EX-99.3
4
rmbl_ex993.htm
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF RUMBLEON, INC. AS OF JUNE 30, 2021 AND FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND THE TWELVE MONTHS ENDED DECEMBER 31, 2020.
rmbl_ex993
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
On
March 12, 2021, RumbleOn, Inc. (“RumbleOn” or the
“Company) entered into a Plan of Merger and Equity Purchase
Agreement, as amended on June 17, 2021 and July 20, 2021 (the
“RideNow Agreements”), to acquire RideNow Group and
Affiliates, a non-legal entity, (“RideNow” or
“The Group”). RideNow is a collection of franchised
dealerships operating in the powersports industry. Collectively,
the Group is referred to as the Acquired Companies in the
Agreement. The Group is engaged in the sale of new and used
motorcycles, all- terrain vehicles, personal watercraft, other
powersports vehicles, and related products and services, including
repair and maintenance services, parts and accessories, riding
gear, and apparel. As of June 30, 2021, RideNow owned and operated
43 retail dealerships in the United States, predominately in the
Sunbelt region. The core brands sold by RideNow are
Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier,
Polaris, BMW, Ducati and Triumph, which are sold through franchise
dealer agreements.
The RideNow
Agreement provides that the Company will acquire the Acquired
Companies in exchange for (i) $400,400,000 in cash plus or minus
any adjustments for net working capital and closing indebtedness,
and (ii) shares of the Company’s Class B Common Stock having
a value of $175,000,000 (the “Closing Payment Shares”),
valued equally, on a per share basis, based upon the lowest value
of (A) $30.00; (B) the VWAP of the Company’s Class B Common
Stock for the twenty (20) trading days immediately preceding the
closing of the RideNow Transaction (the “Closing”), and
(C) the value on a per share basis paid for the Class B Common
Stock or any shares underlying securities convertible into or
exercisable for Class B Common Stock by any person which purchases
Class B Common Stock or any shares underlying securities
convertible into or exercisable for Class B Common Stock from the
Company from the date of the RideNow Agreement until the Closing
not including purchases of Class B Common Stock underlying
currently outstanding options, warrants, convertible notes, or
other derivative securities. Ten percent (10%) of the Closing
Payment Shares will be escrowed at Closing and will be released
pursuant to the terms of the RideNow Agreement. The Company will
finance the cash consideration through a combination of
approximately $280,000,000 of debt provided by the Initial Lender
(as defined below) and through the issuance of new equity for the
remainder thereof.
The
following unaudited pro forma condensed combined financial
statements are based on the Company’s historical consolidated
financial statements and RideNow’s historical combined
financial statements as adjusted to give effect to the
Company’s acquisition of RideNow and the related financing
transactions. The unaudited Pro Forma Condensed Combined Balance
Sheet as of June 30, 2021, gives effect to these transactions as if
they occurred on June 30, 2021. The unaudited Pro Forma Condensed
Combined Statements of Operations for the six months ended June 30,
2021, and the twelve months ended December 31, 2020, give effect to
these transactions as if they occurred on January 1,
2020.
The
unaudited pro forma condensed combined financial statements should
be read together with the Company’s audited historical
financial statements, which are included in the Company’s
most recent Annual Report on Form 10-K, and quarterly report on
Form 10-Q, and RideNow’s audited historical financial
statements, which were included in RumbleOn’s Form 8-K that
was filed on April 8, 2021, and its quarterly financial statements,
which is included in this Form 8-K being filed on August 4,
2021.
The
unaudited pro forma combined financial information is provided for
informational purpose only and is not intended to represent or be
indicative of the consolidated results of operations or financial
position that the Company would have reported had the RideNow
transaction closed on the dates indicated and should not be taken
as representative of our future consolidated results of operations
or financial position.
The pro
forma adjustments related to the RideNow Agreement are described in
the notes to the unaudited pro forma combined financial information
and principally include the following:
●
Pro forma
adjustment to eliminate the RideNow assets, liabilities and
owners’ equity not acquired.
●
Pro forma
adjustment to record the equity and debt financing obtained in
connection with the RideNow merger.
●
Proforma adjustment
to record the merger of the Company and RideNow.
●
Proforma
adjustments to record the estimated interest expense and other
expenses resulting from the merger.
●
Proforma adjustment
to record the estimated tax provision on the consolidated income
before tax, as adjusted for the above pro forma
adjustments.
