Attached files
EXHIBIT 99.2
RIDENOW GROUP AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
RIDENOW GROUP AND AFFILIATES
TABLE OF CONTENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Report of Independent Registered Public Accounting
Firm
To the
Boards of Directors and Management of
RideNow
Group and Affiliates
Chandler,
Arizona
Opinion on the Financial Statements
We have
audited the accompanying combined balance sheets of RideNow Group
and Affiliates (the "Company") as of December 31, 2019 and 2018,
and the related combined statements of income, changes in
owners’ equity, and cash flows for the years then ended, and
the related notes to the combined financial statements. In our
opinion, the combined financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of their operations and
cash flows for the years then ended, in accordance with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
combined financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s combined financial statements based
on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB
and in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
combined financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the
combined financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts
and disclosures in the combined financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the combined financial statements. We
believe that our audits provide a reasonable basis for our
opinion.
/s/Dixon
Hughes Goodman LLP
We have served as the Company’s auditor since
2020.
Atlanta, Georgia
February 12, 2021
1
RIDENOW GROUP AND AFFILIATES
COMBINED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 2019 AND 2018
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2019
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2018
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ASSETS
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Current
assets
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Cash and cash
equivalents
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$4,980,718
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$6,706,049
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Contracts in
transit
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10,554,704
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11,292,831
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Accounts
receivable, net
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9,851,225
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9,418,221
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Accounts receivable
– related parties
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34,211,546
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21,925,321
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Inventories,
net
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216,990,595
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197,172,879
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Prepaid
expenses
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1,775,528
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1,625,724
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Total current
assets
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278,364,316
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248,141,025
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Right-of-use
assets
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59,845,283
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51,270,811
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Property and
equipment, net of accumulated depreciation
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23,099,316
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24,097,898
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Goodwill
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54,988,384
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51,088,384
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Note receivable
– related party
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1,184,043
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1,364,579
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Other non-current
assets
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732,250
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134,160
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Total
Assets
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$418,213,592
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$376,096,857
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LIABILITIES AND
OWNERS’ EQUITY
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Current
liabilities
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Floor plan notes
payable
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$162,975,930
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$149,859,103
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Accounts
payable
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12,565,588
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12,925,641
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Payables to related
parties
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19,080,916
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19,466,490
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Accrued and other
current liabilities
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19,021,643
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17,888,864
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Revolving line of
credit
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18,000,000
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-
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Current portion of
operating lease liabilities
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14,693,192
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13,981,772
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Current portion of
financing lease liabilities
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3,163,199
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3,109,558
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Current portion of
notes payable – related parties
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6,569,584
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1,816,681
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Current portion of
note payable – bank
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2,285,714
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2,285,714
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Current portion of
note payable – other
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209,456
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151,290
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Total current
liabilities
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258,565,222
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221,485,113
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Long-term
liabilities
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Long-term portion
of operating lease liabilities
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47,244,420
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39,728,645
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Long-term portion
of financing lease liabilities
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13,464,666
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14,084,331
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Notes payable
– related parties
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7,499,949
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15,927,795
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Notes payable
– bank, less current portion
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5,714,286
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8,000,000
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Notes payable
– other, less current portion
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1,142,441
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1,351,897
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Other long-term
liabilities
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6,820,000
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5,956,000
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Total
liabilities
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340,450,984
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306,533,781
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Owners’
equity
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77,762,608
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69,563,076
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Total liabilities
and owners’ equity
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$418,213,592
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$376,096,857
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See accompanying Notes to Combined Financial
Statements.
2
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2019 AND 2018
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2019
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2018
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Revenue
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New
vehicles
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$397,717,879
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$389,346,760
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Used
vehicles
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132,805,032
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113,616,255
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Service, parts and
others
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151,849,099
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146,211,431
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Finance and
insurance, net
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53,868,710
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50,180,259
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Total
revenue
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736,240,720
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699,354,705
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Cost of
Sales
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New
vehicles
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355,214,641
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344,534,573
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Used
vehicles
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116,104,217
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100,863,191
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Service, parts and
others
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83,372,418
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81,383,081
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Total cost of
sales
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554,691,276
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526,780,845
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Gross
profit
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181,549,444
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172,573,860
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Selling, general
and administrative expenses
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137,201,905
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128,929,516
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Depreciation and
amortization expenses
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3,752,922
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3,868,513
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Operating
income
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40,594,617
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39,775,831
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Other Income
(Expense)
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Floor plan interest
expense
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(5,528,416)
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(4,147,134)
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Interest expense
– other
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(4,551,687)
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(4,416,800)
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Interest
income
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986,756
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721,953
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Management fee
expense
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-
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(672,256)
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Miscellaneous
income
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1,215,627
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440,687
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Total other income
(expense)
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(7,877,720)
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(8,073,550)
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Net
income
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$32,716,897
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$31,702,281
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See accompanying Notes to Combined Financial
Statements.
3
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 2019 AND 2018
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Owners’
Equity
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Balance at December 31, 2017
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$39,878,779
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Contributions
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2,640,541
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Distributions
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(4,658,525)
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Net
income
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31,702,281
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Balance at December
31, 2018
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69,563,076
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Contributions
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15,052,445
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Distributions
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(39,569,810)
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Net
income
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32,716,897
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Balance at December
31, 2019
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$77,762,608
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See accompanying Notes to Combined Financial
Statements.
4
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2019 AND 2018
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2019
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2018
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net
Income
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$32,716,897
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$31,702,281
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Adjustments to
reconcile net income to net cash provided by operating
activities:
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Loss on disposal of
property and equipment
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47,486
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158,699
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Depreciation and
amortization
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3,752,922
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3,868,513
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Provision for
allowance for doubtful accounts
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(141,900)
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301,255
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(Increase) decrease
in assets, net of effects from business combinations:
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Contracts in
transit
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738,127
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(2,374,176)
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Accounts
receivable
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(291,104)
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(2,607,288)
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Accounts receivable
– related parties
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(12,286,225)
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315,164
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Inventories
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(17,189,741)
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(39,218,736)
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Prepaid
expenses
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(497,131)
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726,301
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Other
assets
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(495,390)
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206,735
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Increase (decrease)
in liabilities, net of effects from business
combinations:
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Vehicle floor plan
payable – trade, net
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(5,894,357)
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2,644,842
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Accounts
payable
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118,372
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(14,487,749)
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Accrued
liabilities
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1,119,304
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(1,406,882)
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Net cash provided
by operating activities
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1,697,260
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(20,171,041)
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CASH FLOWS FROM
INVESTING ACTIVITIES
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Purchases of
property and equipment
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(2,774,476)
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(1,972,391)
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Proceeds from sale
of property and equipment
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239,189
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72,175
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Purchase of net
assets through business combination
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(4,638,218)
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(5,366,161)
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Net cash used in
investing activities
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(7,173,505)
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(7,266,377)
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CASH FLOWS FROM
FINANCING ACTIVITIES
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Issuance of notes
receivables
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(437,480)
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(1,364,579)
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Payments received
on notes receivables
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618,016
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98,683
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Proceeds from
borrowings from related party
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2,375,820
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7,722,636
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Payments of
borrowings from related party
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(6,050,762)
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(950,481)
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Net proceeds from
vehicle Floor Plan payable - non-trade
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16,765,713
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32,147,050
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Proceeds from
revolving line of credit
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65,000,000
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20,446,288
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Payments of
revolving line of credit
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(47,000,000)
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(26,446,288)
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Payments of
borrowings from bank
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(2,437,004)
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(2,431,002)
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Payments of finance
lease liabilities
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(566,024)
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(442,790)
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Contributions from
owners
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15,052,445
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2,640,541
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Distributions to
owners
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(39,569,810)
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(4,658,525)
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Net cash (used in)
provided by financing activities
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3,750,914
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26,761,533
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DECREASE IN CASH
AND CASH EQUIVALENTS
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(1,725,331)
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(675,885)
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CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR
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6,706,049
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7,381,934
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CASH AND CASH
EQUIVALENTS AT END OF YEAR
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$4,980,718
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$6,706,049
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See accompanying Notes to Combined Financial
Statements.
