextGen Dealer Solutions, LLC
Statements of Operations and Changes in Members’
Equity
|
|
For the year
ended
December 31,
2016
|
For
the
period
from
December 10,
2015
through
December 31,
2015
|
|
Revenue:
|
|
|
|
Gross
revenue
|
$138,141
|
$6,257
|
|
|
|
|
|
Cost
and Expenses:
|
|
|
|
Cost of goods
sold
|
332,559
|
17,857
|
|
General and
administrative expenses
|
1,586,002
|
96,608
|
|
|
1,918,561
|
114,465
|
|
|
|
|
|
Operating
Loss
|
(1,780,420)
|
(108,208)
|
|
|
|
|
|
Other
Income
|
644
|
-
|
|
|
|
|
|
Net
Loss
|
(1,779,776)
|
(108,208)
|
|
|
|
|
|
Members'
Equity - Beginning
|
2,713,414
|
-
|
|
|
|
|
|
Contributions
|
-
|
2,821,622
|
|
|
|
|
|
Members'
Equity - Ending
|
$933,638
|
$2,713,414
|
See
Accompanying Notes to Financial Statements
F-17
|
NextGen Dealer Solutions, LLC
Statements of Cash Flows
|
|
|
For the year
ended
December 31,
2016
|
For
the
period
from
December 10,
2015
through
December 31,
2015
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net
loss
|
$(1,779,776)
|
$(108,208)
|
|
Adjustments to
reconcile net loss
|
|
|
|
to net cash used in
operating activities:
|
|
|
|
Depreciation and
amortization
|
253,468
|
9,370
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Increase in prepaid
expenses
|
(5,635)
|
-
|
|
Increase (decrease)
in accounts payable
|
(18,050)
|
21,495
|
|
Increase in
accounts payable - related party
|
438,803
|
77,343
|
|
Net cash used in
operating activities
|
(1,111,190)
|
-
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
Investments in
software
|
(341,919)
|
-
|
|
Net
cash used in investing activities
|
(341,919)
|
-
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
Proceeds from
member contribution
|
-
|
1,500,000
|
|
Net cash provided
by financing activities
|
-
|
1,500,000
|
|
|
|
-
|
|
NET (DECREASE)
INCREASE IN CASH
|
(1,453,109)
|
1,500,000
|
|
|
|
|
|
CASH AT BEGINNING
OF PERIOD
|
1,500,000
|
-
|
|
CASH AT END OF
PERIOD
|
$46,891
|
$1,500,000
|
See
Accompanying Notes to Financial Statements
F-18
NextGen
Dealer Solutions, LLC
Notes to Financial
Statements
Note
1 - Description of Business and Significant Accounting
Policies
Organization
NextGen
Dealer Solutions, LLC (“Company”) was formed on
December 10, 2015 as a limited liability company under the laws of
the State of Delaware.
Nature of operations
The
Company has developed a software platform for the powersports
vehicle industry incorporating modules sales, operations, customer
relationship management, equity mining and marketing with dealer
management systems and website providers under the brand name of
CyclePro Solutions. The solution is intended to provide powersports
vehicle dealers with increased visibility and information related
to their sales process, inventory levels, and customer data.
Additionally, the platform offers dealers the ability to more
easily communicate with their customers, with the goal of driving
incremental sales. Dealers typically pay monthly subscription fees
to access some or all modules on an a la carte basis.
Year end
The
Company’s year-end is December 31.
Cash and Cash Equivalents
For the
statements of cash flows, all highly liquid investments with an
original maturity of three months or less are considered to be cash
equivalents. The carrying value of these investments approximates
fair value.
Software Capitalization
The
Company capitalizes the costs associated with the development of
the Company’s software solutions and website pursuant to ASC
Topic 350. Other costs related to the maintenance of the software
are expensed as incurred. Amortization is provided over the
estimated useful lives of 7 years using the straight-line method
for financial statement purposes.
Revenue Recognition
The
Company recognizes revenue when all of the following conditions are
satisfied: (1) there is persuasive evidence of an arrangement; (2)
the product or service has been provided to the customer; (3) the
amount of fees to be paid by the customer is fixed or determinable;
and (4) the collection of our fees is probable. Dealers typically
pay monthly subscription fees to access some or all modules on an a
la carte basis, as well as, in certain cases, implementation or
training fees.
