EDGAR 10-K Filing

Company CIK: 1596961
Filing Year: 2022
Filename: 1596961_10-K_2022_0001596961-22-000008.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS.
In this Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"), "we," "our," "us," "RumbleOn," and the "Company" refer to RumbleOn, Inc. and its consolidated subsidiaries at December 31, 2021, unless the context requires otherwise.
Forward-Looking and Cautionary Statements
This 2021 Form 10-K contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in forward-looking statements. Factors that could cause or contribute to such differences in our actual results include, but are not limited to, those discussed in this 2021 Form 10-K, and in particular, the risks discussed under the caption "Risk Factors" in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (the "SEC"). Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to revise or update forward-looking statements, except as required by law.
Market and Industry Data
Some of the market and industry data contained in this 2021 Form 10-K are based on independent industry publications or other publicly available information. Although we believe that these independent sources are reliable, we have not independently verified and cannot assure you as to the accuracy or completeness of this information. As a result, you should be aware that the market and industry data contained herein, and our beliefs and estimates based on such data, may not be reliable.
Our Company
RumbleOn is the nation's first, largest, and only publicly-traded, technology-based Omnichannel platform in the powersports industry. Headquartered in the Dallas Metroplex, RumbleOn is revolutionizing the customer experience for outdoor enthusiasts across the country and making powersport vehicles accessible to more people in more places than ever before. We are transforming the powersports customer experience by giving consumers what they want-a wide selection, great value and quality, transparency, and an easy, friction-free transaction. Every element of our business, from inventory procurement to fulfillment to overall ease of transactions, whether online or on-site at one of our now 55 retail locations or experience centers, has been built for a singular purpose - creating a customer experience without peer in the powersports industry.
Although our primary focus is on disrupting the customer experience in the powersports industry, we participate in the automotive industry through our wholly-owned distributors of used automotive inventory, Wholesale, Inc. ("Wholesale Inc") and Got Speed, Inc. (“Got Speed”). Our logistics services company, Wholesale Express, LLC ("Wholesale Express"), provides freight brokerage services facilitating transportation for dealers and consumers.
Incorporated in Nevada in 2013 as a development stage company, we have been building the RumbleOn brand and vision since 2016. Led by our co-founder, chairman, and Chief Executive Officer Marshall Chesrown, we have achieved and built upon key milestones:
•April 2017: launched RumbleOn.com.
•October 2017: celebrated our initial listing on The Nasdaq Stock Market.
•October 2018: acquired Wholesale Inc and Wholesale Express.
•August 2021: acquired the RideNow companies (the “RideNow Transaction”), a collection of 41 retail powersports locations with a geographic footprint spanning primarily the Sunbelt.
•September 2021: processed the first powersports vehicle through our Orlando Fulfillment Center.
•February 2022: completed the initial funding of our captive consumer finance facility for RumbleOn Finance.
•February 2022: acquired Freedom Powersports (the “Freedom Transaction”), adding ten retail locations in Texas, one in Alabama and two in Georgia.
•February 2022: appointed seasoned finance executive, Narinder Sahai, as Chief Financial Officer and appointed RumbleOn’s President, Peter Levy, to President and Chief Operating Officer.
•February 2022: unveiled the regional management structure, anchored by tenured team members of RideNow.
These key events well-position RumbleOn as the first mover in transforming the powersports industry through our customer experience focused, technology-based, Omnichannel platform.
Our Industry and Opportunity
We operate primarily in the powersports industry, offering significant scale and breadth of products and our Omnichannel platform from which we will provide our only of its kind powersports customer experience. From our view, powersports includes motorcycles, side-by-sides, ATV, UTV, snowmobile, and personal watercraft ("PWC"). Add in boats and traditional RVs and, according to the US Census Bureau, the total value of the powersports market for traditional retail dealers was approximately $70 billion in 2017. Notably, however, the Census Bureau statistics do not account for a huge peer-to-peer market in used powersports, which RumbleOn believes represents up to 70% of used powersports transactions, providing RumbleOn an outstanding inventory sourcing opportunity and creating a total addressable powersports market in excess of $100 billion.
The powersports marketplace in the United States is highly fragmented. We face competition from traditional franchised dealers who sell both new and used vehicles; independent used powersports dealers; online and mobile sales platforms; and private parties. We believe that the principal competitive factors in our industry are delivering an outstanding consumer experience, competitive sourcing of quality inventory, breadth and depth of product selection, and value pricing.
Our competitors vary in size and breadth of their product offerings. We believe that our principal competitive advantages in powersports sales includes our ability to provide a high degree of customer satisfaction with the buying experience by virtue of our Omnichannel platform. We provide customers the opportunity to experience RumbleOn's offerings online, in-store, and through our mobile app, or any combination of those three options. Our ability to make a cash offer to purchase a vehicle with our customer-friendly purchase process, and our breadth of selection of the most popular makes and models available online and in-store provides a competitive sourcing and sales.
RumbleOn's Solution - Creating the Future of Powersports
RumbleOn is creating a best-in-class experience in powersports for our customers. Doing so requires offering an unmatched choice and selection and replicating an outstanding customer experience throughout the lifecycle of powersports ownership, one customer at a time.
Customers come to RumbleOn's 55 retail locations as well as our more than 60 websites to shop for new and quality used powersports products and soon for parts, accessories and merchandise. We address the entire powersports market. We are reimagining and revolutionizing the customer experience on the technology-led Omnichannel RumbleOn platform, and we are doing so for everyone - from the enthusiast to the novice, and everyone in between - with a focus on four key initiatives:
•Creating an end-to-end ownership experience enables building lifelong connectivity to our customers in several ways, and the experience we are building is not just about the initial transaction. We are also focused on the touch points that continue to keep our customers engaged throughout their powersports ownership experience. Quality assurance, clear and consistent pricing, professional pickup and delivery, customization, after sale service, and guarantees are just a few of the ways we are building a reliable and consistent customer experience. Our offerings -and our entire customer experience -are designed to turn a single transaction into a lifetime relationship.
•Providing the best selection of high-quality inventory enables us to address the 'wants' of all powersports customers coast to coast. We are well-positioned to acquire high-quality used vehicles through the strength of our online Cash Offer Tool, a unique and important competitive advantage for RumbleOn. Affording our consumers the ability to visit a retail location and receive cash for their used powersports unit instantaneously gives them peace of mind, and provides us the opportunity to drive a meaningful amount of incremental used inventory onto our platform. We are also leveraging robust data from the Cash Offer Tool and now from 55 RideNow and Freedom Powersports retail locations to ensure that the right vehicle is in the right place at the right time -with the right price.
•Becoming the premier destination for used powersports vehicles and introducing more used inventory into our showrooms as well as online attracts new customers to our platform and, most importantly, new riders to the industry due to affordability. On a comparable pro forma basis in Q4 2021, we increased the number of used retail powersport units sold by 87% year-over-year at the RideNow locations. We are focused on both new and used; however, the opportunity to dramatically increase the number of used retail powersports units presents our greatest near-term opportunity. In the current new vehicle supply-constrained environment, we can better control used inventory than new because used is not dependent on a manufacturer's production or distribution constraints. In fact, our broad access to used inventory is - and will continue to be- an important differentiator for RumbleOn in any market environment.
•Offering powersports financing through our wholly-owned captive consumer finance subsidiary RumbleOn Finance is another way we are making powersports ownership easy and accessible to more of our customers. RumbleOn Finance provides an opportunity to bring new entrants to the powersports space by offering competitive financing solutions, especially for those customers for whom financing from traditional financial institutions or manufacturers is not readily available. In the future, our paperless online transactions will further enhance our unmatched, true Omnichannel experience and create incremental sales with no geographic boundaries.
Our Growth Strategies
The key metric to our powersports business is retail vehicle unit sales, both online or in-store. Unit sales drives revenue and provides the opportunity to build additional revenue through financing, parts, merchandise, and accessories, each of which are higher margin revenue streams. As we mature, and expand our Omnichannel customer experience, we will create
additional opportunities to expand revenue streams. However, additional revenue opportunities begin with retail vehicle unit sales and, as a result, our growth strategy is focused on this metric.
Our ability to increase vehicle unit sales is a function of our market penetration in existing markets, the number of markets we operate in, and our ability to build and maintain our brands by offering great value, transparency, and an outstanding customer experience.
Optimize Our Inventory Selection and Centralization
We will continue to optimize and broaden the selection of new and used powersports vehicles we make available to our customers. Expanding our inventory selection enhances the customer experience by ensuring each visitor, either online or in-store, finds a vehicle that matches his or her preferences. Optimizing our new inventory significantly depends on the allocations of our manufacturers ("OEM"). Optimizing our used inventory selection depends on our ability to source and acquire a sufficient number of appropriate used vehicles, including acquiring more vehicles directly from our customers.
We are also implementing a fulfillment system with near real-time inventory replenishment to make the right powersports unit available in the right quantities at the right locations. This centralization of inventory will launch company-wide virtual selling through access to all company-owned inventory and not just what might be available at an individual location. This will increase the probability that our customers can find their powersports unit on our platform, thereby enhancing the customer experience while eliminating geographic boundaries. With digital inventory integration and over 60 individual websites that share content, RumbleOn will be top-of-mind for powersports searches. All of the technology infrastructure required is under development and will be implemented throughout 2022 and beyond.
Continue to Innovate and Extend Our Technology Leadership
We will continue to make significant investments in improving and adding to our online customer offering. We believe that the complexity of the traditional powersports retail transaction provides substantial opportunity for technology investment and that our leadership and continued growth will enable us to responsibly invest in further enhancing the customer experience.
From our founding, we have been laying the groundwork to offer a friction-free and fully integrated customer experience both online and in-store. We are building the technology engine to enable this integration, while methodically expanding our retail footprint. We plan to begin rolling out our new and innovative technology throughout 2022 and will continuously make improvements to our technology offering.
In order to truly rebuild the customer experience, we are investing to build the technology engine across the organization. Our Cash Offer Tool is supplying proprietary data on hundreds of thousands of unique Vehicle Identification Number (VIN) inputs, in addition to actual retail sales and transaction data from RideNow and Freedom Powersports' databases. Marrying this data creates a data-driven "market maker" that does not exist in the industry today. Integrating real-time pricing and sales data from in-store transactions will also enable us to further optimize offers and pricing.
Expand Our Geographic Markets
Beyond innovative technology and inventory integration, we will use our retail locations to augment the online experience-and vice versa -to offer a simple, friction-free customer experience. A key component to transforming the customer experience to support our growth strategy is enhancing the in-store experience and we are strategically expanding our geographic retail footprint. Since the business combination with RideNow, we have acquired 14 additional retail locations and are currently operating in 55 retail locations, as shown below.
We employ three primary considerations for expanding our bricks-and-mortar presence: (1) find great people, (2) identify desired geography, and (3) implement appropriate and balanced brand mix.
Finding Great People. We believe any great customer experience in powersports begins with great people providing consumers the opportunity to fulfill their passion. From our executive team to our customer facing professionals to our back-office and corporate personnel, the RumbleOn team is singularly focused on transforming the customer experience in powersports, both online and in-store. As we expand our physical presence, whether through new retail locations or as we build out our fulfillment “experience” centers, finding great people who believe in our mission.
Identifying Desired Geography. We believe desired geography means more than finding new markets; it also means making sure we can put the right powersports vehicle in the right place at the right price to maximize our return on the asset. This is a key goal of our fulfillment “experience” centers and we anticipate to roll out two such centers during 2022, first in the Dallas Metroplex and then potentially in Arizona, Nevada, Northeast or Florida markets. And of course, we are always looking for strategic acquisition candidates, whether a large group such as Freedom Powersports or a key tuck-in opportunity to improve the capabilities of an existing location.
Implementing Appropriate Brand Mix. Powersports retail provides the opportunity to put many different new brands under one roof along the proper mix of used inventory. Of course, having that opportunity and taking advantage of that opportunity correctly are two different things. In this current supply-constrained environment, we can better control used inventory than new because used is not subject to manufacturers’ production or distribution constraints. We intend to leverage our key used inventory sourcing advantage to keep our retail locations fully stocked with the right mix of preferred brands based on market share, and thereby further enhance the customer experience.
Develop Broad Consumer Awareness of Our Brand
Important to the future of RumbleOn's brand is creating a unified customer experience across all locations, and the foundation will be our technology, our infrastructure, and our corporate culture. We recently unveiled our new regional management structure, with a new National Senior Vice President of Retail overseeing six Regional Directors who will lead the daily operations of multiple facilities primarily based on geographic location. These Regional Directors will share best practices
in customer service and general operations to enhance the overall performance of our retail locations. This new regional management structure is well-aligned with our growth initiatives and will provide a stable footing for our continued growth. We are in the early days of the rollout, but we are encouraged by the impact on performance and the excitement it has clearly created.
RumbleOn Technology
Innovative technology continues to underpin every endeavor at RumbleOn through our ongoing mission to disrupt the powersports industry and our focus on the customer experience. We leverage technology and data to drive change. At a high-level, we believe there are two main areas where leveraging these innovations provides us a competitive advantage and improves the customer experience: (1) our proprietary supply chain and distribution software and (2) our Omnichannel and mobile-first web application.
(1) RumbleOn's proprietary supply chain and distribution software:
•Looks at the overall supply chain and reconfigures inventory for the purpose of acquisition and distribution. Our technology aggregates multiple data sources in real-time, tracking and cataloging inventory across the country.
•Analyzes real-time market data to inform our acquisition decisions, continually capturing and archiving such data using advanced algorithms to calibrate pricing and estimate freight and reconditioning expenses. The values are then used in our Cash Offer Tool to quickly determine a fair and reasonable, non-negotiable offer.
(2) RumbleOn's Omnichannel and mobile-first web application strategy:
•Enhances our website and mobile application to provide a compelling customer experience, from the front-end user interface and powerful search tools to enabling secure data, document, and payment exchanges between parties. We also optimize search engine marketing to provide a lower overall cost of customer acquisition.
To deliver our supply chain software and Omnichannel strategies, RumbleOn leverages its proprietary and exclusive-use technology portfolio, which includes:
•a series of modeling tools & technologies for consolidating internal and external data to provide profitability estimates for inventory available for purchase;
•a proprietary series of inventory management and business intelligence technologies that tracks the lifecycle of a vehicle from acquisition through delivery;
•an automated photography technology that combines high-quality photos to produce an interactive, 360-degree virtual tour of the vehicle;
•a catalog of website that includes advanced filtering and search technology that assist multi-lead generation across participating partners;
•a dedicated financing company for leveraging leads for faster turn on sales and delivery; and
•a proprietary transportation management system and assignment technology to optimize the transport of purchased inventory for acquisition and dealer distribution.
In addition to our proprietary/exclusive use technology, we also rely on third party technology, including the following:
•a cloud based network infrastructure for hosting websites and inventory data;
•software libraries, development environments, and tools;
•services to allow customers to digitally sign contracts; and
•customer service call center management software.