5
RIDENOW GROUP AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2019 AND 2018
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2019
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2018
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Supplemental
Disclosure of Cash Flow Information
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Cash paid for
Interest
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$10,102,590
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$8,456,398
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Non-cash
activities
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Non-cash issuance
of noncontrolling interest
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$125,000
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$1,304,859
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Non-cash purchase
of noncontrolling interest and release of related party note
receivable
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$634,552
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$
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None-cash equity
contributions
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$613,964
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$
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See accompanying Notes to Combined Financial
Statements.
6
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE 1
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
RideNow
Group and Affiliates, a non-legal entity, (“RideNow”)
is a collection of franchised dealerships operating in the
power-sports industry. The Group is engaged in the sale of new and
used motorcycles, all-terrain vehicles, personal watercraft, other
power-sports vehicles, and related products and services, including
repair and maintenance services, parts and accessories, riding
gear, and apparel. As of December 31, 2019, RideNow owned and
operated more than 45 retail dealerships in the United States,
predominately in the Sunbelt region. The core brands sold by
RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki,
Bombardier, Polaris, BMW, Ducati and Triumph, which are sold
through dealer agreements.
Basis of Presentation
The
Combined Financial Statements include the accounts of the following
affiliated companies: CMG Powersports Inc., America's Powersports,
Inc., Woods Fun Center, LLC, San Diego House of Motorcycles, LLC,
APS of Oklahoma, LLC, APS of Georgetown, LLC, APS of Ohio, LLC, APS
of Texas, LLC, C&W Motors, Inc., BJ Motorsports, LLC, Coyote
Motorsports - Allen, LTD, Coyote Motorsports - Garland, LTD, East
Valley Motorcycles, LLC, Glendale Motorcycles, LLC, JJB Properties,
LLC, Metro Motorcycle, Inc., RideNow Carolina, LLC, RideNow, LLC,
Ride USA, LLC, Top Cat Enterprises, LLC, Tucson Motorcycle, Inc.,
Tucson Motorsports, Inc., YSA Motorsports, LLC, RN Tri-Cities, LLC,
ECHD Motorcycles, LLC, IOT Motorcycles, LLC, RideNow 6 Garland,
LLC, RideNow Gainesville, LLC, RNKC, LLC, RNMC Daytona, LLC, TC
Motorcycles, LLC, Ride Now 5 Allen, LLC, RHND Ocala, LLC and Bayou
Motorcycles, LLC.
These
combined financial statements were prepared on a combined basis
using the accrual method of accounting. All transactions and
accounts between and among the combined entities have been
eliminated.
Use of Estimates
The
preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. In preparing these financial statements, management has
made its best estimates and judgments of certain amounts included
in the financial statements. RideNow bases its estimates and
judgments on historical experience and other assumptions that
management believes are reasonable. However, application of these
accounting policies involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual
results could differ materially from these estimates. RideNow
periodically evaluates estimates and assumptions used in the
preparation of the financial statements and make changes on a
prospective basis when adjustments are necessary. The critical
accounting estimates made in the accompanying Combined Financial
Statements include certain assumptions related to goodwill and
other intangible assets. Other significant accounting estimates
include certain assumptions related to long-lived assets, assets
held for sale, accruals for chargebacks against revenue recognized
from the sale of finance and insurance products, certain legal
proceedings, and estimated tax liabilities. Actual results could
differ from those estimates.
Cash and Cash Equivalents
RideNow
considers all highly liquid investments with a maturity of three
months or less as of the date of purchase to be cash equivalents
unless the investments are legally or contractually restricted for
more than three months. Under RideNow’s cash management
system, outstanding checks that are in excess of the cash balances
at certain banks are included in Accounts Payable in the Combined
Balance Sheets and changes in these amounts are reflected in
operating cash flows in the accompanying Combined Statements of
Cash Flows.
Inventories
Inventories,
consisting of new units, are stated at the lower of cost or net
realizable value on a specific identification basis. Parts and
accessories inventories are stated at the weighted average cost.
Used units and other inventories are stated at the lower of cost or
wholesale net realizable values on a specific identification basis,
as determined by management.
Credit Risk
Financial
instruments which potentially subject RideNow to concentrations of
credit risk consist principally of cash in financial institutions
that, at times, may exceed FDIC insurance limits. At various times
during the year, the cash in bank balances exceed the federally
insured limits. Management believes there are no unusual risks
associated with current depository institutions.
Credit
risk with respect to accounts receivable is limited due to the
large number of customers comprising RideNow’s customer base.
RideNow performs ongoing credit evaluations of its customer’s
financial condition and generally requires no collateral from its
customers.
7
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Contracts in Transit
Contracts in
transit are proceeds to be received on sales contracts from
financing institutions.
Accounts Receivable
Accounts receivable
are uncollateralized obligations for major units, parts, service,
and warranty work. Accounts receivable are stated at the invoice
amount. Payments of accounts receivable are applied to the specific
invoices identified on the customer’s remittance advice or,
if unspecified, to the earliest unpaid invoice.
Factory
receivables which are included in accounts receivable represent
amounts due primarily from manufacturer holdbacks, rebates, co-op
advertising, warranty, and supplier returns.
RideNow
provides an allowance for doubtful accounts equal to estimated
uncollectible amounts. RideNow’s estimate is based on
historical collection experience and a review of the current status
of accounts receivable. It is reasonably possible that
RideNow’s estimate of the allowance for doubtful accounts
will change. Bad debt expense is included as a component of general
and administrative expenses in the Combined Statements of
Income.
Property and Equipment
Property and
equipment are recorded at cost and depreciated over the lesser of
their estimated useful lives or lease term, ranging from 3 to 20
years, using the straight-line method. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the
respective accounts, and the resulting gain or loss is included in
the results of operations. Repairs and maintenance charges that do
not increase the useful lives of the assets are charged to
operations as incurred.
Goodwill and Other Intangible Assets, net
RideNow
acquisitions have resulted in the recording of goodwill and other
intangible assets. Goodwill is an asset representing operational
synergies, franchise rights and future economic benefits arising
from other assets acquired in a business combination that are not
individually identified and separately recognized. Other intangible
assets represent non-compete agreements entered into with sellers
from acquired businesses.
