S-1/A 1 fs12019a8_lmpautomotive.htm REGISTRATION STATEMENT

As filed with the Securities and Exchange Commission on December 3, 2019

Registration No. 333-232172

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________________

AMENDMENT NO. 8
To
Form S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

___________________________________________

LMP Automotive Holdings, Inc.

(Exact name of Registrant as specified in its charter)

___________________________________________

Delaware

 

5500

 

82-3829328

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(IRS Employer
Identification No.)

601 N. State Road 7

Plantation, FL 33317

(954) 895-0352

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

_________________________

Samer Tawfik

President, Chief Executive Officer and Chairman

601 N. State Road 7

Plantation, FL 33317

(954) 895-0352

(Name, address, including zip code, and telephone number, including area code, of agent for service)

_________________________

Please send copies of all communications to:

David C. Rose, Esq.

M. Ali Panjwani, Esq.

Pryor Cashman LLP

7 Times Square

New York, New York 10036

(212) 421-4100

 

Stephen E. Older, Esq.

Rakesh Gopalan, Esq.

McGuireWoods LLP

1251 Avenue of the Americas, 20th Floor

New York, New York 10020

(212) 548-2100

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

_________________________

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: S

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the 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    S

   

Emerging growth company    S

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 7(a)(2)(B) of the Securities Act. £

 

CALCULATION OF REGISTRATION FEE

Title of Securities to be Registered

 

Amount
to Be
Registered
(1)

 

Proposed
Maximum
Offering
Price per
Share

 

Proposed
Maximum
Aggregate
Offering
Price
(1)

 

Amount of
Registration
Fee

Common Stock, par value $0.00001 per share(2)

 

2,404,545

 

$

6.00

 

$

14,427,270

 

$

1,872.66

 

Representative Warrants

 

 

$

 

$

 

$

 

Common Stock underlying Representative Warrants(3)

 

104,545

 

$

7.50

 

$

784,087.50

 

$

101.77

 

Total

 

2,509,090

 

$

 

 

$

15,211,357.50

 

$

1,974.43

(4)

____________

(1)      Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933.

(2)      In accordance with Rule 416(a), the Registrant is also registering an indeterminate number of additional shares of common stock that shall be issuable pursuant to Rule 416 to prevent dilution resulting from share splits, share dividends or similar transactions. Includes up to 313,636 shares of common stock, subject to the underwriters’ over-allotment option.

(3)      We have agreed to issue to the representative of the several underwriters warrants to purchase the number of shares of common stock (the “Representative Warrants”) in the aggregate equal to five percent (5%) of the shares of our common stock to be issued and sold in this offering (excluding shares issuable upon exercise of the over-allotment option described herein). The Representative Warrants are exercisable for a price per share equal to 125% of the public offering price.

(4)      All of which has been previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

 

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION

 

DATED DECEMBER 3, 2019

2,090,909 Shares

Common Stock

LMP Automotive Holdings, Inc.

This is the initial public offering of our common stock. We are offering 2,090,909 shares, par value $0.00001 per share, of our common stock. We currently estimate that the initial public offering price will be between $5.00 and $6.00 per share of common stock.

Currently, no public market exists for our common stock. We have applied to list our common stock on the Nasdaq Capital Market, or Nasdaq, under the symbol “LMPX,” subject to our raising a minimum of $11,500,000 in this offering to meet Nasdaq’s requirement that we have at least $15,000,000 in unrestricted publicly held shares following the closing, as our current non-affiliate shareholders hold at least $3,500,000 in unrestricted shares. Accordingly, while the estimates set forth above represent our bona fide estimate of the range of public offering price per share and number of shares to be issued, consistent with the requirements of the Securities and Exchange Commission and Nasdaq, we may ultimately issue more shares at a lower price or fewer shares at a greater price to achieve such minimum value of unrestricted publicly held shares. We will not consummate the offering unless such minimum value will be achieved and until we receive approval from Nasdaq to list our common stock.

We are an “emerging growth company”, as that term is used in the Jumpstart Our Business Startups Act of 2012, and as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — JOBS Act” and “Risk Factors — Risks Related to this Offering and Ownership of Our Common Stock.”

Investing in our common stock is highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 8 of this prospectus for a discussion of information that should be considered before making a decision to purchase our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Per Share

 

Offering
without
Over-Allotment
Option

 

Offering with
Over-Allotment
Option

Public offering price

 

$

        

 

$

        

 

$

        

Underwriters’ discount and commissions(1)

 

$

        

 

$

        

 

$

        

Proceeds to us, before expenses

 

$

        

 

$

        

 

$

        

____________

(1)      Does not include additional compensation payable to ThinkEquity, a division of Fordham Financial Management, Inc., or the underwriters. We have agreed to reimburse the underwriters for certain expenses incurred relating to this offering. In addition, we will issue to the representative a warrant to purchase the number of shares of our common stock equal to five percent (5%) of the number of shares issued at the initial closing of this offering. The registration statement of which this prospectus forms a part also registers the issuance of the shares of common stock issuable upon exercise of the representative’s warrant.

Samer Tawfik, our founder, Chairman, President and Chief Executive Officer, has indicated an interest in purchasing $1,375,000 of shares of common stock in this offering, and up to an additional $1,375,000 of shares of common stock in connection with an exercise of the underwriters’ over-allotment option, for a total indication of up to $2,750,000 at the offering price to the public and on the same terms and conditions as other investors. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell or not sell shares to Mr. Tawfik, and Mr. Tawfik could determine to purchase or not purchase shares in this offering.