The
adjustments to fair value and the other estimates reflected in the
accompanying unaudited pro forma condensed consolidated financial
statements may be materially different from those reflected in the
combined company’s consolidated financial statements
subsequent to the merger. In addition, the unaudited pro forma
condensed combined financial statements do not purport to project
the future financial position or results of operations of the
combined companies. Reclassifications and adjustments may be
required if changes to RideNow’s financial presentation are
needed to conform RideNow’s accounting policies to the
accounting policies of RumbleOn.
These
unaudited pro forma condensed combined financial statements do not
give effect to any anticipated synergies, operating efficiencies or
cost savings that may be associated with the RideNow Agreement.
These financial statements also do not include any integration
costs the companies may incur related to the Transactions as part
of combining the operations of the companies.
PF-1
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Balance Sheet
as of June 30, 2021
(Unaudited)
RumbleOn
Ride
Now
Pro
Forma Adjustments
Notes
Pro
Forma Combined
ASSETS
Current
assets:
Cash and cash
equivalents
$24,972,223
$5,830,482
$5,322,753
A
$36,125,458
Restricted
cash
3,049,056
-
-
3,049,056
Accounts
receivable, net
26,955,051
98,250,159
(72,071,921)
B
53,133,289
Inventory
19,675,990
101,214,125
(1,623,727)
119,266,388
Other current
assets
4,058,905
1,864,297
-
5,923,202
Total current
assets
78,711,225
207,159,063
(68,372,895)
217,497,393
Property and
equipment - net
6,295,683
22,936,755
-
29,232,438
Right of use
assets
5,007,605
73,921,130
-
78,928,735
Other indefinite
lived intangible assets
-
-
194,531,319
C
194,531,319
Goodwill
26,886,563
55,284,223
325,716,991
C
407,887,777
Deferred finance
charge
10,950,000
-
(10,950,000)
G
0
Other
assets
221,712
1,296,219
(1,026,605)
D
491,326
Total
assets
$128,072,788
$360,597,390
$439,898,810
$928,568,988
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current
liabilities:
Accounts payable
and accrued liabilities
$12,678,577
$83,133,280
$(37,539,803)
E
$58,272,054
Lease
liabilities-current portion
1,750,127
21,444,138
-
23,194,265
Notes payable-floor
plan
21,857,234
44,753,947
-
66,611,181
Current portion of
long-term debt
5,809,030
12,843,963
(8,516,667)
F
10,136,326
Total current
liabilities
42,094,968
162,175,328
(46,056,470)
158,213,826
Long term
liabilities:
-
Long-term
debt
4,691,181
-
249,825,000
F
254,516,181
Warrant
liability
13,174,216
-
(13,174,216)
G
0
Convertible debt,
net
28,079,484
-
-
28,079,484
Derivative
liabilities
48,800
-
-
48,800
Lease liabilities-
long-term portion
3,519,475
72,668,736
-
76,188,211
Other long-term
liabilities
502,817
6,497,346
-
7,000,163
Total long-term
liabilities
50,015,973
79,166,082
236,650,784
365,832,839
Total
liabilities
92,110,941
241,341,410
190,594,314
524,046,665
Stockholders’
equity:
Class B Preferred
stock
-
-
-
0
Class A
stock
50
-
-
50
Class B
Stock
3,343
-
10,154
G
13,497
Owners’
equity
119,255,980
(119,255,980)
H
0
Additional paid in
capital
148,180,750
-
383,889,833
G
532,070,583
Accumulated
deficit
(112,222,296)
-
(15,339,511)
G
(127,561,807)
Total
stockholders’ equity
35,961,847
119,255,980
249,304,496
404,522,323
Total liabilities
and stockholders’ equity
$128,072,788
$360,597,390
$439,898,810
$928,568,988
See
Accompanying Notes to Pro Forma Financial Statements.