RideNow
does not amortize goodwill. Goodwill is tested for impairment
annually or more frequently when events or changes in circumstances
indicate that impairment may have occurred. RideNow elected to
perform a quantitative goodwill impairment test for its reporting
units as of December 31, 2019 and 2018, and no goodwill impairment
charges resulted from the testing.
Other
intangible assets identified include non-compete agreements which
are intangible assets with definite lives and are carried at the
acquired fair values less accumulated amortization. The non-compete
agreements are amortized over the estimate useful
lives.
Impairment of Long-Lived Assets
RideNow
reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
undiscounted future cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
value of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount, or
the fair value less costs to sell.
Revenue Recognition
Revenues consist of
the sales of new and used recreational vehicles, commissions from
related finance and insurance products, sales of parts and
services, and sale of other products. See Note 3 for a summary of
the significant accounting policies related to revenue
recognition.
Advertising
Advertising costs
are expensed during the year in which they are incurred.
Advertising expense for the years ended December 31, 2019 and
2018 was approximately $7,198,000 and $5,331,000,
respectively.
8
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Income Taxes
RideNow
and its affiliates’ taxable income or loss is included in the
tax returns of its shareholders. Therefore, no provision for income
taxes is recorded in these Combined Financial Statements. RideNow
has evaluated its tax positions and determined it has no uncertain
tax positions as of December 31, 2019.
Sales and Excise Tax
RideNow
collects certain taxes from customers and remits to governmental
authorities. RideNow’s accounting policy is to exclude the
taxes collected and remitted to the governmental authorities from
revenues and costs of sales.
Government Regulations
All of
RideNow’s facilities are subject to federal, state, and local
regulations relating to the discharge of materials into the
environment. Compliance with these provisions has not had, nor does
it expect such compliance to have, any material effect on the
capital expenditures, net income, financial condition, or
competitive position of RideNow. Management believes that its
current practices and procedures for the control and disposition of
such wastes comply with applicable federal and state
requirements.
Recently Adopted Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board (“FASB”) under its
Accounting Standards Codification (“ASC”) or other
standard setting bodies.
Revenue from Contracts with Customers
RideNow
adopted ASU 2014-09 Revenue from Contracts with Customers and all
subsequent amendments to the ASU, collectively referred to as
Accounting Standards Codification (ASC) Topic 606, which (i)
creates a single framework for recognizing revenue from contracts
with customers that fall within its scope. RideNow’s goods
and services that fall within the scope of Topic 606 are recognized
as revenue when promised goods or services are transferred to
customers in amounts that reflect the consideration to which
RideNow expects to be entitled in exchange for those goods or
services.
RideNow
adopted the accounting standard effective January 1, 2018, using
the modified retrospective approach applied only to contracts not
completed as of the date of adoption, with no restatement of
comparative periods.
Accounting for Leases
In
February 2016, the Financial Accounting Standards Board
(“FASB”) issued an accounting standard update (ASC
Topic 842) that amends the accounting guidance on leases. The new
standard establishes a right-of-use (ROU) model that requires a
lessee to record an ROU asset and a lease liability on the balance
sheet for all leases with terms longer than 12 months. Leases are
classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income
statement. The FASB also subsequently issued amendments to the
standard, including providing an additional and optional transition
method to adopt the new standard, described below, as well as
certain practical expedients related to land easements and lessor
accounting.
The
accounting standard update originally required the use of a
modified retrospective approach reflecting the application of the
standard to the leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the
financial statements with the option to elect certain practical
expedients. A subsequent amendment to the standard provides an
additional and optional transition method that allows entities to
initially apply the new leases standard at the adoption date and
recognize a cumulative effect adjustment to the opening balance of
retained earnings in the period of adoption. RideNow adopted this
accounting standard effective January 1, 2018, using the optional
transition method with no restatement of comparative periods.
Therefore, the comparative information has not been adjusted and
continues to be reported under ASC Topic 840.
RideNow
elected certain practical expedients available under the transition
guidance within the new standard, which among other things, allowed
it to carry forward the historical lease classification of
RideNow’s existing leases. RideNow did not elect the
use-of-hindsight or the practical expedient pertaining to land
easements; the latter not being applicable to us. Consequently, on
adoption, RideNow recognized additional operating liabilities of
$78,565,477 and ROU assets of $70,650,372 at December 31, 2019 and
additional operating liabilities of $70,904,306 and ROU assets of
$63,246,809 at December 31, 2018, respectively. The new standard
also provides practical expedients for an entity’s ongoing
accounting. RideNow elected the short-term lease recognition
exemption for all leases that qualify. As a result, for those
leases that qualify, RideNow will not recognize ROU assets or lease
liabilities, and RideNow did not recognize ROU asset or lease
liabilities for existing short-term leases of those assets in
transition. RideNow also elected the practical expedient to not
separate lease and non-lease components of leases for the majority
of RideNow classes of underlying assets.
9
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
2
BUSINESS
ACQUISITION
During
2019, RideNow acquired the assets and assumed certain liabilities
of Crystal Motorcycle Ocala LLC, in order to further expand
operations in the Florida market. During 2018, RideNow acquired the
assets and assumed certain liabilities of Cycle Mart LP, Deen
Implement Co, and Moving Forward Arizona LLC in order to further
expand operations in Texas and Arizona markets.
All
acquisitions were accounted for as business combinations under the
acquisition method of accounting. The results of operations of the
acquired stores are included in the Combined Financial Statements
from the date of acquisition.
The
following tables summarize the consideration paid in cash for the
acquisitions and the amount of identified assets acquired and
liabilities assumed as of the acquisition date:
|
2019
|
2018
|
Cash paid, net of cash
acquired
|
$4,638,218
|
$5,366,161
|
Assets
acquired and liabilities assumed for the year ended December
31,
|
2019
|
2018
|
Cash
|
$-
|
$1,500
|
Inventories
|
2,627,975
|
4,916,161
|
Property and
equipment
|
266,539
|
350,000
|
Other assets
|
102,700
|
10,000
|
Floor plan notes
payables
|
(2,245,471)
|
(2,773,985)
|
Other
liabilities
|
(13,525)
|
(253,515)
|
|
738,218
|
2,250,161
|
Goodwill
|
3,900,000
|
3,116,000
|
|
$4,638,218
|
$5,366,161
|
For the
years ended 2019 and 2018, the total cash paid at closing amounted
to $4,638,218 and $5,366,161, net assets acquired amounted to
$738,218 and $2,250,161 and goodwill recognized amounted to
$3,900,000 and $3,116,000 respectively.
NOTE
3
REVENUE
FROM CONTRACTS WITH CUSTOMERS
New and Used Recreational Vehicles
RideNow
sells new and used recreational vehicles. The transaction price for
a recreational vehicle sale is determined with the customer at the
time of sale. Customers often trade in their own recreational
vehicle to apply toward the purchase of a retail new or used
recreational vehicle. The “trade-in” recreational
vehicle is a type of noncash consideration measured at fair value,
based on external and internal market data for a specific
recreational vehicle, and applied as payment of the contract price
for the purchased recreational vehicle.