In short, our business is driven by data and technology at all stages of the process, from acquisition, inventory purchasing, reconditioning, photography, transportation, and annotation through physical through online merchandising, sales, financing, trade-ins, logistics, and delivery.
We protect our technology and other intellectual property through a combination of trademarks, domain names, copyrights, trade secrets, patented technology, and contractual provisions and restrictions on access and use of our proprietary information and technology. We have a portfolio of trademark registrations in the United States, including registrations for "RumbleOn," the RumbleOn logo, "RideNow," and the RideNow logo. We are the registered holder of a variety of domestic and international domain names, including "rumbleon.com."
Operational Structure
The following chart summarizes our organizational structure as of December 31, 2021, but includes Freedom Powersports, which we acquired on February 18, 2022. This chart is provided for illustrative purposes only and does not reflect all legal entities owned or controlled by us:
Seasonality
Historically, both the powersports and automotive industries have been seasonal with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically slowest in the winter quarter but increase typically in the spring season, coinciding with tax refunds and improved weather conditions. Given this seasonality, we expect our quarterly results of operations, including our revenue, gross profit, net income (loss), and cash flow to vary accordingly. Over time, we expect to normalize to seasonal trends in both segments, using data and logistics to move inventory to the right place, at the right time, at the right price.
Government Regulation
Various aspects of our business are or may be subject, directly or indirectly, to U.S. federal and state laws and regulations. Failure to comply with such laws or regulations may result in the suspension or termination of our ability to do business in affected jurisdictions or the imposition of significant civil and criminal penalties, including fines or the award of significant damages against us and our dealers in class action or other civil litigation.
Vehicle Sales. Our sale and purchase of vehicles, both new and pre-owned, related products and services and third-party finance products, are subject to the state and local dealer licensing requirements in the jurisdictions in which we have retail or wholesale locations. Regulators of jurisdictions where our customers reside, but in which we do not have a dealer or financing license could require that we obtain a license or otherwise comply with various state regulations. Despite our belief
that we are not subject to the licensing requirements of those jurisdictions in which we do not have a physical presence, regulators may seek to impose punitive fines for operating without a license or demand we seek a license in those jurisdictions, any of which may inhibit our ability to do business in those jurisdictions, increase our operating expenses and adversely affect our financial condition and results of operations.
Consumer Finance. The financing we offer customers is subject to federal and state laws regulating the advertising and provision of consumer finance options, the collection of consumer credit and financial information, along with requirements related to online payments and electronic funds transfers, of whether RumbleOn Finance or a third-party is the entity extending credit to such customers. Most states regulate retail installment sales, including setting a maximum interest rate, caps on certain fees, or maximum amounts financed. In addition, certain states require that finance companies file a notice of intent or have a sales finance license or an installment sellers license in order to solicit or originate installment sales in that state.
Logistics and Transportation. Our Wholesale Express logistics operations, which brokers and facilitates the transportation of vehicles primarily between and among dealers, is subject to motor-carrier rules and regulations promulgated by the United States Department of Transportation ("DOT") and the states through which their customers' vehicles are transported. Additionally, the vendors whom Wholesale Express relies upon are subject to federal and state regulation concerning transport vehicle dimensions, transport vehicle conditions, driver motor vehicle record history, driver alcohol and drug testing, and driver hours of serves. More restrictive limitations on vehicle weight and size, condition, trailer length and configuration, methods of measurement, driver qualifications, or driver hours of service may increase the costs charged to Wholesale Express by its vendors, which may adversely affect our financial condition, operating results, and cash flows. If we fail to comply with the DOT regulations or if those regulations become more stringent, we could be subject to increased inspections, audits, or compliance burdens. Regulatory authorities could take remedial action including imposing fines, suspending, or shutting down our Wholesale Express operations.
Environmental Laws and Regulations. We are subject to a variety of federal, state, and local environmental laws and regulations that pertain to our operations. The regulations concern material storage, air quality, waste handling, and water pollution control. The regulations also regulate our use and operation of gasoline storage tanks, gasoline dispensing equipment, oil tanks, and paint booths among other things. Our business involves the use, handling, and disposal of hazardous materials and wastes, including motor oil, gasoline, solvents, lubricants, paints, and other substances. We manage our compliance through permitting and operational control.
Facilities and Personnel. Our facilities and business operations are subject to laws and regulations relating to environmental protection and health and safety, and our employment practices are subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws. We may also be liable for employee misconduct and violations of laws or regulations to which we are subject.
Federal Advertising Regulations. The Federal Trade Commission ("FTC") has authority to take actions to remedy or prevent advertising practices that it considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the future that any aspect of our business constitutes an unfair or deceptive advertising practice, responding to such allegations could require us to pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our products and services, any or all of which could result in substantial adverse publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability.
Federal Antitrust Laws. The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the marketplace. Some of the information that we may obtain from dealers may be sensitive and, if disclosed inappropriately, could potentially be pre-owned by dealers to impede competition or otherwise diminish independent pricing activity. A governmental or private civil action alleging the improper exchange of information, or unlawful participation in price maintenance or other unlawful or anticompetitive activity, even if unfounded, could be costly to defend and adversely impact our ability to maintain and grow our business.
In addition, governmental or private civil actions related to the antitrust laws could result in orders suspending or terminating our ability to do business or otherwise altering or limiting certain of our business practices, including the manner in which we handle or disclose pricing information, or the imposition of significant civil or criminal penalties, including fines or the award of significant damages against us in class action or other civil litigation.
Other. In addition to these laws and regulations that apply specifically to our business, we are also subject to laws and regulations affecting public companies, including securities laws and the listing rules of The Nasdaq Stock Market ("Nasdaq"). The violation of any of these laws or regulations could result in administrative, civil, or criminal penalties or in a cease-and-desist order against our business operations, any of which could damage our reputation and have a material adverse effect on
our business, sales and results of operations. We have incurred and will continue to incur capital and operating expenses and other costs to comply with these laws and regulations.
The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory framework governing our operations is subject to continuous change. The enactment of new laws and regulations or the interpretation of existing laws and regulations in an unfavorable way may affect the operation of our business, directly or indirectly, which could result in substantial regulatory compliance costs, civil or criminal penalties, including fines, adverse publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability. Further, investigations by government agencies, including the FTC, into allegedly anticompetitive, unfair, deceptive or other business practices by us, could cause us to incur additional expenses and, if adversely concluded, could result in substantial civil or criminal penalties and significant legal liability.
Employees
As of December 31, 2021, we had approximately 1,949 full time and 70 part-time employees.
Available Information
Our Internet website is www.rumbleon.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), are available, free of charge, under the Investor Relations tab of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Additionally, the SEC maintains a website located at www.sec.gov that contains the information we file or furnish electronically with the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS.
Described below are certain risks to our business and the industry in which we operate. You should carefully consider the risks described below, together with the financial and other information contained in this 2021 Form 10-K and in our other public disclosures. If any of the following risks occurs, our business, financial condition, results of operations, cash flows, or prospects could be materially and adversely affected. As a result, our future results could differ materially from historical results and from guidance we may provide regarding our expectations for future financial performance and the trading price of our Class B common stock could decline.
Risks Relating to Our Business
We are subject to the auditor attestation requirement on the assessment of our internal control over financial reporting for our year ended December 31, 2021 and we and our auditors have identified material weaknesses in our internal control over financial reporting as disclosed in this 2021 Form 10-K.
The Company is now subject to the requirement to include in this 2021 Form 10-K our auditor’s attestation report on its assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act (“SOX”). We and our auditors have identified deficiencies in our internal control over financial reporting as disclosed in this 2021 Form 10-K as required under Section 404 of SOX. As some of these deficiencies are deemed material weaknesses in internal control over financing reporting, our auditors have issued an adverse opinion in their assessment of our internal control over financial reporting. The issuance of an adverse opinion regarding our internal control over financial reporting could adversely impact investor confidence in the accuracy, reliability, and completeness of our financial reports.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to effectively remediate these material weaknesses and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, investors could lose confidence in our financial and other public reporting, which would harm our business.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. In connection with the preparation of our consolidated financial statements as of December 31, 2021 and 2020 and for the years then ended, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses in our internal control over financial reporting have been identified:
•Information technology general controls particularly as such controls related to user access, program change management, and ineffective complementary user-organization controls, which limited management’s ability to rely on technology dependent controls relevant to the preparation of our financial statements.
•Controls over the period end close process, including the review and approval process of journal entries, balance sheet account reconciliations, segregation of duties conflicts, and consolidation of intercompany entries.
•Documentation and design of controls over the recording and reconciliation of inventory.
•Review of key assumptions and estimates related to purchase accounting for significant acquisitions.
•The control environment, risk assessment, control activities, information and communication, and monitoring components of the Company’s internal control framework such that internal control weaknesses were not detected, communicated, addressed with mitigating control activities, or remediated in a timely manner.
If we are unable to effectively remediate these material weaknesses and maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.
The RideNow and Freedom Powersports entities we acquired were not subject to SOX regulations and they may lack the internal control over financial reporting required of a public company, which could ultimately affect our ability to ensure compliance with the requirements of Section 404 of SOX.
The RideNow and Freedom Powersports entities we acquired were not previously subject to SOX regulations and accordingly were not required to establish and maintain an internal control infrastructure meeting the standards promulgated under SOX. Our management's assessment of internal control over financial reporting and the auditor attestation, both included
in this 2021 Form 10-K, did not include or address the internal control environment of the RideNow entities, which were acquired during the quarterly period ended September 30, 2021, or the Freedom entities, which were acquired during the quarterly period ending March 31, 2022.
We are in the process of integrating our internal control over financial reporting and our other control environments with those of the acquired RideNow and Freedom Powersports entities. In the course of integration, we may encounter difficulties and unanticipated issues combining our respective accounting systems due to the complexity of our financial reporting processes. We may also identify errors or misstatements that could require accounting adjustments. If we are unable to integrate and maintain effective internal control over financial reporting, timely or at all, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class B common stock may decline.
Powersports consumers may not accept our transformative business model.
As described throughout this 2021 Form 10-K, we are transforming the traditional powersports customer experience and building the first and only true Omnichannel experience in the industry. If customers do not accept our products, services, and offerings we may not benefit from the investments needed to build this transformative customer experience to the extent anticipated or at all. Also, in building the first and only true Omnichannel experience, we expect to incur significant expenses and face various other challenges, such as expanding our customer experience team and building out a fulfillment and logistics network. Any of these risks, if realized, could materially and adversely affect our business, financial condition, and results of operations.
We may not be able to acquire the number of vehicles to satisfy consumer demand or our expectations for the business.
A material part of our plan is predicated on being able to have sufficient inventory, both new and used, to satisfy customer demand or meet our financial objectives. New inventory is ultimately controlled by our OEMs and their willingness to allocate inventory to us and their ability to manufacture and distribute a sufficient number of vehicles given a current environment of manufacturing slowdowns, computer chip shortages, and logistic/transportation challenges (collectively, the “Demand/Supply Imbalances”). Used inventory is acquired directly from consumers via our online Cash Offer Tool or consumer trade-in transactions. If either channel for used vehicle acquisition were disrupted, for example as a result of another COVID-like lockdown, technology challenges, continued acceptance of online transactions, poor customer ratings, or other such events, the Company may not have enough used vehicles to meet customer demand, which may adversely affect our business, financial condition, and results of operations.
We have and may continue to acquire strategic retail locations and other complementary businesses and technologies, which could divert management's attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and impact our operating results.
Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, other constituents within the powersports industry, and competitive pressures. In the past, we have met these demands in part by acquiring complementary businesses and technologies.
The identification of suitable acquisition candidates can be difficult; time-consuming, and costly, and we may not be able to successfully complete identified acquisition opportunities. The risks we face in connection with our acquisition strategy include:
•diversion of management time and focus from operating our business to addressing acquisition integration challenges;
•integration of the acquired company's accounting, management information, human resources, and other administrative systems;
•coordination of technology, research and development, and sales and marketing functions;
•retention of employees from the acquired company;
•cultural challenges associated with integrating employees from the acquired company into our organization;
•the need to implement or improve controls, procedures, and policies at a business that before the acquisition may have lacked effective controls, procedures, and policies;
•potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results in a given period; and
•liability for activities of the acquired company before the acquisition.
Our failure to address these risks or other matters encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could harm our financial condition.
We may require additional financing or capital to pursue our growth challenges or unforeseen circumstances. If financing or capital is not available on terms acceptable to us or at all, we may not be able to develop and grow our business as anticipated and our business, operating results, and financial condition may be harmed.
We intend to continue to make investments to support the development and growth of our business, including expanding our inventory base and growing our RumbleOn Finance business. Additional financing or capital may not be available when we need it, on terms that are acceptable to us, or at all.
If we raise additional capital through issuances of equity or debt, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition, and prospects could be adversely affected.
Investments made in the development, growth, and expansion of our business may not yield our expected results and may not result in successful growth of our business.
We expect to make significant investments in the further development and expansion of our business and these investments may not result in the development, growth or expansion of our business on a timely basis or at all. We may not generate sufficient revenue and we may incur significant losses in the future for several reasons, including a lack of demand for our products and services, increasing competition, and weakness in the powersports industry generally. We may encounter unforeseen expenses, difficulties, complications, and delays, relating to the development and operation of our business as well as our organic and acquisition growth strategies. Accordingly, we may not be able to successfully develop, grow, and expand our business, generate revenue, or achieve and maintain profitability.
We may experience difficulties integrating acquired businesses.
Achieving the anticipated benefits of our acquisitions will depend in significant part upon our integrating any acquired entity's businesses, operations, processes and systems in an efficient and effective manner. We may not be able to accomplish the integration process smoothly, successfully, or on a timely basis, which may result in unforeseen expenses or the failure to recognize the anticipated benefits of acquired businesses. The necessity of coordinating geographically separated organizations, systems of controls, and facilities and addressing possible differences in business backgrounds, corporate cultures, and management philosophies may increase the difficulties of integration. Companies operate numerous systems and controls, including those involving management information, accounting and finance, legal and regulatory compliance, inventory intake and control, sales, billing, employee benefits, and payroll. The integration of an acquired company's operations requires the dedication of significant internal and external resources, which may divert management’s attention from the day-to-day business of the company and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the Company. Any inability of management to successfully and timely integrate an acquired company could have a material adverse effect on the business and results of operations of the Company and result in not achieving the anticipated benefits of the acquisition.
To the extent we acquire additional businesses, we may incur substantial costs.
We have incurred, and expect to continue to incur, a number of non-recurring costs associated with our acquisitions. The substantial majority of these non-recurring costs will consist of transaction and regulatory costs related to acquisitions. We will also incur transaction fees and costs related to formulating and implementing integration plans, including system consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional
unanticipated costs may be incurred from the acquisitions and integration. Although we anticipate that the elimination of duplicative costs and the realization of other efficiencies and synergies related to the integration should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
We have incurred significant indebtedness, which could adversely affect us, including our business flexibility, and will increase our interest expense.