PF-2
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2021
(Unaudited)
RumbleOn
Ride
Now
Pro
Forma Adjustments
Notes
Pro
Forma Combined
Revenue:
Vehicle
sales
Powersports
$38,833,577
$381,291,169
(25,275,968)
I
$394,848,778
Automotive
211,357,422
-
211,357,422
Transportation and
vehicle logistics
22,418,633
-
22,418,633
Parts and other
revenue
-
132,075,766
-
132,075,766
Total
Revenue
272,609,632
513,366,935
(25,275,968)
760,700,599
Cost of
revenue
Powersports
28,897,883
305,555,291
(23,652,241)
I
310,800,933
Automotive
194,977,530
-
194,977,530
Transportation and
vehicle logistics
18,044,506
-
18,044,506
Other cost of sales
and revenue
48,182,298
-
48,182,298
Total cost of
revenue
241,919,919
353,737,589
(23,652,241)
572,005,267
Gross
profit
30,689,713
159,629,346
(1,623,727)
188,695,332
Selling, general
and administrative
31,514,495
91,682,133
0
J
125,322,878
Depreciation and
amortization
1,231,066
1,717,001
2,948,067
Operating income
(loss)
(2,055,848)
66,230,212
(3,749,977)
60,424,387
Interest
expense
(3,529,345)
(1,165,501)
(15,175,066)
K
(19,869,912)
0
0
Increase in
derivative liability
(2,256,322)
0
(2,256,322)
Other
income
0
20,160,561
-
20,160,561
Net income (loss)
before provision for income taxes
(7,841,515)
85,225,272
(18,925,043)
58,458,714
Income tax
expense
0
(14,614,679)
L
(14,614,679)
Net income
(loss)
$(7,841,515)
$85,225,272
$(33,539,722)
$43,844,035
Weighted average
number of common shares outstanding – basic
2775,665
10,783,800
Net income (loss)
per share – basic
$(2.83)
$4.07
Weighted average
number of common shares outstanding – basic and fully
diluted
2,775,665
11,234,351
Net income (loss)
per share – fully diluted
$(2.83)
$3.90
See
Accompanying Notes to Pro Forma Financial Statements.
PF-3
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
(Unaudited)
RumbleOn
RideNow
Pro
Forma Adjustments
Notes
Pro
Forma Combined
Revenue:
Vehicle
sales
Powersports
$46,653,668
$662,149,234
-
$708,802,902
Automotive
337,084,959
-
337,084,959
Transportation and
vehicle logistics
31,816,157
-
31,816,157
Parts and other
revenue
872,459
236,741,164
-
237,613,623
Total
Revenue
416,427,243
898,890,398
-
1,315,317,641
Cost of
revenue
Powersports
40,060,571
551,652,098
-
591,712,669
Automotive
308,800,631
-
-
308,800,631
Transportation and
vehicle logistics
24,200,229
-
-
24,200,229
Other cost of sales
and revenue
91,017,529
-
91,017,529
Cost of revenue
before impairment loss
373,061,431
642,669,627
-
1,015,731,058
Impairment loss on
automotive inventory
11,738,413
-
-
11,738,413
Total cost of
revenue
384,799,844
642,669,627
-
1,027,469,471
Gross
profit
31,627,399
256,220,771
-
287,848,170
Selling, general
and administrative
53,659,348
154,520,040
$2,835,000
I
211,014,388
Insurance recovery
proceeds
(5,615,268)
-
-
(5,615,268)
Depreciation and
amortization
2,142,939
4,087,914
-
6,230,853
Operating income
(loss)
(18,559,620)
97,612,817
$(835,000)
76, 218,197
Interest
expense
(6,638,325)
(6,956,809)
(30,673,844)
J
(44,268,978)
Other
income
198,970
1,967,068
-
2,166,038
Net income (loss)
before provision for income taxes
$(24,998,975)
$92,623,076
(33,508,844)
34,115,257
Income tax
expense
-
-
(8,528,814)
K
(8,528,814)
Net income
(loss)
$(24,998,975)
$92,623,076
$(42,037,658)
$25,586,443
Weighted average
number of common shares outstanding – basic
2,184,441
10,231,415
Net income (loss)
per share – basic
$(11.44)
$2.54
Weighted average
number of common shares outstanding – basic and fully
diluted
2,184,441
10,371,409
Net income (loss)
per share – fully diluted
$(11.44)
$2.51
See
Accompanying Notes to Pro Forma Financial Statements.
PF-4
RumbleOn Inc. and Subsidiaries
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
Note 1 – Basis of Presentation
The
audited historical consolidated financial statements have been
adjusted in the pro forma condensed combined financial statements
to give effect to pro forma events that are (1) directly
attributable to the business combination, (2) factually supportable
and (3) with respect to the pro forma condensed combined statements
of operations, expected to have a continuing impact on the combined
results following the business combination.
The
business combination was accounted for under the acquisition method
of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer
for accounting purposes, the Company has estimated the fair value
of RideNow’s assets acquired and liabilities assumed and
conformed the accounting policies of RideNow to its own accounting
policies.
The
unaudited Pro Forma Condensed Combined Financial Statements are
based on our historical consolidated financial statements and
RideNow’s historical combined financial statements as
adjusted to give effect to the Company’s acquisition of
RideNow and the related financing transactions. The unaudited Pro
Forma Condensed Combined Balance Sheet as of June 30, 2021, gives
effect to these transactions as if they occurred on June 30, 2021.
The Unaudited Pro Forma Condensed Combined Statements of Operations
for the Year Ended December 31, 2020, and the Six Months Ended June
30, 2021, give effect to these transactions as if they occurred on
January 1, 2020.