When
RideNow sells a new or used recreational vehicle, transfer of
control typically occurs at a point in time upon delivery of the
vehicle to the customer, which is generally at the time of sale, as
the customer is able to direct the use of, and obtain substantially
all benefits from the recreational vehicle at such time. RideNow
does not directly finance its customer’s purchases or provide
leasing. In many cases, RideNow arranges third-party financing for
the retail sale or lease of recreational vehicles to customers in
exchange for a fee paid to RideNow by a third-party financial
institution.
RideNow
receives payment directly from the customer at the time of sale or
from a third-party financial institution (referred to as
contracts-in-transit) within a short period of time following the
sale. RideNow establishes provisions, which are not significant,
for estimated returns and warranties on the basis of both
historical information and current trends.
10
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Parts and Service
RideNow
sells parts and vehicle services related to customer-paid repairs
and maintenance, repairs and maintenance under manufacturer
warranties and extended service contracts, and collision-related
repairs. RideNow also sells parts through wholesale and retail
counter channels.
Each
repair and maintenance service is a single performance obligation
that includes both the parts and labor associated with the vehicle
service. Payment for each vehicle service work is typically due
upon completion of the service, which is generally completed within
a short period from contract inception. The transaction price for
repair and maintenance services is based on the parts used, the
number of labor hours applied, and standardized hourly labor rates.
The performance obligation for repair and maintenance service are
satisfied over time and create an asset with no alternative use and
with an enforceable right to payment for performance completed to
date. Revenue is recognized over time based on a direct measurement
of labor hours, parts and accessories that are allocated to open
service and repair orders at the end of each reporting
period.
As a
practical expedient, the time value of money is not considered
since repair and maintenance service contracts have a duration of
one year or less. The transaction price for wholesale and retail
counter parts sales is determined at the time of sale based on the
quantity and price of each product purchased. Payment is typically
due at time of sale, or within a short period following the sale.
RideNow establishes provisions, which are not significant, for
estimated parts returns based on historical information and current
trends. Delivery method of wholesale and retail counter parts
vary.
RideNow
generally considers control of wholesale and retail counter parts
to transfer when the products are shipped, which typically occurs
the same day as or within a few days of sale. RideNow also offers
customer loyalty points for parts and services for select
franchises. RideNow satisfies its performance obligations and
recognizes revenue when the loyalty points are redeemed. Amounts
deferred related to the customer loyalty programs are
insignificant.
Finance and Insurance
RideNow
sells and receives commissions on the following types of finance
and insurance products: extended service contracts, maintenance
programs, guaranteed auto protection, tire and wheel protection,
and theft protection products, among others. RideNow offers
products that are sold and administered by independent third
parties, including the vehicle manufacturers’ captive finance
subsidiaries.
Pursuant to the
arrangements with these third-party providers, RideNow sells the
products on a commission basis. For the majority of finance and
insurance product sales, RideNow’s performance obligation is
to arrange for the provision of goods and services by another
party. RideNow’s performance obligation is satisfied when
this arrangement is made, which is when the finance and insurance
product is delivered to the end customer, generally at the time of
the vehicle sale. As agent, RideNow recognizes revenue in the
amount of any fee or commission to which it expects to be entitled,
which is the net amount of consideration that it retains after
paying the third-party provider the consideration received in
exchange for the goods or services to be fulfilled by that
party.
RideNow’s
customers are concentrated in the Sunbelt region. There are no
significant judgements or estimates required in determining the
satisfaction of the performance obligations or the transaction
price allocated to the performance obligations. As revenues are
recognized at a point-in-time, costs to obtain the customer (i.e.
commissions) do not require capitalization.
Disaggregation of Revenue
The
significant majority of RideNow’s revenue is from contracts
with customers. In the following tables, revenue is disaggregated
by major lines of goods and services and timing of transfer of
goods and services. We have determined that these categories depict
how the nature, amount, timing, and uncertainty of our revenue and
cash flows are affected by economic factors.
11
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Revenues from
contracts with customers consists of the following:
|
For the
Year
Ended December
31,
|
|
|
2019
|
2018
|
Revenue:
|
|
|
New vehicle
|
$397,717,879
|
$389,346,760
|
Used vehicle
|
132,805,032
|
113,616,255
|
New and used
vehicle
|
530,522,911
|
502,963,015
|
|
|
|
Service, parts and
others
|
151,849,099
|
146,211,431
|
Finance and insurance,
net
|
53,868,710
|
50,180,259
|
Total revenue
|
$736,240,720
|
$699,354,705
|
|
|
|
Timing of
revenue recognition:
|
|
|
Goods and services transferred at a
point in time
|
$641,370,068
|
$616,238,008
|
Goods and services transferred over
time (1)
|
94,870,652
|
83,116,697
|
Total revenue
|
$736,240,720
|
$699,354,705
|
(1)
Represents revenue
recognized during the period for vehicle repair and maintenance
services.
Adoption of ASU
2014-09 Revenue from Contracts with Customers and all subsequent
amendments to the ASU, collectively referred to as Accounting
Standards Codification (ASC) Topic 606 resulted in a cumulative
adjustment to retained earnings of approximately
$737,000.
NOTE
4
ACCOUNTS
RECEIVABLE
Accounts receivable
consisted of the following as of December 31:
|
2019
|
2018
|
Trade
receivables
|
$2,830,500
|
$2,859,304
|
Factory
receivables
|
6,827,863
|
6,106,437
|
Other
receivables
|
803,832
|
1,205,350
|
Total accounts
receivables
|
10,462,195
|
10,171,091
|
Less: Allowance for
doubtful accounts
|
(610,970)
|
(752,870)
|
Accounts
receivables, net
|
$9,851,225
|
$9,418,221
|
12
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
5
INVENTORIES
AND VEHICLE FLOOR PLAN PAYABLES
Inventories
consisted of the following as of December 31 are as
follows:
|
2019
|
2018
|
New vehicles
|
$166,901,387
|
$145,904,475
|
Used vehicles
|
26,634,590
|
29,678,143
|
Parts, accessories and
other
|
23,454,618
|
21,590,261
|
Total
cost
|
$216,990,595
|
$197,172,879
|
The
components of vehicle floorplan payables at December 31 are as
follows:
|
2019
|
2018
|
Vehicle Floor Plan payable -
trade
|
$39,087,146
|
$43,568,452
|
Vehicle Floor Plan payable –
non-trade
|
123,888,784
|
106,290,651
|
Vehicle Floor Plan
payable
|
$162,975,930
|
$149,859,103
|
|
|
|
Vehicle
floorplan payable-trade reflects amounts borrowed to finance the
purchase of specific new and, to a lesser extent, used vehicle
inventories with the corresponding manufacturers’ captive
finance subsidiaries (“trade lenders”). Vehicle
floorplan payable-non-trade represents amounts borrowed to finance
the purchase of specific new and, to a lesser extent, used vehicle
inventories with non-trade lenders, as well as amounts borrowed
under RideNow’s secured used vehicle floorplan facilities.
Changes in vehicle floorplan payable-trade are reported as
operating cash flows and changes in vehicle floorplan
payable-non-trade are reported as financing cash flows in the
accompanying Combined Statements of Cash Flows.
RideNow’s
inventory costs are generally reduced by manufacturer holdbacks,
incentives, floorplan assistance, and non-reimbursement-based
manufacturer advertising rebates, while the related vehicle
floorplan payables are reflective of the gross cost of the vehicle.
