10-Q 1 rmbl_10q.htm FORM 10-Q Blueprint
 
 

 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
☒   
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from  ______to_______
 
Commission file number 001-38248
 
RumbleOn, Inc.
  (Exact name of registrant as specified in its charter)
 
Nevada
 
46-3951329
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
1350 Lakeshore Drive
Suite 160
Coppell, Texas
 
75019
(Address of principal executive offices)
 
(Zip Code)
 
 (469) 250-1185  
 (Registrant's telephone number, including area code)  
 
   (Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class B Common Stock, $0.001 par value
 
RMBL
 
The NASDAQ Capital Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes ☒
No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ☐
 
Accelerated filer  ☐
Non-accelerated filer   ☒
 
Smaller reporting company  ☒
 
 
Emerging growth company  ☒
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
 
The number of shares of Class B Common Stock, $0.001 par value, outstanding on August 9, 2019 was 22,171,420 shares. In addition, 1,000,000 shares of Class A Common Stock, $0.001 par value, were outstanding on August 9, 2019.
 

 
 

 
 
RUMBLEON, INC.
 
QUARTERLY PERIOD ENDED JUNE 30, 2019
 
Table of Contents to Report on Form 10-Q
 
 
 
 
 
 
 
 

 
 
PART I - FINANCIAL INFORMATION
 
Item 1.       
Financial Statements
 
RumbleOn, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
As of
June 30,
2019
 
 
As of 
December 31,
2018
 
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash
 $12,513,801 
 $9,134,902 
Restricted Cash
  6,719,743 
  6,650,000 
Accounts receivable, net
  12,770,364 
  8,465,810 
Inventory
  67,956,276 
  52,191,523 
Prepaid expense and other current assets
  520,005 
  1,096,945 
Total current assets
  100,480,189 
  77,539,180 
 
    
    
Property and equipment, net
  6,247,166 
  5,177,877 
Right-of-use asset
  3,069,154 
  - 
Goodwill
  29,055,016 
  26,107,146 
Other assets
  96,633 
  102,178 
Total assets
 $138,948,158 
 $108,926,381 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
 
    
    
Current liabilities:
    
    
Accounts payable and other accrued liabilities
 $13,537,193 
 $10,554,913 
Accrued interest payable
  699,076 
  206,037 
Current portion of convertible debt
  1,077,933 
  - 
Current portion of long-term debt
  66,341,312 
  58,555,006 
Total current liabilities
  81,655,514 
  69,315,956 
 
    
    
Long-term liabilities:
    
    
Note payable
  - 
  8,792,919 
Convertible Debt
  19,350,294 
  - 
Derivative liabilities
  1,140,000 
  - 
Other long-term liabilities
  2,223,919 
  - 
Total long-term liabilities
  22,714,213 
  8,792,919 
 
    
    
Total liabilities
  104,369,727 
  78,108,875 
 
    
    
Commitments and contingencies (Notes 4, 6, 7, 8, 9, 13)
    
    
 
    
    
Stockholders' equity:
    
    
Class B Preferred stock, $0.001 par value, 10,000,000 shares authorized, none and 1,317,329 shares issued and outstanding as of June 30, 2019 and December 31, 2018
  - 
  1,317 
Common A stock, $0.001 par value, 1,000,000 shares authorized, 1,000,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018
  1,000 
  1,000 
Common B stock, $0.001 par value, 99,000,000 shares authorized, 22,125,120 and 17,486,291 shares issued and outstanding as of June 30, 2019 and December 31, 2018
  22,125 
  17,486 
Additional paid in capital
  90,037,964 
  64,998,817 
Accumulated deficit
  (55,482,658)
  (34,201,114)
Total stockholders' equity
  34,578,431 
  30,817,506 
 
    
    
Total liabilities and stockholders' equity
 $138,948,158 
 $108,926,381 
 
See Notes to the Condensed Consolidated Financial Statements.
 
 

1
 
 
RumbleOn, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
Revenue:
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Pre-owned vehicle sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Powersports
 $30,305,687 
 $13,818,116 
 $57,234,846 
 $21,882,948 
Automotive
  233,856,329 
  - 
  424,763,517 
  - 
Transportation
  6,017,888 
  - 
  11,359,300 
  - 
Other
  - 
  96,418 
  - 
  111,790 
Total Revenue
  270,179,904 
  13,914,534 
  493,357,663 
  21,994,738 
 
    
    
    
    
Cost of revenue
    
    
    
    
Powersports
  26,137,459 
  12,649,704 
  50,087,015 
  20,171,005 
Automotive
  223,996,259 
  - 
  405,491,371 
  - 
Transportation
  4,428,674 
  - 
  8,170,696 
  - 
Total Cost of Revenue
  254,562,392 
  12,649,704 
  463,749,082 
  20,171,005 
 
    
    
    
    
Gross Profit
  15,617,512 
  1,264,830 
  29,608,581 
  1,823,733 
 
    
    
    
    
Selling, general and administrative
  25,007,565 
  5,545,509 
  45,447,581 
  9,426,001 
 
    
    
    
    
Depreciation and amortization
  427,438 
  217,827 
  809,663 
  423,595 
 
    
    
    
    
Operating loss
  (9,817,491)
  (4,498,506)
  (16,648,663)
  (8,025,863)
 
    
    
    
    
Interest expense
  1,874,858 
  237,820 
  3,319,991 
  324,340 
Change in derivative liability
  (190,000)
  - 
  (190,000)
  - 
Loss on early extinguishment of debt
  1,499,250 
  - 
  1,499,250 
  - 
Net loss before provision for income taxes
  (13,001,599)
  (4,736,326)
  (21,277,904)
  (8,350,203)
 
    
    
    
    
Benefit for income taxes
  - 
  - 
  - 
  - 
 
    
    
    
    
Net loss
 $(13,001,599)
 $(4,736,326)
 $(21,277,904)
 $(8,350,203)
 
    
    
    
    
Weighted average number of common shares outstanding - basic and fully diluted
  22,236,175 
  13,006,893 
  21,365,137 
  12,967,933 
 
    
    
    
    
Net loss per share - basic and fully diluted
 $(0.58)
 $(0.36)
 $(1.00)
 $(0.64)
 
 
See Notes to the Condensed Consolidated Financial Statements.
 
 
 

2
 
 
RumbleOn, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(unaudited)
 
 
 
 
 
 
 
 
 
Class A
 
 
Class B
 
 
Additional
 
 
 
 
 
Total
 
 
 
Preferred Shares
 
 
Common Shares
 
 
Common Shares
 
 
Paid In
 
 
Accumulated
 
 
Stockholders'
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity
 
Balance, as of March 31, 2019
  - 
 $- 
  1,000,000 
 $1,000 
  20,087,120 
 $20,087 
 $72,707,614 
 $(42,481,059)
 $30,247,642 
 
    
    
    
    
    
    
    
    
    
Equity component of convertible senior notes, net of issuance costs
  - 
  - 
  - 
  - 
  - 
  - 
  7,745,625 
  - 
  7,745,625 
Issuance of common stock for restricted stock units
  - 
  - 
  - 
  - 
  138,000 
  138 
  (138)
  - 
  - 
Issuance of common stock
  - 
  - 
  - 
  - 
  1,900,000 
  1,900 
  8,627,872 
  - 
  8,629,772 
Stock-based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  956,991 
  - 
  956,991 
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (13,001,599)
  (13,001,599)
Balance as of June 30, 2019
  - 
 $- 
  1,000,000 
 $1,000 
  22,125,120 
 $22,125 
 $90,037,964 
 $(55,482,658)
 $34,578,431 
 
 
 
 
 
 
 
 
 
Class A
 
 
Class B
 
 
Additional
 
 
 
 
 
Total
 
 
 
Preferred Shares
 
 
Common Shares
 
 
Common Shares
 
 
Paid In
 
 
Accumulated
 
 
Stockholders'
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity
 
Balance, as of December 31, 2018
  1,317,329 
 $1,317 
  1,000,000 
 $1,000 
  17,486,291 
 $17,486 
 $64,998,817 
 $(34,201,114)
 $30,817,506 
 
    
    
    
    
    
    
    
    
    
Cumulative effect of accounting change (see Note 1)
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (3,640)
  (3,640)
Equity component of convertible senior notes, net of issuance costs
  - 
  - 
  - 
  - 
  - 
  - 
  7,745,625 
  - 
  7,745,625 
Issuance of common stock for restricted stock units
  - 
  - 
  - 
  - 
  145,000 
  145 
  (145)
  - 
  - 
Beneficial conversion feature on convertible notes
  - 
  - 
  - 
  - 
  - 
  - 
  495,185 
  - 
  495,185 
Conversion of preferred shares to common stock
  (1,317,329)
  (1,317)
  - 
  - 
  1,317,329 
  1,317 
  - 
  - 
  - 
Issuance of common stock
  - 
  - 
  - 
  - 
  3,176,500 
  3,177 
  15,152,370 
  - 
  15,155,547 
Stock-based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  1,646,112 
  - 
  1,646,112 
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (21,277,904)
  (21,277,904)
Balance as of June 30, 2019
  - 
 $- 
  1,000,000 
 $1,000 
  22,125,120 
 $22,125 
 $90,037,964 
 $(55,482,658)
 $34,578,431 
 