Cost of Sales
Cost of
sales represents amount paid by the Company for hosting of the
customer facing website, various data feeds from third parties, and
the Company’s labor for implementing and training new
customers.
Marketing and Advertising Costs
The
Company expenses marketing and advertising costs as incurred. The
Company’s marketing and advertising costs in the period ended
December 31, 2016, and December 31, 2015 were $100,235 and $0,
respectively, primarily driven by the costs of the marketing
services agreement between the Company and a member of the Company.
For additional information, see
Note 3 “Related Party Transactions.”
Fair Value of
Financial Instruments
Fair
value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
December 31, 2016, and 2015. The respective carrying value of
certain on-balance-sheet financial instruments approximated their
fair values. These financial instruments include cash, prepaid
expenses and accounts payable. Fair values approximate carrying
values for cash and payables because they are short term in nature
and their carrying amounts approximate fair values or they are
payable on demand.
F-19
NextGen
Dealer Solutions, LLC
Notes to Financial
Statements
FASB
ASC 820-10-30-2 establishes a fair value hierarchy for inputs used
in measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring the most
observable inputs be used when available. Observable inputs are
from sources independent of the Company, whereas unobservable
inputs reflect the Company’s assumptions about the inputs
market participants would use in pricing the asset or liability
developed on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on
the inputs as follows:
Level
1: The preferred inputs to valuation efforts are “quoted
prices in active markets for identical assets or
liabilities,” with the caveat that the reporting entity must
have access to that market. Information at this level is
based on direct observations of transactions involving the same
assets and liabilities, not assumptions, and thus offers superior
reliability. However, relatively few items, especially physical
assets, actually trade in active markets.
Level
2: FASB acknowledged that active markets for identical assets and
liabilities are relatively uncommon and, even when they do exist,
they may be too thin to provide reliable information. Inputs other
than quoted market prices in Level 1 that are observable for the
asset or liability, either directly or indirectly, are considered
Level 2 inputs.
Level
3: If inputs from levels 1 and 2 are not available, FASB
acknowledges that fair value measures of many assets and
liabilities are less precise. The board describes Level 3 inputs as
“unobservable,” and limits their use by saying they
“shall be used to measure fair value to the extent that
observable inputs are not available.” This category allows
“for situations in which there is little, if any, market
activity for the asset or liability at the measurement date”.
Earlier in the standard, FASB explains that “observable
inputs” are gathered from sources other than the reporting
company and that they are expected to reflect assumptions made by
market participants.
Income Taxes
The
Company is a limited liability company and has elected to be taxed
under partnership provisions of the Internal Revenue Code. Under
these provisions, the members are taxed on their share of the
Company's taxable income. The Company bears no liability or expense
for income taxes and none is reflected in these financial
statements. Similar provisions apply for state income
taxes.
The
Company accounts for income taxes in accordance with ASC Topic 740,
“Income Taxes.” ASC 740-10 clarifies the accounting for
income taxes by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the balance
sheet. It also provides guidance on derecognition, measurement and
classification of amounts related to uncertain tax positions,
accounting for and disclosure of interest and penalties, accounting
in interim period disclosures and transition relating to the
adoption of new accounting standards. Under ASC 740-10, the
recognition for uncertain tax positions should be based on a
more-likely-than-not threshold that the tax position will be
sustained upon audit. The tax position is measured as the largest
amount of benefit that has a greater than fifty percent probability
of being realized upon settlement. Management has determined that
adoption of this topic has had no effect on the Company’s
balance sheet. The Company’s tax returns for 2016 and 2015
remain open to potential Internal Revenue Service
investigation.
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Any
adjustments applied to estimated amounts are recognized in the year
such adjustments are determined.
Recent
Pronouncements
The
Company has evaluated the recent accounting pronouncements through
January 2017 and believes that none of them will have a material
effect on the company’s financial statements.