The vehicle floorplan payables, as shown in the above table, will
generally also be higher than the inventory cost due to the timing
of the sale of a vehicle and payment of the related liability.
Vehicle floorplan facilities are due on demand, but in the case of
new vehicle inventories, are generally paid within several business
days after the related vehicles are sold. Vehicle floorplan
facilities are primarily collateralized by vehicle inventories and
related receivables.
NOTE
6
PROPERTY
AND EQUIPMENT, NET
The
following table summarizes property and equipment, net of
accumulated depreciation and amortization as of December
31:
13
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
Equipment
|
$5,084,165
|
$4,587,416
|
Furniture and
fixtures
|
18,422,739
|
16,958,571
|
Buildings
|
13,146,907
|
13,146,907
|
Vehicles
|
4,190,082
|
2,615,332
|
Leasehold
improvements
|
9,907,006
|
9,683,537
|
Construction in
progress
|
102,831
|
9,966
|
Total property and
equipment
|
50,853,730
|
47,001,729
|
Less: Accumulated
depreciation
|
(27,754,414)
|
(22,903,831)
|
Property and equipment,
net
|
$23,099,316
|
$24,097,898
|
Depreciation and
amortization expense for the years ended December 31, 2019 and 2018
was approximately $3,753,000 and $3,869,000,
respectively.
NOTE
7
GOODWILL
AND INTANGIBLE ASSETS, NET
RideNow’s
acquisitions have resulted in the recording of goodwill and other
intangible assets. Goodwill is an asset representing operational
synergies, franchise rights and future economic benefits arising
from other assets acquired in a business combination that are not
individually identified and separately recognized. Other intangible
assets represent non-compete agreements entered into with sellers
from the acquired businesses and are not significant to the
combined financial statements.
The
changes in goodwill for the years ended December 31, 2019 and 2018
are as follows:
|
Goodwill
|
Balance at December 31,
2017
|
$47,972,384
|
Acquisitions
|
3,116,000
|
Impairments
|
-
|
Balance at December 31,
2018
|
51,088,384
|
Acquisitions
|
3,900,000
|
Impairments
|
-
|
Balance at December 31,
2019
|
$54,988,384
|
NOTE
8
LINE
OF CREDIT
RideNow
has a $19,000,000 revolving line of credit established at a bank.
RideNow participates in the line of credit with certain affiliates.
Interest is payable monthly at the lesser of the prime rate (4.75%
and 5.50% at December 31, 2019 and 2018, respectively) or LIBOR
plus 2.75% (4.98% and 5.27% at December 31, 2019 and 2018,
respectively). The line of credit is secured by substantially all
of the assets of the participating affiliates. The line of credit
has been amended and renewed multiple times under similar terms
since its inception and has a maturity date of January 15, 2021.
The outstanding balance on the line of credit was $18,000,000 and
$-0- at December 31, 2019 and 2018, respectively.
14
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
9
LONG-TERM
NOTES PAYABLE
Notes payable – related parties
The
following consists of the notes payable to related parties as of
December 31:
|
2019
|
2018
|
Various unsecured notes payable to
Steele IV, LLLP, a related party through common ownership; monthly
principal payments range from $10,000 to $20,000; interest accruing
at rates ranging from LIBOR + 1.3% to LIBOR +
2.0%
|
$5,744,265
|
$4,656,196
|
Various unsecured notes payable to
RideNow Management, LLLP, a related party through common ownership;
monthly principal payments ranging from $10,000 to $25,000;
interest accruing at rates ranging from LIBOR + 0.6% to LIBOR +
1.3%.
|
3,277,639
|
8,542,709
|
Various unsecured notes payable to
Denex, LLLP, a related party through common ownership; monthly
principal payments ranging from $10,000 to $15,000 interest
accruing at rates ranging from LIBOR + 0.5% to LIBOR +
1.3%.
|
5,047,629
|
4,045,571
|
Unsecured note payable to WRC 2009,
LLC, a related party through common ownership; no formal repayment
terms; repaid during 2019.
|
-
|
500,000
|
Total
|
14,069,533
|
17,744,476
|
Less: Current
maturities
|
(6,569,584)
|
(1,816,681)
|
Long-term maturities due to related
party
|
$7,499,949
|
$15,927,795
|
|
|
|
The
future maturities of long-term note payables to related parties as
of December 31, 2019:
2020
|
$6,569,584
|
2021
|
5,130,281
|
2022
|
1,030,166
|
2023
|
750,000
|
2024
|
500,139
|
Thereafter
|
89,363
|
Total maturities of long-term notes
payable – related parties
|
$14,069,533
|
Note payable – bank
The
following consist of a note payable to a bank as of December
31:
|
2019
|
2018
|
Northern Trust Bank term loan
agreement that requires monthly principal payments of approximately
$190,500 and accrues interest at the one-month LIBOR plus 2.0%.
This loan is guaranteed by the owners of CMG Powersports, Inc. and
matures July 1, 2021.
|
$8,000,000
|
$10,285,714
|
Less: Current
maturities
|
(2,285,714)
|
(2,285,714)
|
Long-term maturities of note
payables - bank
|
$5,714,286
|
$8,000,000
|
15
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
The
future maturities of long-term note payables to a bank as of
December 31, 2019:
2020
|
2,285,714
|
2021
|
5,714,286
|
Total of long-term notes payable -
other
|
$8,000,000
|
Note payable – other
The
following consist of a note payable to others as of December
31:
|
2019
|
2018
|
Unsecured note payable to P&D
Motorcycles in the original amount of $1,724,000 with an interest
rate of 4% and note payable matures on July 1,
2022
|
1,351,897
|
1,503,187
|
Less: Current
maturities
|
(209,456)
|
(151,290)
|
Long-term maturities of note
payables - bank
|
$1,142,441
|
$1,351,897
|
The
future maturities of long-term note payables to other as of
December 31, 2019:
2020
|
209,456
|
2021
|
209,456
|
2022
|
932,985
|
Total maturities of long-term notes
payable – other
|
$1,351,897
|
NOTE
10
LEASES
General description
The
significant majority of leases that RideNow enters into
are for real estate. RideNow
leases numerous facilities relating to RideNow’s operations,
including primarily for vehicle showrooms, display lots, service
facilities, collision repair centers, supply facilities, vehicle
storage lots, parking lots, offices, and RideNow’s corporate
headquarters. Leases for real property have terms ranging from one
to twenty-five years. RideNow also leases various types of
equipment, including security cameras, diagnostic equipment,
copiers, key-cutting machines, and postage machines, among others.
Equipment leases generally have terms ranging from one to five
years.
RideNow’s
lease agreements do not contain any material residual value
guarantees or material restrictive covenants. RideNow does not have
any significant leases that have not yet commenced but that create
significant rights and obligations for us. RideNow has elected the
practical expedient under ASC Topic 842 to not separate lease and
non-lease components for the following classes of underlying
assets: real estate, office equipment, service loaner vehicles, and
marketing-related assets (e.g., billboards).