We have substantially increased indebtedness following completion of the RideNow and Freedom transactions, which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our interest expense. We also incurred various costs and expenses related to the financing of the RideNow and Freedom transactions. The increased levels of indebtedness following completion of the RideNow and Freedom transactions, including the applicable interest payments, could also reduce funds available for working capital, capital expenditures, and other general corporate purposes, and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected synergies and cost savings from the RideNow and Freedom transactions, or if our financial performance does not meet our current expectations, then our ability to service the indebtedness may be adversely impacted.
We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We believe our success will depend on the efforts and talents of our executives and employees, including Marshall Chesrown, our Chairman and Chief Executive Officer. In addition, the loss of any senior management, regional directors, or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our future success depends on our continuing ability to attract, develop, motivate, and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we fail in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially and adversely affected.
Our annual and quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to annual and quarterly fluctuations, and they will be affected by numerous factors, including:
•a change in consumer discretionary spending;
•a shift in the mix and type of vehicles we sell which could result in lower sales price and lower gross profit;
•the timing and cost of development and operating activities relating to our business, which may change from time to time;
•expenditures that we will or may incur to advance our growth strategies; and
•future accounting pronouncements or changes in our accounting policies.
If our annual or quarterly operating results fall below the expectations of investors or securities analysts, the price per share of our Class B common stock could fluctuate or decline substantially. We believe that annual and quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
The failure to develop and maintain our brand could harm our ability to grow unique visitor traffic.
Developing and maintaining the RumbleOn brand will depend largely on the success of our efforts to maintain the trust of and deliver value to our users. If our potential users perceive that we are not focused on providing them with a better pre-owned powersports experience, our reputation and the strength of our brand will be adversely affected.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, data privacy and security issues, and other aspects of our business, irrespective of their validity, could diminish users' confidence in and the use of our products and services and adversely affect our brand. There can be no assurance that we will be able to develop, maintain, or enhance our brand, and failure to do so would harm our business growth prospects and operating results.
If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own sales channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial results may be harmed.
Our continued success will depend on our ability to maintain and enhance the value of our retail brands across all of our sales channels, including in the communities in which we operate, and to attract consumers to our Omnichannel experience.
Consumers are increasingly shopping for new and used vehicles, vehicle repair and maintenance services, and other vehicle products and services online and through mobile applications, including through third-party online and mobile sales platforms, with which we compete, that are designed to generate consumer sales leads that are sold to vehicle dealers. If we fail to preserve the value of our retail brands, maintain our reputation, or attract consumers to our Omnichannel offering, our business could be adversely impacted.
An isolated business incident at a single store could materially adversely affect our other stores, retail brands, reputation, and sales channels, particularly if such incident results in adverse publicity, governmental investigations, or litigation. In addition, the growing use of social media by consumers increases the speed and extent that information and opinions can be shared, and negative posts or comments on social media about RumbleOn, RideNow, Freedom, or any of our brands, locations, or websites could materially damage our retail brands, reputation, and sales channels.
The success of our business relies heavily on our marketing and branding efforts, especially with respect to the RumbleOn website and our branded mobile applications, and these efforts may not be successful.
We believe that an important component of our development and growth will be the business derived from the RumbleOn website and our branded mobile applications. Because RumbleOn is a consumer brand, we rely heavily on marketing and advertising to increase the visibility of this brand with potential users of our products and services.
Our business model relies on our ability to scale rapidly and to decrease incremental user acquisition costs as we grow. Some of our methods of marketing and advertising may not be profitable because they may not result in the acquisition of sufficient users visiting our website and mobile applications such that we may recover these costs by attaining corresponding revenue growth. If we are unable to recover our marketing and advertising costs through increases in user traffic and in the number of transactions by users of our platform, it could have a material adverse effect on our growth, results of operations and financial condition.
We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our traffic would decline, and our business would be adversely affected.
We depend in part on Internet search engines and social media such as Google™, Bing™, and Facebook™ to drive traffic to our website. For example, when a user searches the internet for a particular type of powersports or recreational vehicle, we will rely on a high organic search ranking of our webpages in these search results to refer the user to our website. However, our ability to obtain such high, non-paid search result rankings is not within our control. Our competitors' Internet search engine and social media efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. If Internet search engines or social media companies modify their search algorithms or display technologies in ways that are detrimental to us, or if our competitors' efforts are more successful than ours, overall growth in our user base could slow or our user base could decline. Internet search engine providers could provide recreation vehicle dealer and pricing information directly in search results, align with our competitors or choose to develop competing services. Any reduction in the number of users directed to our website through Internet search engines could harm our business and operating results.
A significant disruption in service on our website or of our mobile applications could damage our reputation and result in a loss of consumers, which could harm our business, brand, operating results, and financial condition.
Our brand, reputation and ability to attract consumers, affinity groups and advertisers depend on the reliable performance of our technology infrastructure and content delivery. We may experience significant interruptions with our systems in the future. Interruptions in these systems, whether due to system failures, computer viruses, or physical or electronic break-ins, could affect the security or availability of our products on our website and mobile application, and prevent or inhibit the ability of consumers to access our products. Problems with the reliability or security of our systems could harm our reputation, result in a loss of consumers, dealers and affinity group marketing partners, and result in additional costs.
We intend to locate our communications, network, and computer hardware used to operate our website and mobile applications at facilities in various parts of the country to minimize the risk and create an environment where we can remain online if one of the facilities in which our equipment is housed goes offline. Nevertheless, we do not own or control the operation of these facilities, and our systems and operations may be vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes, and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail.
Problems faced by any third-party web hosting providers we may utilize could adversely affect the experience of our consumers. Any third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by any third-party web hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.
Any errors, defects, disruptions, or other performance or reliability problems with our network operations could cause interruptions in access to our products as well as delays and additional expense in arranging new facilities and services and could harm our reputation, business, operating results, and financial condition.
We may be unable to maintain or grow relationships with information data providers or may experience interruptions in the data feeds they provide, which may limit the information that we are able to provide to our users and regional partners as well as adversely affect the timeliness of such information and may impair our ability to attract or retain consumers and our regional partners and to timely invoice all parties.
We expect to receive data from third-party data providers, including our partner network, dealer management system data feed providers, data aggregators and integrators, survey companies, purveyors of registration data and possibly others. There may be some instances in which we use this information to collect a transaction fee from those dealers and recognize revenue from the related transactions.
From time to time, we may experience interruptions in one or more data feeds that we receive from third-party data providers, in a manner that affects our ability to operate our business. These interruptions may occur for a number of reasons, including changes to the software used by these data feed providers and difficulties in renewing our agreements with third-party data feed providers. Additionally, when an interruption ceases, we may not always be able to collect the appropriate fees and any such shortfall in revenue could be material to our operating results.
Our ability to grow our complementary product offerings may be limited, which could negatively impact our development, growth, revenue and financial performance.
As we introduce or expand additional offerings to our platform, such as recreation vehicle trade-ins, lead management, transaction processing, financing, maintenance and insurance, we may incur losses or otherwise fail to enter these markets successfully. Our expansion into these markets may place us in competitive and regulatory environments with which we are unfamiliar and involves various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years, if at all. In attempting to establish such new product offerings, we may incur significant expenses and face various other challenges, such as expanding our sales force and management personnel to cover these markets and complying with complicated regulations that apply to these markets. In addition, we may not successfully demonstrate the value of these ancillary products to consumers or dealers, and failure to do so would compromise our ability to successfully expand into these additional revenue streams.
We rely on third-party financing providers to finance a portion of our customers' vehicle purchases.
In addition to RumbleOn Finance, our captive consumer financing entity, we rely on third-party financing providers to finance a portion of our customers' vehicle purchases. Accordingly, our revenue and results of operations are partially dependent on the actions of these third parties. We provide financing to qualified customers through a number of third-party financing providers. If one or more of these third-party providers cease to provide financing to our customers, provide financing to fewer customers or no longer provide financing on competitive terms, it could have a material adverse effect on our business, sales and results of operations. Additionally, if we were unable to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could also have a material adverse effect on our business, sales and results of operations.
We rely on third-party providers to supply extended protection products ("EPP") to our customers.
We rely on third-party providers to supply EPP products to our customers. Accordingly, our revenue and results of operations will be partially dependent on the actions of these third parties. If one or more of these third-party providers cease to provide EPP, make changes to their products or no longer provide their products on competitive terms, it could have a material adverse effect on our business, revenue and results of operations. Additionally, if we were unable to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could also have a material adverse effect on our business, revenue and results of operations.
Our sales of powersports vehicles may be adversely impacted by increased supply of and/or declining prices for pre-owned vehicles and excess supply of new vehicles.
We believe when prices for pre-owned vehicles have declined, it can have the effect of reducing demand among retail purchasers for new vehicles (at or near manufacturer's suggested retail prices). Further, vehicle manufacturers can and do take actions that influence the markets for new and pre-owned vehicles. For example, introduction of new models with significantly different functionality, technology, or other customer satisfiers can result in increased supply of pre-owned vehicles, and a corresponding decrease in price of pre-owned vehicles. Also, while historically manufacturers have taken steps designed to balance production volumes for new vehicles with demand, those steps have not always proven effective. In other instances, manufacturers have chosen to supply new vehicles to the market in excess of demand at reduced prices which has the effect of reducing demand for pre-owned vehicles.
We rely on a number of third parties to perform certain operating and administrative functions for us.
We rely on a number of third parties to perform certain operating and administrative functions for us. We may experience problems with outsourced services, such as unfavorable pricing, untimely delivery of services, or poor quality. Also, these third parties may experience adverse economic conditions due to difficulties in the global economy that could lead to difficulties supporting our operations. In light of the amount and types of functions that we will outsource, these service provider risks could have a material adverse effect on our business and results of operations.
We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.
We face significant competition from both existing powersport retailers as well as companies that provide listings, information, lead generation, and powersport-buying and selling services designed to reach businesses and consumers and enable dealers to reach these consumers and inventory sources.
Our current and future competitors may include:
•traditional powersport dealerships that could increase investment in technology and infrastructure to compete directly with our online model;
•internet and online powersports sites that could change their models to directly compete with us, such as Amazon, eBay Motors, Google, and CycleTrader; and
•manufacturers seeking to have a direct relationship with customers or to support their dealer networks.
We also expect that competitors, both new and existing, will continue to enter the online and traditional powersports retail industry with competing brands, business models, products, and services, which could make it difficult to acquire inventory, attract customers, and sell vehicles at a profitable price. For example, traditional dealerships could transition their selling efforts to the internet, allowing them to more efficiently sell powersports across state lines and compete directly with our online offering and no-haggle pricing model. Some of these companies have significantly greater resources than we do and may be able to provide customers access to a greater inventory of vehicles at lower prices or purchase vehicles from consumers at higher prices while delivering a competitive overall experience.
Our competitors may also impede our ability to reach consumers in certain jurisdictions. For example, our competitors may increase their search engine optimization efforts and outbid us for search terms on various search engines.
Our current and potential competitors may have significantly greater financial, technical, marketing, and other resources than we have, and the ability to devote greater resources to the development, promotion and support of their products and services. Additionally, they may have more extensive industry relationships, longer operating histories, and greater name recognition than we have. As a result, these competitors may be able to respond more quickly with new technologies and to
undertake more extensive marketing or promotional campaigns. If we are unable to compete with these companies, the demand for our used vehicles, products, and services could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our current or future data providers, technology partners, or other parties with whom we have relationships, thereby limiting our ability to develop, improve, and promote our solutions. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our revenue, business, and financial results.
Restrictive covenants in certain of our debt agreements could limit our growth and implementation of our business strategy.
Our debt agreements impose operating and financial restrictions on us. These restrictions limit our ability and that of our subsidiaries to, among other things: (i) incur additional indebtedness; (ii) make investments or loans; (iii) create liens; (iv) consummate mergers and similar fundamental changes; (v) make restricted payments; (vi) make investments in unrestricted subsidiaries; (vii) enter into transactions with affiliates; and (viii) use of proceeds of asset sales.
We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under certain of our debt agreements. The restrictions contained in the covenants could: (i) limit our ability to plan for or react to market conditions, to meet capital needs or otherwise to restrict our activities or business strategy; and (ii) adversely affect our ability to finance our operations, enter into acquisitions or divestitures to engage in other business activities that would be in our interest.
A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under our debt agreements that, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder and cross-default rights under our other debt. In addition, in the event of an event of default under our credit facilities, the affected lenders could foreclose on the collateral securing such credit facility and require repayment of all borrowings outstanding thereunder. If the amounts outstanding under the credit facilities or any of our other indebtedness were to be accelerated, our assets may not be sufficient to repay in full the amounts owed to the lenders or to our other debt holders.
The phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.
On March 5, 2021, the administrator for LIBOR announced that it will permanently cease to publish most LIBOR settings beginning on January 1, 2022 and cease to publish the overnight, one-month, three-month, six-month, and 12-month LIBOR settings on July 1, 2023. The replacement of LIBOR with an alternative rate or benchmark may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flows, and liquidity. We cannot predict the effect of the discontinuance of LIBOR or the establishment and use of alternative rates or benchmarks. We may need to amend certain contracts or enter into new ones and cannot predict what alternative rate or benchmark would be negotiated. This may result in an increase to our interest expense.
Seasonality or weather trends may cause fluctuations in our unique visitors, revenue and operating results.
Our revenue trends are likely to be a reflection of consumers' vehicle buying patterns. While different types of recreation vehicles are designed for different seasons (motorcycles are typically for non-snow seasons, while snowmobiles are typically designed for winter), our revenue may be cyclical if, for example, powersport and recreation vehicles represent a large percentage of our revenue. Historically, the used vehicle industry has been seasonal with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically slowest in the fall quarter but increase in February and March, coinciding with tax refund season. Our business will also be impacted by cyclical trends affecting the overall economy, as well as by actual or threatened severe weather events.
We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure to protect such information and data could damage our reputation and brand and harm our business and operating results.
We collect, process, store, share, disclose and use personal information and other data provided by consumers, dealers and auctions. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of such information. We may need to expend significant resources to protect against security breaches or to address problems
caused by breaches. Any failure or perceived failure to maintain the security of personal and other data that is provided to us by consumers and dealers could harm our reputation and brand and expose us to a risk of loss or litigation and possible liability, any of which could harm our business and operating results. In addition, from time to time, it is possible that concerns will be expressed about whether our products, services, or processes compromise the privacy of our users. Concerns about our practices with regard to the collection, use or disclosure of personal information or other privacy related matters, even if unfounded, could harm our business and operating results.