 
 

3
 
 
RumbleOn, Inc.
Condensed Consolidated Statement of Stockholders' Equity cont'd
(unaudited)
 
 
 
 
 
 
 
 
 
Class A
 
 
Class B
 
 
Additional
 
 
 
 
 
Total
 
 
 
Preferred Shares
 
 
Common Shares
 
 
Common Shares
 
 
Paid In
 
 
Accumulated
 
 
Stockholders'
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity
 
Balance, as of March 31, 2018
  - 
 $- 
  1,000,000 
 $1,000 
  11,928,541 
 $11,929 
 $23,699,067 
 $(12,633,173)
 $11,078,823 
Issuance of common stock for restricted stock units
  - 
  - 
  - 
  - 
  149,000 
  149 
  (149)
  - 
  - 
Issuance of warrants in connection with loan agreement
  - 
  - 
  - 
  - 
  - 
  - 
  176,886 
  - 
  176,886 
Stock-based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  349,388 
  - 
  349,388 
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (4,736,326)
  (4,736,326)
Balance as of June 30, 2018
  - 
 $- 
  1,000,000 
 $1,000 
  12,077,541 
 $12,078 
 $24,225,192 
 $(17,369,500)
 $6,868,770 
 
 
 
 
 
 
 
 
 
Class A
 
 
Class B
 
 
Additional
 
 
 
 
 
Total
 
 
 
Preferred Shares
 
 
Common Shares
 
 
Common Shares
 
 
Paid In
 
 
Accumulated
 
 
Stockholders'
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity
 
Balance, as of December 31, 2017
  - 
 $- 
  1,000,000 
 $1,000 
  11,928,541 
 $11,929 
 $23,372,360 
 $(9,019,297)
 $14,365,992 
 
    
    
    
    
    
    
    
    
    
Issuance of common stock for restricted stock units
  - 
  - 
  - 
  - 
  149,000 
  149 
  (149)
  - 
  - 
Issuance of warrants in connection with loan agreement
  - 
  - 
  - 
  - 
  - 
  - 
  176,886 
  - 
  176,886 
Stock-based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  676,095 
  - 
  676,095 
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (8,350,203)
  (8,350,203)
Balance as of June 30, 2018
  - 
 $- 
  1,000,000 
 $1,000 
  12,077,541 
 $12,078 
 $24,225,192 
 $(17,369,500)
 $6,868,770 
 
See Notes to the Condensed Consolidated Financial Statements.
 
 

4
 
 
RumbleOn, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
Net loss
 $(21,277,904)
 $(8,350,203)
 
    
    
Depreciation and amortization
  809,663 
  423,595 
Amortization of debt discounts
  714,629 
  154,685 
Share based compensation
  1,646,112 
  676,095 
Loss from extinguishment of debt
  1,499,250 
  - 
Income from change in value of derivatives
  (190,000)
  - 
Changes in operating assets and liabilities:
    
    
Increase in inventory
  (12,902,749)
  (2,731,908)
(Increase) decrease in accounts receivable
  (1,148,365)
  420,093 
Decrease (increase) in prepaid expenses and other current assets
  576,940 
  (3,779)
Decrease (increase) in other assets
  5,545 
  (52,542)
(Decrease) increase in accounts payable and accrued liabilities
  (3,721,211)
  624,693 
Increase (decrease) in accrued interest payable
  493,039 
  35,504 
Net cash used in operating activities
  (33,495,051)
  (8,803,767)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES
    
    
Cash used for acquisitions; net of cash received
  (835,000)
  - 
Proceeds from sales of property and equipment
  40,620 
  - 
Technology development
  (1,919,569)
  (618,069)
Purchase of property and equipment
  - 
  (59,206)
Net cash used in investing activities
  (2,713,949)
  (677,275)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
Proceeds from notes payable and convertible debt
  27,455,537 
  7,176,600 
Payments on notes payable
  (11,134,695)
  - 
Proceeds from sale of common stock
  15,155,547 
  - 
Net proceeds (repayments) on lines of credit
  8,181,253 
  (1,081,593)
Net cash provided by financing activities
  39,657,642 
  6,095,007 
 
    
    
NET CHANGE IN CASH
  3,448,642 
  (3,386,035)
 
    
    
CASH AT BEGINNING OF PERIOD
  15,784,902 
  9,170,652 
 
    
    
CASH AT END OF PERIOD
 $19,233,544 
 $5,784,617 
 
See Notes to the Condensed Consolidated Financial Statements.
 
 

5
 
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1 – DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
Organization
 
RumbleOn, Inc. (the "Company") was incorporated in October 2013 under the laws of the State of Nevada, as Smart Server, Inc. ("Smart Server"). On February 13, 2017, the Company changed its name from Smart Server, Inc. to RumbleOn, Inc.
 
Description of Business
 
In July 2016, Berrard Holdings Limited Partnership ("Berrard Holdings") acquired 99.5% of the common stock of the Company from the principal stockholder. Shortly after the Berrard Holdings common stock purchase, the Company began exploring the development of a capital light e-commerce platform facilitating the ability of both consumers and dealers to Buy-Sell-Trade-Finance pre-owned vehicles in one online location and in April 2017, the Company launched its platform. The Company's goal is to transform the way pre-owned vehicles are bought and sold by providing users with the most efficient, timely and transparent transaction experience. While the Company's initial customer facing emphasis through most of 2018 was on motorcycles and other powersports, the Company continues to enhance its platform to accommodate nearly any VIN-specific vehicle including motorcycles, ATVs, boats, RVs, cars and trucks, and via its acquisition of Wholesale, Inc. in October 2018, the Company is making a concerted effort to grow its cars and light truck categories.
 
On October 26, 2018, the Company entered into an Agreement and Plan of Merger (as amended, the "Merger Agreement") with the Company's newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware limited liability company ("Merger Sub"), Wholesale Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale, LLC, a Tennessee limited liability company ("Wholesale"), Steven Brewster and Janelle Brewster (each a "Stockholder," and together the "Stockholders"), Steven Brewster, a Tennessee resident, as the representative of each Stockholder (the "Representative"), and Marshall Chesrown and Steven R. Berrard, providing for the merger of Holdings with and into Merger Sub, with Merger Sub surviving the merger as a wholly-owned subsidiary of the Company (the "Wholesale Transaction").  On October 29, 2018, the Company entered into an Amendment to the Merger Agreement making a technical correction to the definition of "Parent Consideration Shares" contained in the Merger Agreement.
 
Also, on October 26, 2018, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement"), by and among the Company, Steven Brewster and Justin Becker (together the "Express Sellers"), and Steven Brewster as representative of the Express Sellers, pursuant to which the Company acquired all of the membership interests (the "Express Transaction," and together with the Wholesale Transaction, the "Transactions") in Wholesale Express, LLC, a Tennessee limited liability company. The Transactions were both completed on October 30, 2018 (the "Acquisition Date"). As consideration for the Wholesale Transaction, the Company (i) paid cash consideration of $12,353,941, subject to certain customary post-closing adjustments, and (ii) issued to the Stockholders 1,317,329 shares (the "Stock Consideration") of the Company's Series B Non-Voting Convertible Preferred Stock, par value $0.001 (the "Series B Preferred"). As consideration for the Express Transaction, the Company paid cash consideration of $4,000,000, subject to certain customary post-closing adjustments. Wholesale Inc. is one of the largest independent distributors of pre-owned vehicles in the United States and Wholesale Express, LLC is a related logistics company.
 
On February 3, 2019, the Company completed the acquisition (the "Autosport Acquisition") of all of the equity interests of Autosport USA, Inc. ("Autosport"), an independent pre-owned vehicle distributor, pursuant to a Stock Purchase Agreement, dated February 1, 2019 (the "Stock Purchase Agreement"), by and among RMBL Express, LLC (the "Buyer"), a wholly owned subsidiary of Company, Scott Bennie (the "Seller") and Autosport. Aggregate consideration for the Autosport Acquisition consisted of (i) a closing cash payment of $600,000, plus (ii) a fifteen-month $500,000 promissory note (the "Promissory Note") in favor of the Seller, plus (iii) a three-year $1,536,000 convertible promissory note (the "Convertible Note") in favor of the Seller, plus (iv) contingent earn-out payments payable in the form of cash and/or the Company's Class B Common Stock (the "Earn-Out Shares") for up to an additional $787,500 if Autosport achieves certain performance thresholds. In connection with the Autosport Acquisition, the Buyer also paid outstanding debt of Autosport of $235,000 and assumed additional debt of $257,933 pursuant to a promissory note payable to Seller (the "Second Convertible Note").
 