The
allocation of the purchase price used in the unaudited pro forma
financial statements is based upon a preliminary valuation by
management. The final estimate of the fair values of the assets and
liabilities will be determined with the assistance of a third-party
valuation firm. The Company’s preliminary estimates and
assumptions are subject to materially change upon the finalization
of internal studies and third-party valuations of assets, including
investments, property and equipment, intangible assets including
goodwill, and certain liabilities.
The
Unaudited Pro Forma Condensed Combined Financial Statements are
provided for informational purpose only and are not necessarily
indicative of what the combined company’s financial position
and results of operations would have actually been had the
Transactions been completed on the dates used to prepare these pro
forma financial statements. The adjustments to fair value and the
other estimates reflected in the accompanying unaudited pro forma
condensed combined financial statements may be materially different
from those reflected in the combined company’s consolidated
financial statements subsequent to the Transactions. In addition,
the unaudited pro forma condensed combined financial statements do
not purport to project the future financial position or results of
operations of the combined companies. Reclassifications and
adjustments may be required if changes to RumbleOn’s
financial presentation are needed to conform RumbleOn’s
accounting policies to the accounting policies of the
RideNow.
These
unaudited pro forma condensed combined financial statements do not
give effect to any anticipated synergies, operating efficiencies or
cost savings that may be associated with the Transactions. These
financial statements also do not include any integration costs the
companies may incur related to the Transactions as part of
combining the operations of the companies.
Note 2 – Summary of Significant Accounting
Policies
The
unaudited pro forma condensed combined financial statements have
been prepared in a manner consistent with the accounting policies
adopted by the Company. The accounting policies followed for
financial reporting on a pro forma basis are the same as those
disclosed in the 2020 Annual Report on Form 10-K and for RideNow,
the accounting policies followed for financial reporting on a pro
forma basis are the same as those disclosed in the audited
financial statements included in RumbleOn’s Form 8-K filed on
April 8, 2021. The unaudited pro forma condensed combined financial
statements do not assume any differences in accounting policies
among the Company and RideNow. The Company is reviewing the
accounting policies of RideNow to ensure conformity of such
accounting policies to those of the Company and, as a result of
that review, the Company may identify differences among the
accounting policies of the two companies, that when confirmed,
could have a material impact on the consolidated financial
statements. However, at this time, the Company is not aware of any
difference that would have a material impact on the unaudited pro
forma condensed combined financial statements.
PF-5
RumbleOn and
RideNow have recorded leases in accordance with ASC 842. In the pro
forma combined balance sheet these leases are reported as a single
amount for short-term and long-term lease liabilities. The
following table provides the segregation of these leases between
operating leases and financing leases for the historical financial
statements for RumbleOn and RideNow.
As
of June 30, 2021
RumbleOn
RideNow
Lease liabilities
– current portion
Operating
leases
$1,750,127
$17,459,193
Financing
leases
3,984,945
Total lease
liabilities – current portion
$1,750,127
$21,444,138
Lease liabilities
– long-term portion
Operating
leases
$3,519,475
$58,345,599
Financing
leases
14,323,137
Total lease
liabilities – long-term portion
$3,519,475
$72,668,736
RideNow
has notes receivable due from a related party, which is included in
other assets in the pro forma combined balance sheet. In addition,
RideNow has certain payables due to related parties that are
included in the current and long-term portions of long-term debt in
the pro forma combined balance sheet. The following table is
provided to segregate these amounts before being combined in the
accompanying Pro Forma Condensed Combined Balance Sheet as of June
30, 2021.
As
of June 30, 2021
RumbleOn
RideNow
Other
assets
Notes receivable
– related party
$-
$1,026,605
Other non-current
assets
221,712
269,614
Total other
assets
$221,712
$1,296,219
Current portion of
long-term debt
Payables to related
parties
$
$40,130,446
Notes
payable-related parties
-
1,159,322
Notes payable
– other
5,809,030
5,684,641
Total current
portion of long-term debt
$5,809,030
$46,974,409
Long-term
debt
Notes payable
– related parties
$-
$-
Notes payable
– PPP Loans
-
-
Notes payable
– other
4,691,181
-
4,691,181
$-
RideNow Sweep Account
RideNow
is a participant in a Cash Sweep Account arrangement with a bank
and its affiliates. The Cash Sweep Account combines the cash
balances of all the participating affiliates and invests excess
cash on a daily basis. Interest is paid to each participant based
on the average cash balance in the Cash Sweep account over the
course of the year. Any participant that develops an overdraft cash
balance is charged interest. For the year ended December 31, 2020
and the six months ended June 30, 2021, the Cash Sweep Account was
earning interest at 0.85% and 1.3%, respectively, and for overdraft
balances, the interest charged was 3.25% and 3.00%, respectively.