There are numerous federal, state and local laws around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with and may be inconsistent between countries and jurisdictions or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which may include personally identifiable information or other user data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause consumers and vehicle dealers to lose trust in us, which could have an adverse effect on our business. Additionally, if vendors, developers or other third parties that we work with violate applicable laws or our policies, such violations may also put consumer or dealer information at risk and could in turn harm our reputation, business and operating results.
Failure to adequately protect our intellectual property could harm our business and operating results.
A portion of our success may be dependent on our intellectual property, the protection of which is crucial to the success of our business. We expect to rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. In addition, we will attempt to protect our intellectual property, technology, and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property, or technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software, and functionality or obtain and use information that we consider proprietary.
Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term "RumbleOn" or "RMBL."
We currently hold numerous Internet domain names. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name RumbleOn or RMBL.
We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.
We may from time-to-time face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors or non-practicing entities. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering some features, purchase licenses or modify our products and features while we develop non-infringing substitutes or may result in significant settlement costs.
In addition, we use open-source software in our products and will use open-source software in the future. From time to time, we may face claims against companies that incorporate open-source software into their products, claiming ownership of, or demanding release of, the source code, the open-source software or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our platform or services, any of which would have a negative effect on our business and operating results.
Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results and our reputation.
We provide transportation services and rely on external logistics to transport vehicles. Thus, we are subject to business risks and costs associated with the transportation industry. Many of these risks and costs are out of our control, and any of them could have a material adverse effect on our business, financial condition and results of operations.
We provide transportation services and rely on external logistics to transport vehicles between and among customers or distribution network providers, and auction partners. As a result, we are exposed to risks associated with the transportation industry such as weather, traffic patterns, gasoline prices, recalls affecting our vehicle fleet, local and federal regulations, vehicular crashes, insufficient internal capacity, rising prices of external transportation vendors, fuel prices, taxes, license and registration fees, insurance premiums, self-insurance levels, difficulty in recruiting and retaining qualified drivers, disruption of our technology systems, and increasing equipment and operational costs. Our failure to successfully manage our logistics and fulfillment process could cause a disruption in our inventory supply chain and distribution, which may adversely affect our operating results and financial condition.
A failure to obtain or maintain adequate insurance coverage could adversely affect our results of operations.
Although we have been able to obtain reasonably priced insurance coverage to meet our requirements in the past, there is no assurance that we will be able to do so in the future. For example, catastrophic events can result in decreased coverage limits, more limited coverage, and increased premium costs or deductibles. If we are unable to obtain adequate insurance coverage, we would be subject to increased out-of-pocket expenses in the event of a claim and we may not be able to procure certain contracts, either of which could materially adversely affect our financial position, results of operations, cash flows, or liquidity.
The COVID-19 pandemic and associated impacts on economic activity have and may continue to have material adverse effects on our business, results of operations, financial condition, and cash flows.
The onset of the COVID-19 pandemic and associated impacts on economic activity, including lower new powersports vehicle production due to Demand/Supply Imbalances, have had adverse effects on our results of operations and financial condition during the year ended December 31, 2021. We expect these conditions to continue through 2022. The effect of these Demand/Supply Imbalances required that we adjust our inventory management to align with market conditions. The COVID-19 pandemic and associated impacts on economic activity, including the Demand/Supply Imbalances, may have material adverse effects on our business, results of operations, financial condition, and cash flows, and we can provide no assurance as to the duration of the adverse impacts of COVID-19 and the Demand/Supply Imbalances.
Risks Relating to the Powersports Retail Industry and our Retail Locations
The powersports retail industry is sensitive to unfavorable changes in general economic conditions and various other factors that could affect demand for our products and services, which could have a material adverse effect on our business and results of operations.
Future performance at our retail locations will be impacted by general economic conditions including: changes in employment levels; consumer demand, preferences and confidence levels; the availability and cost of credit; fuel prices; levels of discretionary personal income; and interest rates. We are also subject to economic, competitive, and other conditions prevailing in the various markets in which we operate our retail locations, even if those conditions are not prominent nationally.
Retail powersports sales are cyclical and historically have experienced periodic downturns characterized by oversupply and weak demand, which could result in a need to lower the prices at which we sell our powersports offering, which would reduce revenue per vehicle sold and margins. Additionally, a shift in consumer’s vehicle preferences driven by pricing, fuel costs or other factors may have a material adverse effect on our revenue, margins, and results of operations.
Adverse conditions affecting one or more of the powersports manufacturers with which we hold franchises, or their inability to deliver a desirable mix of vehicles could have a material adverse effect on our new vehicle retail business.
Historically, our retail locations have generated most of their revenue through new vehicle sales and related sales of higher-margin products and services, such as finance and insurance products and vehicle-related parts and service. As a result,
business and results of operations depends on various aspects of vehicle manufacturers’ operations, many of which are outside of its control. Our ability to sell new vehicles is dependent on its manufacturers’ ability to design and produce, and willingness to allocate and deliver to us, a desirable mix of popular new vehicles that consumers demand. Popular vehicles may often be difficult to obtain from manufacturers for a number of reasons, including the fact that manufacturers generally allocate their vehicles based on sales history and associated capital expenditures. Further, if a manufacturer fails to produce desirable vehicles or develops a reputation for producing undesirable vehicles or produces vehicles that do not comply with applicable laws or government regulations, our revenue could be adversely affected as consumers shift their vehicle purchases away from that brand.
Although we seek to limit dependence on any one OEM, there can be no assurance the brand mix allocated and delivered to us will be sufficiently diverse to protect us from a significant decline in the desirability of vehicles manufactured by a particular manufacturer or disruptions in a manufacturer’s ability to produce vehicles. For the year ended December 31, 2021, OEMs representing 10% or more of RumbleOn’s revenue from new powersports vehicle sales were as follows:
Manufacturer (Vehicle Brands): % of Total
New Vehicle Revenue
Polaris 33.5%
BRP 22.6%
Harley-Davidson 16.1%
In addition, the powersports manufacturing supply chain spans the globe. As such, supply chain disruptions may affect the flow of vehicle and parts inventories to an OEM’s manufacturing partners or to us. Until such time as current Demand/Supply Imbalances are resolved, we will continue to experience disruptions in the supply of vehicle and parts inventories. Such continue disruptions could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Our retail powersports sales may be materially adversely affected by changes in costs or availability of consumer financing.
A significant portion of our retail powersports sales are financed through RumbleOn Finance and other third-party consumer finance lenders. Reductions in the availability of credit to consumers have contributed to declines in our sales in past periods. Reductions in available consumer credit or increased costs of that credit could result in a decline in sales, which would have a material adverse effect on our financial condition and results of operations.
Lenders that have historically provided financing to those buyers who, for various reasons, do not have access to traditional financing, including those buyers who have a poor credit history or lack the down payment necessary to purchase a vehicle, are often referred to as subprime lenders. If market conditions cause subprime lenders to tighten credit standards, or if interest rates increase, the ability to obtain financing from subprime lenders for these consumers to purchase vehicles could become limited, resulting in a decline in vehicle sales, which in turn, could have a material adverse effect on our financial condition and results of operations.
Substantial competition in powersports sales and services may have a material adverse effect on our business.
The powersports retail and service industry is highly competitive with respect to price, service, location, and selection. Our competition includes: (i) franchised powersport dealerships in its markets that sell the same or similar new and used vehicles; (ii) privately negotiated sales of used powersport vehicles; (iii) other used powersport vehicle retailers, including regional and national rental companies; (iv) internet-based used powersport vehicle brokers that sell used vehicles to consumers; (v) service center and parts supply chain stores; and (vi) independent service and repair shops.
We do not have a material cost advantage over other retailers in purchasing new vehicles from manufacturers. We typically rely on our advertising, merchandising, sales expertise, service reputation, strong local branding, and location to sell our products. Because our dealer agreements grant only a non-exclusive right to sell a manufacturer’s product within a specified market area, our revenue, gross profit, and overall profitability may be materially adversely affected if competing dealerships expand their market share. Further, our vehicle manufacturers may decide to award additional franchises in our markets in ways that negatively impact our sales.
We are dependent on our relationships with the manufacturers of vehicles we sell and are subject to restrictions imposed by these vehicle manufacturers. Any of these restrictions or any changes or
deterioration of these relationships could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We are dependent on our relationships with the manufacturers of the vehicles we sell, which have the ability to exercise a great deal of control and influence over its day-to-day operations, as a result of the terms of its dealer, framework, and related agreements. We may obtain new vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ trademarks only to the extent permitted under these agreements. The terms of these agreements may conflict with our interests and objectives and may impose limitations on key aspects of our operations, including our acquisition strategy.
For example, manufacturers can set performance standards with respect to sales volume, sales effectiveness, and customer satisfaction, and require us to obtain manufacturer consent before we can acquire dealerships selling a manufacturer’s vehicles. From time to time, we may be precluded under agreements with certain manufacturers from acquiring additional franchises, or subject to other adverse actions, to the extent we are not meeting certain performance criteria at existing stores until performance improves in accordance with the agreements, subject to applicable state franchise laws. In addition, many vehicle manufacturers place limits on the total number of franchises that any group of affiliated dealerships may own and certain manufacturers place limits on the number of franchises or share of total brand vehicle sales that may be maintained by an affiliated dealership group on a national, regional or local basis, as well as limits on store ownership in contiguous markets, which limits may be applicable to the Company as a result of the Transaction. If we reach any of these limits, we may be prevented from making further acquisitions, or we may be required to dispose of certain dealerships, which could adversely affect our future growth. We cannot provide assurance that manufacturers will approve future acquisitions timely, if at all, which could significantly impair the execution of our acquisition strategy.
Manufacturers can also establish new franchises or relocate existing franchises, subject to applicable state franchise laws. The establishment or relocation of franchises in our current markets could have a material adverse effect on the business, financial condition, and results of operations of our retail locations in the market in which the action is taken.
If vehicle manufacturers reduce or discontinue sales incentive, warranty, or other promotional programs, our financial condition, results of operations, and cash flows may be materially adversely affected.
We benefit from sales incentive, warranty, and other promotional programs of vehicle manufacturers that are intended to promote and support their respective new vehicle sales. Key incentive programs include: (i) customer rebates on new vehicles; (ii) dealer incentives on new vehicles; (iii) special financing or leasing terms; (iv) warranties on new and used vehicles; and (v) sponsorship of used vehicle sales by authorized new vehicle dealers.
Vehicle manufacturers often make changes to their incentive programs. Any reduction or discontinuation of manufacturers’ incentive programs for any reason, including a supply and demand imbalance, may reduce our sales volume which, in turn, could have a material adverse effect on its results of operations, cash flows, and financial condition.
If state laws that protect powersports retailers are repealed, weakened, or superseded by our framework agreements with manufacturers, our retail locations may be more susceptible to termination, non-renewal, or renegotiation of their dealer agreements, which could have a material adverse effect on our business, results of operations, and financial condition.
Applicable state laws generally provide that a vehicle manufacturer may not terminate or refuse to renew a dealer agreement unless it has first provided the dealer with written notice setting forth “good cause” and stating the grounds for termination or non-renewal. Some state laws allow dealers to file protests or petitions or allow them to attempt to comply with the manufacturer’s criteria within a notice period to avoid the termination or non-renewal. Our agreements with certain manufacturers contain provisions that, among other things, attempt to limit the protections available to dealers under these laws, and, though unsuccessful to date, manufacturers’ ongoing lobbying efforts may lead to the repeal or revision of these laws. If these laws are repealed in the states in which we operate, manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or a showing of good cause. Without the protection of these state laws, it may also be more difficult for us to renew dealer agreements upon expiration. Changes in laws that provide manufacturers the ability to terminate our dealer agreements could materially adversely affect our business, financial condition, and results of operations.
We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and regulations. Failure to comply with current or new laws and regulations could have a material adverse effect on our business, results of operations, financial condition, cash flows and reputation.
We are subject to a wide range of federal, state, and local laws and regulations, such as those relating to motor vehicle, retail installment sales, leasing, finance and insurance, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety. The regulatory bodies that regulate our business include, at the federal level: the Consumer Financial Protection Bureau, the FTC, the DOT, the Occupational Health and Safety Administration, the Department of Justice, and the Federal Communications Commission; at the state level: various state dealer licensing authorities, state consumer protection agencies including state attorney general offices, and state financial and insurance regulatory agencies; and at the municipal level our business is regulated by various municipal authorities covering licensing, zoning, occupancy, and tax obligations. We are subject to compliance audits of our operations by many of these authorities
Vehicle Sales. Our sale and purchase of vehicles, both new and pre-owned, related products and services and third-party finance products, are subject to the state and local dealer licensing requirements in the jurisdictions in which we have retail or wholesale locations. Regulators of jurisdictions where our customers reside, but in which we do not have a dealer or financing license could require that we obtain a license or otherwise comply with various state regulations. Despite our belief that we are not subject to the licensing requirements of those jurisdictions in which we do not have a physical presence, regulators may seek to impose punitive fines for operating without a license or demand we seek a license in those jurisdictions, any of which may inhibit our ability to do business in those jurisdictions, increase our operating expenses and adversely affect our financial condition and results of operations.
Consumer Finance. The financing we offer customers is subject to federal and state laws regulating the advertising and provision of consumer finance options, the collection of consumer credit and financial information, along with requirements related to online payments and electronic funds transfers, of whether RumbleOn Finance or a third-party is the entity extending credit to such customers. Most states regulate retail installment sales, including setting a maximum interest rate, caps on certain fees, or maximum amounts financed. In addition, certain states require that finance companies file a notice of intent or have a sales finance license or an installment sellers license in order to solicit or originate installment sales in that state.
Logistics and Transportation. Our Wholesale Express logistics operations, which brokers and facilitates the transportation of vehicles primarily between and among dealers, is subject to motor-carrier rules and regulations promulgated by the DOT and the states through which their customers’ vehicles are transported. Additionally, the vendors whom Wholesale Express relies upon are subject to federal and state regulation concerning transport vehicle dimensions, transport vehicle conditions, driver motor vehicle record history, driver alcohol and drug testing, and driver hours of serves. More restrictive limitations on vehicle weight and size, condition, trailer length and configuration, methods of measurement, driver qualifications, or driver hours of service may increase the costs charged to Wholesale Express by its vendors, which may adversely affect our financial condition, operating results, and cash flows. If we fail to comply with the DOT regulations or if those regulations become more stringent, we could be subject to increased inspections, audits, or compliance burdens. Regulatory authorities could take remedial action including imposing fines, suspending, or shutting down our Wholesale Express operations.
Environmental Laws and Regulations. We are subject to a variety of federal, state, and local environmental laws and regulations that pertain to our operations. The regulations concern material storage, air quality, waste handling, and water pollution control. The regulations also regulate our use and operation of gasoline storage tanks, gasoline dispensing equipment, oil tanks, and paint booths among other things. Our business involves the use, handling, and disposal of hazardous materials and wastes, including motor oil, gasoline, solvents, lubricants, paints, and other substances. We manage our compliance through permitting and operational control.