Serving both consumers and dealers, through its online marketplace platform, the Company makes cash offers for the purchase of pre-owned vehicles. In addition, the Company offers a large inventory of pre-owned vehicles for sale along with third-party financing and associated products. The Company's operations are designed to be scalable by working through an infrastructure and capital light model that is achievable by virtue of a synergistic relationship with its regional partners, which are primarily auctions. The Company utilizes regional partners in the acquisition of pre-owned vehicles to provide inspection, reconditioning and distribution services. These regional partners earn incremental revenue and enhance profitability through fees from inspection, reconditioning and distribution programs.
 
 

6
 
 
Our business model is driven by our proprietary technology platform. Our initial platform was acquired in February 2017, through our acquisition of substantially all of the assets of NextGen Dealer Solutions, LLC ("NextGen"). Since that time, we have expanded the functionality of that platform through a significant number of high-quality technology development projects and initiatives. Included in these new technology development projects and initiatives were modules or significant upgrades to the existing platforms for: (i) Retail online auction; (ii) native IOS and Android apps; (iii) new architecture on website design and functionality; (iv) RumbleOn Marketplace; (v) redesigned cash offer tool; (vi) deal-jacket tracking tool; (vii) inventory tracking tool; (viii) CRM and multiple third-party integrations; (ix) new analytics and machine learning initiatives; and (x) IT monitoring infrastructure.
 
Basis of Presentation
 
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC") and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company's Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of their financial condition, results of operations, and cash flows for the periods presented. The information at December 31, 2018 in the Company's Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets included in the Company's 2018 Annual Report on Form 10-K filed with the SEC on April 1, 2019. The Company's 2018 Annual Report on Form 10-K, together with the information incorporated by reference into such report, is referred to in this quarterly report as the "2018 Annual Report." This quarterly report should be read in conjunction with the 2018 Annual Report.
 
Use of Estimates
 
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Certain accounting estimates involve significant judgments, assumptions and estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period, which management considers to be critical accounting estimates. 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. 
 
Earnings (Loss) Per Share
 
The Company follows the FASB Accounting Standards Codification ("ASC") Topic 260-Earnings per share. Basic earnings per common share ("EPS") calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. Common share and dilutive common share equivalents include: (i) Class A common; (ii) Class B common; (iii) Class B participating preferred shares; (iv) restrictive stock units; (v) warrants to acquire Class B common stock; and (vi) shares issued in connection with convertible debt.
 
Revenue Recognition
 
Revenue for our vehicle distribution segment is derived primarily from our online marketplace and auctions which primarily include: (i) the sale of pre-owned vehicles to consumer and dealers; (ii) vehicle financing; and (iii) vehicle service contracts.
 
Revenue from our vehicle logistics and transportation service segment is derived by providing automotive transportation services between dealerships and auctions throughout the United States.
 
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.
 
 

7
 

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 used 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 used 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 used 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 used 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 excludes any sales taxes, title and registration fees, and other government fees that are collected from customers.
 
Vehicle finance fee revenue is recognized upon delivery of the vehicle to the customer, when the sales contract is signed, and the financing has been arranged. We may be charged back for a fee in the event a contract is prepaid, defaulted upon, or terminated. Our risk related to contract cancellations is limited to the commissions that we receive. Cancellations will fluctuate depending on the customer financing default or prepayment rates and shifts in customer behavior. To the extent that actual experience differs from historical trends, there could be adjustments to our finance contract cancellation reserves.
 
Commission revenue on vehicle service contracts is recognized at the time of sale, net of a reserve for estimated contract cancellations. The reserve for cancellations is estimated based on historical experience and recent trends. Our risk related to contract cancellations is limited to the commissions that we receive. Cancellations will fluctuate depending on the customer financing default or prepayment rates, and shifts in customer behavior, including those related to changes in the coverage or term of the product. To the extent that actual experience differs from historical trends, there could be adjustments to our contract cancellation reserves.
 
Vehicle logistics and transportation services 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 who 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 when all risks and rewards of transportation of the vehicle is transferred to the owner upon delivery and the contracted carrier has been paid for their services.
 
Purchase Accounting for Business Combinations
 
The Company accounts for acquisitions by allocating the fair value of the consideration transferred to the fair value of the assets acquired and liabilities assumed on the date of the acquisition and any remaining difference is recorded as goodwill. Adjustments may be made to the preliminary purchase price allocation when facts and circumstances that existed on the date of the acquisition surface during the allocation period subsequent to the preliminary purchase price allocation, not to exceed one year from the date of acquisition. Contingent consideration is recorded at fair value based on the facts and circumstances on the date of the acquisition and any subsequent changes in the fair value are recorded through earnings each reporting period.
 
Goodwill
 
Goodwill represents the excess purchase price over the fair value of net assets acquired which is not allocable to separately identifiable intangible assets. Other identifiable intangible assets, such as domain names, are separately recognized if the intangible asset is obtained through contractual or other legal right or if the intangible asset can be sold, transferred, licensed or exchanged.
 
Goodwill is not amortized but tested for impairment at least annually, and more frequently if events or circumstances indicate the carrying amount of the reporting unit more likely than not exceeds fair value. We have the option to qualitatively or quantitatively assess goodwill for impairment and we evaluated our goodwill using a qualitative assessment process. Goodwill is tested for impairment at the reporting unit level.
 
 

8
 

We test our goodwill for impairment in December of each year. In 2018, we evaluated our goodwill using a qualitative assessment process. If the qualitative factors determine that it is more likely than not that the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired. If the qualitative assessment determines it is more likely than not the fair value is less than the carrying amount, we would further evaluate for potential impairment. There was no impairment of goodwill as of June 30, 2019.
 
Leases
 
Effective January 1, 2019, the Company adopted ASC 842, Leases. In accordance with ASC 842, the Company first determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception. This standard requires the recognition of right-of-use ("ROU") assets and lease liabilities for the Company's operating leases. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component. The Company has also elected not to recognize a lease liability or ROU asset for leases with a term of 12 months or less and recognize lease payments for those short-term leases on a straight-line basis over the lease term in the Condensed Consolidated Statements of Operations. Operating leases are included in ROU assets, accounts payable and accrued liabilities and operating lease liabilities (net of current portion) in the Condensed Consolidated Balance Sheets.
 
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments under the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company's leases is generally not determinable and therefore the incremental borrowing rate at the lease commencement date is utilized to determine the present value of lease payments. The determination of the incremental borrowing rate requires judgment. Management determines the incremental borrowing rate for each lease using the Company's estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The ROU asset also includes any lease prepayments, offset by lease incentives. Certain of the Company's leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when the Company is reasonably certain that the option will be exercised. An option to terminate is considered unless the Company is reasonably certain the option will not be exercised.
 
Long-Lived Assets
 
Property and equipment is reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used are measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets or asset groups are considered to be impaired, the impairment to be recognized will be measured by the amount by which the carrying amount of the assets or asset groups exceeds the related fair values. The Company also performs a periodic assessment of the useful lives assigned to the long-lived assets.
 
Technology Development Costs
 
Technology development costs are accounted for pursuant to ASC 350, Intangibles — Goodwill and Other. Technology development costs include internally developed software and website applications that are used by the Company for its own internal use. Technology development costs consist principally of (i) development activities including payroll and related expenses billed by a third-party contractor involved in application, content, production, maintenance, operation, and platform development for new and existing products and services, (ii) technology infrastructure expenses, and (iii) costs of Company employees devoted to the development and maintenance of software products. Technology and content costs for design, maintenance and post-implementation stages of internal-use software and general website development are expensed as incurred. For costs incurred to develop new website functionality as well as new software products and significant upgrades to existing internally used platforms or modules, capitalization begins during the application development stage and ends when the software is available for general use. Capitalized technology development is amortized on a straight-line basis over periods ranging from 3 to 7 years. The Company will perform periodic assessment of the useful lives assigned to capitalized software applications. Additionally, the Company from time-to-time may abandon additional development activities relating to specific software projects or applications and charge accumulated costs to technology development expense in the period such determination is made.
 
Vehicle Inventory
 
Vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of 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. Pre-owned inventory is stated at the lower of cost or net realizable value. Pre-owned vehicle inventory cost is determined by specific identification. Net realizable value is 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 times 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 through cost of revenue in the accompanying Consolidated Statements of Operations.
 
 

9
 
 
Cash and Cash Equivalents
 
The Company considers all cash accounts and all highly liquid short-term investments purchased with an original maturity of three months or less to be cash or cash equivalents. As of June 30, 2019 and December 31, 2018, the Company did not have any investments with maturities greater than three months.
 
Restricted Cash

In connection with the execution of the Inventory Financing and Security Agreement (the "Credit Facility") by and among the Company's subsidiary, RMBL Missouri, LLC ("RMBL MO"), Ally Bank ("Ally") and Ally Financial, Inc., dated February 16, 2018 the parties entered into a Credit Balance Agreement, and so long as the Company owes any debt to Ally or until the bank otherwise consents, the Company agrees to maintain a Credit Balance at Ally of 1) at least 10% of the amount of the Company's approved and available credit line under the Credit Facility and 2) no greater than 25% of the total principal amount owed to Ally for inventory financed under the Credit Facility.
 