This offering is being underwritten on a firm commitment basis. We have granted the underwriters an option for a period of 45 days from the date of this prospectus to purchase up to an additional 313,636 shares of our common stock at the public offering price less the underwriting discount and commissions, or the over-allotment option.

The delivery of the shares of common stock is expected to be made on or about             , 2019.

ThinkEquity

a division of Fordham Financial Management, Inc.

The date of this prospectus is             , 2019

 

 

 

 

i

Please read this prospectus carefully. It describes our business, financial condition, results of operations and prospects, among other things. We are responsible for the information contained in this prospectus and in any free-writing prospectus we have authorized. Neither we nor the underwriters have authorized anyone to provide you with different information, and neither we nor the underwriters take responsibility for any other information others may give you. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

TRADEMARKS AND COPYRIGHTS

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the services that we offer. This prospectus may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectus are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks, service marks and trade names are the property of their respective owners.

ii

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in our common stock. You should carefully read the entire prospectus, including the risks associated with an investment in the Company discussed in the “Risk Factors” section of this prospectus, before making an investment decision. Some of the statements in this prospectus are forward-looking statements. See the section titled “Cautionary Statement Regarding Forward-Looking Statements.”

In this prospectus, “we,” “us,” “our,” “the Company” and similar references refer to LMP Automotive Holdings, Inc. and, unless otherwise stated, all of its subsidiaries.

Our Mission

Our goal is to provide an e-commerce and facilities-based retail platform for consumers who desire to buy, sell, rent, subscribe for or finance pre-owned and new automobiles. We seek to provide our customers with a simple, convenient, flexible, transparent and pleasant retail experience. In addition to our current operations launched in 2017, we intend to seek strategic acquisitions of pre-owned and new automobile dealerships and vehicle rental companies in order to facilitate efficient growth.

Our Current Business

LMP, through its wholly owned subsidiaries, currently offers our customers the opportunity to buy, sell, rent and subscribe for, and obtain financing for automobiles both online and in person.

We describe our business model as “Buy, Rent or Subscribe, Sell and Repeat.” This means that we “Buy” pre-owned automobiles primarily through auctions or directly from other automobile dealers, and new automobiles from manufacturers and manufacturer distributors at fleet rates. We “Rent or Subscribe” by either renting automobiles to our customers or allowing them to enter into our subscription plan for automobiles in which customers have use of an automobile for a minimum of thirty (30) days. We “Sell” our inventory, including automobiles previously included in our rental and subscription programs, to customers, and then we hope to “Repeat” the whole process.

We believe we offer a stress-free and user-friendly experience, either directly or through arrangements with third parties, that enables consumers to efficiently:

 

Browse and purchase a vehicle

 

 

Subscribe for a vehicle

 

Rent a vehicle

 

 

Sell or trade-in vehicle

 

Obtain pre-approval for financing (through third parties)

 

 

Buy extended warranties (through third parties)

 

Schedule deliveries and pick-ups (typically through third parties)

       

Our platform is designed to streamline the automobile transaction value chain by digitizing a substantial part of the sales and transaction process. We believe this will enhance the consumer experience by creating operational efficiencies that are designed to improve our financial and business performance. We also intend to centralize sales, title, tag, finance, insurance and logistics operations, in order to create additional financial and operational benefits, as well as a positive

1

consumer experience. We believe that bringing more of the vehicle shopping and transaction experience online will provide consumers with a broader range of purchase, rental and subscription options while eliminating time spent in negotiation and haggling.

We commenced our operations in the first quarter of 2017. Currently, we only offer sales of pre-owned automobiles, and rentals and subscriptions for both pre-owned and new automobiles. As of July 24, 2019, our inventory consisted of 215 automobiles in total. Of those, 128 were subscribed and in use by customers, 20 were out on rent in use by customers, 40 were on premise and available for subscription and rental consumers and 27 were held for sale on premise. Our current facility is approximately 8,771 square feet on 1.25 acres of land. Our facility contains storage for ten vehicles on the interior and up to 90 on the exterior. We believe over 90% of our fleet will be rented and subscribed and in use by customers and we can facilitate over 1,000 subscribers using our current facility.

Our Risks

An investment in our common stock involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the “Risk Factors” section immediately following this Prospectus Summary. These risks include, but are not limited to, the following:

•        Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.

•        We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

•        We intend to acquire other companies and/or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

•        We expect that we will require additional debt and equity capital to pursue our business objectives and respond to business opportunities, challenges and/or unforeseen circumstances. If such capital is not available to us, or is not available on favorable terms, our business, operating results and financial condition may be harmed.

•        Our business is subject to risks related to the larger automotive ecosystem, including consumer demand, global supply chain challenges and other macroeconomic issues.

Implications of Being an “Emerging Growth Company”

As a public reporting company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups (JOBS) Act. An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:

•        are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

•        are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);

•        are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);

•        are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;

•        may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations, or MD&A; and

2

•        are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

Certain of these reduced reporting requirements and exemptions are also available to us due to the fact that we also qualify as a “smaller reporting company” under the SEC’s rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, or the Securities Act, or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period. Furthermore, under current Commission rules, we will continue to qualify as a “smaller reporting company” for so long as we have (i) a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter or (ii) (A) if we have no public float or a public float of less than $700 million and (B) annual revenues of less than $100 million during our most recently completed fiscal year.