Facilities and Personnel. Our facilities and business operations are subject to laws and regulations relating to environmental protection and health and safety, and our employment practices are subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws. We may also be liable for employee misconduct and violations of laws or regulations to which we are subject.
Federal Advertising Regulations. The FTC has authority to take actions to remedy or prevent advertising practices that it considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the future that any aspect of our business constitutes an unfair or deceptive advertising practice, responding to such allegations could require us to pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our products and services, any or all of which could result in substantial adverse publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability.
Federal Antitrust Laws. The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the marketplace. Some of the information that we may obtain from dealers may be sensitive and, if disclosed inappropriately, could potentially be pre-owned by dealers to impede competition or otherwise diminish independent pricing activity. A governmental or private civil action alleging the improper exchange of information, or unlawful participation in price maintenance or other unlawful or anticompetitive activity, even if unfounded, could be costly to defend and adversely impact our ability to maintain and grow our dealer network. In addition, governmental or private civil actions related to the antitrust laws could result in orders suspending or terminating our ability to do business or otherwise altering or limiting certain of our business practices, including the manner in which we handle or disclose pricing information, or the imposition of significant civil or criminal penalties, including fines or the award of significant damages against us in class action or other civil litigation.
Other. In addition to these laws and regulations that apply specifically to our business, we are also subject to laws and regulations affecting public companies, including securities laws and Nasdaq listing rules. The violation of any of these laws or regulations could result in administrative, civil or criminal penalties or in a cease-and-desist order against our business operations, any of which could damage our reputation and have a material adverse effect on our business, sales and results of operations. We have incurred and will continue to incur capital and operating expenses and other costs to comply with these laws and regulations.
The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory framework governing our operations is subject to evolving interpretations and continuous change. Violation of the laws or regulations to which we are subject could result in consumer class actions or other lawsuits, government investigations, and administrative, civil, or criminal sanctions against us and, which may include significant fines and penalties that could have a material adverse effect on our business, financial condition and future prospects.
We are subject to risks associated with imported product restrictions or limitations, foreign trade and currency fluctuations.
Our business involves the sale of vehicles, parts, or vehicles composed of parts that are manufactured outside the United States. As a result, its operations are subject to risks of doing business outside of the United States and importing merchandise, including import duties, exchange rates, trade restrictions, work stoppages, natural or man-made disasters, and general political and socio-economic conditions in other countries. The United States or the countries from which our products are imported may, from time to time, impose new quotas, duties, tariffs, or other restrictions or limitations, or adjust presently prevailing quotas, duties, or tariffs. The imposition of new, or adjustments to prevailing, quotas, duties, tariffs, or other restrictions or limitations could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Relative weakness of the U.S. dollar against foreign currencies in the future may result in an increase in costs to us and in the retail price of such vehicles or parts, which could discourage consumers from purchasing such vehicles and adversely impact its revenue and profitability.
Risks Related to Ownership of our Class B Common Stock
Our largest stockholders may have the ability to exert substantial influence over actions to be taken or approved by our stockholders.
At April 5, 2022, two of our stockholders beneficially owned approximately 31.5% of the Company’s voting power. As a result, these individuals may have the ability to exert substantial influence over actions to be taken or approved by our stockholders. Also, in the future, these stockholders may acquire or dispose of shares of our Class B common stock and thereby increase or decrease their ownership stake in us. Significant fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our Class B common stock.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our Class B common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We do not currently or for the foreseeable future intend to pay dividends on our common stock.
We have never declared or paid any cash dividends on our common stock. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earning in the development and expansion of our business. As a result, any return on your investment in our common stock will be limited to the appreciation in the price of our common stock, if any.
We are currently subject to reduced reporting requirements so long as we are considered a "smaller reporting company" and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
We are currently subject to reduced reporting requirements so long as we are considered a "smaller reporting company." We cannot predict if investors will find our common stock less attractive because we currently rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Anti-takeover provisions may limit the ability of another party to acquire us, which could adversely impact our stock price.
Nevada law and our charter, bylaws, and other governing documents contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders, which could cause our stock price to decline. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES.
At December 31, 2021, our operations comprised 41 powersports retail locations and 19 other facilities that serve our automotive operations, logistics business, fulfillment and vehicle storage, and regional corporate and administrative needs. Following completion of the Freedom Transaction, we operate 55 powersports retail and fulfillment center locations, primarily across the Sunbelt, as set forth below.
Powersports Retail and Fulfillment Center
BMW Motorcycles of Huntsville AL Indian Motorcycle Kansas City KS
El Cajon Harley-Davidson AZ Hammond Harley-Davidson LA
Harley-Davidson of Tucson AZ Baton Rouge Harley-Davidson LA
Old Pueblo Harley-Davidson AZ Indian Motorcycle Concord NC
RideNow Powersports Apache Junction AZ Ducati Las Vegas NV
RideNow Powersports Goodyear AZ RideNow Powersports on Boulder NV
RideNow Powersports on Ina AZ RideNow Powersports on Rancho NV
RideNow Powersports Surprise AZ Powder Keg Harley-Davidson OH
RideNow Powersports Tucson AZ Fort Thunder Harley-Davidson OK
Tucson Indian AZ Black Gold Harley-Davidson TX
Arrowhead Harley-Davidson AZ Freedom Powersports Burleson* TX
Chandler Harley-Davidson AZ Freedom Powersports Decatur TX
Indian Motorcycle Chandler AZ Freedom Powersports Fort Worth* TX
Indian Motorcycle Peoria AZ Freedom Powersports Hurst* TX
RideNow 3333 Phoenix AZ BMW Motorcycles of Fort Worth TX
RideNow Powersports Phoenix AZ Central Texas Harley-Davidson TX
Roadrunner Harley-Davidson AZ Dallas Harley-Davidson TX
RideNow SoCal CA Freedom Powersports Dallas* TX
RideNow Gainesville FL Freedom Powersports Farmers Branch TX
RideNow Powersports Beach Blvd FL Freedom Powersports Lewisville* TX
RumbleOn Fulfilment Center FL Freedom Powersports Weatherford* TX
Indian Motorcycle Daytona Beach FL Freedom Powersports McKinney* TX
Indian Motorcycle Ocala FL RideNow Austin TX
RideNow Powersports Daytona Beach FL RideNow Powersports Forney TX
RideNow Powersports Jacksonville FL RideNow Powersports Georgetown TX
Warhorse Harley-Davidson FL Rattlesnake Mountain Harley-Davidson WA
Freedom Powersports Canton GA RideNow Powersports Tri-Cities WA
Freedom Powersports McDonough* GA
(*) Owned property, subject to lien. All our other properties are leased.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any material legal proceedings as set forth in Item 103 of Regulation S-K, other than ordinary routine litigation incidental to our business. On October 13, 2021, Plaintiff William Miller voluntarily dismissed without prejudice a previously filed complaint against the Company and its Board in connection with the RideNow Transaction.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.
Market Information
As of October 29, 2017, our Class B Common Stock has been listed on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “RMBL.” Before October 29, 2017, our common stock traded on the OTCQB Market under the symbol “RMBL,” and before January 1, 2017, our common stock was not traded, except for 250 shares, which traded on the OTC Markets Pink Sheets on January 22, 2016.
Holders of Common Stock
As of April 5, 2022, we had approximately 320 stockholders of record of 15,930,740 outstanding shares of Class B Common Stock and two holders of record of 50,000 outstanding shares of Class A Common Stock.
Dividends
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earning in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our board of directors, based upon the Board's assessment. Therefore, there can be no assurance that any dividends on the common stock will ever be paid.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED.]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying notes included in this 2021 Form 10-K. Unless differences among reportable segments are material to an understanding of our business taken as a whole, we present the discussion in this MD&A on a consolidated basis. Terms not defined in this MD&A have the meanings ascribed to them in the Consolidated Financial Statements. All dollars are reported in thousands, except per share and per unit amounts.
Organization
RumbleOn was incorporated in October 2013 under the laws of the State of Nevada as SmartServer, Inc. In 2016, following the acquisition of SmartServer by RumbleOn founders Marshall Chesrown and Steven Berrard, we changed our name to RumbleOn, Inc. Since that time, we have grown our business through organic development and strategic acquisitions into the first and only true Omnichannel powersports retailer. Headquartered in the Dallas Metroplex, RumbleOn is revolutionizing the customer experience for outdoor enthusiasts across the country and making powersport vehicles accessible to more people, in more places than ever before.
Overview
RumbleOn is the nation’s first technology-based Omnichannel marketplace in powersports, leveraging proprietary technology to transform the powersports supply chain from acquisition of supply through distribution of retail and wholesale. RumbleOn provides an unparalleled technology suite and ecommerce experience, national footprint of physical locations, and full-line manufacturer representation to transform the entire customer experience. Our goal is to integrate the best of both the physical and the digital, and make the transition between the two seamless.
We buy and sell new and used vehicles through multiple company-owned websites and affiliate channels, as well as via our proprietary cash offer tool and network of more than 41 company-owned retail locations at December 31, 2021 primarily located in the Sunbelt. Deepening our presence in existing markets and expanding into new markets through strategic acquisitions helps perpetuate our flywheel. Our cash offer technology brings in high quality inventory, which attracts more riders and drives volume in used unit sales. This flywheel enables us to quickly and effectively gain market share. As a result of our growth to date, RumbleOn enjoys a leading, first-mover position in the highly fragmented $100 billion+ powersports market.
RumbleOn’s powersports business offers motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and all other powersports products, parts, apparel, and accessories. Facilitating our platform, RumbleOn’s retail distribution locations represent all major OEMs and their representative brands, including those listed below.
RumbleOn’s Representative Brands
Alumacraft Honda Sea-Doo
Argo Indian Slingshot
Benelli Kawasaki SSR
BMW Kayo Sports Suzuki
Can-Am KTM TideWater
CF Moto Manitou Triumph
Ducati Polaris Vanderhall
Harley-Davidson Ryker Yamaha
Hisun Scarab Spyder
RumbleOn leverages technology and data to streamline operations, improve profitability, and drive lifetime engagement by offering a best-in-class customer experience with unmatched Omnichannel capabilities. Our Omnichannel platform offers consumers the fastest, easiest, and most transparent transactions available in powersports. RumbleOn customers have access to the most comprehensive powersports vehicle offering, including the ability to buy, sell, trade, and finance online, in store at any of our bricks-and-mortar locations, or both. RumbleOn offers financing solutions for consumers; trusted physical
retail and service locations; online or in-store instant cash offers, and access to pre-owned inventory; and apparel, parts, service, and accessories. In addition to our powersports operations, we operate in complementary businesses including the brokerage of vehicle transportation and the wholesale distribution automotive business.
KEY OPERATING METRICS
We regularly review a number of key operating metrics to evaluate our segments, measure our progress, and make operating decisions. Our key operating metrics reflect what we believe will be the primary drivers of our business, including increasing brand awareness, maximizing the opportunity to source vehicles from consumers and dealers, and enhancing the selection and timing of vehicles we make available for sale to our customers. Our key operating metrics also enhance management’s ability to translate this information into sales through multiple sales channels. The Key Operations Metrics table below includes the results of the RideNow Entities exclusively from August 31, 2021 (the “Acquisition Date”) through December 31, 2021. Please note that RideNow’s results prior to the Acquisition Date are not reflected in the presentation below. The Acquired Entities have certain lines of business, including new vehicle sales, material finance and insurance revenue, and parts and service revenue, that RumbleOn did not have prior to the RideNow Transaction. As such all increases in these line items are exclusively the result of the acquisition and the reader should note that most period-over-period dollar comparisons (as opposed to per unit amounts) are materially impacted by the introduction of the new business (the “Acquisition Effect”)
Powersports and Automotive Segments
Revenue
Revenue of is comprised of vehicle sales, finance and insurance products bundled with retail vehicle sales (“F&I”), and parts, service and accessories/merchandise (“PSA”). We sell both new and pre-owned vehicles through retail and wholesale channels. F&I and PSA revenue is almost exclusively earned through retail channels. Automotive sales are almost exclusively via wholesale channels, and therefore, contribute to a very small portion of F&I revenue. These sales channels provide us the opportunity to maximize profitability through increased sales volume and lower average days to sale by selling through the channel where the opportunity is the greatest at any given time based on customer demand, market conditions or inventory availability. The number of vehicles sold to any given channel may vary from period to period these factors. Subject to the lingering impact of COVID-19 and the resulting Demand/Supply Imbalances, as discussed elsewhere in this MD&A, we expect pre-owned vehicle sales to increase as we begin to utilize a combination of brand building and direct response channels to efficiently source and scale our addressable markets while expanding our suite of product offerings to consumers who may wish to trade-in or to sell us their vehicle independent of a retail sale. Factors primarily affecting pre-owned vehicle sales include the number of retail pre-owned vehicles sold and the average selling price of these vehicles.
Gross Profit
Gross profit generated on vehicle sales reflects the difference between the vehicle selling price and the cost of revenue associated with acquiring the vehicle and preparing it for sale. Cost of revenue includes the vehicle acquisition cost, inbound transportation cost, and particularly for pre-owned vehicles, reconditioning costs (collectively, we refer to reconditioning and transportation costs as “Recon and Transport”). The aggregate gross profit and gross profit per vehicle vary across vehicle type, make, model, etc. as well as through retail and wholesale channels, and with regard to gross profit per vehicle, are not necessarily correlated with the sale price. Vehicles sold through retail channels generally have the highest dollar gross profit per vehicle given the vehicle is sold directly to the consumer. Pre-owned vehicles sold through wholesale channels, including directly to other dealers or through auction channels, including via our dealer-to-deal auction market, generally have lower margins and do not include other ancillary gross profit attributable to financing and accessory. Factors affecting gross profit from period to period include the mix of new versus used vehicles sold, the distribution channel through which they are sold, the sources from which we acquired such inventory, retail market prices, our average days to sale, and our pricing strategy. We may opportunistically choose to shift our inventory mix to higher or lower cost vehicles, or to opportunistically raise or lower our prices relative to market to take advantage of Demand/Supply Imbalances in our sales channels, which could temporarily lead to gross profits increasing or decreasing in any given channel.
Vehicles Sold
We define vehicles sold as the number of vehicles sold through both wholesale and retail channels in each period, net of returns. Vehicles sold is the primary driver of our revenue and, indirectly, gross profit. Vehicles sold also enables complementary revenue streams, such as financing. Vehicles sold increases our base of customers and improves brand
awareness and repeat sales. Vehicles sold also provides the opportunity to successfully scale our logistics, fulfillment, and customer service operations.
Total Gross Profit per Unit
Total gross profit per unit is the aggregate gross profit of the Company in a given period, divided by retail units sold in that period including gross profit generated from the sale of the new and used vehicles, income related to the origination of loans originated to finance the vehicle, revenue earned from the sale of F&I products including extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, gross profit on the sale of PSA products, and gross profit generated from wholesale sales of vehicles.