Note
2 – Property and Equipment - Software
Capitalization
The
Company capitalizes the costs associated with the development of
the Company’s software solutions and website pursuant to ASC
Topic 350. Other costs related to the maintenance of the software
are expensed as incurred. Additionally, upon formation the
Company determined the fair value of software contributed to the
Company to be $ 1,312,252. Amortization is provided over
the estimated useful lives of 7 years using the straight-line
method for financial statement purposes. The Company capitalized a
total of $341,919 during the twelve months ending December 31,
2016, and incurred amortization expense for the periods ending
December 31, 2016 and December 31, 2015 of $253,468 and $9,370,
respectively.
F-20
NextGen
Dealer Solutions, LLC
Notes to Financial
Statements
Note
3 - Related Party Transactions
The Company and a
technology consulting firm (“Developer”) owned and
managed by Company’s majority Member entered into a Services
Agreement in December, 2015 whereby Developer agreed to make
available up to 15 full time equivalent resources to perform
software development, corrections and testing. Additionally, an
entity owned by the majority Member provided billing services and
start-up support to the Company (“Services Provider”).
The total amounts billed by Developer for development fees in the
periods ending December 31, 2016 and December 31, 2015 was $723,475
and $0, respectively. The total amount owed to both the Developer
and the Services Provider as of December 2016 and 2015, was $468,932 and
$49,433, respectively. Amounts
owed to the Developer will be paid as and when the proceeds from
the sale of the Company’s assets are received.
The Company and its
minority member (“Marketing Partner”) entered into a
Marketing Services Agreement in December, 2015 whereby 1) Marketing
Partner would assist in identifying potential customers for Company
and facilitate in the closing of sales to such prospective
customers; 2) Company would pay Marketing Partner $10,000 per month
plus reasonable out of pocket expenses incurred by the Marketing
Partner’s person(s) assisting Company , and 3) pay to
Marketing Partner a percentage of all receipts by Company from such
prospects equal to 15% for the first year that such prospect is a
customer and 5% for each of the two succeeding years. Amounts
billed to Marketing Partner in the periods ending December 31, 2016
and December 31, 2015 were $60,541 and $0, respectively, and the
balance owed Marketing Partner at December 31, 2016 and 2015
was $47,214 and
$27,910, respectively.
The
Company uses a portion of certain leased premises in Irving, Texas
that are leased by the majority owner of the Company pursuant to a
Sublease Agreement dated October 25, 2016 by and between the
landlord and the majority owner. The sublease ends April 30,
2018. The Company uses the premises on a month to month basis. The
Company pays $3,488 per month for the use of the
premises.
Note
4 – Members’ Equity
The
Company was formed on December 10, 2015 as a limited liability
company under the laws of the State of Delaware. Upon formation on
December 10, 2015, the Company authorized the issuance of up to
80,000 Class A Preferred Units and 10,000 Class B Preferred Units;
on the same date, the Company issued 60,000 Class A Preferred Units
as well as granted a member of the Company an option to purchase
20,000 Class A Preferred Units prior to December 10, 2016. The
option was not exercised, so as of each of December 31, 2016 and
2015 there were 60,000 Class A Preferred Units
outstanding.
Each of
the Class A Preferred Units and Class B Preferred Units are
convertible at any time to Common Units; however the Common Units
have no preferences related to distributions and the like. As of
December 31, 2016, there were no Common Units
outstanding.
During
the period from December 15, 2015 through the period ended December
31, 2016, there have been no other units, preferred or otherwise,
issued, except as noted below.
On
August 1, 2016, the Company approved the NextGen Dealer Solutions,
LLC Incentive Plan providing for the issuance of up to 15,000 Class
C Profit Units; and on the same date, the Company awarded 6,667
Class C Profit Units to one of the Company’s employees,
representing 10% of total issued and outstanding Units post award.
Class C Profit Units have no voting rights, vest over a period of
four (4) years, accelerate vesting upon a change in control and
share in distributions in accordance with the terms set forth in
the Incentive Plan and in the Limited Liability Company Agreement
of the Company dated December 10, 2015. No value or expense
associated with such grant was recorded.
As part
of the initial contributions, one member, in exchange for 40,000
Class A Preferred Units, contributed the sales session management,
inventory management, customer relationship management, equity
mining, and back office and call center business development center
functionality software product and application known as CyclePro,
including all designs, source code, databases, user interfaces, and
derivatives thereof valued at $1,321,622. The other member, in
exchange for 20,000 Class A Preferred Units and an option to
purchase an additional 20,000 Class A Preferred Units prior to
December 10, 2016, contributed $1,500,000.