Reorganization and Securities Issuances

The Company was incorporated under the laws of Delaware in December 2017. Samer Tawfik, our founder, Chairman, President and Chief Executive Officer, contributed one hundred percent (100%) of the equity interests in each of LMP Motors.com, LLC and LMP Finance, LLC to the Company in December 2017, and in January 2018, 601 NSR, LLC and LMP Automotive Holdings, LLC made the Company their sole member. We refer to these transactions as the reorganization. As a result of the reorganization, the Company now owns one hundred percent (100%) of the equity in each of these four entities. LMP Motors.com, LLC currently operates our automobile sales business. LMP Finance, LLC currently operates our rental and subscription business. 601 NSR, LLC and LMP Automotive Holdings, LLC were formed to enter into future potential strategic acquisitions, but are currently inactive. As a result of the reorganization, Mr. Tawfik was issued 15,750,000 shares of common stock and ST RXR Investments, LLC, or ST RXR, a company wholly owned and controlled by Mr. Tawfik, was issued 5,250,000 shares of common stock.

In February 2018, we completed an offering exempt from the registration requirements of the Securities Act, or a private placement offering, pursuant to which we sold 2,858,030 shares of our common stock, at a purchase price of $3.33 per share, for an aggregate purchase price of $9,517,239.

From June 2018 through October 2018, we sold an aggregate of 787,264 shares of our common stock, in a private placement offering, at a purchase price of $4.75 per share, for an aggregate purchase price of $3,739,505.

During the second and third quarters of 2018, we issued convertible promissory notes in an aggregate principal amount of $1,448,965, or the 6-month notes, pursuant to a private placement offering. The 6-month notes bear interest at 4% per annum and mature six (6) months from the date of issuance, at which time the principal and any accrued but unpaid interest shall be due and payable. The holders of the 6-month notes may, at any time prior to the maturity date, convert the 6-month notes (and accrued interest) into shares of our common stock by dividing (a) the outstanding principal balance and unpaid accrued interest under the applicable 6-month note on the date of conversion by (b) $4.75 (subject to adjustment as provided in the 6-month notes). Based on the terms of the conversion rights, we did not recognize a beneficial conversion discount.

3

During the fourth quarter of 2018, we repaid one of the 6-month notes in the principal amount of approximately $285,015, leaving a balance on the remaining 6-month notes of approximately $1,164,000, plus accrued interest, at December 31, 2018.

During the six months ended June 30, 2019, we repaid eight of the 6-month notes in the principal amount of $962,000, leaving a balance of $201,950, plus accrued interest.

During the second quarter of 2019, we extended certain of the 6-month notes that became due. Two of the 6-month notes in the amount of approximately $45,000 were extended to August 14, 2019, two in the amount of approximately $135,950 were extended to September 17, 2019, and another one in the amount of approximately $21,000 was extended to December 15, 2019.

The total outstanding principal balance on the remaining 6-month notes as of September 30, 2019 was $201,950, plus accrued interest.

Company and Other Information

Our Company was incorporated in the State of Delaware in December 2017. Our principal executive office is located at 601 N. State Road 7, Plantation FL, 33317. Our telephone number is (954) 895-0352. Our main Internet address is www.lmpmotors.com. We do not incorporate the information on or accessible through our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website as a part of this prospectus.

4

The Offering

Shares being offered:

 

2,090,909 shares of common stock.(1)

Number of shares of common stock outstanding after this offering(2):

 



8,092,548 shares of common stock (8,406,184 shares of common stock, if the underwriters exercise the over-allotment option in full).

Gross proceeds to us, net of underwriting discount but before expenses:

 



$10,580,000 ($12,184,248), assuming that the underwriters exercise the over-allotment option in full), based on an assumed public offering price of $5.50 per share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus.

Use of Proceeds:

 

We plan to use the net proceeds of this offering primarily for our strategic acquisitions, to build our vehicle inventory, for working capital and other general corporate purposes. For more information on the anticipated use of proceeds of this offering, see “Use of Proceeds” on page 31 of this prospectus.

Lock-up

 

We, all of our directors and officers and substantially all of our shareholders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common stock or securities convertible into or exercisable or exchangeable for our common stock for a period of 180 days after the date of the final closing of this offering. See “Shares Eligible for Future Sale” and “Underwriting” for more information.

Proposed NASDAQ Symbol:

 

LMPX

Representative’s Warrants:

 

We have agreed to issue to the representative a warrant to purchase a number of shares of common stock equal to 5% of the total number of shares issued at the initial closing of this offering. The representative’s warrant will be exercisable at a per share exercise price equal to 125% of the public offering price per share of common stock sold in this offering. The representative’s warrant is exercisable at any time and from time to time, in whole or in part, during the four-and-a-half-year period commencing six months after the effective date of the registration statement of which this prospectus forms a part. The registration statement of which this prospectus forms a part also registers the issuance of the shares of common stock issuable upon exercise of the representative’s warrant. See “Underwriting” for more information.

Risk factors:

 

Investing in our common stock involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 8.