Vehicle Logistics Segment
Revenue
Revenue is derived from freight brokerage agreements with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The freight brokerage agreements are fulfilled by independent third-party transporters who must meet our performance obligations and standards. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. In the normal course of operations, Wholesale Express also provides transportation services to Wholesale Inc.
Vehicles Delivered
We define vehicles delivered as the number of vehicles delivered from a point of origin to a designated destination under freight brokerage agreements with dealers, distributors, or private parties. Vehicles delivered are the primary driver of revenue and in turn profitability in the vehicle logistics segment.
Total Gross Profit Per Unit
Total gross profit per vehicle transported represents the difference between the price received from non-affiliated customers and our cost to contract an independent third-party transporter divided by the number of third party vehicles transported.
Results of Operations
Year Ended December 31, 2021 Compared to December 31, 2020
RumbleOn Total Company Metrics
Year Ended December 31,
2021 2020 YoY
Change
Total Company Financial Overview ($ in 000s) Revenue
Powersports $ 323,303 $ 46,654 $ 276,649
Automotive 460,888 337,085 123,803
Vehicle logistics 43,878 31,816 12,062
Parts and service and other 66,969 - 66,969
Finance and insurance 43,402 872 42,530
Total revenue 938,440 416,427 522,013
Gross Profit
Powersports 58,431 6,594 51,837
Automotive 30,746 28,284 2,462
Vehicle logistics 9,600 7,616 1,984
Parts and service and other 30,267 - 30,267
Finance and insurance 29,133 872 28,261
Total Gross Profit
$ 158,177 $ 43,366 $ 114,811
Effect of the Nashville Tornado $ - $ (1,215) $ 1,215
Gross Profit reported in the consolidated statements of operations (1)
$ 158,177 $ 31,627 $ 126,550
Total SG&A Expenses $ 164,077 $ 53,659 $ 110,418
Operating Loss $ (8,868) $ (18,560) $ 9,692
Net Loss $ (9,725) $ (24,999) $ 15,274
Adjusted EBITDA (2)
$ 31,013 $ (5,791) $ 36,804
Unit Metrics Vehicles Sold
Retail 16,154 458 15,696
Wholesale 18,612 17,566 1,046
Total Vehicles Sold 34,766 18,024 16,742
Revenue per Unit Sold
Retail $ 18,516 $ 13,541 $ 4,975
Wholesale $ 28,395 $ 21,542 $ 6,853
Other $ 3,330 $ 1,991 $ 1,339
Total Revenue $ 26,993 $ 23,330 $ 3,663
Gross Profit per Unit
Retail $ 4,520 $ 5,114 $ (594)
Wholesale $ 2,433 $ 1,902 $ 531
Other $ 1,147 $ 1,904 $ (757)
Total Gross Profit $ 4,550 $ 2,425 $ 2,125
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(1) Automotive gross profit for the year ended December 31, 2020 included an inventory reserve adjustment on $7,879 related to the Nashville Tornado.
(2) Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered an alternative to net loss or cash flow from operations, as determined by GAAP. We believe that Adjusted EBITDA is a useful measure to us and to our investors because it excludes certain financial and capital structure items that we do not believe directly reflect our core operations and may not be indicative of our recurring operations, in part because they may vary widely across time and within our industry independent of the performance of our core operations. See the section titled “Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to Net Loss.
Revenue
Total vehicle revenue increased by $522,013 to $938,440 for the year ended December 31, 2021 compared to $416,427 in 2020. The Acquisition Effect specific to new vehicles, F&I and PAS revenue accounted for approximately $279,131 of the increase, with $169,632 of new vehicle sales, which the Company did not sell before the RideNow Transaction. On a unit basis, the Company sold 16,742 more vehicles in 2021 than in 2020, again, primarily related to the Acquisition Effect.
Gross Profit
Gross profit increased in total by $114,811 during the year ended December 31, 2021 compared to 2020, driven collectively by the Acquisition Effect of significantly more vehicles sales, an increase in the average selling price per vehicle and an increase in the gross margin dollars per unit sold. Gross profit increase were evident across all businesses, including both new and used powersport vehicle sales, F&I, PAS, automotive, and transportation and logistics. The Acquisition Effect was the primary driver of the powersport vehicle gross profit, while Demand/Supply Imbalances drove automotive gross profit as well as vehicle logistics and transportation gross profit.
Year Ended December 31, 2021 Compared to December 31, 2020
RumbleOn Powersports Metrics
Year Ended December 31,
2021 2020 YoY
Change
Powersports Revenue $ in 000s) New retail vehicles $ 169,632 $ - $ 169,632
Used vehicles
Used vehicles retail 86,072 5,330 80,742
Wholesale 67,599 41,324 26,275
Total used vehicle revenue 153,671 46,654 107,017
Finance and insurance 43,402 872 42,530
Parts and service and other 66,969 - 66,969
Total revenue $ 433,674 $ 47,526 $ 386,148
Gross Profit ($ in 000s) New retail vehicles $ 33,278 $ - $ 33,278
Used vehicles
Retail 10,609 1,470 9,139
Wholesale 14,545 5,124 9,421
Total used vehicle gross profit 25,154 6,594 18,560
Finance and insurance 29,133 872 28,261
Parts and service and other 30,267 - 30,267
Total gross profit $ 117,832 $ 7,466 $ 110,366
Vehicle Sales New retail vehicles 10,555 0 10,555
Used vehicles
Retail 5,599 458 5,141
Wholesale 6,231 4,825 1,406
Used vehicle 11,830 5,283 6,547
Total vehicles sold 22,385 5,283 17,102
Revenue per vehicle New retail vehicles $ 16,071 $ - $ 16,071
Used vehicles
Retail 15,373 11,638 3,735
Wholesale 10,849 8,745 2,104
Used vehicle 12,990 8,831 4,159
Finance and insurance 2,687 1,905 782
Parts and service and other 4,146 - 4,146
Total revenue per retail vehicle $ 22,662 $ 13,541 $ 9,121
Gross Profit per vehicle New vehicle $ 3,153 $ - $ 3,153
Used vehicle 2,126 3,210 (1,084)
Finance and insurance 1,803 1,904 (101)
Parts and service 1,874 - 1,874
Total gross profit per retail vehicle (1)
$ 6,394 $ 5,114 $ 1,280
____________________
(1) Per vehicle values calculated as revenue or gross profit as applicable, divided by its respective units sold, except the other and total categories which are divided by total used units sold.
Revenue
Total vehicle revenue increased by $386,148 to $433,674 for the year ended December 31, 2021 compared to $47,526 in 2020. The Acquisition Effect specific to new vehicles, F&I and PAS revenue accounted for approximately $169,632, $42,530, and $66,969, respectively, of the increase; the Company did not sell new vehicles prior to the RideNow Transaction. The total number of vehicles sold increased by 17,102 to 22,385 for the year ended December 31, 2021, driven primarily from the Acquisition Effect; new vehicle sales accounted for 10,555 of the increase, used units increased by 6,547. It is notable that 78.5% of the used unit increase is to retail consumers, who on average pay over $2,700 more per vehicle than wholesale customers. Overall, the average revenue per vehicle increased by $9,121 from $13,541 to $22,662, much of which is attributable to higher price point vehicles like UTVs and side-by-sides. We anticipate that unit purchasing levels and sales will continue to grow as we increase penetration in existing markets, build out fulfillment centers and acquire new dealers.
Gross Profit
Powersports vehicle gross profit increased by $110,366 for the year ended December 31, 2021 compared to 2020. This increase in gross profit was primarily due to the Acquisition Effect; $33,278 was specific to new vehicles, $18,560 was due to used vehicles sales and F&I, and PAS collectively accounted for $58,528 of the increase. Gross Profit per vehicle increased $1,280 per unit, from $5,114 in 2020 to $6,394 in 2021. The Acquisition Effect was the primary driver of this, as all new vehicle sales fell into this category, however F&I and parts and service represent new revenue channels for the Company in 2021 after the RideNow Transaction.
Year Ended December 31, 2021 Compared to December 31, 2020
RumbleOn Automotive Metrics
Automotive Year Ended December 31,
2021 2020 YoY
Change
Revenue $ 460,888 $ 337,085 $ 123,803
Gross Profit (1)
$ 30,746 $ 28,284 $ 2,462
Vehicles sold 12,381 12,741 (360)
Revenue per vehicle $ 37,225 $ 26,457 $ 10,768
Gross Profit per vehicle $ 2,483 $ 2,220 $ 263
(1) Total Gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, used vehicle, and finance, and insurance gross profit by total retail vehicle unit sales.
Revenue
Total automotive vehicle revenue increased by $123,803 to $460,888 for the year ended December 31, 2021 compared to $337,085 for 2020 despite a 2.8% decrease in the total number of automotive units sold to 12,381. The revenue per vehicle in 2021 benefited from the Demand/Supply Imbalances, while the corresponding period was materially impacted by the Nashville Tornado and the effect of shelter-in-place orders and other responses to COVID-19.
Gross Profit
Automotive vehicle gross profit increased by $2,462 to $30,746 for the year ended December 31, 2021 compared to $28,284 in 2020. A 2.8% decrease in the number of automotive vehicles sold was more than offset by a 11.9% increase in the gross profit per automotive vehicle sold to $2,483.
Year Ended December 31, 2021 Compared to December 31, 2020
RumbleOn Logistics Metrics
Logistics Year Ended December 31,
2021 2020 YoY
Change
Revenue $ 48,804 $ 35,887 $ 12,917
Gross Profit $ 9,600 $ 7,616 $ 1,984
Vehicles transported 84,540 61,314 23,226
Revenue per vehicle transported $ 577 $ 585 $ (8)
Gross Profit per vehicle transported $ 114 $ 124 $ (10)
Revenue
Total revenue increased by $12,917 or 36.0% to $48,804 for the year ended December 31, 2021 compared to $35,887 in 2020. The increase in total revenue resulted from the transport of 84,540 vehicles at revenue per vehicle transported of $577 compared to revenue from the transport of 61,314 vehicles at a revenue per vehicle transported of $585 in 2020.
In the normal course of operations, the Company utilizes transportation services of its vehicle logistics and transportation services segment. For the years ended December 31, 2021 and 2020, intercompany freight services provided by Wholesale Express was $4,925 and $4,071, respectively and was eliminated in the consolidated financial statements.
Gross Profit
Total gross profit for the year ended December 31, 2021 increased $1,984 or 26.1% to $9,600, or $114 per vehicle transported, as compared to $7,616 or $124 per vehicle transported in 2020. The increased gross profit was attributed to an increase in the number of vehicle transported offset by slightly lower revenue per vehicle transported and gross profit per vehicle transported.
Year Ended December 31, 2021 Compared to December 31, 2020
Selling, General and Administrative Expense
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising and marketing, development and operating our product procurement and distribution system, managing our logistics system, and other corporate overhead expenses, including expenses associated with technology development, legal, accounting, finance, and business development. Selling, general and administrative expenses will continue to increase in future periods as we execute and aggressively expand our business through increased marketing spending and the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and management controls as well as our reporting systems and procedures, but we anticipate they will decline as a percentage of sales revenue.
December 31, YOY
2021 2020 Change
Compensation and related costs $ 63,473 $ 22,756 $ 40,717
Stock based compensation 29,219 2,978 26,241
Advertising and marketing 14,425 5,287 9,138
Professional fees 4,714 3,148 1,566
Technology development and software 1,992 1,421 571
Facilities 9,568 2,837 6,731
General and administrative 40,686 15,232 25,454
Total SG&A Expenses $ 164,077 $ 53,659 $ 110,418
Selling, general and administrative expenses increased by $110,418 for the year ended December 31, 2021 compared to 2020. In each case other than technology development and software, the increases were the result of the Acquisition Effect,
with over 1,800 additional employees, marketing initiatives at the store level, general and administrative costs associated with a larger team, and lease/facility expense related to 40+ new locations from the RideNow Transaction. In the case of technology and development, in the third quarter of 2021 we began some strategic technology projects focused on inventory management, infrastructure, and integration efforts. Notwithstanding the preceding, both the Nashville Tornado and the nationwide economic slowdown of COVID-19 late in the first quarter of 2020 lasting until the spring of 2021, resulted in artificially lower costs incurred in 2020.
Depreciation and Amortization
Depreciation and amortization increased by $3,960 to $6,103 for the year ended December 31, 2021 compared to $2,143 for 2020. The increase in depreciation and amortization is a result of the cumulative investments made in connection with the development of the business which included capitalized technology acquisition and development costs of $1,266 and $2,707 in additions to property and equipment for the year ended December 31, 2021 as compared to $1,887 of capitalized technology acquisition and development costs and $3,530 in additions to property and equipment for the year ended December 31, 2020. For the year ended December 31, 2021, amortization of capitalized technology development was $1,710 as compared to $1,887 for the same period of 2020. Depreciation and amortization on vehicle, furniture, equipment and leasehold improvements was $210 as compared to $256 for the same period of 2020.
Interest Expense
Interest expense increased $9,955 to $16,405 for the year ended December 31, 2021 compared to $6,450 in 2020. Interest expense consists of interest on the: (i) term loan credit agreement (the “Oaktree Credit Facility”); (ii) various floorplan facilities; (iii) private placement notes; and (iv) convertible senior notes. The increase in interest expense for the year ended December 31, 2021 as compared to the same period of 2020 is primarily related to the RideNow Transaction, as we borrowed $280,000 in new debt on the Closing Date from the Oaktree Credit Facility and RideNow had various floorplan facilities with powersports manufacturers. The Company assumed floorplan facilities as part of the RideNow Transaction, which were used throughout the year ended December 31, 2021 to finance the purchase of inventory. See Note 9-Notes Payable and Lines of Credit for additional discussion.
Seasonality
Historically, both the powersports and automotive industries have been seasonal with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically slowest in the winter quarter but increase typically in the spring season, coinciding with tax refunds and improved weather conditions. Given this seasonality, we expect our quarterly results of operations, including our revenue, gross profit, profit/loss, and cash flow to vary accordingly. Over time, we expect to normalize to seasonal trends in both segments, using data and logistics to move inventory to the right place, at the right time, at the right price.
Loss Contingencies and Insurance Recoveries
On March 3, 2020, a severe tornado damaged the Company's Nashville facilities, and the Company incurred the following losses: (1) inventory, assessed by the insurance carrier at approximately $13,000; (2) building and personal property assessed by the insurance carrier at $2,783; and (3) loss of business income, for which the company has coverage in the amount of $6,000.
The Company's inventory claim is subject to a litigation with the carrier as to the policy limits applicable to the loss; however, the insurer has, to date, advanced $8,750, $3,135 of which was funded in 2021, against the final settlement. The insurer has agreed to pay the full $2,778 limit, net of deductible, on the building and personal property loss and to date has advanced $2,270 to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation, however, the insurer has advanced $250 against the final settlement during the year ended December 31, 2020. The Company will continue to pursue the claims but can make no assurance that additional amounts will be recovered.