In the unaudited financial statements as of June 30, 2021, members
of the Group with positive sweep balances reported those balances
as related party receivables, whereas members of the Group with
negative sweep balances reported those balances as related party
payables. The following table provides a summary of these balances
as of June 30, 2021:
PF-6
Cash Sweep
Accounts:
As
of June 30, 2021
Related party
receivable
$72,071,921
Related party
payable
(39,367,501)
Net Cash Sweep
Account Balance
$32,704,420
For
purposes of the Unaudited Condensed Combined Balance Sheet as of
June 30,2021, the proforma adjustment below to record the
preliminary allocation of the purchase price includes a
reclassification of these related party balances to cash as a
management contemplates those balances in the sweep account on the
date of closing will be transferred to a Company
account.
Note 3 – Financing Transactions
Senior Secured Term Loan
The
Company is financing $280,000,000 of the cash consideration
pursuant to the RideNow Agreement by the issuance of a new Senior
Secured Term Loan. At the option of the Company, the interest rate
on the new loan will be (a) Adjusted LIBOR (as defined in the
Commitment Letter) plus 8.25%, of which (i) Adjusted LIBOR plus
7.25% shall be paid in cash and (ii) 1.00% shall be payable in kind
or (b) ABR (as defined in the Commitment Letter) plus 7.25%, of
which (i) ABR plus 6.25% shall be paid in cash and (ii) 1.00% shall
be payable in kind. The Credit Facility shall mature on the fifth
anniversary of the Closing date of the RideNow Transaction (subject
to extension with the consent of only the extending lender). For
purposes of these pro forma condensed combined financial
statements, we have used an interest rate of 8.45%.
RMBL Transaction Equity Raise
To
finance in part the cash consideration, the Company has committed
to raise at least $135,000,000 in new equity. To estimate the fair
value of this equity, a per share price of $40.50 was used which
results in the issuance of 3,333,333 shares. This price represents
the per share price of the Company’s stock as of the close of
business on July 30, 2021.
Transaction Costs
For
purposes of these pro forma financial statements, the Company has
estimated that the total transaction costs for these financing
transactions will be $19,225,000 for the debt financing and
$9,450,000 for the equity raise. In addition, as discussed below,
the Company has issued a warrant to Oaktree for which we have
estimated a preliminary value of $22,100,000. Legal and other
professional fees and expenses are estimated to be approximately
$4,790,000, are non-recurring, and have not been recorded as a pro
forma adjustment to the Pro Forma Condensed Combined Statement of
Operations.
Warrant
In
connection with the Commitment Letter, in lieu of a commitment fee,
the Company has agreed to issue to Oaktree a warrant to purchase a
number of shares of Class B Common Stock at an exercise price per
share to be determined either at Closing or at termination of the
Commitment Letter (“Warrant”). If issued at Closing,
the Warrant will be for that number of shares equal to $40,000,000
divided by the lowest price per share at which equity is issued in
connection with financing the RideNow Transaction, which price
shall also be the exercise price. If issued in connection with a
termination of the Commitment Letter, the Warrant will be issued to
purchase that number of shares equal to five percent (5%) of the
Company’s fully diluted market capitalization at the close of
business on the day after a termination of the Commitment Letter is
publicly announced divided by the weighted average price of the
Company’s Class B Common Stock for the five days immediately
preceding such date, which price shall also be the exercise price.
The Warrant is immediately exercisable upon the Closing and expires
eighteen (18) months after the Closing or termination of the
Commitment Letter.
PF-7
Using
the stock price of $40.50 as of August 2, 2021, the number of
warrants issued is 987,654. The preliminary fair value of the
warrant has been estimated to be $22,100,000. As of March 12, 2021,
the Company had estimated the fair value of the warrant to be
$10,950,000 and recorded a deferred finance charge and warrant
liability for this amount. This deferred charge has been
reclassified and it is reflected in the accompanying pro forma
combined financial statements as debt discount. The preliminary
estimated fair value was determined using a Monte Carlo simulation
based on level 1 and level 3 inputs. As of June 30, 2021, the
Company increased the fair value of the warrant liability to
$13,174,216. For purposes of these pro forma financial statements,
the difference between the estimated fair value of $22,100,000 and
the $13,174,216 of $8,925,784 has been recorded as an adjustment to
accumulated deficit in the Condensed Combined Balance sheet as of
June 30, 2021. No adjustment has been reflected in the Pro Forma
Condensed Combined Statement of Operations for the six months ended
June 30, 2021, because the transaction is not a recurring cost that
would have a continuing impact on the combined results following
the business combination.