____________

(1)      In addition, the underwriters have been granted an over-allotment option pursuant to which they may purchase an additional 313,636 shares of common stock.

(2)      The number of shares of common stock outstanding immediately following this offering is based on 6,001,639 shares outstanding as of November 11, 2019 and excludes:

•        1,500,000 shares of common stock reserved for issuance under our 2018 Equity Incentive Plan;

•        380,500 shares of common stock issuable upon the exercise of options (of which 237,584 have vested) at a weighted average exercise price of $4.27 as of September 30, 2019;

•        Up to 104,545 shares of common stock issuable upon exercise of the representative’s warrants issued in connection with this offering; and

•        Approximately 44,360 shares of common stock that may be issued by us upon conversion of the 6-month note (assuming no interest is paid on the 6-month notes) as of September 30, 2019.

5

In addition, unless we specifically state otherwise, the information in this prospectus assumes:

•        an initial public offering price of $5.50 per share, the midpoint of the estimated offering range set forth on the cover page of this prospectus.

Samer Tawfik, our founder, Chairman, President and Chief Executive Officer, has indicated an interest in purchasing $1,375,000 of shares of common stock in this offering, and up to an additional $1,375,000 of shares of common stock in connection with an exercise of the underwriters’ over-allotment option, for a total indication of up to $2,750,000, at the offering price to the public and on the same terms and conditions as other investors. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell or not sell shares to Mr. Tawfik, and Mr. Tawfik could determine to purchase or not purchase shares in this offering.

6

SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables present the summary historical consolidated financial and other data for LMP Automotive Holdings, Inc. The summary consolidated statement of operations data for the years ended December 31, 2018 and 2017 and the summary balance sheet data at December 31, 2018 and 2017 were derived from the audited consolidated financial statements of LMP Automotive Holdings, Inc. included elsewhere in this prospectus. The summary consolidated statement of operations data for the nine months ended September 30, 2019 and 2018 and the summary balance sheet data at September 30, 2019 were derived from the unaudited consolidated interim financial statements of LMP Automotive Holdings, Inc. included elsewhere in this prospectus. The unaudited consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of the financial information set forth in those statements. The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results that may be expected for a full year. The following summary consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes of LMP Automotive Holdings, Inc. included elsewhere in this prospectus.

 

Nine Months Ended
September 30,

 

Year Ended
December 31,

   

2019

 

2018

 

2018

 

2017

   

(unaudited)

       

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

$

7,826,114

 

 

$

10,847,981

 

 

$

16,610,786

 

 

$

3,759,031

 

Gross loss

 

 

(394,900

)

 

 

(923,401

)

 

 

(1,956,989

)

 

 

(235,048

)

Total cost of revenues

 

 

8,221,014

 

 

 

11,771,382

 

 

 

18,567,775

 

 

 

3,994,079

 

Loss from operations

 

 

(3,446,252

)

 

 

(3,571,087

)

 

 

(6,458,916

)

 

 

(1,409,306

)

Other expenses

 

 

(11,404

)

 

 

(16,768

)

 

 

31,377

 

 

 

14,356

 

Net loss

 

 

(3,457,656

)

 

 

(3,587,855

)

 

 

(6,490,293

)

 

 

(1,423,662

)

 

September 30,
2019

 

As of December 31,

2018

 

2017

   

(unaudited)

       

Balance Sheet Data:

 

 

   

 

   

 

 

Cash

 

$

2,073,672

 

$

424,152

 

$

217,360

Accounts receivable

 

 

118,399

 

 

286,982

 

 

85,851

Automobile inventory, net

 

 

8,147,676

 

 

11,558,160

 

 

3,696,802

Other current assets

 

 

291,438

 

 

380,712

 

 

71,000

Total current assets

 

 

10,631,185

 

 

12,650,006

 

 

4,071,013

Property, equipment and leasehold improvements, net

 

 

484,578

 

 

539,475

 

 

185,659

Intangible assets

 

 

68,297

 

 

39,997

 

 

0

Deferred offering costs

 

 

1,258,316

 

 

987,094

 

 

0

Right-of-use asset

 

 

1,183,272

 

 

0

 

 

0

Total assets

 

 

13,625,648

 

 

14,216,571

 

 

4,256,672

   

 

   

 

   

 

 

Total current liabilities

 

 

7,065,576

 

 

4,462,474

 

 

1,724,465

Total liabilities

 

 

7,945,830

 

 

4,462,474

 

 

1,724,465

Total shareholders’ equity

 

 

5,679,818

 

 

9,754,097

 

 

2,532,207

Total liabilities and shareholders’ equity

 

 

13,625,648

 

 

14,216,571

 

 

4,256,672

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this prospectus, before purchasing our common stock. We have listed below (not necessarily in order of importance of probability of occurrence) what we believe to be the most significant risk factors applicable to us, but they do not constitute all of the risks that may be applicable to us. Any of the following factors could harm our business, financial condition, results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section titled “Cautionary Statement Regarding Forward-Looking Statements”.

Risks Related to Our Business

Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.