RideNow’s
real estate and equipment leases often require that RideNow pay
maintenance in addition to rent. Additionally, RideNow’s real
estate leases generally require payment of real estate taxes and
insurance. Maintenance, real estate taxes, and insurance payments
are generally variable and based on actual costs incurred by the
lessor. Therefore, these amounts are not included in the
consideration of the contract when determining the right-of-use
(“ROU”) asset and lease liability, but are reflected as
variable lease expenses for those classes of underlying assets for
which RideNow has elected the practical expedient to not separate
lease and non-lease components.
Leases
with an initial term of 12 months or less are not recorded on the
balance sheet; RideNow recognizes lease expense for these leases on
a straight-line basis over the lease term. RideNow rents or
subleases certain real estate to third parties, which are primarily
operating leases.
16
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Variable lease payments
A
majority of RideNow’s lease agreements include fixed rental
payments. Certain of RideNow’s lease agreements include fixed
rental payments that are adjusted periodically for changes in the
Consumer Price Index (“CPI”). Payments based on a change in an index or a rate
are not considered in the determination of lease payments for
purposes of measuring the related lease liability. While
lease liabilities are not remeasured as a result of changes to the
CPI, changes to the CPI are treated as variable lease payments and
recognized in the period in which the obligation for those payments
are incurred.
Options to extend or terminate leases
Most of
RideNow’s real estate leases include one or more options to
renew, with renewal terms that can extend the lease term from one
to five years or more. The exercise of lease renewal options is at
RideNow’s sole discretion. If it is reasonably certain that
RideNow will exercise such options, the periods covered by such
options are included in the lease term and are recognized as part
of RideNow’s ROU assets and lease liabilities. Certain leases
also include options to purchase the leased property. The
depreciable life of assets and leasehold improvements are limited
by the expected lease term, unless there is a transfer of title or
purchase option reasonably certain of exercise.
Discount rate
For the
incremental borrowing rate, RideNow generally uses a portfolio
approach to determine the discount rate for leases with similar
characteristics. RideNow determines discount rates based on current
market prices of instruments similar to RideNow’s unsecured
borrowings with maturities that align with the relevant lease term,
and such rates are then adjusted for RideNow’s credit spread
and the effects of full collateralization.
Balance Sheet Presentation
Leases
|
Classification
|
2019
|
2018
|
Assets:
|
|
|
|
Operating
|
Operating lease
assets
|
$59,845,283
|
$51,270,811
|
Finance
|
Property and Equipment,
net
|
10,805,089
|
11,975,998
|
Total right-of-use
assets
|
|
$70,650,372
|
$63,246,809
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Operating
|
Current portion of operating lease
liabilities
|
$14,693,192
|
$13,981,772
|
Finance
|
Current portion of finance lease
liabilities
|
3,163,199
|
3,109,558
|
|
|
|
|
Non-Current
|
|
|
|
Operating
|
Long-term portion of operating lease
liabilities
|
47,244,420
|
39,728,645
|
Financing
|
Long-term portion of finance lease
liabilities
|
13,464,666
|
14,084,331
|
Total lease
liabilities
|
|
$78,565,477
|
$70,904,306
|
The
following consist of lease related assets and liabilities as of
December 31:
17
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Lease Term and Discount Rate
The
following consists of the lease terms and discount rates as of
December 31:
|
2019
|
2018
|
Weighted Average Lease Term -
Operating Leases
|
5.9
years
|
6.2
years
|
Weighted Average Lease Term -
Finance Leases
|
9.6
years
|
10.6
years
|
Weighted Average Discount Rate -
Operating Leases
|
3.0%
|
3.0%
|
Weighted Average Discount Rate -
Finance Leases
|
18.1%
|
18.0%
|
Lease Costs
The
following table provides certain information related to the lease
costs for finance and operating leases for the years ended December
31:
Lease Cost
|
Classification
|
2019
|
2018
|
Operating lease
costs
|
Selling, general and administrative
expenses
|
$14,995,468
|
$14,214,823
|
|
|
|
|
Finance lease
costs:
|
|
|
|
Amortization of ROU
assets
|
Depreciation and
Amortization
|
1,170,909
|
1,170,909
|
Interest on lease
liabilities
|
Floor plan interest and other
interest expense
|
2,810,138
|
2,884,300
|
|
|
|
|
*Variable lease
costs
|
Selling, general and administrative
expenses
|
1,067,513
|
992,325
|
|
$20,044,028
|
$19,262,357
|
*Variable Lease
Cost includes the following:
- Short
term lease costs, which are immaterial.
- Sales
tax, CAM charges, and CPI adjustments.
Supplemental Cash Flow Information
The
following table presents supplemental cash flow information for
leases for the year ended December 31:
|
2019
|
2018
|
Cash paid for amounts included in
the measurements of lease liabilities:
|
|
|
Operating cash flows from operating
leases
|
$15,342,746
|
$14,263,316
|
Operating cash flows from finance
leases
|
$2,810,138
|
$2,884,300
|
Financing cash flows from finance
leases
|
$566,024
|
$442,000
|
Right-of-use assets obtained in
exchange for new:
|
|
|
Operating lease
liabilities
|
$22,482,942
|
$8,693,628
|
Finance lease
liabilities
|
$-
|
$
|
Non-cash reduction in right-of-use
assets and lease liabilities from modification to operating
leases:
|
$-
|
$1,389,244
|
RideNow
leases facilities under operating leases expiring through January
2029. The leases require varying monthly payments ranging from
$3,900 to $79,000.
18
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Future
minimum payments under these commitments as of December 31, 2019
are as follows:
|
Operating
Leases
|
Finance
Leases
|
Year Ending December
31,
|
|
|
2020
|
$14,895,237
|
$3,433,494
|
2021
|
12,318,028
|
3,478,480
|
2022
|
10,393,952
|
3,515,681
|
2023
|
8,995,510
|
3,568,272
|
2024
|
7,520,534
|
3,615,480
|
Thereafter
|
13,737,397
|
16,598,014
|
Total lease
payments
|
67,860,658
|
34,209,421
|
Less: Interest
|
(5,923,046)
|
(17,581,556)
|
Present value of lease
liabilities
|
$61,937,612
|
$16,627,865
|
|
|
|
Current portion of lease
liabilities
|
$15,033,457
|
$3,163,199
|
Long-term portion of lease
liabilities
|
46,904,155
|
13,464,666
|
|
$61,937,612
|
$16,627,865
|
Lease expense charged to
operations was approximately $14,995,468 and $14,214,823 for the
years ended December 31, 2019 and 2018,
respectively.
Future
minimum lease payments under these commitments, as presented above,
scheduled in connection with a related party are as
follows:
Maturity of Related Party Lease
Liabilities
|
2019
|
2020
|
$11,867,990
|
2021
|
10,287,195
|
2022
|
9,091,299
|
2023
|
8,368,594
|
2024
|
7,807,116
|
Thereafter
|
24,568,658
|
Total lease
payments
|
71,990,852
|
Less: Interest
|
(20,026,506)
|
Present value of lease
liabilities
|
$51,964,346
|
Maturity of Related Party Lease
Liabilities
|
2018
|
2019
|
$11,073,441
|
2020
|
8,971,832
|
2021
|
7,348,560
|
2022
|
6,004,200
|
2023
|
5,150,024
|
Thereafter
|
27,109,038
|
Total lease
payments
|
65,657,095
|
Less: Interest
|
(21,772,318)
|
Present value of lease
liabilities
|
$43,884,777
|
Lease
expense charged to operations in connection with a related party
was approximately $8,715,266 and $8,598,685 for the years ended
December 31, 2019 and 2018, respectively.