Note
5- Subsequent Events
On
January 8, 2017, the Company, Halcyon Consulting, LLC
(“Halcyon”), and members of Halcyon signatory thereto
(“Halcyon Members” and together with Halcyon, the
“Halcyon Parties”) entered into an Asset Purchase
Agreement with Smart Server Inc. (“Smart Server”). The
Company and the Halcyon Parties are collectively referred to as the
“Seller Parties.” The Agreement provides that, upon the
terms and subject to the conditions set forth in the Agreement,
Smart Server would acquire all of the Company's assets, properties
and rights of whatever kind, tangible and intangible, other than
the excluded assets under the terms of the Agreement. Smart Server
also would assume liability only for certain post-closing
contractual obligations pursuant to the terms of the Agreement,
primarily related to operating and maintaining the CyclePro
application. Additionally, Smart Server agreed to be responsible
for certain payroll costs and operating expenses incurred after
January 16, 2017, and 2) benefit from all revenue earned from
January 16, 2017 forward. The transaction closed on February 8,
2017.
Smart
Server acquired substantially all of the assets of the Company in
exchange for approximately $750,000 in cash, plus 1,523,809
unregistered shares of common stock of Smart Server (the "Purchaser
Shares"), and a subordinated secured promissory note issued by
Smart Server in favor of the Company in the amount of $1,333,333
(the "Acquisition Note"). The Acquisition Note matures on the third
anniversary of the date the Acquisition Note is entered into (the
"Maturity Date"). Interest will accrue on the Acquisition Note (i)
at a rate of 6.5% annually from the date the Acquisition Note is
entered into through the second anniversary of such date and (ii)
at a rate of 8.5% annually from the second anniversary of the date
the Acquisition Note is entered into through the Maturity
Date.
As of
the date of this filing, Smart Server has changed its name to
RumbleON, Inc.
F-21
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
On
January 8, 2017, Smart Server, Inc. entered into an Asset
Purchase Agreement with NextGen Dealer Solutions, LLC ("NextGen"),
Halcyon Consulting, LLC ("Halcyon"), and members of Halcyon
signatory thereto ("Halcyon Members," and together with Halcyon,
the "Halcyon Parties"), as amended by that certain Assignment,
dated January 31, 2017, between the Company and NextGen Pro, LLC
(the "NextGen Agreement"). The NextGen Agreement provided that
NextGen Pro, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of the Company, will acquire substantially
all of the assets of NextGen in exchange for approximately $750,000
in cash, plus 1,523,809 unregistered shares of Company common stock
(the "Purchaser Shares"), and a subordinated secured
promissory note issued by the Company in favor of NextGen in the
amount of $1,333,333 (the "Acquisition Note"). NextGen and the
Halcyon Parties are collectively referred to as the "Seller
Parties."
On
January 9, 2017, the Company's Board of Directors (the "Board") and
stockholders holding 6,375,000 of the Company's issued and
outstanding shares of common stock approved an amendment to the
Company's Articles of Incorporation (the "Certificate of
Amendment") to change the name Smart Server, Inc. to RumbleON, Inc.
and to create an additional class of Company common stock. The
Certificate of Amendment became effective on February 13, 2017
(the "Effective Date"), after the notice and accompanying
Information Statement describing the amendment was furnished to
non-consenting stockholders of the Company in accordance with
Nevada and Federal securities law.
Immediately before
approving the Certificate of Amendment, the Company had authorized
100,000,000 shares of common stock, $0.001 par value (the
"Authorized Common Stock"), including 6,400,000 issued and
outstanding shares of common stock (the "Outstanding Common Stock,"
and together with the Authorized Common Stock, the "Common Stock").
Pursuant to the Certificate of Amendment, the Company designated
1,000,000 shares of Authorized Common Stock as Class A Common Stock
(the "Class A Common Stock"), which Class A Common Stock ranks pari
passu with all of the rights and privileges of the Common Stock,
except that holders of Class A Common Stock will be entitled to 10
votes per share of Class A Common Stock issued and outstanding and
(ii) all other shares of Common Stock, including all shares of
Outstanding Common Stock shall be deemed Class B Common Stock (the
"Class B Common Stock"), which Class B Common Stock will be
identical to the Class A Common Stock in all respects, except that
holders of Class B Common Stock will be entitled to one vote per
share of Class B Common Stock issued and outstanding.