We are a recently formed holding company with a limited operating history. The Company was incorporated under the laws of Delaware in December 2017. Samer Tawfik, our founder, Chairman, President and Chief Executive Officer, contributed one hundred percent (100%) of the equity interests in each of LMP Motors.com, LLC and LMP Finance, LLC into the Company in December 2017, and in January 2018, 601 NSR, LLC and LMP Automotive Holdings, LLC made the Company their sole member. Currently, LMP Motors.com, LLC, which operates our automobile sales business, and LMP Finance, LLC, which operates our rental and subscription business, are the only subsidiaries that generate revenues. 601 NSR, LLC and LMP Automotive Holdings, LLC were formed to enter into future potential strategic acquisitions, but are currently inactive. Because of the uncertainties related to our limited historical operations, including the limited historical operations of LMP Motors.com, LLC, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in revenues or expenses, which may materially and adversely affect our business, financial condition, results of operations and the value of an investment in our common stock.

We have a history of net losses.

We expect to continue to incur losses at least in the near term as we invest in and strive to grow our business. We may incur significant losses in the future for a number of reasons, including a decrease in demand for automobiles and our related products and services, losses associated with our strategic acquisitions, increased competition, weakness in the automotive industry generally, as well as other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications and delays in generating revenue or profitability. If our revenues decrease, we may not be able to reduce costs in a timely manner because many of our costs are fixed at least, in the short term. In addition, if we reduce variable costs to respond to losses, this may limit our ability to acquire customers and grow our revenues. Accordingly, we may not achieve or maintain profitability and we may continue to incur significant losses in the future, which may materially and adversely affect our business, financial condition, results of operations and the value of an investment in our common stock.

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

We believe our initial success has depended, and continues to depend, on the efforts and talents of our executives and employees. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of our key employees or senior management, including our founder, Chairman, President and Chief Executive Officer, Samer Tawfik, could have a materially adverse effect on our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We may not be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially and adversely affected.

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We intend to acquire other companies and/or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

Our success will depend, in part, on our ability to grow our business in response to the demands of consumers and other constituents within the automotive industry, as well as our ability to respond to competitive pressures. Part of our strategy is to do so through the strategic acquisition of complementary businesses, such as independent and franchised dealerships and vehicle rental companies clustered in key metropolitan areas, and technologies, in addition to our own internal development efforts. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:

•        diversion of management time and focus from operating our business to addressing acquisition integration challenges;

•        coordination of technology, research and development, and sales and marketing functions;

•        transition of the acquired company’s users to our website and mobile applications;

•        retention of employees from the acquired company;

•        cultural challenges associated with integrating employees from the acquired company into our organization;

•        integration of the acquired company’s accounting, management information, human resources and other administrative systems;

•        the need to implement or improve controls, policies and procedures at a business that, prior to the acquisition, may have lacked effective controls, policies and procedures;

•        potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results;

•        liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and

•        litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former stockholders, or other third parties.

Our failure to address these risks or other problems encountered in connection with our planned acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and otherwise harm our business. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, or the write-off of goodwill, any of which could harm our financial condition. Also, the anticipated benefits of any acquisitions may not materialize. Any of these risks, if realized, could materially and adversely affect our business and results of operations.

We expect that we will require additional capital to pursue our business objectives and respond to business opportunities, challenges and/or unforeseen circumstances. If such capital is not available to us, or is not available on favorable terms, our business, operating results and financial condition may be harmed.

While we intend to use the proceeds from this offering for our strategic acquisitions, to build our vehicle inventory, for working capital and other general corporate purposes, we expect that we will require additional capital to pursue our business objectives and respond to business opportunities, challenges and/or unforeseen circumstances, including to increase our marketing expenditures in order to improve our brand awareness, build and maintain our inventory of quality pre-owned vehicles, develop new products or services or further improve existing services, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity, debt or other types of financings to secure additional funds. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. In addition, any debt financing that we secure in the future could involve restrictive covenants which may make it more difficult for us to obtain additional capital and to pursue business opportunities.

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Volatility in the credit markets may also have an adverse effect on our ability to obtain debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition and prospects could be adversely affected.

Our business is subject to risks related to the larger automotive ecosystem, including consumer demand, global supply chain challenges and other macroeconomic issues.

Decreases in consumer demand could adversely affect the market for vehicle purchases and, as a result, reduce the number of consumers using our platform. Consumer purchases of vehicles generally decline during recessionary periods and other periods in which disposable income is adversely affected. Purchases of vehicles are typically discretionary for consumers and have been, and may continue to be, affected by negative trends in the economy and other factors, including rising interest rates, the cost of energy and gasoline, the availability and cost of credit, reductions in business and consumer confidence, stock market volatility, increased regulation and increased unemployment. Increased environmental regulation has made, and may in the future make, used vehicles more expensive and less desirable for consumers. In addition, our business may be negatively affected by challenges to the larger automotive ecosystem, including urbanization, global supply chain challenges and other macroeconomic issues. For example, vehicle rideshare services, such as Uber, Juno, Lyft, and Via, vehicle sharing, and other services that allow people to supplement transit trips and share vehicles are becoming increasingly popular as a means of transportation and may decrease consumer demand for the pre-owned vehicles we sell, particularly as urbanization increases. Additionally, new technologies such as autonomous or self-driving vehicles have the potential to change the dynamics of vehicle ownership in the future. Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

We participate in a highly competitive industry, and pressure from existing and new companies may adversely affect our business and operating results.

We face significant competition from existing and new companies that provide, among other things, automobile listings, information, lead generation, and vehicle buying, rental and subscription services.