During the year ended December 31, 2020, the Company recorded an impairment loss on inventory of $11,738 comprised of $4,454 for vehicles that were a total loss and $7,284 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the consolidated statements of operations. Advances made against the final settlement of the inventory claim have been recorded as a separate component of operating loss in the Consolidated Statement of Operations in the period in which received.
Derivative Liability
In connection with our various financings, we undertake an analysis of each financial instrument to determine the appropriate accounting treatment, including which, if any require bifurcation into liability and equity components; we have determined that the following financings have such components:
Convertible Senior Notes
In connection with the issuance of the Convertible Senior Notes, a derivative liability was recorded at issuance with an interest make whole provision of $21 based on a lattice model using a stock price of $14.60, and estimated volatility of 55.0% and risk-free rates over the entire 10-year yield curve.
The change in value of the derivative liability for the year ended December 31, 2021 and 2020 was approximately $49 and $11, respectively, and is included in change in derivative liability in the Consolidated Statement of Operations. The value of the derivative liability as of December 31, 2021 and 2020 was approximately $66 and $17, respectively.
Oaktree Warrant
In connection with providing the debt financing for the RideNow Transaction, and pursuant to the commitment letter executed on March 15, 2021, the Company issued warrants to purchase $40,000 of shares of Class B common stock to Oaktree Capital Management, L.P. and its lender affiliates (the “Warrant”). The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability was subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of change in derivative liability in the Consolidated Statements of Operations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 inputs. Upon closing of the RideNow Transaction, the warrants were considered equity linked contracts indexed to the Company’s stock and therefore met the equity classification guidance. As a result, the $19,700 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge was reclassified as part of the debt discount related to the Oaktree Credit Agreement. The recognition of the warrant liability and deferred financing charge and the reclassification of the warrant liability to additional paid-in capital and the reclassification of the deferred financing charge to debt discount are non-cash items.
Stock-Based Compensation
In connection with the closing of the RideNow Transaction and the execution of the certain Executive Employment Agreements, the Company accelerated the vesting of and waived certain market-based share price hurdles for all then outstanding restricted stock units (“RSUs”) for all participants, which resulted in excess of $23,943 of incremental stock-based compensation for the year ended December 31, 2021.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income (loss) or net income (loss) 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.
Adjusted EBITDA is defined as net income (loss) adjusted to add back interest expense (including debt extinguishment), depreciation and amortization, interest income and miscellaneous income, changes in derivative liabilities and certain recoveries, income tax benefits, and other non-recurring costs, as these recoveries, charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.
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.
For the years ended December 31, 2021 and 2020, adjustments to calculating Adjusted EBITDA are primarily comprised of:
•Impairment loss on inventory and plant and equipment resulting from the Nashville Tornado and the related proceeds received from the Company’s insurance carriers,
•Non-cash stock-based compensation expense recorded in the Consolidated Statement of Operations,
•Acquisition costs associated with the RideNow Transaction, which primarily include professional fees and third-party costs,
•Other non-reoccurring costs, which include one-time expenses incurred. For the year ended December 31, 2021, approximately $1,342 was incurred for compensation to the estate of Steven R. Berrard, the Company’s former Chief Financial Officer,
•Paycheck Protection Program (“PPP”) loan forgiveness, which includes loan principal balances forgiven by the Small Business Administration (“SBA”), and
•Purchase accounting adjustments, primarily comprised of the valuation adjustments for inventory acquired as part of the RideNow Transaction which increased the cost of revenue included in the Consolidated Statement of Operations.
The following tables reconcile Adjusted EBITDA to net loss for the periods presented:
December 31,
2021 2020
Net loss
$ (9,725) $ (24,999)
Add back:
Interest expense (including debt extinguishment)
16,405 6,450
Depreciation and amortization
6,103 2,143
Change in derivative liabilities
8,799 (11)
Income tax benefit (21,665) -
EBITDA
(83) (16,417)
Adjustments:
Impairment loss on automotive inventory
- 11,738
Impairment loss on plant & equipment
- 178
Insurance proceeds
(3,135) (5,615)
Stock based compensation
29,219 2,978
Acquisition costs associated with the RideNow Transaction
4,281 -
Other non-reoccurring costs
2,025 1,347
PPP loan forgiveness
(2,682) -
Purchase accounting related
1,388 -
Adjusted EBITDA
$ 31,013 $ (5,791)
Pro Forma Adjusted EBITDA
The following supplemental pro forma information presents pro forma financial results as if the RideNow Transaction was completed at January 1, 2020.
Add backs and adjustments to calculating Pro Forma Adjusted EBITDA are consistent with the adjustments used to calculate Adjusted EBITDA. For the years ended December 31, 2021 and 2020, pro forma EBITDA adjustments primarily represent the amortization of debt fees and gross profit on intercompany transactions on a pro-forma basis.
December 31,
2021 2020
Net income
$ 45,565 $ 18,914
Add back:
Interest expense (including debt extinguishment)
40,347 47,312
Depreciation and amortization
13,199 13,607
Interest income and miscellaneous income (1,389) (1,967)
Change in derivative liabilities
8,799 (10)
Income tax benefit (2,706) 6,305
EBITDA
103,815 84,161
Adjustments:
Impairment loss on automotive inventory
- 11,738
Impairment loss on plant & equipment
- 178
Insurance proceeds
(3,135) (4,810)
Stock based compensation
29,219 3,175
Acquisition costs associated with the RideNow transaction
4,281 -
Other non-reoccurring costs
2,025 1,347
PPP loan forgiveness
(21,721) -
Purchase accounting related
1,388 -
Adjusted EBITDA 115,872 95,789
Pro Forma Adjustments
2,525 124
Pro Forma Adjusted EBITDA
118,397 95,913
Liquidity and Capital Resources
Our primary sources of liquidity are available cash, amounts available under our floor plan lines of credit, and monetization of our retail loan portfolio. During the year ended December 31, 2021, we completed two public offerings that provided net proceeds of $191,000 and obtained the Oaktree Credit Facility, which initially provided net proceeds of $261,000 that was used to finance a portion of the cash consideration for the RideNow Transaction. As of December 31, 2021, the Oaktree Credit Facility provides for up to $120,000 in additional financing that may be used for acquisitions and up to an additional $100,000 in incremental financing that may be used for acquisitions and working capital purposes. On February 18, 2022, in conjunction the acquisition of Freedom Powersports, the Company drew down $83,400 against the Oaktree Credit Facility.
Our financial statements reflect estimates and assumptions made by management that affect the carrying values of the Company’s assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of the Company’s assets and liabilities and the results of operations. We will continue to evaluate the nature and extent of the impact to our business and our results of
operations and financial condition as conditions evolve as a result of the COVID-19 pandemic and the resulting Demand/Supply Imbalances.
The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which assumes the continuity of operations, the realization of assets and the satisfaction of liabilities as they come due in the normal course of business. Management believes that current working capital, results of operations, and existing financing arrangements are sufficient to fund operations for at least one year from the financial statement date.
We had the following liquidity resources available as of December 31, 2021 and December 31, 2020:
December 31,
2021 2020
Cash $ 48,974 $ 1,467
Restricted cash (1)
3,000 2,049
Total cash and restricted cash 51,974 3,516
Availability under short-term revolving facilities 124,116 2,188
Committed liquidity resources available $ 176,090 $ 5,704
(1) Amounts included in restricted cash represent the deposits required under the Company's short-term revolving facilities.
As of December 31, 2021, and 2020, excluding operating lease liabilities and the derivative liability, the outstanding principal amount of indebtedness was $384,585 and $53,109, respectively, summarized in the table below. See Note 9-Notes Payable and Lines of Credit, Note 10-Convertible Notes, and Note 11-Stockholders Equity to our consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data of this 2021 Form 10-K for further information on our debt.
December 31,
2021 2020
Asset-Based Financing:
Inventory $ 97,278 $ 17,812
Total asset-based financing 97,278 17,812
Term loan facility 279,300 -
Secured notes payable - 2,391
Unsecured senior convertible notes 39,006 39,774
PPP and other loans 4,472 5,177
Total debt 420,056 65,154
Less: unamortized discount and debt issuance costs (35,471) (12,045)
Total debt, net $ 384,585 $ 53,109
The following table sets forth a summary of our cash flows.
December 31,
2021 2020
Net cash (used in) provided by operating activities $ (32,177) $ 17,143
Net cash used in investing activities (378,831) (2,282)
Net cash provided by (used in) financing activities 459,466 (18,071)
Net increase (decrease) in cash $ 48,458 $ (3,210)
Operating Activities
Our primary sources of operating cash flows result from the sales of new and pre-owned vehicles and ancillary products. Our primary uses of cash from operating activities are purchases of inventory, parts and merchandise, cash used to acquire customers, technology development, and personnel-related expenses. For the year ended December 31, 2021, net cash used in operating activities of $32,177 was an increase of $49,320 compared to net cash provided by operating activities of $17,143 in 2020. The increase in our net cash used in operating activities was primarily due to: (i) an outflow of $45,732 in operating assets and liabilities, primarily in vehicle inventory, other assets, and accounts receivable and (ii) an adjustment in the valuation of the deferred taxes of $22,545; partially offset by a decrease in our net loss of $15,274 and the recognition of the stock based compensation expense of $29,219.
Investing Activities
Our primary use of cash for investing activities is for technology development and acquisitions to expand our operations. Cash used in investing activities for the year ended December 31, 2021 was $378,831, an increase of $376,549 compared to 2020. The increase in cash used in investing activities results from (i) primarily the 2021 acquisition of RideNow, (ii) additional purchase of property and equipment of $5,646 to expand our operations, and (iii) an outflow of $1,871 in technology development during the year ended December 31, 2021 as compared to 2020.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term debt activity and proceeds from equity issuances which have been used to provide working capital and for general corporate purposes, including paying down our short-term revolving facilities. Cash provided by financing activities was $459,466 for the year ended December 31, 2021 compared to net cash used in financing activities of $18,071 for 2020. The $477,537 increase in cash provided by financing activities for the year ended December 31, 2021 as compared to the same period of 2020 was a result of: (i) an increase in net proceeds of $261,451 received from the senior secured debt; (ii) proceeds of $191,241 received from sale of common stock in April 2021 and August 2021; and (iii) an increase in borrowings of $17,187 on the floor plan lines of credit; partially offset by the repayment of notes payable.
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Subsequent Events
Acquisition of Freedom Powersports
On February 18, 2022, the Company closed on the acquisition of Freedom Powersports, which included all business and real estate assets, subject to customary net working capital and indebtedness adjustments, for an aggregate consideration of approximately $129,971. The aggregate consideration consisted of approximately $83,291 for the Freedom Powersports business and approximately $46,680 for acquired real estate properties, including the payoff of outstanding mortgage debt on the real estate assets in the aggregate amount of approximately $27,025. The aggregate consideration was paid using cash on hand, $84,500 drawn from the Company’s delayed draw facility under the Oaktree Credit Facility, and the issuance of 1,048,718 restricted shares of RumbleOn Class B common stock. The restricted shares are subject to a six-month lock-up and resale registration rights.
Funding of RumbleOn’s Consumer Finance Subsidiary
On February 4, 2022, ROF SPV I, LLC (“ROF SPV”), an indirect subsidiary of RumbleOn, entered into a secured loan facility primarily to provide up to $25,000. All loans under this agreement will be secured by certain collateral including the consumer finance loans purchased by ROF SPV.
ROF SPV and ROF provided customary representations and covenants under the agreements which include financial covenants and collateral performance covenants. Loans sold to or in the facility are subject to certain eligibility criteria, concentration limits and reserves.
Related Party Software License
On January 19, 2022, the Audit Committee approved, and the Company entered into both a Perpetual Software License Purchase Agreement, and a Platform Service Agreement with Bidpath Incorporated, a Company owned by Adam Alexander, a member of the Company’s Board of Directors. The license agreement provides the Company with a perpetual, non-exclusive license to the then-current source code as well as all future source code. This code provides additional functionality to the Company’s inventory management platform, and the Company is paying in aggregate $3,600, of which $1,080 has been paid to date, The services agreement provides for support and maintenance services on a monthly basis for $30 per month. The initial terms is thirty-six (36) months but can be terminated by either party upon sixty (60) days notice to the other party.
Appointment of Chief Financial Officer
On February 1, 2022, the Company appointed Narinder Sahai as the Company’s Chief Financial Officer.
Change in Executive Officers
On February 11, 2022, William Coulter, a director and the Executive Vice Chairman of the Company, and Mark Tkach, a director and the Chief Operating Officer of the Company, resigned from all positions with the Company. The Company appointed Peter Levy, the President of the Company, to also serve as Chief Operating Officer of the Company.
Repayment of Convertible Note
On January 31, 2022, the Company made its final scheduled payment on the convertible note entered into on February 3, 2019 in connection of the acquisition of AutoSport. The carrying amount on the Company’s balance sheet as of December 31, 2021 was $154.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below. Refer to Note 1 - Description of Business and Summary of Significant Accounting Policies of the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this 2021 Form 10-K, for more detailed information regarding our critical accounting policies.
Revenue Recognition
We adopted ASC 606, Revenue from Contracts with Customers on January 1, 2018 using the modified retrospective method. ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) performance obligations are satisfied. Based on the manner in which we historically recognized revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of our revenue recognition, and we recognized no cumulative effect adjustment upon adoption.
For vehicles sold at wholesale to dealers we satisfy our performance obligation for vehicles sales when the wholesale purchaser obtains control of the underlying vehicle, which is upon delivery when the transfer of title, risks and rewards of ownership and control pass to the dealer. We recognize revenue at the amount we expect to receive for the pre-owned vehicle, which is the fixed price determined at the auction. The purchase price of the wholesale vehicle is typically due and collected within 30 days of delivery of the wholesale vehicle.
For vehicles sold to consumers the purchase price is set forth in the customer contracts at a stand-alone selling price which is agreed upon prior to delivery. We satisfy our performance obligation for pre-owned vehicle sales upon delivery when the transfer of title, risks and rewards of ownership and control pass to the customer. We recognize revenue at the agreed upon purchase price stated in the contract, including any delivery charges, less an estimate for returns. Our return policy allows customers to initiate a return during the first three days after delivery. Estimates for returns are based on an analysis of historical experience, trends and sales data. Changes in these estimates are reflected as an adjustment to revenue in the period identified. The amount of consideration received for pre-owned vehicle sales to consumers includes noncash consideration representing the value of trade-in vehicles, if applicable, as stated in the contract. Prior to the delivery of the vehicle, the payment is received, or financing has been arranged. Payments from customers that finance their purchases with third parties are typically due and collected within 30 days of delivery of the pre-owned vehicle. In future periods additional provisions may be necessary due to a variety of factors, including changing customer return patterns due to the maturation of the online vehicle buying market, macro- and micro-economic factors that could influence customer return behavior and future pricing environments. If these factors result in adjustments to sales returns, they could significantly impact our future operating results. Revenue exclude any sales taxes, title and registration fees, and other government fees that are collected from customers.