Also on
January 9, 2017, the Company's Board and stockholders holding
6,375,000 of the Company's issued and outstanding shares of common
stock approved the issuance to (i) Mr. Chesrown of 875,000 shares
of Class A Common Stock in exchange for an equal number of shares
of Class B Common Stock held by Mr. Chesrown, and (ii) Mr. Berrard
of 125,000 shares of Class A Common Stock in exchange for an equal
number of shares of Class B Common Stock held by Mr.
Berrard.
On
February 8, 2017 (the "Closing Date"), RumbleON completed the
NextGen Acquisition in exchange for $750,000 in cash, the Purchaser
Shares, and the Acquisition Note. The Acquisition Note matures on
the third anniversary of the Closing Date (the "Maturity Date").
Interest accrues (i) at a rate of 6.5% annually from the Closing
Date through the second anniversary of such date and (ii) at a rate
of 8.5% annually from the second anniversary of the Closing Date
through the Maturity Date.
On
February [13], 2017, the Company agreed with the Purchasers in the
Private Placement to accelerate the funding of the second tranche
of their investment totaling $1.35 million by issuing such
Purchasers 1,161,920 shares of the Company's common stock and a
note in the amount of $667,000 (the "Investor Note") and cancelling
the Loan Agreements.
On
February 13, 2017, the Effective Date, the Company filed the
Certificate of Amendment with the Secretary of State of the State
of Nevada changing the Company's name to RumbleON, Inc. and
creating the Class A and Class B Common Stock. Also on the
Effective Date, the Company issued an aggregate of 1,000,000 shares
of Class A Common Stock to Messrs. Chesrown and Berrard in exchange
for an aggregate of 1,000,000 shares of Class B Common Stock held
by them. Also on the Effective Date, the Company amended its bylaws
to reflect the name change to RumbleON, Inc. and to reflect the
Company's primary place of business as Charlotte, North
Carolina.
The
following Unaudited Pro Forma Condensed Combined Financial
Statements are based on the historical financial statements of
RumbleON and NextGen after giving effect to the
Company’s acquisition of NextGen. The unaudited Pro Forma
Condensed Combined Balance Sheet as of December 31, 2016, gives
effect to the NextGen Acquisition as if it had occurred on that
date. The unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 2016 gives effect to the
NextGen Acquisition as if it had occurred on January 1,
2016.
The
Unaudited Pro Forma Condensed Combined Financial Statements should
be read in conjunction with RumbleON’s historical
consolidated financial statements as of and for the year ended
December 31, 2016 and the accompanying notes thereto, as filed with
this Annual Report on form 10-K, NextGen’s historical
financial statements as of and for the year ended December 31, 2016
and the accompanying notes thereto included with this filing, and
the accompanying Notes to these Unaudited Pro Forma Condensed
Combined Financial Statements.
PF-1
The
unaudited pro forma financial data are based on the historical
financial statements of RumbleON and NextGen, and on publicly
available information and certain assumptions RumbleON believes are
reasonable, which are described in the notes to the Unaudited Pro
Forma Condensed Combined Financial Statements included in this Form
10-K. RumbleON has not performed a detailed valuation analysis
necessary to determine the fair market values of NextGen’s
assets to be acquired and liabilities to be assumed. For the
purpose of the Unaudited Pro Forma Condensed Combined Financial
Statements, preliminary allocations of estimated acquisition
consideration have been based on the payment of $750,000, issuance
of the Purchaser Shares, and issuance of the Acquisition Note. The
acquisition consideration has been allocated to certain assets and
liabilities using management assumptions as further described in
the accompanying notes. After the closing of the NextGen
Acquisition, RumbleON will complete its valuations of the fair
value of the assets acquired and the liabilities assumed and
determine the useful lives of the assets acquired.