Our current and future competitors may include:

•        traditional automotive dealerships that could increase investment in technology and infrastructure to compete directly with our online platform;

•        Internet and online automotive sites that could change their models to directly compete with us, such as Google, Amazon, AutoTrader.com, eBay Motors, Edmunds.com, KBB.com, Autobytel.com, TrueCar.com and Cars.com;

•        providers of offline, membership-based vehicle buying services such as the Costco Auto Program;

•        used vehicle dealers or marketplaces with e-commerce business or online platforms such as Carvana, Vroom and Shift;

•        national rental car companies such as Sixt Rent A Car, Hertz, Avis, Budget and Enterprise, as well as local and regional car rental services;

•        vehicle subscription services, and other pay-as-you-go services, such as ZipCar and Flexdrive, and similar services offered by large automobile manufacturers such as Volvo and BMW;

•        other automobile manufacturers that could change their sales models through technology and infrastructure investment; and

•        Peer-to-peer ride-sharing companies.

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We also expect that new competitors will continue to enter the online and traditional automotive retail, rental and subscription market with competing brands, business models, products and services, which could have an adverse effect on our revenue, business and financial results. Some of these companies have significantly greater resources than we do and may be able to provide consumers access to a greater inventory of vehicles at lower prices while delivering a competitive online experience.

Our current and potential competitors may also develop and market new technologies that may adversely affect our business and operating results.

Our current and potential competitors may also develop and market new technologies that render our existing or future business model, products and services less competitive, unmarketable or obsolete. For example, manufacturers are beginning to develop automated, driverless vehicles that could eventually reduce the demand for, or replace, traditional vehicles, including the vehicles that we currently sell. Additionally, vehicle rideshare services, such as Uber, Juno, Lyft, and Via, vehicle sharing, and other services that allow people to supplement transit trips and share vehicles, are becoming increasingly popular as a means of transportation and may decrease consumer demand for vehicle ownership. In addition, if our competitors develop business models, products or services with similar or superior functionality to our solutions, it may adversely impact our business.

Our competitors may also impede our ability to reach consumers or commence operations in certain jurisdictions. For example, our competitors may increase their search engine optimization efforts and outbid us for search terms on various search engines. Additionally, our competitors could use their political influence and increase lobbying efforts resulting in new regulations or interpretations of existing regulations that could prevent us from operating in certain jurisdictions.

Our current and potential competitors may have significantly greater resources than we do.

Our current and potential competitors may have significantly greater financial, technical, marketing and other resources than we have, and the ability to devote greater resources to the development, promotion and support of their business. Additionally, they may have more extensive automotive industry relationships, longer operating histories and greater name recognition than we have. As a result, these competitors may be able to respond to changes in the automotive industry more quickly with new technologies and undertake more extensive marketing or promotional campaigns. If we are unable to compete with these companies, the demand for our automobiles, products and services could substantially decline.

In addition, if one or more of our competitors were to merge or partner with another one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our current or future providers and suppliers, or other parties with whom we have relationships, thereby limiting our ability to develop, improve and grow our business. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our revenue, business and financial results.

Our business is dependent upon access to a desirable vehicle inventory. Obstacles to acquiring attractive inventory, whether because of supply, competition, or other factors, may have a material adverse effect on our business, sales and results of operations.

Our business requires that we have access to a large number of quality vehicles. We acquire vehicles for sale through numerous sources, including wholesale auction, agreements with manufacturers, independent and franchise dealerships, trade-ins and directly from consumers. The sources from which we can acquire vehicles of a quality and in a quantity acceptable to us are limited, and there is substantial competition to acquire the vehicles we purchase. There can be no assurance that the supply of desirable vehicles will be sufficient to meet our needs. A reduction in the availability of or access to sources of inventory, including an increase in competition for quality vehicles, could diminish our ability to obtain sufficient inventory at a price that we can reflect in retail market prices and would have a material adverse effect on our business, sales and results of operations.

Additionally, we evaluate potential vehicles regularly using third-party systems to predict mechanical soundness, consumer desirability and relative value of prospective inventory. If we fail to adjust appraisal offers to stay in line with broader market trade-in offer trends, or fail to recognize those trends, it could adversely affect our ability to

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acquire inventory effectively. Our ability to source vehicles through our appraisal process could also be affected by competition, both from new and used vehicle dealers directly and through third party websites driving appraisal traffic to those dealers.

Our business is dependent upon our ability to expeditiously sell inventory. Failure to expeditiously sell our inventory could have a material adverse effect on our business, sales and results of operations.

Our purchases of vehicles are based in large part on projected demand. If actual sales are materially less than our forecasts, we would experience an over-supply of vehicle inventory. An over-supply of vehicle inventory will generally cause downward pressure on our product sales prices and margins and increase our average days to sale.

Pre-owned vehicle inventory has typically represented, and will continue to represent, a significant portion of our total assets. Having such a large portion of our total assets in the form of pre-owned vehicle inventory for an extended period of time subjects us to depreciation and other risks that may affect our results of operations. Accordingly, if we have excess inventory or our average days-to-sale increases, we may be unable to liquidate such inventory in a timely manner, or do so at prices that would allow us to meet margin targets or to recover our costs, which could have a material adverse effect on our results of operations.

Our business is sensitive to changes in the prices of new and pre-owned vehicles.