19
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
11
RELATED
PARTY TRANSACTIONS
Cash Sweep Account Payables/Receivables
RideNow
is a participant in a Cash Sweep Account arrangement with a bank
and its affiliates. The Cash Sweep Account combines the cash
balances of all the participating affiliates and invests excess
cash on a daily basis. Interest is paid to each participant based
on the average cash balance in the Cash Sweep account over the
course of the year. Any participant that develops an overdraft cash
balance is charged interest. For the years ended December 31, 2019
and 2018, the Cash Sweep Account was earning interest at 3.11% and
2.89%, respectively, and for overdraft balances, the interest
charged was 3.50% and 3.75%, respectively.
Cash Sweep
Accounts:
|
2019
|
2018
|
Related party
receivable
|
$28,555,340
|
$21,297,800
|
Related party
payable
|
(14,087,220)
|
(18,728,170)
|
Net Cash Sweep Account
Balance
|
$14,468,120
|
$2,569,630
|
Shared Services
RideNow
receives administrative support from RideNow Management, LLLP and
Coulter Management Group, LLLP, which are related parties due to
common ownership. Total administrative services received from these
entities and charged to operations were $450,454 and $221,648, for
the years ending December 31, 2019 and 2018,
respectively.
NOTE
12
SUPPLEMENTAL
CASH FLOW INFORMATION
The
following table includes supplemental cash flow information,
including noncash investing and financing activity for the years
ended December 31,
|
2019
|
2018
|
Cash paid for
interest
|
$10,102,590
|
$8,456,398
|
Non-cash
activities:
|
|
|
Non-cash issuance of noncontrolling
interest
|
$125,000
|
$1,304,859
|
Non-cash purchase of noncontrolling
interest and release of related party note
receivable
|
$634,552
|
-
|
Non-cash equity
contributions
|
$613,964
|
-
|
NOTE
13
RETIREMENT
PLAN
RideNow
maintains a 401(k) plan (the Plan) covering substantially all
employees who are over the age of 21 and meet specified service
requirements. Participants may voluntarily contribute to the Plan,
not to exceed the maximum limits imposed by the Internal Revenue
Service regulations. Contributions to the Plan are made by the
participants to their individual accounts through payroll
withholding. Additionally, RideNow provides a matching contribution
of 25% up to the first 6% of participants’ annual earnings
with a maximum of $2,000 annually. RideNow’s contribution to
the Plan was approximately $613,270 and $1,093,730 for the years
ended December 31, 2019 and 2018, respectively.
NOTE
14
CONTINGENCIES
From
time to time, RideNow is contingently liable in respect to lawsuits
and claims incidental to the ordinary course of its operations.
Management has determined that the outcome of any such matters will
not have a material effect on the Combined Financial Statements. No
provision has been made in the accompanying Combined Financial
Statements for losses, if any, that might result from the ultimate
outcome of such matters.
20
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
15
BUSINESS
AND CREDIT CONCENTRATIONS
Financial
instruments that potentially subject us to concentrations of credit
risk consist principally of cash on deposit with financial
institutions. At times, amounts invested with financial
institutions exceed Federal Deposit Insurance Corporation insurance
limits. Concentrations of credit risk with respect to receivables
are limited primarily to receivables from automobile manufacturers
or distributors which RideNow holds franchises, totaling
approximately $6,828,000 and $6,106,000 at December 31, 2019 and
2018, respectively.
RideNow
is subject to a concentration of risk in the event of financial
distress or other adverse events related to any of the
manufacturers whose franchised dealerships are included in
RideNow’s brand portfolio. RideNow purchases new vehicle
inventory from various powersports manufacturers at the prevailing
prices available to all franchised dealerships. In addition,
RideNow finances a substantial portion of its new vehicle inventory
with manufacturer-affiliated finance companies. RideNow’s
results of operations could be adversely affected by the
manufacturers’ inability to supply RideNow dealerships with
an adequate supply of new vehicle inventory and related floor plan
financing. RideNow also has concentrations of risk related to the
geographic markets in which RideNow dealerships operate. Changes in
overall economic, retail powersports or regulatory environments in
one or more of these markets could adversely impact the results of
RideNow’s operations.
Concentrations of
credit risk with respect to non-manufacturer trade receivables are
limited due to the wide variety of customers and markets in which
RideNow’s products are sold as well as their dispersion
across many different geographic areas in the United States.
Consequently, at December 31, 2019, RideNow does not consider
itself to have any significant non-manufacturer concentrations of
credit risk.
NOTE
16
FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The
fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation. Fair
value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of judgment, and therefore cannot be determined with
precision.
Accounting
standards define fair value as the price that would be received
from selling an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants at the
measurement date. Accounting standards establish a fair value
hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value and also establishes the following three
levels of inputs that may be used to measure fair
value:
Level 1
|
Quoted
prices in active markets for identical assets or
liabilities
|
|
|
Level 2
|
Observable inputs
other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted market prices in markets that are not
active; or model-derived valuations or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities
|
|
|
Level 3
|
Unobservable inputs
that are supported by little or no market activity and that are
significant to the fair value of the assets or
liabilities
|
21
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
The
following methods and assumptions were used by us in estimating
fair value disclosures for financial instruments:
●
Cash and cash equivalents, receivables, other current assets,
vehicle floorplan payable, accounts payable, other current
liabilities, and variable rate debt: The amounts reported in
the accompanying Combined Balance Sheets approximate fair value due
to their short-term nature or the existence of variable interest
rates that approximate prevailing market rates.
●
Fixed rate long-term debt:
RideNow’s fixed rate long-term debt consists primarily of
amounts outstanding under its senior unsecured notes. The amounts
reported in the accompanying Combined Balance Sheets approximate
fair value due to its senior unsecured notes using quoted prices
for the identical liability (Level 1.)
Nonfinancial assets
such as goodwill, other intangible assets, and long-lived assets
held and used are measured at fair value when there is an indicator
of impairment and recorded at fair value only when impairment is
recognized or for a business combination. The fair values less
costs to sell of long-lived assets or disposal groups held for sale
are assessed each reporting period they remain classified as held
for sale. Subsequent changes in the held for sale long-lived
asset’s or disposal group’s fair value less cost to
sell (increase or decrease) are reported as an adjustment to its
carrying amount, except that the adjusted carrying amount cannot
exceed the carrying amount of the long-lived asset or disposal
group at the time it was initially classified as held for
sale.