In connection with the inventory financing contract (the "NextGear Facility"), entered into by the Company, its wholly owned subsidiary RMBL Tennessee, Inc., Wholesale, Inc. and NextGear Capital, Inc. ("NextGear"), dated October 30, 2018, Wholesale, Inc. and NextGear entered into a Reserve Agreement requiring Wholesale, Inc. to pay to NextGear $5.5 million (the "Reserve") to be collateral and security for Wholesale Inc.'s liability under the NextGear Facility as well as any amounts owed by Wholesale, Inc. to NextGear and its affiliates, and each of their respective directors, officers, principals, trustees, partners, shareholders or other holders of any ownership interest, as the case may be, employees, representatives, attorneys and agents.  NextGear is not required to pay Wholesale Inc. interest on the Reserve balance.  Upon the satisfaction of all obligations and the termination by NextGear of the NextGear Facility, NextGear will return to Wholesale, Inc., upon its written request to NextGear no earlier than ten (10) business days from the date the obligations were indefeasibly paid and satisfied in full and the NextGear Facility and terminated by Lender.
 
Property and Equipment, Net
 
Property and equipment is stated at cost less accumulated depreciation and amortization and consists of capitalized technology development costs, furniture and equipment. Depreciation and amortization is recorded on a straight-line basis over the estimated useful life of the assets. Costs of significant additions, renewals and betterments, are capitalized and depreciated. Maintenance and repairs are charged to expense when incurred.
  
Embedded Conversion Features
 
The Company evaluates embedded conversion features within convertible debt under ASC 815, Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20; Debt with Conversion and Other Options. Under the ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for our convertible debt instruments is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on the consolidated balance sheets and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we are required to record non-cash interest expense as a result of the amortization of the discounted carrying value of the convertible debt to their face amount over the term of the convertible debt.
 
From time to time, the Company has issued convertible notes that have conversion prices that create an embedded beneficial conversion feature pursuant to the guidelines established by the ASC Topic 470-20. The Beneficial Conversion Feature ("BCF") of a convertible security is normally characterized as the convertible portion or feature of certain securities that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible security when issued and also records the estimated fair value of any conversion feature issued with those securities. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved. The debt discount is amortized to interest expense over the life of the note using the effective interest method. The Company calculates the fair value of the conversion feature embedded in any convertible security using either a) the Black Scholes valuation model or b) a discount cash flow analysis tested for sensitivity to key Level 3 inputs using Monte Carlo simulation.
 
 

10
 

Debt Issuance Costs
 
Debt issuance costs are accounted for pursuant to FASB Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts.
 
Stock-Based Compensation
 
On June 30, 2017, the Company's shareholders approved a Stock Incentive Plan (the "Plan") under which restricted stock units ("RSUs") and other equity awards may be granted to employees and non-employee members of the Board of Directors. The number of shares of Class B Common Stock authorized for issuance under the Plan is 4,000,000 shares. The Company estimates the fair value of awards granted under the Plan on the date of grant. The fair value of an RSU is based on the average of the high and low market prices of the Company's Class B Common Stock on the date of grant and is recognized as an expense on a straight-line basis over its vesting period; to date, substantially all the RSUs issued vest over a three-year period utilizing the following vesting schedule: (i) 20% on the first anniversary of the grant date; (ii) 30% on the second anniversary of the grant date; and (iii) 50% on the third anniversary of the grant date.
 
Recent Pronouncements
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that the rights and obligations created by leases with a duration greater than 12 months be recorded as assets and liabilities on the balance sheet of the lessee. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has adopted this standard as of January 1, 2019 using the modified retrospective approach for all leases entered into before the effective date. The Company has also elected the option, as permitted in ASU 2018-11, Leases (Topic 842): Targeted Improvements, whereby initial application of the new lease standard would occur at the adoption date and a cumulative-effect adjustment, if any, would be recognized to the opening balance of retained earnings in the period of adoption. For comparability purposes, the Company will continue to comply with previous disclosure requirements in accordance with existing lease guidance for all periods presented in the year of adoption. The Company has elected the practical expedients permitted under the transition guidance which enabled the Company: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or existing contracts are or contain leases; and (3) not to reassess the treatment of initial direct costs for existing leases. In addition, the Company has made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. Upon adoption of this standard on January 1, 2019, the Company recognized a total operating lease liability in the amount of $3,118,038, representing the present value of the minimum rental payments remaining as of the adoption date and a right-of-use asset in the amount of $3,114,398.
 
Accounting Standards Issued But Not Yet Adopted
 
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. The Company is currently evaluating the impact on its condensed consolidated financial statements and plans to adopt this ASU for its fiscal year beginning January 1, 2020. Finance receivables originated in connection with the Company's vehicle sales are held for sale and are subsequently sold. The Company does not presently hold any finance receivables therefore does not expect adoption of ASU 2016-13 to have a material impact on its condensed consolidated financial statements.
 
NOTE 2 –ACCOUNTS RECEIVABLE, NET
 
Accounts receivable consists of the following as of:
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Trade
 $12,809,892 
 $8,264,045 
Finance
  143,779 
  148,378 
Other
  18,357 
  229,577 
 
  12,972,028 
  8,642,000 
Less: allowance for doubtful accounts
  201,664 
  176,190 
 
 $12,770,364 
 $8,465,810 
 
 

11
 
 
NOTE 3 – INVENTORY
 
Inventory consists of the following as of:
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Pre-owned vehicles:
 
 
 
 
 
 
Powersport vehicles
 $9,368,268 
 $9,783,093 
Automobiles and trucks
  59,081,279 
  43,081,136 
 
  68,449,547 
  52,864,229 
Less: Valuation allowance
  493,271 
  672,706 
 
 $67,956,276 
 $52,191,523 
 
NOTE 4 – ACQUISITION
 
On February 3, 2019, the Company completed the Autosport Acquisition pursuant to the Stock Purchase Agreement, by and among the Buyer, the Seller and Autosport. Aggregate consideration for the Autosport Acquisition consisted of (i) a closing cash payment of $600,000, plus (ii) the Promissory Note in favor of the Seller, plus (iii) the Convertible Note in favor of the Seller, plus (iv) contingent earn-out payments payable in the form of cash and/or the Company's Class B Common Stock for up to an additional $787,500 if Autosport achieves certain performance thresholds. In connection with the Autosport Acquisition, the Buyer also paid outstanding debt of Autosport of $235,000 and assumed debt of $257,933 pursuant to the Second Convertible Note. See Note 1 – Description of Business and Significant Accounting Policies for additional information on the Autosport Acquisition.
 
The preliminary allocation of the purchase price is based on the best information available to management. This allocation is provisional, as the Company is required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of February 3, 2019 that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The Company may adjust the preliminary purchase price allocation after obtaining additional information regarding asset valuation, liabilities assumed and revisions of previous estimates. The following table summarizes the preliminary allocation of the purchase price based on the estimated fair value of the acquired assets and assumed liabilities of Autosport as of June 30, 2019, including measurement period adjustments made during the three months ended June 30, 2019:
 
Purchase price consideration:
 
 
 
Cash
 $835,000 
 
    
$1,536,000 convertible note
  1,536,000 
$500,000 convertible note
  500,000 
$257,933 Promissory note
  257,933 
 
 $3,128,933 
 
    
Estimated fair value of assets:
    
Accounts receivable
  3,177,660 
Inventory
  2,862,004 
 
  6,039,664 
 
    
Estimated fair value of liabilities assumed:
    
Accounts payable and other
  5,858,601 
 
    
Excess of assets over liabilities
  181,063 
 
    
Goodwill
  2,947,870 
 
    
 
 $3,128,933 
 
Supplemental pro forma information
 
The results of operations of Autosport, Wholesale and Express since the acquisition date are included in the accompanying Condensed Consolidated Financial Statements.
 
 

12
 
 
The following supplemental pro forma information presents the financial results as if the acquisition of Autosport, Wholesale and Express was made as of January 1, 2018 for both the three and six-months ended June 30, 2019 and 2018.
 
Pro-forma adjustments for the three-month and six-month periods ended June 30, 2019 primarily include adjustments to reflect the: (i) amortization of stock compensation expense of $0 and $18,351, respectively, and (ii) interest expense on convertible and promissory notes of $0 and $20,174, respectively. Pro forma adjustments for the three-months and six-month periods ended June 30, 2018 primarily include adjustments to reflect the: (i) amortization of stock compensation expense of $206,940 and $610,107, respectively, and (ii) interest expense on convertible and promissory notes of $40,914 and $100,871, respectively.
 