Any significant changes in retail prices for new or pre-owned vehicles could have a material adverse effect on our revenues and results of operations. For example, if retail prices for pre-owned vehicles rise relative to retail prices for new vehicles, it could make buying a new vehicle more attractive to consumers than buying a used vehicle, which could have a material adverse effect on our results of operations and could result in reduced used vehicle sales and lower revenue. Additionally, manufacturer incentives could contribute to narrowing the price gap between new and pre-owned vehicles. Pre-owned vehicle prices may also decline due to an increased number of new vehicle lease returns over the next several years. While lower prices of pre-owned vehicles reduce our cost of acquiring new inventory, lower prices could also lead to reductions in the value of inventory that we currently hold, which could have a negative impact on gross profit. Furthermore, any significant changes in wholesale prices for pre-owned vehicles could have a material adverse effect on our results of operations by reducing our profit margins.

If our inventory or other costs of operations increase and we are unable to pass along these costs to our customers, we may be unable to maintain or grow our sales margins.

Our inventory and other costs are variable and dependent upon various factors, many of which are outside of our control. A rise in vehicle acquisition costs could erode our sales margins and negatively affect our results of operations. If we incur cost increases, we may seek to pass those increases along to our customers. However, our consumers typically have limits on the maximum amount they can afford, and we may be unable to pass these costs along to them in the form of higher sales prices, which would adversely affect our ability to maintain or increase margins.

We rely heavily on logistics in transporting vehicles for delivery from point of purchase to our facilities, and finally to the customers, via third parties. Our ability to manage this process both internally and through our network of transportation partners could cause a rise in inventory costs and a disruption in our inventory supply chain and distribution. Further, any disruption in the vehicle transport industry or an increase in the cost of transport could adversely affect our results of operations.

We could be negatively affected if losses for which we do not have third-party insurance coverage increase or our insurance coverages prove to be inadequate.

We have third-party insurance coverage, subject to limits, for bodily injury and property damage resulting from accidents involving our vehicles that are rented or subscribed for. We self-insure (that is, we do not have third-party insurance coverage) for other risks, such as theft and damages to vehicles that are rented or subscribed for and are not otherwise covered by renters’ or subscribers’ insurance, and theft and damage to vehicles in our inventory. We account for vehicle damage or total loss at the time such damage or loss is incurred. As a result, we are responsible for damage to our vehicles. A deterioration in claims management, whether by our management or by a third-party claims administrator, could lead to delays in settling claims, thereby increasing claim costs. In the future, we may be

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exposed to liability for which we self-insure at levels in excess of our historical levels and to liabilities for which we are insured that exceed the level of our insurance. Claims filed against us in excess of insurance limits, or for which we are otherwise self-insured, or the inability of our insurance carriers to pay otherwise-insured claims, could have an adverse effect on our financial condition. For example, damages resulting from a significant natural disaster, such as a hurricane, fire or flood, or judgment against us for liability for damages resulting from our rental program could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Should we be unable to renew our commercial insurance policies at competitive rates, this loss could have an adverse effect on our financial condition and results of operations.

The success of our business relies heavily on our marketing and branding efforts and these efforts may not be successful.

We believe that an important component of our growth will be to successfully attract new visitors to our physical locations and our online platform. Because we are a consumer brand, we rely heavily on marketing and advertising to increase brand visibility with potential customers. We intend to execute our sales and marketing efforts by utilizing a multi-channel approach that utilizes brand building, as well as direct response channels in order to efficiently establish and grow both locally and nationally and to increase the strength, recognition and trust in the LMP brand.

Our business model relies on our ability to scale rapidly and to decrease incremental customer acquisition costs as we grow. If we are unable to recover our marketing costs through increases in customer traffic and in the number of transactions by users of our platform, or if our broad marketing campaigns are not successful or are terminated, it could have a material adverse effect on our growth, results of operations and financial condition.

We rely on Internet search engines and social networking sites to help drive traffic to our website and our facilities, and if we fail to appear prominently in the search results or fail to drive traffic through paid advertising, our traffic would decline and our business would be adversely affected.

We depend in part on Internet search engines, such as Google, Bing and Yahoo!, and social networking sites, such as Facebook, to drive traffic to our website and our facilities. Our ability to maintain and increase the number of visitors directed to our website is not entirely within our control. Our competitors may increase their search engine optimization efforts and outbid us for search terms on various search engines, resulting in their websites receiving a higher search result page ranking than ours. Additionally, Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. If Internet search engines modify their search algorithms in ways that are detrimental to us, or if our competitors’ efforts are more successful than ours, overall growth in our customer base could decrease or our customer base could decline. Further, Internet search engine providers could provide automotive dealer and pricing information directly in search results, align with our competitors or choose to develop competing services. Any reduction in the number of users directed to our website and/or our facilities through Internet search engines could harm our business and operating results.

The traffic to our websites and mobile applications may decline and our business may be adversely affected if other companies copy information from our websites and publish or aggregate it with other information for their own benefit.

From time to time, other companies copy information from our websites through website scraping, robots or other means, and publish, or aggregate it with other information for their own benefit. When third parties copy, publish, or aggregate content from our websites, it makes them more competitive, and decreases the likelihood that consumers will visit our websites or use our mobile applications to find the information they seek. While we may try to prevent or limit these activities, we cannot guarantee that we will be successful in preventing or properly detecting such activities in the future. We may not be able to detect such third-party conduct in a timely manner and, even if we could, we may not be able to prevent it. In some cases, particularly in the case of third parties that operate outside of the United States, our available remedies may be inadequate to protect us against such activities. In addition, we may be required to expend significant financial or other resources to successfully enforce our rights. If any of these activities were to occur, it could adversely affect our business, results of operations and financial condition.