The
Unaudited Pro Forma Condensed Combined Financial Statements are
provided for informational purpose only. The pro forma information
provided is not necessarily indicative of what the combined
company’s financial position and results of operations would
have actually been had the NextGen Acquisition been completed on
the dates used to prepare these pro forma financial statements. The
adjustments to fair value and the other estimates reflected in the
accompanying Unaudited Pro Forma Condensed Combined Financial
Statements may be materially different from those reflected in the
combined company’s consolidated financial statements
subsequent to the NextGen Acquisition. In addition, the Unaudited
Pro Forma Condensed Combined Financial Statements do not purport to
project the future financial position or results of operations of
the merged companies. Reclassifications and adjustments may be
required if changes to RumbleON’s financial presentation are
needed to conform RumbleON’s and NextGen Acquisition’s
accounting policies.
These
Unaudited Pro Forma Condensed Combined Financial Statements do not
give effect to any anticipated synergies, operating efficiencies or
cost savings that may be associated with the transaction. These
financial statements also do not include any integration costs the
companies may incur related to the NextGen Acquisition as part of
combining the operations of the companies. The Unaudited Pro Forma
Condensed Combined Statement of Operations do not include an
estimate for transaction costs of approximately
$175,000.
PF-2
RumbleON,
Inc. and Subsidiary
Pro
Forma Condensed Combined Balance Sheet
(unaudited)
|
|
RumbleON
|
NextGen
|
Pro
Forma
Adjustments
|
|
Pro
Forma
Combined
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
$1,350,580
|
$46,891
|
$(796,891)
|
A
|
$600,580
|
|
Prepaid
expense
|
1,667
|
5,635
|
(5,635)
|
A
|
1,667
|
|
Total current
assets
|
1,352,247
|
52,526
|
(802,526)
|
|
602,247
|
|
|
|
|
|
|
|
|
Software ,
net
|
-
|
1,400,703
|
-
|
|
1,400,703
|
|
Other
assets
|
45,515
|
-
|
-
|
|
45,515
|
|
Goodwill and other
intangibles
|
-
|
-
|
3,349,297
|
B
|
3,349,297
|
|
|
|
|
|
|
|
|
Total
assets
|
$1,397,762
|
$1,453,229
|
$2,546,771
|
|
$5,397,762
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
$139,083
|
$3,445
|
$(3,445)
|
A
|
$139,083
|
|
Accounts
payable-related party
|
80,018
|
516,146
|
(516,146)
|
A
|
80,018
|
|
Total current
liabilities
|
219,101
|
519,591
|
(519,591)
|
|
219,101
|
|
|
|
|
|
|
|
|
Long term
liabilities:
|
|
|
|
|
|
|
Accrued interest
payable - related party
|
5,508
|
-
|
-
|
|
5,508
|
|
Convertible note
payable - related party, net
|
1,282
|
-
|
-
|
|
1,282
|
|
Deferred tax
liability
|
78,430
|
-
|
-
|
|
78,430
|
|
Promissory
note
|
-
|
-
|
1,333,333
|
C
|
1,333,333
|
|
Total long term
liabilities
|
85,220
|
|
1,333,333
|
|
1,418,553
|
|
|
|
|
|
|
|
|
Total
liabilities
|
304,321
|
519,591
|
813,742
|
|
1,637,654
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
Preferred stock,
$0.001 par value, 10,000,000 shares
|
|
|
|
|
|
|
authorized, 7,923,809, shares issued and
outstanding as of December 31, 2016,
|
6,400
|
-
|
1,524
|
D
|
7,924
|
|
Additional paid-in
capital
|
1,534,015
|
-
|
2,665,143
|
D
|
4,199,158
|
|
Members’
equity
|
-
|
933,638
|
(933,638)
|
E
|
|
|
Subscriptions
receivable
|
(1,000)
|
-
|
-
|
|
(1,000)
|
|
Accumulated
deficit
|
(445,974)
|
-
|
-
|
|
(445,974)
|
|
Total stockholders'
equity
|
1,093,441
|
933,638
|
1,733,029
|
|
3,760,108
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity
|
$1,397,762
|
$1,453,229
|
$2,546,771
|
|
$5,397,762
|
See
Accompanying Notes to Pro Forma Financial
Statements.