 
 
Three-Months Ended June 30,
 
 
Six-Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Pro forma revenue
 $270,179,904
 $197,127,424
 $499,676,272
 $379,187,541
Pro forma net loss
 $(13,001,599)
 $(4,537,741)
 $(21,314,928)
 $(8,017,204
Loss per share - basic and fully diluted
 $(.58)
 $(.24)
 $(.98)
 $(.43
Weighted-average common shares and common stock equivalents outstanding basic and fully diluted
  22,236,175 
  18,630,722
  21,703,656
  18,591,762
 
NOTE 5– PROPERTY AND EQUIPMENT, NET
 
The following table summarizes property and equipment, net as of June 30, 2019 and December 31, 2018:
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Vehicles
 $326,506 
 $417,666 
Furniture and equipment
  474,546 
  474,546 
Technology development and software
  7,697,073 
  5,777,504 
Leasehold improvements
  160,389 
  136,386 
Total property and equipment
  8,658,514 
  6,806,102 
Less: accumulated depreciation and amortization
  2,411,348 
  1,628,225 
Property and equipment, net
 $6,247,166 
 $5,177,877 
 
Amortization and depreciation on Property and Equipment is determined on a straight-line basis over the estimated useful lives ranging from 3 to 5 years.
 
At June 30, 2019, capitalized technology development costs were $7,489,062, which includes $2,900,000 of software acquired in the NextGen transaction. Total technology development costs incurred for the three-month and six-month periods ended June 30, 2019 were $1,578,320 and $2,950,863, respectively, of which $1,039,740 and $1,919,569, respectively, was capitalized and $538,580 and $1,031,293, respectively, was charged to expense in the accompanying Condensed Consolidated Statements of Operations. The amortization of capitalized technology development costs for the three-month and six-month periods ended June 30, 2019 were $340,286 and $632,032, respectively. Depreciation on furniture and equipment for the three-month and six-month periods ended June 30, 2019 was $26,301 and $55,929, respectively. Total technology development costs incurred for the three-month and six-month periods ended June 30, 2018 were $643,589 and $1,112,897, respectively, of which $432,100 and $618,069, respectively, was capitalized and $211,489 and $494,828, respectively, was charged to expense in the accompanying Condensed Consolidated Statements of Operations. The amortization of capitalized technology development costs for the three-month and six-month periods ended June 30, 2018 was $185,071 and $358,831, respectively. Depreciation on furniture and equipment for the three-month and six-month periods ended June 30, 2018 was $32,756 and $64,764, respectively.
 
NOTE 6 – LEASES
 
As of June 30, 2019, the Company has entered into operating leases related to certain of its offices, facilities and equipment. The initial terms expire at various dates between 2019 and 2021. Many of the leases include renewal options ranging from one to ten years. The current portion of our operating lease liabilities as of June 30, 2019 are $859,877 and is included in accounts payable and accrued liabilities.
 
Operating lease expense is recognized on a straight-line basis over the lease term. Total operating lease expenses for the three-month and six-month periods ended June 30, 2019 was $371,941 and $609,197, respectively.
 
Supplemental cash flow information related to operating leases was as follows:
 
 
 
Six Months Ended
June 30,
2019
 
Cash payments for operating leases
 534,849
 
 
    
 
    
New right of use assets obtained in exchange for operating lease liabilities
 375,455
 
  
 

13
 

The following table summarizes the future minimum payments for operating leases at December 31, 2018 due in each year ending December 31,
 
2019
 799,388
 
2020
  953,965
 
2021
  616,286
 
thereafter
  - 
 
 2,369,639
 
 
NOTE 7 – ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
 
The following table summarizes accounts payable and other accrued liabilities as of June 30, 2019 and December 31, 2018:
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Accounts payable
 $7,987,721 
 $7,528,003 
Operating lease liability-current portion
  859,877 
  - 
Accrued payroll
  540,189 
  877,180 
State and local taxes
  377,623 
  1,073,649 
Other accrued expenses
  3,771,783 
  1,076,081 
 
 $13,537,193 
 $10,554,913 
 
NOTE 8 – NOTES PAYABLE
 
Notes payable consisted of the following as of June 30, 2019 and December 31, 2018:
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Notes payable-NextGen dated February 8, 2017. Interest is payable semi-annually at 6.5% through February 9, 2019 and 8.5% through maturity which is February 8, 2020.
 $1,333,334 
 $1,333,334 
 
    
    
Notes payable-private placement dated March 31, 2017. Interest is payable semi-annually at 6.5% through June 30, 2019 and 8.5% through maturity which is March 31, 2020. Unamortized debt discount of $212,776 and $334,998 as of June 30, 2019 and December 31, 2018, respectively.
  667,000 
  667,000 
 
    
    
Line of credit-floor plan dated February 16, 2018. Facility provides up to $25,000,000 of available credit secured by vehicle inventory and other assets. Interest rate at June 30, 2019 was 7.75%. Principal and interest are payable on demand.
  6,679,436 
  8,866,894 
 
    
    
Loan Agreement with Hercules Capital Inc. dated April 30, 2018 and as amended for tranche II on October 30, 2018. Tranche I- Interest only at 10.5% and is payable monthly through December 1, 2018. Principal and interest payments commence on June 1, 2019 through maturity which is May 1, 2021. Trance II-Interest payable monthly at 11.0%. Principal payable at maturity on October 1, 2021. Unamortized debt issuance costs at $1,547,412 December 31, 2018.
  - 
  10,857,500 
 
    
    
Line of credit-floor plan dated October 30, 2018. Secured by vehicle inventory and other assets. Interest rate at June 30, 2019 of 5.5%. Principal and interest are payable on demand.
  57,874,318 
  47,505,607 
 
    
    
Less: Debt discount
  (212,776)
  (1,882,410)
 
 $66,341,312 
 $67,347,925 
Current portion
  66,341,312 
  58,555,006 
Long-term portion
 $- 
 $8,792,919 
 
 

14
 

Line of Credit-NextGear
 
On October 30, 2018, Wholesale, as borrower, entered into a floorplan vehicle financing credit line (the "NextGear Credit Line") with NextGear. The available credit under the NextGear Credit Line is $70,000,000. Advances under the NextGear Credit Line will bear interest at an initial per annum rate of 5.25%, based upon a 360-day year, and compounded daily, and the per annum interest rate will vary based on a base rate, plus the contract rate, which is currently negative 2.0%, until the outstanding liabilities to NextGear are paid in full. Interest expense on the line of credit-floor plan for the three-month and six-month periods ended June 30, 2019 was $824,308 and $1,510,891, respectively.
 
Line of Credit-Ally
 
On February 16, 2018, the Company, through its wholly-owned subsidiary RMBL MO entered into an Inventory Financing and Security Agreement (the "Credit Facility") with Ally and Ally Financial, Inc., a Delaware corporation ("Ally" together with Ally Bank, the "Lender"), pursuant to which the Lender may provide up to $25 million in financing, or such lesser sum which may be advanced to or on behalf of RMBL MO from time to time, as part of its floorplan vehicle financing program. Advances under the Credit Facility require that the Company maintain 10.0% of the advance amount as restricted cash. Advances under the Credit Facility will bear interest at a per annum rate designated from time to time by the Lender and will be determined using a 365/360 simple interest method of calculation, unless expressly prohibited by law. Advances under the Credit Facility, if not demanded earlier, are due and payable for each vehicle financed under the Credit Facility as and when such vehicle is sold, leased, consigned, gifted, exchanged, transferred, or otherwise disposed of. Interest under the Credit Facility is due and payable upon demand, but, in general, in no event later than 60 days from the date of request for payment. Upon any event of default (including, without limitation, RMBL MO's obligation to pay upon demand any outstanding liabilities of the Credit Facility), the Lender may, at its option and without notice to the RMBL MO, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to Lender and its affiliates by RMBL MO and its affiliates. The Credit Facility is secured by a grant of a security interest in the vehicle inventory and other assets of RMBL MO and payment is guaranteed by the Company pursuant to a guaranty in favor of the Lender and secured by the Company pursuant to a General Security Agreement. Interest expense on the Credit Facility for the three-month and six-month periods ended June 30, 2019 was $136,223 and $293,600, respectively. Interest expense on the Credit Facility for the three-month and six-month periods ended June 30, 2018 was $3,517 and $9,600, respectively.
 
Loan Agreement-Hercules Capital Inc.
 
On May 14, 2019, the Company made a payment to Hercules Capital Inc. ("Hercules") of $11,134,696, representing the principal, accrued and unpaid interest, fees, costs and expenses outstanding under its Loan and Security Agreement (the "Loan Agreement") with Hercules dated April 30, 2018 (the "Hercules Indebtedness"). Upon the payment, all outstanding indebtedness and obligations of the Company owed to Hercules under the Loan Agreement were paid in full, and the Loan Agreement has been terminated. The Company used a portion of the net proceeds from the Note Offering (described below) to pay the Hercules Indebtedness. In accordance with the guidance in ASC 470-50, Debt, the Company accounted for the extinguishment of the Hercules Loan Agreement as an extinguishment and recognized a loss on early extinguishment of debt of $1,499,250 for the three and six-month periods ended June 30, 2019 in the Condensed Consolidated Statements of Operations. The loss on early extinguishment consisted primarily of the prepayment penalty paid to Hercules and unamortized debt discounts including the remaining portion of warrant values and debt issuance costs.
 