Note 4 - Purchase Price Allocation
On
March 12, 2021, the Company entered into a Plan of Merger and
Equity Purchase Agreement, as amended on June 17, 2021 (the
“RideNow Agreement”) to acquire RideNow Group and
Affiliates, a non-legal entity, (“RideNow” or
“The Group”). RideNow is a collection of franchised
dealerships operating in the powersports industry. Collectively,
the Group are referred to as the Acquired Companies in the
Agreement. The Group is engaged in the sale of new and used
motorcycles, all- terrain vehicles, personal watercraft, other
powersports vehicles, and related products and services, including
repair and maintenance services, parts and accessories, riding
gear, and apparel. As of June 30, 2021, RideNow owned and operated
more than 43 retail dealerships in the United States, predominately
in the Sunbelt region. The core brands sold by RideNow are
Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier,
Polaris, BMW, Ducati and Triumph, which are sold through franchise
dealer agreements.
The
RideNow Agreement provides that the Company will acquire the
Acquired Companies in exchange for (i) $400,400,000 in cash plus or
minus any adjustments for net working capital and closing
indebtedness, and (ii) shares of the Company’s Class B Common
Stock having a value of $175,000,000 (the “Closing Payment
Shares”), valued equally, on a per share basis, based upon
the lowest value of (A) $30.00; (B) the VWAP of the Company’s
Class B Common Stock for the twenty (20) trading days immediately
preceding the Closing, and (C) the value on a per share basis paid
for the Class B Common Stock or any shares underlying securities
convertible into or exercisable for Class B Common Stock by any
person which purchases Class B Common Stock or any shares
underlying securities convertible into or exercisable for Class B
Common Stock from the Company from the date of the RideNow
Agreement until the Closing not including purchases of Class B
Common Stock underlying currently outstanding options, warrants,
convertible notes, or other derivative securities. Ten percent
(10%) of the Closing Payment Shares will be escrowed at Closing and
will be released pursuant to the terms of the RideNow Agreement.
The Company will finance the cash consideration through a
combination of approximately $280,000,000 of debt provided by the
Initial Lender (as defined below) and through the issuance of new
equity for the remainder thereof.
PF-8
The
following table summarizes the preliminary allocation of the
purchase price based on the estimated fair value of the acquired
assets and assumed liabilities as of June 30, 2021:
Purchase price
consideration
Cash
$400,400,000
Class B stock
(5,833,333 x $40.50 per share)
236,249,987
Total purchase
price consideration
$636,649,987
Estimated fair
value of assets:
Cash
$38,534,902
Contracts in
transit
10,149,513
Accounts
receivable
16,028,725
Inventory
101,214,125
Prepaid
expenses
1,864,297
Right-of-use
assets
73,921,130
Property &
equipment
22,936,755
Other
Assets
269,614
264,919,061
Estimated fair
value of liabilities assumed:
Accounts payable,
accrued expenses and other current liabilities
45,593,477
Notes payable -
floor plan
44,753,947
Lease
liabilities
94,112,874
Long-term
debt
6,843,963
Other long-term
liabilities
6,497,346
197,801,607
Net tangible
assets
61,117,454
Intangible
assets
194,531,319
Goodwill
381,001,214
Total
consideration
$636,649,987
This
preliminary purchase price allocation has been used to prepare pro
forma adjustments in the pro forma balance sheet and statement of
operations. The final purchase price allocation will be determined
when the Company has completed the detailed valuations and
necessary calculations. For purposes of the pro forma condensed
combined financial statements, for inventory, property and
equipment, leases and other assets and liabilities the Company used
the carrying value as reported its historical financial statement
as reported in its Form 10-Q as of June 30, 2021, and as reported
in the historical Combined Financial Statements for RideNow as of
June 30, 2021, that have been included in this report. The final
allocation could differ materially from the preliminary allocation
used in the pro forma adjustments. The final allocation may include
(1) changes in fair values of property, plant and equipment, (2)
changes in allocations to intangible assets such as trade names,
technology, franchise rights and customer relationships as well as
goodwill and (3) other changes to assets and
liabilities.