Vehicle logistics revenue is generated primarily by entering into freight brokerage agreements with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The transaction price is based on the consideration specified in the customer's contract. A performance obligation is created when the customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These performance obligations are satisfied as the shipments move from origin to destination. The freight brokerage agreements are fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these transporters are obligated to meet our performance obligations and standards. Performance obligations are short-term, with transit days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and remit payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as risks and rewards of transportation of the vehicle is transferred to the owner during delivery. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. As a result, revenue is recorded gross.
Valuation of Inventory
Pre-owned vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of pre-owned vehicles primarily acquired from consumers and includes the cost to acquire and recondition a pre-owned vehicle. Reconditioning costs are billed by third-party providers and includes parts, labor, and other repair expenses directly attributable to a specific vehicle. Transportation costs are expensed as incurred. Pre-owned inventory is stated at the lower of cost or net realizable value. Vehicle inventory cost is determined by specific identification. Net realizable value is based on the estimated selling price less costs to complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and inventory turn data of similar vehicles, as well as independent market resources. Each reporting period, the Company recognizes any necessary adjustments to reflect pre-owned vehicle inventory at the lower of cost or net realizable value, which is recognized in cost of revenue in our Consolidated Statements of Operations.
Goodwill
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. Goodwill is tested for impairment annually as of December 31st, or whenever events or changes in circumstances indicate that an impairment may exist.
We have three reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics, each of which is separately evaluated for purposes of goodwill testing. We first review qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount; if we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then our goodwill is not considered to be impaired. However, if based on the qualitative assessment we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we elect to bypass the optional qualitative assessment as provided for under GAAP, we proceed with performing the quantitative impairment test.
In connection with its annual goodwill impairment test as of December 31, 2021, the Company performed impairment assessments by reviewing qualitative factors for each of its reporting units. The results of the assessments indicated that it was not more likely than not that the fair value of the reporting units were greater than the carrying values and no goodwill impairment was determined to exist for the year ended December 31, 2021.
Newly Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and earlier adoption is permitted beginning in the first quarter of fiscal 2019. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of this amendment is to create a two-tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to implement major FASB standards, including ASU 2016-13. Larger public companies will still have an effective date for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until the earlier of fiscal periods beginning after December 15, 2022. Under the current SEC definitions, the Company meets the definition of an SRC as of the ASU 2019-10 issuance date and is adopting the deferral period for ASU 2016-13.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 for its fiscal year beginning January 1, 2021 and it did not have a material effect on its consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item in not applicable as we are currently considered a smaller reporting company.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Statements and Financial Statement Schedules beginning on page of this 2021 Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to reasonably ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief Executive Officer (“CEO”) and Interim Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures as of December 31, 2021. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of that date due to material weaknesses in our internal control over financial reporting as described below.
Management's Report on Internal Control Over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States.
Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021, using the framework in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this evaluation, our management determined that material weaknesses existed in our internal control over financial reporting related to:
•Information technology general controls particularly as such controls related to user access, program change management, and ineffective complementary user-organization controls, which limited management’s ability to rely on technology dependent controls relevant to the preparation of our financial statements.
•Controls over the period end close process, including the review and approval process of journal entries, balance sheet account reconciliations, segregation of duties conflicts, and consolidation of intercompany entries.
•Documentation and design of controls over the recording and reconciliation of inventory.
•Review of key assumptions and estimates related to purchase accounting for significant acquisitions.
•The control environment, risk assessment, control activities, information and communication, and monitoring components of the Company’s internal control framework such that internal control weaknesses were not detected, communicated, addressed with mitigating control activities, or remediated in a timely manner.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We believe the material weaknesses identified were caused by an insufficient complement of resources and personnel to facilitate an effective control environment, and a lack of supporting tools necessary to implement and maintain policies and procedures or to identify and remediate deficiencies in the Company’s financial reporting and information technology processes. As a result, segregation of duties, transaction compilation, review and authorization, and general information technology components could not be relied upon to effectively achieve the Company’s internal control objectives. Based on the material weakness described, we have concluded that as of December 31, 2021, our internal control over financial reporting was not effective.
As set forth below, management has taken and will continue to take steps to remediate the identified material weaknesses identified. Notwithstanding these material weaknesses, we have performed additional analyses and procedures to enable management to conclude that our consolidated financial statements included in this 2021 Form 10-K fairly present in all material respects our financial condition and results of operations as of and for the year ended December 31, 2021.
You should also consider that we have excluded from our assessment of internal control over financial reporting the acquired RideNow entities in accordance with appropriate guidance from the SEC. These acquired entities comprise total assets of $879,035 (or 85.5% of total assets of the Company) and total revenue of $369,329 (or 39.2% of total revenue of the Company) included in our Consolidated Financial Statements as of and for the year ended December 31, 2021. For additional information about the RideNow Transaction, see Note 2-Acquisitions, in Item 8. Financial Statements and Supplementary Data of this 2021 Form 10-K.
Our independent auditors, Dixon Hughes Goodman LLP (“DHG”), a registered public accounting firm, is appointed by the Audit Committee of our Board of Directors. As a result of the material weaknesses described above, DHG has issued an adverse opinion on the effectiveness of our internal control over financial reporting as of December 31, 2021, which appears in Item 8. Financial Statements and Supplementary Data of this 2021 Form 10-K.
Management’s Remediation Plan
In response to the material weaknesses discussed above, we plan to continue efforts already underway to remediate internal control over financial reporting, which include the following:
•In February 2022, we hired a new Chief Financial Officer.
•We have engaged third-party resources to support our internal control testing and remediation efforts and act as subject matter experts, and we intend to bring in additional resources to oversee remediation efforts.
•We are in the process of hiring a Head of Internal Audit, a senior level position reporting directly to the Audit Committee, to implement and oversee a newly established Internal Audit department.
•We are in the process of hiring other key accounting and financial reporting positions, including a Director of Financial Reporting, to augment our accounting staff as needed. We believe these additional accounting personnel will enhance our compliance and oversight regarding internal control over financial reporting.
•We are in the process of conducting a risk assessment over our internal control environment, and we are reviewing and prioritizing individual control deficiencies for remediation, including those which aggregated to the above material weaknesses.
•We are in the process of documenting and executing remediation action items, including expansion of mitigating controls where appropriate.
•We are exploring tools to enhance and centralize general information technology components.
Management and our Audit Committee will monitor these specific remedial measures and the effectiveness of our overall control environment. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We can provide no assurance as to when the remediation of these material weaknesses will be completed to provide for an effective control environment.
Changes in Internal Control over Financial Reporting
Other than described above in Item 9A, Controls and Procedures, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
On April 4, 2022, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Rule”) because it had not timely filed this 2021 Form 10-K with the SEC. The Rule requires listed companies to timely file all required periodic financial reports with the SEC. The Company believes that it has regained compliance with the Rule as a result of filing this 2021 Form 10-K and will not need to submit a plan of compliance to Nasdaq.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES.
(a)We have filed the following documents as part of this 2021 Form 10-K:
1.The financial statements listed in the "Index to Financial Statements" on page are filed as part of this report.
2.Financial statement schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto.
3.Exhibits included or incorporated herein: See below.
Exhibit Number Description
2.1
Agreement and Plan of Merger, dated October 26, 2018, by and among RumbleOn, Inc., RMBL Tennessee, LLC, Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster as representative, and for limited purposes, Marshall Chesrown and Steven R. Berrard. (Incorporated by reference to Exhibit 2.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
2.2
Amendment to the Agreement and Plan of Merger, dated October 29, 2018, by and among RumbleOn, Inc., RMBL Tennessee, LLC, Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster as representative (Incorporated by reference to Exhibit 2.2 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
2.3
Membership Interest Purchase Agreement, dated October 26, 2018, by and among RumbleOn, Inc. Steven Brewster, Justin Becker, and Steven Brewster as representative. (Incorporated by reference to Exhibit 2.3 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
2.4
Plan of Merger and Equity Purchase Agreement, dated March 12, 2021 (Incorporated by reference to Exhibit 2.1 in the Company's Current Report on Form 8-K, filed on March 15, 2021).
2.5
Joinder and First Amendment to Plan of Merger and Equity Purchase Agreement, dated June 17, 2021 (Incorporated by reference to Exhibit 2.2 in the Company’s Current Report on Form 8-K, filed on June 21, 2021).
2.6
Second Amendment to Plan of Merger and Equity Purchase Agreement, dated July 20, 2021 (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on July 27, 2021).
2.7
Membership Interest Purchase Agreement, dated November 8, 2021 (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on November 9, 2021).
3.1
Articles of Incorporation filed on October 24, 2013 (Incorporated by reference to Exhibit 3(i)(a) in the Company's Registration Statement on Form S-1/A, filed on March 20, 2014).
3.2
By-Laws, as Amended (Incorporated by reference to Exhibit 3.2 in the Company's Annual Report on Form 10-K, filed on February 14, 2017).
3.3
Amendment to the Amended Bylaws of RumbleOn, Inc., dated August 31, 2021 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on September 7, 2021).
3.4
Amended and Restated Bylaws of RumbleOn, Inc., dated October 8, 2021 (Incorporated by reference to Exhibit 3.1 in the Company’s Current Report on Form 8-K, filed on October 8, 2021).
3.5
Certificate of Amendment to Articles of Incorporation, filed on February 13, 2017 (Incorporated by reference to Exhibit 3.3 in the Company's Annual Report on Form 10-K, filed on February 14, 2017).
3.6
Certificate of Amendment to Articles of Incorporation, filed on June 25, 2018 (Incorporated by reference to Exhibit 3.1 in the Company's Current Report on Form 8-K, filed on June 28, 2018).
3.7
Certificate of Designation for the Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
3.8
Certificate of Change (Incorporated by reference to Exhibit 3.1 in the Company's Current Report on Form 8-K, filed on May 19, 2020).
3.9
Certificate of Amendment. (Incorporated by reference to Exhibit 3.1 in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on August 4, 2021).
4.1
Registration Rights Agreement, dated February 8, 2017 (Incorporated by reference to Exhibit 10.2 in the Company's Annual Report on Form 10-K, filed on February 14, 2017).
4.2
Sample Stock Certificate - Class B Common Stock (Incorporated by reference to Exhibit 4.4 in the Company's Registration Statement on Form S-1/A filed on September 27, 2017).
4.3
Form of Warrant to Purchase Class B Common Stock, dated October 18, 2017 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed October 24, 2017).
4.4
Warrant, dated April 30, 2018 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on May 1, 2018).
4.5
Warrant to Purchase Class B Common Stock, dated October 30, 2018 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018).
4.6
Indenture, dated January 14, 2020, between RumbleOn, Inc. and Wilmington Trust National Association (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on January 16, 2020).
4.7
Form of 6.75% Convertible Senior Note due 2025 (included as Exhibit A to the Indenture filed as Exhibit 4.8) (Incorporated by reference to Exhibit 4.2 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
4.8
Form of Registration Rights Agreement, dated May 14, 2019 (Incorporated by reference to Exhibit 4.3 in the Company's Current Report on Form 8-K, filed on May 15, 2019).
4.9
Description of Registrant's Securities (Incorporated by reference to Exhibit 4.11 in the Company's Annual Report on Form 10-K, filed on May 29, 2020).
4.10
Warrant, dated March 12, 2021 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on March 15, 2021).
4.11
Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
4.12
First Amendment to Warrant to Purchase Class B Common Stock, dated July 15, 2021 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 16, 2021).
10.1
# 2017 RumbleOn, Inc. Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on January 9, 2017).
10.2
# Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on May 22, 2019).
10.3
Form of Note Exchange & Subscription Agreement, dated January 10, 2020 (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on January 16, 2020).
10.4
Form of Joinder & Amendment, dated January 10, 2020 (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K, filed on January 16, 2020).
10.5
Form of Investor Note Exchange Agreement, dated January 10, 2020 (Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-K, filed on January 16, 2020).
10.6
Form of New Investor Note, dated January 10, 2020 (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on January 16, 2020).
10.7
Form of Security Agreement, dated January 14, 2020 (Incorporated by reference to Exhibit 10.5 in the Company's Current Report on Form 8-K, filed on January 16, 2020).
10.8
COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and RumbleOn, Inc. (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.9
COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and Wholesale, Inc. (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.10
COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and Wholesale Express, LLC. (Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.11
Paycheck Protection Program Note, dated May 1, 2020, executed by RumbleOn, Inc. (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.12
Paycheck Protection Program Note, dated May 1, 2020, executed by Wholesale, Inc. (Incorporated by reference to Exhibit 10.5 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.13
Paycheck Protection Program Note, dated May 1, 2020, executed by Wholesale Express, LLC (Incorporated by reference to Exhibit 10.6 in the Company's Current Report on Form 8-K, filed on May 7, 2020).
10.14
# Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on August 26, 2020).
10.15
Secured Promissory Note, dated March 12, 2021 (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K, filed on March 15, 2021).
10.16
Registration Rights and Lock-Up Agreement, dated March 12, 2021 (Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-K, filed on March 15, 2021).
10.17
Amended and Restated Secured Promissory Note, dated April 8, 2021 (Incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K, filed on April 8, 2021).
10.18
# Fourth Amendment to RumbleOn, Inc. 2017 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.2 in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on August 4, 2021).
10.19
Credit Agreement, dated August 31, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.20
First Supplemental Indenture, dated August 31, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.21
# Executive Employment Agreement, dated August 31, 2021, between Marshall Chesrown and RumbleOn, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.22
# Executive Employment Agreement, dated August 31, 2021, between William Coulter and RumbleOn, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.23
# Executive Employment Agreement, dated August 31, 2021, between Mark Tkach and RumbleOn, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.24
# Executive Employment Agreement, dated August 31, 2021, between Peter Levy and RumbleOn, Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.25
# Executive Employment Agreement, dated August 31, 2021, between Beverley Rath and RumbleOn, Inc. (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).
10.26
Registration Rights and Lock-Up Agreement, dated November 8, 2021 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed November 9, 2021).
21.1
Subsidiaries*
23.1
Consent of Dixon Hughes Goodman LLP*
23.2
Consent of Grant Thornton LLP*
31.1
Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2
Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS XBRL Instance Document.*
101.SCG XBRL Taxonomy Extension Schema.*
101.CAL XBRL Taxonomy Extension Calculation Linkbase.*
101.DEF XBRL Taxonomy Extension Definition Linkbase.*
101.LAB XBRL Taxonomy Extension Label Linkbase.*
101.PRE XBRL Taxonomy Extension Presentation Linkbase.*
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)*
* Filed herewith.
** Furnished herewith.
# Management Compensatory Plan