NOTE 9 – CONVERTIBLE NOTES
 
As of June 30, 2019, the outstanding convertible promissory notes net of debt discount and issue costs are summarized as follows:
 
 
 
Face Amount
 
 
Debt Discount
 
 
Carrying Amount
 
Convertible senior notes
 $30,000,000 
 $11,420,560 
 $18,579,440 
Convertible notes-Autosport
    
    
    
$1,536,000 unsecured note
  1,536,000 
  389,244 
  1,146,756 
$500,000 unsecured note
  500,000 
  14,855 
  485,145 
$257,933 unsecured note
  257,933 
  41,047 
  216,886 
 
  32,293,933 
 $11,865,706 
  20,428,227 
Less: Current portion
  (1,077,933)
 
  (1,077,933)
Long-term portion
 $31,216,000 
 
 $19,350,294 
 
 

15
 

Convertible Senior Notes
 
On May 9, 2019, the Company entered into a purchase agreement (the "Purchase Agreement") with JMP Securities LLC ("JMP Securities") to issue and sell $30.0 million in aggregate principal amount of its 6.75% Convertible Senior Notes due 2024 (the "Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Note Offering").  The Company paid JMP Securities a fee of 7% of the gross proceeds in the Note Offering. The net proceeds for the Note Offering were approximately $27.3 million.
 
The Notes were issued on May 14, 2019 pursuant to an Indenture (the "Indenture") by and between the Company and Wilmington Trust, National Association, as trustee. The Purchase Agreement includes customary representations, warranties and covenants by the Company and customary closing conditions. Under the terms of the Purchase Agreement, the Company has agreed to indemnify JMP Securities against certain liabilities. The Notes bear interest at 6.75% per annum, payable semiannually on May 1 and November 1 of each year, beginning on November 1, 2019. The Notes may bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting obligations under the Indenture or if the Notes are not freely tradeable as required by the Indenture. The Notes will mature on May 1, 2024, unless earlier converted, redeemed or repurchased pursuant to their terms.
 
The initial conversion rate of the Notes is 173.9130 shares of Class B Common Stock, per $1,000 principal amount of the Notes, subject to adjustment (which is equivalent to an initial conversion price of approximately $5.75 per share, subject to adjustment). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change.
 
The Notes are not redeemable by the Company prior to the May 6, 2022. The Company may redeem for cash all or any portion of the Notes, at its option, on or after May 6, 2022 if the last reported sale price of the Company's Class B Common Stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes. If redeemed, the Company will make an interest make-whole payment to the converting holder equal to the sum of the present values of the scheduled payments of interest that would have been made on the Notes to be converted had such Notes remained outstanding from the conversion date through the earlier of the date that is two years after the conversion date and June 15, 2022.
 
In connection with the Note Offering, the Company entered into a registration rights agreement with JMP Securities, pursuant to which the Company has agreed to file with the SEC an automatic shelf registration statement, if the Company is eligible to do so and has not already done so, and, if the Company is not eligible for an automatic shelf registration statement, then in lieu of the foregoing the Company shall file a shelf registration statement for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Notes pursuant to Rule 415 or any similar rule that may be adopted by the Commission, and use its commercially reasonable efforts to cause the shelf registration statement to become or be declared effective under the Securities Act on the day that is 120 days after May 9, 2019.
 
As of June 30, 2019, the conditions allowing holders of the Notes to convert have not been met and therefore the Notes are not yet convertible.
 
We account for the Notes in accordance with FASB ASC 470, Debt and ASC 815, Derivatives and Hedging, which required bifurcation of the liability and equity components. We determined the carrying amount of the liability component as the present value of its cash flows using an implied discount rate of 20.5%. The carrying amount of the equity component representing the conversion option was $8.5 million and was calculated by deducting the carrying value of the liability component from the principal amount of the Notes as a whole. This difference represents a debt discount that is amortized to interest expense over the term of the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. We further valued a derivative liability in connection with the interest make-whole provision at $1,330,000 at issuance based on a Monte-Carlo Simulation using a volatility of 85% and a risk free rate of 2.3%. This amount was recorded as a debt discount and is amortized to interest expense over the term of the Notes using the effective interest rate. The derivative liability is remeasured at each reporting date with the change in value of $190,000 being recorded in other income for the three-month and six-month periods ended June 30, 2019. The value of the derivative liability as of June 30, 2019 is $1,140,000.
 
 

16
 

We allocate transaction costs related to the issuance of the Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the debt component were $1,790,088 and are being amortized to interest expense using the effective interest method over the term of the Notes. Transaction costs attributable to the equity component were $754,375 as of June 30, 2019 and are netted with the equity component of the Notes in stockholders' equity. Transactions costs attributable to the derivative liability were $118,038 and were expensed during the three-month and six month periods ended June 30, 2019.
 
The interest expense recognized related to the Notes was as follows:
 
 
 
Three and Six-months
Ended June 30
 
(in thousands)
 
2019
 
 
2018
 
Contractual interest expense
 $292,500 
 $- 
Amortization of debt discounts
  199,528 
  - 
Total
 $492,028 
 $- 
 
Convertible Notes-Autosport USA
 
On February 3, 2019, in connection with the Autosport Acquisition, the Company issued (i) the Promissory Note, and (ii) the Convertible Note in favor of the Seller. In connection with the Autosport Acquisition, the Buyer also assumed additional debt of $257,933 pursuant to the Second Convertible Note.
 
The Promissory Note has a term of fifteen months and will accrue interest at a simple rate of 5% per annum. Interest under the Promissory Note is payable upon maturity. Any interest and principal due under the Promissory Note is convertible, at the Buyer's option into shares of the Company's Class B Common Stock at a conversion price equal to the weighted average trading price of the Company's Class B Common Stock on the Nasdaq Stock Exchange for the twenty (20) consecutive trading days preceding the conversion date. The number of shares of the Company's Class B Common Stock issuable pursuant to the Promissory Note is indeterminate at this time.
 
The Convertible Note has a term of three years and will accrue interest at a rate of 6.5% per annum. Interest under the Convertible Note is payable monthly for the first 12 months, and thereafter monthly payments of amortized principal and interest will be due. Any interest and principal due under the Convertible Note is convertible into shares of the Company's Class B Common Stock at a conversion price of $5.75 per share, (i) at the Seller's option, or (ii) at the Buyer's option, on any day that (a) any portion of the principal of the Convertible Note remains unpaid and (b) the weighted average trading price of the Company's Class B Common Stock on Nasdaq for the twenty (20) consecutive trading days preceding such day has exceeded $7.00 per share. The maximum number of shares issuable pursuant to the Convertible Note is 319,221 shares of the Company's Class B Common Stock.
 
The Second Convertible Note has a term of one year and will accrue interest at a simple rate of 5% per annum. Monthly payments of amortized principal and interest will be due under the Second Convertible Note. Any interest and principal due under the Second Convertible Note is convertible into shares of the Company's Class B Common Stock at a conversion price of $5.75 per share, (i) at the Seller's option, or (ii) at the Buyer's option, on any day that (a) any portion of the principal of the Second Convertible Note remains unpaid and (b) the weighted average trading price of the Company's Class B Common Stock on Nasdaq for the twenty (20) consecutive trading days preceding such day has exceeded $7.00 per share. The maximum number of shares issuable pursuant to the Second Convertible Note is 47,101 shares of the Company's Class B Common Stock.
 
NOTE 10 – STOCKHOLDERS' EQUITY
 
On January 9, 2017, the Company's Board of Directors approved, subject to stockholder approval, the adoption of the Plan. On June 30, 2017, the Plan was approved by the Company's stockholders at the 2017 Annual Meeting of Stockholders. Also, amendments to the Plan were approved by the Company's Board of Directors and stockholders during 2018 and 2019. The purposes of the Plan are to attract, retain, reward and motivate talented, motivated and loyal employees and other service providers ("Eligible Individuals") by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success of the Company, so as to strengthen the mutuality of the interests between such persons and the stockholders of the Company. The Plan allows the Company to grant a variety of stock-based and cash-based awards to Eligible Individuals. The number of shares of Class B Common Stock authorized under the Plan is 4,000,000 shares. As of June 30, 2019, there were 1,063,989 shares available for issuance under the Plan. As of June 30, 2019, the Company has granted 2,936,011 restricted stock units ("RSUs") under the Plan to certain officers and employees of the Company. The aggregate fair value of the RSUs, net of expected forfeitures was $13,284,838. The RSUs generally vest over a three-year period as follows: (i) 20% on the first anniversary of the grant date; (ii) 30% on the second anniversary of the grant date; and (iii) 50% on the third anniversary of the grant date. The fair value of the grant is amortized over the period from the grant date through the vesting dates. Forfeitures are based on the historic employee behavior under similar stock-based compensation plans. Compensation expense recognized for these grants for the three-month and six-month periods ended June 30, 2019 is $956,991 and $1,646,112, respectively. As of June 30, 2019, the Company has approximately $9,465,785 in unrecognized stock-based compensation, with an average remaining vesting period of 2.75 years. Compensation expense recognized for these grants for the three-month and six-month periods ended June 30, 2018 was $349,388 and $676,095, respectively.
 