In
accordance with the RideNow Agreement, as discussed above, the
purchase price includes a $400,400,000 in cash plus $175,000,000 in
stock. For purposes of these pro forma combined financial
statements, the number of shares to be issued was determined based
on a price of $30.00 per share as required under the RideNow
Agreement which results in the issuance of 5,833,333 shares of the
Company’s Class B Stock. The fair value of the shares issued
was determined based on a per share price of $40.50, which is the
price of the RumbleOn stock as of the close of business on June 21,
2021. The following table reflects the impact of a 10% increase or
decrease in the per share price on the estimated fair value of the
purchase price and goodwill:
Purchase
Price
Estimate Goodwill
s presented in the
pro forma combined results
$636,649,987
$381,001,214
10% increase in
common stock price
$660,274,985
$404,626,212
10% decrease in
common stock price
$613,024,988
$357,376,215
PF-9
Note 5 - Pro Forma Adjustments
The pro
forma adjustments are based on our preliminary estimates and
assumptions that are subject to change. The following adjustments
have been reflected in the unaudited pro forma condensed combined
financial information:
A.
This adjustment
records the net increase in cash resulting from the merger as
follows:
Net proceeds from
issuance of debt
$260,775,000
Net proceeds from
issuance of Class B stock
125,550,000
Total net proceeds
from financing transactions
386,325,000
Less cash
consideration paid to Sellers
(400,400,000)
Net cash received
from sweep account on the Closing Date(1)
26,704,420
Repayment of Bridge
Loan (including accrued interest)
(2,516,667)
Legal and other
professional fees and expenses
(4,790,000)
Net increase in
cash
$5,322,753
____________________
(1) Amount is positive
B.
This adjustment
records the reclassification of the positive cash balances from the
sweep account.
C.
As part of the
preliminary valuation analysis, the Company identified Franchise
Rights as a separately identifiable intangible asset. The fair
value of this intangible asset $194,531,319 was determined
primarily using the “income approach,” which requires a
forecast of the expected future cash flows. Since all the
information required to perform a detail valuation analysis of
RideNow’s intangible assets could not be obtained as of the
date of this filing, for purposes of these unaudited pro forma
condensed combined financial statements, the Company used certain
assumptions based on publicly available transactions data for the
industry. Based on our research and discussions with RideNow
management we have concluded that the Franchise Rights intangible
asset has an indefinite life and therefore we have not made any
adjustment in the pro forma condensed combined statement of
operations for amortization.
In
addition, this adjustment reflects the recognition of goodwill of
$381,001,214, less the removal of $55,294,223 of goodwill reflected
on the historical balance sheet of RideNow as of June 30,
2021.
D.
This adjustment
reflects the elimination of notes receivable related party that are
expected to be paid off prior to closing.
E.
This adjustment
includes the payable for the Net Working Capital adjustment of
$1,827,698, less the reclassification of the negative cash balances
of $39,367,501 from the sweep account.
F.
As described in
Note 3 above, this adjustment records the elimination of the
current portion of long-term debt of $6,000,000 and records the new
debt, less debt discount and less elimination long-term debt as
follows:
Balance of new
Senior Term Loan
$280,000,000
Less debt discount
and deferred financing fees
(30,175,000)
Net adjustment to
long-term debt
$249,825,000
G.
This adjustment
records the net proceeds received from the equity raised to finance
payment of the cash consideration of $125,550,000 plus this
issuance of warrants with a fair value of $22,100,000 plus the
issuance of 5,833,333 shares of Class B Common Stock to the sellers
as the equity portion of the purchase consideration, valued at
$236,249,987 based on a per share price of $40.50 which was the per
share price of the Company’s stock as of the close of
business on August 2, 2021. This entry also records the
reclassification of the deferred finance charge on the balance
sheet of RumbleOn to Debt Discount and reclassifies the warrant
liability to equity. As discussed in Note 3 above, the
Company has estimated transaction costs for legal and other
professional fees and expenses of $4,790,000. These
costs have not been recorded as a pro forma adjustment to the in
the Pro Forma Condensed Combined Statements of
Operations. However, they have been reflected as an
adjustment to the accumulated deficit in the Pro Forma Condensed
Combined Balance Sheet. In addition, an adjustment has been to the
accumulated deficit for the change in the fair value of the warrant
as described in Note 3 above for
8,925,995.
PF-10
H.
This adjustment
eliminates RideNow’s Owners’ Equity as reported in the
audited historical financial statements.
I.
This adjustment
eliminates the intercompany sales for vehicles sold to RideNow by
the Company.
J.