PF-3
RumbleON,
Inc. and Subsidiary
Pro
Forma Condensed Combined Statement of Operations
(unaudited)
|
|
RumbleON
|
NextGen
Dealer
Solutions
|
Pro
Forma
Adjustments
|
|
Pro
Forma
Combined
|
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$138,141
|
|
|
$138,141
|
|
|
|
|
|
|
|
|
Cost of
sales
|
-
|
332,559
|
|
|
332,559
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
General and
administrative
|
57,825
|
332,534
|
|
|
1,390,359
|
|
Depreciation and
amortization
|
1,900
|
253,468
|
(33,508)
|
F
|
221,860
|
|
Impairment of
assets
|
792
|
-
|
|
|
792
|
|
Professional
fees
|
152,876
|
-
|
|
|
152,876
|
|
Total operating
expenses
|
213,393
|
1,918,561
|
(33,508)
|
|
2,098,446
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
Other
income
|
-
|
644
|
|
|
644
|
|
Interest expense -
related party
|
(11,698)
|
-
|
(86,667
) |
G
|
(98,365)
|
|
Total other
expense
|
(11,698)
|
644
|
(86,667
) |
|
(97,721)
|
|
|
|
|
|
|
|
|
Net loss before
provision for income taxes
|
(225,091)
|
(1,779,776)
|
(53,159)
|
|
(2,058,026)
|
|
|
|
|
|
|
|
|
Benefit for income
taxes
|
513
|
-
|
|
|
513
|
|
|
|
|
|
|
|
|
Net
loss
|
$(224,578)
|
$(1,779,776)
|
$ (53,159)
|
|
$(2,057,513)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common
|
|
|
|
|
|
|
shares outstanding
- basic
|
|
|
|
|
7,105,179
|
|
shares outstanding
- diluted
|
|
|
|
|
7,105,179
|
|
|
|
|
|
|
|
|
Net loss per share
- basic
|
|
|
|
|
$(0.29)
|
|
Net loss per share
- diluted
|
|
|
|
|
$(0.29)
|
See
Accompanying Notes to Pro Forma Financial
Statements.
PF-4
Notes
to Unaudited Pro Forma
Condensed Combined
Financial Statements
The
following unaudited pro forma financial statements of RumbleON,
Inc. (the “Company”) are based on the historical
financial statements of the Company after giving effect to our
purchase of certain assets (the “NextGen Transaction”)
from NextGen Dealer Solutions, LLC ("NextGen") and the assumptions
and adjustments described in the accompanying notes to the
unaudited pro forma financial statements.
The
unaudited pro forma balance sheet as of December 31, 2016, is
presented as if the NextGen Transaction had occurred on December
31, 2016. The unaudited pro forma statements of operations for the
year ended December 31, 2016 are presented as if the NextGen
Transaction had taken place on January 1, 2016.
The
allocation of the purchase price used in the unaudited pro forma
financial statements is based upon a preliminary valuation. The
estimated fair values of certain assets and liabilities have been
determined with the assistance of a third-party valuation firm and
such firm’s preliminary work. Our estimates and assumptions
are subject to change upon the finalization of internal studies and
third-party valuations of assets, including investments, property
and equipment, intangible assets including goodwill, and certain
liabilities.
The
unaudited pro forma financial statements are not intended to
represent or be indicative of the combined results of operations or
financial position of the Company that would have been reported had
the NextGen Transaction been completed as of the dates presented,
and should not be taken as representative of the future
combined
results of operations or financial position of the
Company.
The
unaudited pro forma financial statements do not reflect any revenue
enhancements, operating efficiencies, or cost savings that we may
achieve. The allocation of the purchase price to the assets and
liabilities acquired reflected in this pro forma financial data is
preliminary. Accordingly, the actual financial position and results
of operations may differ from these pro forma amounts.
Note
1- Basis of Presentation
The
unaudited pro forma financial statements of the Company are based
on the historical financial statements of RumbleON, Inc. after
giving effect to the NextGen Transaction and the assumptions and
adjustments described in the accompanying notes to the unaudited
pro forma financial statements.
The
historical financial statements of NextGen are presented under
United States Generally Accepted Accounting Principles (“US
GAAP”) and as such, the historical statements of income have
been adjusted to remove the impact of any asset sales that qualify
for discontinued operations treatment. The historical statements of
operations present results through income from continuing
operations.