 

17
 

On February 11, 2019, the Company completed an underwritten public offering of 1,276,500 shares of its Class B Common Stock at a price of $5.55 per share for net proceeds to the Company of approximately $6,543,655. The completed offering included 166,500 shares of Class B Common Stock issued upon the underwriter's exercise in full of its over-allotment option.
 
On May 9, 2019, the Company entered into a Securities Purchase Agreement with certain accredited investors (the "Investors") pursuant to which the Company agreed to sell in a private placement (the "Private Placement") an aggregate of 1,900,000 shares of its Class B Common Stock, at a purchase price of $5.00 per share. JMP Securities served as the placement agent for the Private Placement. The Company paid JMP Securities a fee of 7% of the gross proceeds in the Private Placement. The Private Placement closed on May 17, 2019. The net proceeds for the Private Placement were approximately $8.6 million.
 
NOTE 11 – SELLING, GENERAL AND ADMINISTRATIVE
 
The following table summarizes the detail of selling, general and administrative expense for the three-month and six-month periods ended June 30, 2019 and 2018:
 
 
 
Three-months Ended June 30
 
 
Six months Ended June 30
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Selling, General and Administrative:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and related costs
 $9,163,530 
 $1,530,427 
 $16,217,793 
 $2,930,903 
Advertising and marketing
  5,960,110 
  2,229,837 
  11,451,682 
  3,352,135 
Professional fees
  639,773 
  236,598 
  1,290,217 
  446,461 
Technology development
  538,580 
  211,489 
  1,031,293 
  494,828 
General and administrative
  8,705,572 
  1,337,158 
  15,456,596 
  2,201,674 
 
 $25,007,565 
 $5,545,509 
 $45,447,581 
 $9,426,001 
 
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
 
The following table includes supplemental cash flow information, including noncash investing and financing activity for the six-months ended June 30, 2019 and 2018:
 
 
 
Six-Months Ended June 30,
 
 
 
2019
 
 
2018
 
Cash paid for interest
 2,112,323
 
 $139,794 
 
    
    
Convertible notes payable issued in acquisition
 $2,293,933 
 $- 
 
NOTE 13 – INCOME TAXES
 
U.S. Tax Reform
 
On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act, or the Tax Act, was signed in to law. The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, requires taxpayers to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. On June 30, 2019, the Company did not have any foreign subsidiaries and the international aspects of the Tax Act are not applicable.
 
No current provision for Federal income taxes was required for the three-month and six-month periods ended June 30, 2019 and 2018 due to the Company's operating losses. At December 31, 2018, the Company had operating loss carryforwards of approximately $30,961,231, a portion of which begin to expire in 2033. We have provided a valuation allowance on the deferred tax assets of $8,112,626 for the periods ended December 31, 2018. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment.
 
 

18
 
 
NOTE 14 – LOSS PER SHARE
 
The Company computes basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighed-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, 2,936,011 of RSUs, 327,094 of warrants to purchase shares of Class B Common Stock and 5,217,390 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.
 
NOTE 15 – RELATED PARTY TRANSACTIONS
 
As of June 30, 2019, the Company had promissory notes of $370,556 and accrued interest of $7,853 due to an entity controlled by a director and to the director of the Company. The promissory notes were issued in connection with the completion of a private placement on March 31, 2017. Interest expense on the promissory notes for the three-month and six-month periods ended June 30, 2019 was $42,783 and $83,520, respectively, which included debt discount amortization of $34,930 and $67,901, respectively. Interest expense on the promissory notes for the three-month and six-month periods ended June 30, 2018 was $35,496 and $67,610, respectively, which included debt discount amortization of $27,730 and $53,904, respectively. The interest was charged to interest expense in the Consolidated Statements of Operations and included in accrued interest under long-term liabilities in the Consolidated Balance Sheets. For additional information, see Note 8 "Notes Payable."
 
NOTE 16 – COMMITMENTS AND CONTINGENCIES
 
Legal Matters
 
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. As of June 30, 2019 and December 31, 2018, we were not aware of any threatened or pending material litigation.
 
NOTE 17 – CONCENTRATIONS
 
The Company is dependent on third-party providers of wholesale vehicle auctions. The Company is dependent on their ability to provide services on a timely basis and at favorable pricing terms. The loss of these principal providers or a significant reduction in service availability could have a material adverse effect on the Company. The Company believes that its relationships with these providers are satisfactory.
 
NOTE 18 - SEGMENT REPORTING
 
Based on the way the Company manages its business, the Company has determined that it currently operates two reportable segments: 1) vehicle distribution and 2) vehicle logistics and transportation services. Our vehicle distribution segment consists of the distribution of powersports and automotive and is anchored on a proprietary supply chain and distribution software platform that is supported with our mobile-first web and application strategy. Our technology platform enables efficient preowned vehicle acquisition and distribution, which allows us to maximize inventory value and reduce inventory risk by penetrating the entire vehicle supply chain in a faster and more cost-efficient manner. Our agnostic acquisition approach creates instant liquidity for both consumers and dealers and provides increased control over our inventory, enabling us to adjust our inventory in response to unforeseen market dynamics while allowing us to make swift decisions to benefit sales volume and margins. Our vehicle logistics and transportation services were added on the Acquisition Date in connection with the Express Acquisition. Our vehicle logistics and transportation service segment provide nationwide automotive transportation services between dealerships and auctions. In the normal course of operations, our vehicle logistics and transportation services business provide transportation services to our vehicle distribution business, which is a related party. Billings for such services are based on negotiated rates, which approximates fair value, and are reflected as revenue of the billing segment. Revenue and cost of revenue for such services are eliminated in the condensed consolidated financial statements for the three-month and six-month periods ended June 30, 2019. Our Chief Executive Officer focuses on results in assessing operating performance and allocating resources for each of our segments. Furthermore, the Company offers similar products and services and uses similar processes to sell those products and services to similar classes of customers throughout the United States.
 
 

19
 

 
 
Vehicle Distribution
 
 
Vehicle Logistics and Transportation
 
 
Eliminations
 
 
Total
 
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 $159,944,256 
 $6,782,885 
 $(27,778,983)
 $138,948,158 
Revenue
 $264,162,016 
 $8,829,632 
 $(2,811,744)
 $270,179,904 
Operating income (loss)
 $(10,250,189)
 $432,698 
 $- 
 $(9,817,491)
Depreciation and amortization
 $425,587 
 $1,851 
 $- 
 $427,438 
Interest expense
 $1,874,710 
 $148 
 $- 
 $1,874,858 
 
    
    
    
    
Three Months Ended June 30, 2018
    
    
    
    
Total assets
 $17,388,610 
 $- 
 $- 
 $17,388,610 
Revenue
 $13,914,534 
 $- 
 $- 
 $13,914,534 
Operating income (loss)
 $(4,498,506)
 $- 
 $- 
 $(4,498,506)
Depreciation and amortization
 $217,827 
 $- 
 $- 
 $217,827 
Interest expense
 $237,820 
 $- 
 $- 
 $237,820 
 
    
    
    
    
Six Months Ended June 30, 2019
    
    
    
    
Total assets
 $159,944,256 
 $6,782,885 
 $(27,778,983)
 $138,948,158 
Revenue
 $481,998,363 
 $17,005,642 
 $(5,646,342)
 $493,357,663 
Operating income (loss)
 $(17,627,751)
 $979,088 
 $- 
 $(16,648,663)
Depreciation and amortization
 $805,960 
 $3,703 
 $- 
 $809,663 
Interest expense
 $3,319,843 
 $148 
 $- 
 $3,319,991 
 
    
    
    
    
Six Months Ended June 30, 2018
    
    
    
    
Total assets
 $17,388,610 
 $- 
 $- 
 $17,388,610 
Revenue
 $21,944,738 
 $- 
 $- 
 $21,944,738 
Operating income (loss)
 $(8,025,863)
 $- 
 $- 
 $(8,025,863)
Depreciation and amortization
 $423,595 
 $- 
 $- 
 $423,595 
Interest expense
 $324,340 
 $- 
 $- 
 $324,340 
 
 

20
 
 
Item 2.    
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The management's discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes included in this quarterly report.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
We are a technology driven, motor vehicle dealer and e-commerce platform provider disrupting the vehicle supply chain using innovative technology that aggregates, processes and distributes inventory in a faster and more cost-efficient manner.
 
We operate an infrastructure-light platform that facilitates the ability of all participants in the supply chain, including RumbleOn, other dealers and consumers to Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to transform the way VIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and transparent transaction experiences. While our initial customer facing emphasis through most of 2018 was on motorcycles and other powersports, we continue to enhance our platform to accommodate nearly any VIN-specific vehicle including motorcycles, ATVs, boats, RVs, cars and trucks, and via our acquisition of Wholesale, Inc. in October 2018, we are making a concerted effort to grow our cars and light truck categories.
 