Pursuant to the
RideNow Agreement, the Company is adopting an Equity Incentive Plan
and as disclosed in a Schedule to the RideNow Agreement is
rewarding 278,334 of restrictive stock units (RSUs) to employees of
RideNow. Based on the stock price of $40.50 per share, these units
have a fair value of $11,272,527. The pro forma adjustment
recognizes 20% ($2,254,505) of these awards being recognized as
share-based compensation in the Unaudited Condensed Combined
Statement of Operations for the year ended December 31, 2020, and
one half of the 30% vesting ($1,690,879) during the six months
ended June 30, 2021. This estimate used the same vesting schedule
used by the Company as disclosed in its financial statements for
the six months ended June 30, 2021, as reported on Form
10-Q.
K.
This pro forma
adjustment records the estimated interest expense as
follows:
6-Months
Ended June 30,
2021
12-Months
Ended December 31, 2020
Contract interest
on the new Senior Term Loan
$12,296,889
$24,591,031
Amortization of
debt discount (Note 1)
2,518,177
5,362,813
Amortization of
deferred financing costs (Note 1)
360,000
720,000
Total interest
expense adjustment
$15,175,066
$30,673,844
____________________
Note (1) Amortization of debt discounts is assumed using an
effective interest method using an interest rate of 10.5%. Deferred
finance costs are amortized on a straight-line basis over the term
of the loan (five years).
L.
This pro forma
adjustment reflects the estimated tax provision that may be
required based on an estimated blended federal and state statutory
tax rate of 25%.
6-Months
Ended June 30,
2021
12-Months
Ended December 31, 2021
Income before
tax
$58,458,714
$34,115,257
Effective tax
rate
25%
25%
Provision for
taxes
$14,614,679
$8,528,814
Note 6 – Combined Adjusted EBITDA Before Pro Forma
Adjustments
Adjusted EBITDA is
a non-GAAP financial measure and should not be considered as an
alternative to operating income or net income as a measure of
operating performance or cash flows or as a measure of liquidity.
Non-GAAP financial measures are not necessarily calculated the same
way by different companies and should not be considered a
substitute for or superior to U.S. GAAP.
Combined Adjusted
EBITDA Before Pro Forma Adjustments is defined as net income
adjusted to add back interest expense including debt extinguishment
and depreciation and amortization, and certain charges and
expenses, such as goodwill impairment, impairment loss on
automotive inventory, impairment loss on plant & equipment,
insurance recovery proceeds, non-cash stock-based compensation,
change in derivative liability, litigation expenses, severance, new
business development and other non-recurring costs, as these
charges and expenses are not considered a part of our core business
operations and are not an indicator of ongoing, future company
performance.
PF-11
Adjusted EBITDA is
one of the primary metrics used by management to evaluate the
financial performance of our business. We present Adjusted EBITDA
because we believe it is frequently used by analysts, investors and
other interested parties to evaluate companies in our industry.
Further, we believe it is helpful in highlighting trends in our
operating results, because it excludes, among other things, certain
results of decisions that are outside the control of management,
while other measures can differ significantly depending on
long-term strategic decisions regarding capital structure and
capital investments.
The
following tables reconcile Combined Adjusted EBITDA Before Pro
Forma Adjustments to net income based on the Company’s
historical financial statements for the six months ended June 30,
2021 and the year ended December 31, 2020 and RideNow’s
historical financial statements for the six months ended June, 2021
and the year ended December 31, 2020.
For
the Six Months Ended
June
30, 2021
For
the Twelve Months Ended
December
31, 2020
RumbleOn
RideNow
Combined
(Before Pro Forma Adjustments)
RumbleOn
RideNow
Combined
(Before Pro Forma Adjustments)
Net
income (loss)
$(7,841,515)
$85,225,272
$77,383,757
$(24,998,975)
$92,623,076
$67,624,101
Add
back:
Interest expense
(including debt extinguishment)
3,529,345
1,165,501
4,694,846
6,450,161
6,956,809
13,406,970
Depreciation and
amortization
1,231,066
1,717,001
2,948,067
2,142,939
4,087,914
6,230,853
Interest income and
miscellaneous income
-
(1,121,332)
(1,121,332)
-
(1,967,068)
(1,967,068)
Increase (decrease)
in derivative liability
2,256,322
2,256,322
(10,806)
-
(10,806)
EBITDA
(824,762)
86,986,442
86,161,660
(16,416,681)
101,700,731
85,284,050
Adjustments
Impairment loss on
automotive inventory
-
-
-
11,738,413
-
11,738,413
Impairment loss on
plant & equipment
-
-
-
177,626
-
177,626
Insurance recovery
proceeds
-
-
-
(5,615,268)
-
(5,615,268)
Non-cash
stock-based compensation
1,727,491
-
1,727,491
2,978,236
-
2,978,236
Acquisition costs
associated with the RideNow Agreement