The
unaudited pro forma balance sheet as of December 31, 2016, is
presented as if the NextGen Transaction had occurred on December
31, 2016. The unaudited pro forma statements of operations for the
year ended December 31, 2016 and the year ended December 31, 2016
are presented as if the NextGen Transaction had taken place on
January 1, 2016.
The
allocation of the purchase price used in the unaudited pro forma
financial statements is based upon a preliminary valuation. The
estimated fair values of certain assets and liabilities have been
determined with the assistance of a third-party valuation firm and
such firm’s preliminary work. Our estimates and assumptions
are subject to change upon the finalization of internal studies and
third-party valuations of assets, including investments, property
and equipment, intangible assets including goodwill, and certain
liabilities.
The
unaudited pro forma financial statements are not intended to
represent or be indicative of the combined
results of operations or financial position of the Company that
would have been reported had the NextGen Transaction been completed
as of the dates presented, and should not be taken as
representative of the future combined
results of operations or financial position of the
Company.
The
unaudited pro forma financial statements do not reflect any revenue
enhancements, operating efficiencies, or cost savings that we may
achieve. The allocation of the purchase price to the assets and
liabilities acquired reflected in this pro forma financial data is
preliminary. Accordingly, the actual financial position and results
of operations may differ from these pro forma amounts.
PF-5
Note
2- NextGen Transaction
On
January 8, 2017, NextGen, Halcyon Consulting, LLC
(“Halcyon”), and members of Halcyon signatory thereto
(“Halcyon Members” and together with Halcyon, the
“Halcyon Parties”) entered into an Asset Purchase
Agreement with the Company. NextGen and the Halcyon Parties are
collectively referred to as the “Seller Parties.” The
Agreement provides that, upon the terms and subject to the
conditions set forth in the Agreement, the Company would acquire
all of NextGen's assets, properties and rights of whatever kind,
tangible and intangible, other than the excluded assets under the
terms of the Agreement. The Company also would assume liability
only for certain post-closing contractual obligations pursuant to
the terms of the Agreement, primarily related to operating and
maintaining the CyclePro application. Additionally, The Company
agreed to be responsible for certain payroll costs and operating
expenses incurred after January 16, 2017, and 2) benefit from all
revenue earned from January 16, 2017 forward. The transaction
closed on February 8, 2017.
The
Company acquired substantially all of the assets of NextGen in
exchange for approximately $750,000 in cash, plus 1,523,809
unregistered shares of common stock of the Company (the "Purchaser
Shares"), and a subordinated secured promissory note issued by the
Company in favor of the NextGen in the amount of $1,333,333 (the
"Acquisition Note"). The Acquisition Note matures on the third
anniversary of the date the Acquisition Note is entered into (the
"Maturity Date"). Interest will accrue on the Acquisition Note and
be paid semi-annually (i) at a rate of 6.5% annually from the date
the Acquisition Note is entered into through the second anniversary
of such date and (ii) at a rate of 8.5% annually from the second
anniversary of the date the Acquisition Note is entered into
through the Maturity Date.
For
purposes of the pro forma December 31, 2016 balance sheet, the
total purchase price of $4,750,000 is allocated as
follows:
|
Software,
net
|
$1,400,703
|
|
Identifiable
intangible assets
|
100,000
|
|
Goodwill
|
3,249,297
|
|
|
$4,750,000
|
Note
3- Pro Forma Adjustments
The
following pro forma adjustments are included in the unaudited pro
forma financial statements:
(A)
To adjust cash to
reflect the payment of $750,000 portion of the consideration to
NextGen and working capital remaining with NextGen;
(C)
The issuance by the
Company of a Promissory Note in favor of NextGen in the amount of
$1,333,333;
(D)
The account for the
issuance by the Company of 1,523,809 shares of Class B Common Stock
to NextGen;
(E)
To eliminate the
Member’s Equity of
NextGen;
(F)
To adjust
for depreciation expense
on acquired software over its anticipated seven year useful
life; and
(G)
To account for
interest expense related to the Acquisition Note: principal balance
of $1,333,333 and an interest rate of 6.5%.
PF-6