Acquisition of Wholesale and Wholesale Express
 
On October 26, 2018, we entered into an Agreement and Plan of Merger (as amended, the "Merger Agreement") with our newly-formed acquisition subsidiary RMBL Tennessee, LLC, a Delaware limited liability company ("Merger Sub"), Wholesale Holdings, Inc., a Tennessee corporation ("Holdings"), Wholesale, Steven Brewster and Janelle Brewster (each a "Stockholder", and together the "Stockholders"), Steven Brewster, a Tennessee resident, as the representative of each Stockholder, and Marshall Chesrown and Steven R. Berrard, providing for the merger (the "Wholesale Merger") of Holdings with and into Merger Sub, with Merger Sub surviving the Wholesale Merger as our wholly-owned subsidiary. Also on October 26, 2018, we entered into a Membership Interest Purchase Agreement (the "Purchase Agreement"), with Steven Brewster and Justin Becker (together the "Express Sellers"), and Steven Brewster as representative of the Express Sellers, pursuant to which we acquired all of the membership interests (the "Express Acquisition") in Wholesale Express. On October 30, 2018 (the "Acquisition Date"), we completed the Wholesale Merger and Express Acquisition. Wholesale is one of the largest independent distributors of pre-owned vehicles in the United States and Wholesale Express is a related logistics company. The results of operations of Wholesale and Wholesale Express from the Acquisition Date to December 31, 2018 (the "Acquisition Period") are included in the Company's condensed consolidated financial statements for the year ended December 31, 2018. In this Management's Discussion and Analysis of Financial Condition and Results of Operations, no comparable information is discussed with respect to Wholesale and Wholesale Express for periods before the Acquisition Date.
 
Acquisition of Autosport
 
On February 3, 2019 (the "Closing Date"), the Company completed the acquisition (the "Autosport Acquisition") of all of the equity interests of Autosport USA, Inc. ("Autosport"), an independent pre-owned vehicle distributor, pursuant to a Stock Purchase Agreement, dated February 1, 2019 (the "Stock Purchase Agreement"), by and among RMBL Express, LLC (the "Buyer"), a wholly owned subsidiary of Company, Scott Bennie (the "Seller") and Autosport. Aggregate consideration for the Autosport Acquisition consisted of (i) a closing cash payment of $600,000, plus (ii) a fifteen-month $500,000 promissory note (the "Promissory Note") in favor of the Seller, plus (iii) a three-year $1,536,000 convertible promissory note (the "Convertible Note") in favor of the Seller, plus (iv) contingent earn-out payments payable in the form of cash and/or the Company's Class B Common Stock (the "Earn-Out Shares") for up to an additional $787,500 if Autosport achieves certain performance thresholds. In connection with the Autosport Acquisition, the Buyer also paid outstanding debt of Autosport of $235,000 and assumed additional debt of $257,933 pursuant to a promissory note payable to Seller (the "Second Convertible Note"). The results of operations of Autosport from the Acquisition Date to June 30, 2019 (the "Acquisition Period") are included in the Company's condensed consolidated financial statements for the six-months ended June 30, 2019. In this Management's Discussion and Analysis of Financial Condition and Results of Operations, no comparable information is discussed with respect to Autosport for periods before the Acquisition Date.
 
Segments
 
Business segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Each operation is measured through detailed budgeting and monitoring of contributions to consolidated income by each business segment. Based on the way the Company manages its business, the Company has determined that it currently operates two reportable segments: 1) vehicle distribution and 2) vehicle logistics and transportation services. Our vehicle distribution segment consists of the distribution of powersports and automotive and is anchored on a proprietary supply chain and distribution software platform that is supported with our mobile-first web and application strategy. Our technology platform enables efficient preowned vehicle acquisition and distribution, which allows us to maximize inventory value and reduce inventory risk by penetrating the entire vehicle supply chain in a faster and more cost-efficient manner. Our agnostic acquisition approach creates instant liquidity for both consumers and dealers and provides increased control over our inventory, enabling us to adjust our inventory in response to unforeseen market dynamics while allowing us to make swift decisions to benefit sales volume and margins. Our vehicle logistics and transportation services were added on the Acquisition Date in connection with the Express Acquisition. Our vehicle logistics and transportation service segment provide nationwide automotive transportation services between dealerships and auctions. Our Chief Executive Officer focuses on results in assessing operating performance and allocating resources for each of our segments. Furthermore, the Company offers similar products and services and uses similar processes to sell those products and services to similar classes of customers throughout the United States.
 
 

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For the three and six-months ended June 30, 2019, our vehicle distribution segment accounted for 97.8% and 97.7%, respectively, of our total revenue and approximately 89.8% and 89.2%, respectively, of our total gross profit and our vehicle logistics and transportation service segment accounted for approximately 2.2% and 2.3%, respectively, of our total revenue and approximately 10.2% and 10.8%, respectively, of our total gross profit.
 
Key Operation Metrics -Vehicle Distribution Segment (Powersports and Automotive)
 
We regularly review a number of metrics, to evaluate our business, measure our progress, and make strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our growth, including increasing brand awareness, maximizing the opportunity to source the purchase of low cost pre-owned vehicles from consumers and dealers while enhancing the selection of vehicles we make available to our customers. Our key operating metrics also demonstrate our ability to translate these drivers into sales and to monetize these retail sales through a variety of product offerings.
 
 
 
Three-Months Ended June 30,
 
 
Six-Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
  2018
 
Vehicles sold
  13,928 
  2,013 
  26,031 
  2,891 
Vehicle inventory available on website
  2,820 
  931 
  2,820 
  931 
Regional Partners
  14 
  12
  14 
  12
Average days to sale
  20 
  28 
  25 
  32 
Total vehicle revenue
 $264,162,016 
 $13,818,116 
 $481,998,363 
 $21,882,948 
 
Vehicles Sold
 
We define vehicles sold as the number of pre-owned vehicles sold to consumers and dealers in each period, net of returns under our various return policies. We view vehicles sold as a key measure of our growth for several reasons. First, vehicles sold is the primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple complementary revenue streams, including financing, vehicle service contracts and trade-ins. Second, growth in vehicles sold increases the base of available customers for referrals and repeat sales. Third, growth in vehicles sold is an indicator of our ability to successfully scale our logistics, fulfillment, and customer service operations.
 
Vehicle Inventory Available on Website
 
We define vehicle inventory available on website as the number of pre-owned vehicles listed for sale on our website on the last day of a given reporting period, including vehicles of our dealer partners. Until we reach an optimal pooled inventory level, we view pre-owned vehicle inventory available as a key measure of our growth. Growth in available pre-owned vehicle inventory increases the selection of pre-owned vehicles available to consumers and dealers on a nationwide basis, which we believe will allow us to increase the number of pre-owned vehicles we sell.
 
Regional Partners
 
Our operations are designed to be scalable by working through an infrastructure and capital light model that is achievable by virtue of a synergistic relationship with regional partners. We utilize these regional partners to provide inspection, reconditioning and distribution services. These regional partners earn incremental revenue and enhance profitability through fees from inspection, reconditioning and distribution programs. As regional partners are added throughout the U.S., the cost and time associated with distribution programs will be significantly reduced as the pickup and delivery of pre-owned vehicles will become more localized thus reducing shipping costs and the average days to sale for pre-owned vehicles.
 
Average Days to Sale
 
We define average days to sale as the average number of days between vehicle acquisition by us and delivery to a customer for all pre-owned vehicles sold in a period. However, this metric does not include any pre-owned vehicles that remain unsold at period end. We view average days to sale as a useful metric due to its impact on pre-owned vehicle average selling price. We anticipate that average days to sale will increase in future periods until we reach an optimal pooled inventory level and fully scale our acquisition and sales channel processes.
 
 

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Key Operations Metrics - Powersports
 
 
 
Three-Months Ended June 30,
 
 
Six-Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Key Operation Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
Vehicles sold
  3,982 
  2,013 
  7,280 
  2,891 
 
    
    
    
    
Total Powersports Revenue
 $30,305,687 
 $13,818,116 
 $57,234,846 
 $21,882,948 
Gross Profit
 $4,168,228 
 $1,168,412 
 $7,147,831 
 $1,711,943
Gross Profit per vehicle
 $1,047 
 $580 
 $982 
 $592
Gross Margin
  13.8%
  8.5%
  12.5%
  7.8%
Average selling price
 $7,611 
 $6,864 
 $7,862 
 $7,569
 
    
    
    
    
Consumer:
    
    
    
    
Vehicles sold
  298 
  144 
  581 
  226 
 
    
    
    
    
Total Consumer Revenue
 $2,778,099 
 $1,232,666 
 $4,925,121 
 $2,234,066 
Gross Profit
 $751,338 
 $266,541 
 $1,223,375 
 $427,629
Gross Profit per vehicle
 $2,521 
 $1,851 
 $2,106 
 $1,892
Gross Margin
  27.0%
  21.6%
  24.8%
  19.1%
Average selling price
 $9,322 
 $8,560 
 $8,477 
 $9,885
 
    
    
    
    
Dealer:
    
    
    
    
Vehicles sold
  3,684 
  1,869 
  6,699 
  2,665 
 
    
    
    
    
Total Dealer Revenue
 $27,527,588