NOTE
17
SEGMENT
INFORMATION
As of
December 31, 2019 and 2018, RideNow had two operating segments: (1)
Harley-Davidson motor sports dealerships and (2) Metric motor
sports dealerships (representing all Non-Harley-Davidson motor
sports dealerships). RideNow’s Harley-Davidson dealership
segment is comprised of retail franchises that sell new and used
motorcycles and related accessories, riding gear and apparel,
replacement parts, equipment repair and maintenance services, and
also arrange for the delivery of finance and insurance products
through third party providers. RideNow’s Metric dealerships
segment is comprised of retail franchises that sell new and used
motorcycles (non-Harley-Davidson) and other motor sports equipment,
including all-terrain vehicles, utility terrain vehicles, boats,
personal watercraft, snowmobiles and scooters from manufacturers
such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW,
Ducati and Triumph. Additionally, dealerships in RideNow’s
Metric segment sell related products and services, including repair
and maintenance services and also arrange for the delivery of
finance and insurance products through third party
providers.
RideNow
has determined that the operating segments also represent the
reportable segments. The reportable segments identified above are
the business activities of RideNow for which discrete financial
information is available and for which operating results are
regularly reviewed by the chief operating decision maker to assess
operating performance and allocate resources. RideNow’s chief
operating decision maker is comprised of its two owners, who are
also RideNow’s (1) Chairman of the Board and (2) Chief
Executive Officer.
The
following tables provide reportable segment revenues, gross profit,
floorplan interest expense, segment income and
inventories:
|
2019
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Total
Segments
|
Revenue
|
$220,621,113
|
$515,619,607
|
$736,240,720
|
|
|
|
|
Gross Profit
|
$60,788,862
|
$120,760,582
|
$181,549,444
|
Gross profit %
|
27.6%
|
23.4%
|
24.7%
|
|
|
|
|
Floor Plan interest
expense
|
$1,017,392
|
$4,511,024
|
$5,528,416
|
Segment income%
|
0.5%
|
0.9%
|
0.8%
|
|
|
|
|
Segment income
(1)
|
$11,623,250
|
$23,223,398
|
$34,846,648
|
Segment income
%
|
5.3%
|
4.5%
|
4.7%
|
|
|
|
|
Inventories
|
$53,477,090
|
$163,513,505
|
$216,990,595
|
22
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
|
2018
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Total
Segments
|
Revenue
|
$223,649,734
|
$475,704,971
|
$699,354,705
|
|
|
|
|
Gross Profit
|
$61,595,526
|
$110,978,334
|
$172,573,860
|
Gross profit %
|
27.5%
|
23.3%
|
24.7%
|
|
|
|
|
Floor Plan interest
expense
|
$1,068,945
|
$3,078,189
|
$4,147,134
|
Segment income%
|
0.5%
|
0.6%
|
0.6%
|
|
|
|
|
Segment income
(1)
|
$14,110,515
|
$21,557,144
|
$35,667,659
|
Segment income
%
|
6.3%
|
4.5%
|
5.1%
|
|
|
|
|
Inventories
|
$40,449,979
|
$156,722,900
|
$197,172,879
|
(1)
Segment
income represents income for each reportable segment and is defined
as income from operations less floorplan interest expense, which is
the measure by which management allocates resources to its
segments.
The
following is a reconciliation of the total of the reportable
segments’ segment income to the combined net
income:
|
2019
|
2018
|
Reportable segment
income
|
$34,846,648
|
$35,667,659
|
Corporate operating
income/expense
|
219,553
|
(38,962)
|
Other interest
expense
|
(4,551,687)
|
(4,416,800)
|
Interest income
|
986,756
|
721,953
|
Management fee
expense
|
|
(672,256)
|
Miscellaneous
income
|
1,215,627
|
440,687
|
Combined net
income
|
$32,716,897
|
$31,702,281
|
The
following tables provide revenues by products and
services:
|
2019
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Combined
|
New vehicles
|
$79,738,881
|
$317,978,998
|
$397,717,879
|
Used vehicles
|
68,871,728
|
63,933,304
|
132,805,032
|
Service, parts and
other
|
57,515,708
|
94,333,391
|
151,849,099
|
Finance and insurance
income
|
14,494,796
|
39,373,914
|
53,868,710
|
|
$220,621,113
|
$515,619,607
|
$736,240,720
|
|
|
|
|
|
2018
|
||
|
Harley Davidson
Dealerships
|
Metric
Dealerships
|
Combined
|
New vehicles
|
$91,490,058
|
$297,856,702
|
$389,346,760
|
Used vehicles
|
60,363,476
|
53,252,779
|
113,616,255
|
Service, parts and
other
|
57,234,843
|
88,976,588
|
146,211,431
|
Finance and insurance
income
|
14,561,357
|
35,618,902
|
50,180,259
|
|
$223,649,734
|
$475,704,971
|
$699,354,705
|
23
RIDENOW GROUP AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE
18
SUBSEQUENT
EVENTS
Business Combinations
On May
4, 2020, RideNow closed on a business acquisition with Daytona Fun
Machines, Inc., a Florida dealership, for a cash payment of
$1,306,617 pursuant to an asset purchase agreement subject to
adjustments for working capital and escrow provisions. Daytona Fun
Machines, Inc. sells and services motorcycles, powersports and
marine products manufactured by American Honda Motor Company,
Yamaha Motor Corporation, Kawasaki Motors Corp. and Bombardier
Recreational Products Inc. The acquisition qualified as a business
combination and was accounted for using the acquisition method of
accounting. As of the settlement date, RideNow recognized assets of
$2,923,017, liabilities assumed of $1,854,535 and goodwill of
$238,135. As of November 30, 2020, the acquired business had
recognized gross revenues of $7,625,884, costs and operating
expenses of $6,920,052 and net income of $705,832.
On May
5, 2020, RideNow closed on a business acquisition with Volusia
Motorsports, Inc., a Florida dealership, for a cash payment of $
448,225 pursuant to an asset purchase agreement subject to
adjustments for working capital and escrow provisions. Volusia
Motorsports, Inc. sells and services Polaris, Slingshot, KTM and
Star EV motorcycles/scooters, all-terrain vehicles, utility
vehicles and golf carts manufactured and distributed by Polaris
Industries Inc., KTM North American, Inc and JH Global Services,
Inc. The acquisition qualified as a business combination and will
be accounted for using the acquisition method of accounting. As of
the settlement date, RideNow recognized assets of $1,278,502,
liabilities assumed of $944,557 and goodwill of $114,280. As of
November 30, 2020, the acquired business had recognized gross
revenues of $1,976,911, costs and operating expenses of $1,998,037
and a net loss of $21,126. In September 2020, the Company was
merged into Daytona Fun machines, Inc.
Coronavirus Pandemic (COVID-19)
Subsequent to
year-end, the World Health Organization declared the spread of
Coronavirus Disease (COVID-19) a worldwide pandemic. The COVID-19
pandemic is having significant effects on global markets, supply
chains, businesses, and communities. Specific to RideNow, COVID-19
may impact various parts of its 2020 operations and financial
results. Management believes RideNow is taking appropriate actions
to mitigate the negative impact. However, the full impact of
COVID-19 is unknown and cannot be reasonably estimated at December
31, 2019.
Paycheck Protection Program
In
March 2020, tax legislation was passed in the United States of
America, which created the Paycheck Protection Program (PPP). As
part of the PPP, RideNow received combined loans of approximately
$18,731,000, which can be used to cover certain allowable expenses
of RideNow. The PPP contains provisions that allow for the full or
partial forgiveness of the loans if certain requirements are met.
Loan amounts that are not forgiven accrue interest at 1% per annum
and are generally due within two years.
24