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We depend on our e-commerce business and failure to successfully manage this business and deliver a seamless online experience to our customers could have an adverse effect on our growth strategy, business, financial condition, operating results and prospects.

We believe that sales from our e-commerce platform will account for a meaningful portion of our revenues. Our business, financial condition, operating results and prospects are, and we believe will continue to be, dependent on maintaining our e-commerce business. Dependence on our e-commerce business and the continued growth of our direct and retail channels subjects us to certain risks, including:

•        the failure to successfully implement new systems, system enhancements and Internet platforms;

•        the failure of our technology infrastructure or the computer systems that operate our website and their related support systems, causing, among other things, website downtimes, telecommunications issues or other technical failures;

•        the reliance on third-party computer hardware/software providers;

•        rapid technological change;

•        liability for online content;

•        violations of federal, state, foreign or other applicable laws, including those relating to data protection;

•        credit card fraud;

•        cyber security and vulnerability to electronic break-ins and other similar disruptions; and

•        diversion of traffic and sales from our stores.

Our failure to successfully address and respond to these risks and uncertainties could negatively impact sales, increase costs, diminish our growth prospects and damage the reputation of our brand, each of which could have a material adverse effect on our business, financial condition, operating results and prospects.

Vehicle subscription is a relatively new business model, and may not be widely adopted.

We expect to derive a portion of our revenue from our vehicle subscription service, which is a relatively new and rapidly evolving market. If the market for vehicle subscription fails to grow or grows more slowly than we currently anticipate, our business could be negatively affected. We currently only offer vehicle subscription services in Florida. We intend to expand into markets that we believe are the most likely to adopt vehicle subscription services. However, our efforts to expand within and beyond our existing market may not be successful.

We face risks related to liabilities resulting from the use of our vehicles by our rental and subscription customers.

Our business can expose us to claims for personal injury, death and property damage resulting from the use of vehicles by our rental and subscription customers. For example, a rental or subscription customer may be using a vehicle that has worn tires, a mechanical issue or some other problem, including a manufacturing defect, which could contribute to a motor vehicle accident resulting in serious bodily injury, death or significant property damage for which we may be liable. In addition, since we cannot physically inspect our vehicles after they are delivered to our customers, we depend on our rental and subscription customers and third-party service providers to inspect the vehicles prior to driving in order to identify any potential damage or safety concern with the vehicle. To the extent that we are found at fault or otherwise responsible for an accident, our insurance coverage would only cover losses up to a maximum amount.

In addition, in certain jurisdictions, as the owner of the vehicle, there is the potential that we may have vicarious liability for any damages caused by our renters or subscribers, even if we are not found to be negligent. Any such liability may have a material adverse impact on our business.

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We anticipate that our business will be highly seasonal and any occurrence that disrupts our activity during our peak periods could materially adversely affect our results of operations, financial condition, liquidity and cash flows.

Certain significant components of our expenses are fixed, including real estate taxes, rent, insurance, utilities, maintenance and other facility-related expenses, the costs of operating our information technology systems and staffing costs. We anticipate that seasonal changes in our revenues will not affect those fixed expenses, which typically result in higher profitability in periods when our revenues are higher, and lower profitability in periods when our revenues are lower. Any circumstance, occurrence or situation that disrupts our activity during these periods could have a disproportionately material adverse effect on our results of operations, financial condition, liquidity and cash flows due to a significant change in revenue.

We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and regulations. Failure to comply with these laws and regulations could have a material adverse effect on our business, results of operations and financial condition.

We are subject to a wide range of federal, state and local laws and regulations. Our sales, rental and subscription services, and related activities, including the sale of complementary products and services, are, or may potentially be, subject to state and local licensing requirements, federal and state (or local) laws regulating vehicle advertising, state or local laws related to sales tax, title and registration, state or local laws regulating vehicle sales and service, and state laws regulating vehicle rentals and subscriptions. For example, a number of state legislatures are proposing to regulate vehicle subscription programs, and in August 2018, the State of Indiana issued a moratorium on vehicle subscription programs until May 1, 2019.

Our facilities and business operations are subject to laws and regulations relating to environmental protection and health and safety. In addition to these laws and regulations that apply specifically to our business, upon the completion of this offering, we will also be subject to laws and regulations affecting public companies, including securities laws and Nasdaq listing rules (if our common stock is approved for listing). The violation of any of these laws or regulations could result in administrative, civil or criminal penalties or in a cease-and-desist order against our business operations, any of which could damage our reputation and have a material adverse effect on our business, sales and results of operations. We have incurred and will continue to incur capital and operating expenses and other costs in order to comply with these laws and regulations.

Our business is subject to the state and local licensing requirements of the jurisdictions in which we operate and in which our customers reside. Regulators of jurisdictions in which our customers reside, but for which we do not have an applicable dealer license, could require that we obtain a license or otherwise comply with various state regulations. Regulators may seek to impose punitive fines for operating without a license or demand we seek a license in those jurisdictions, any of which may inhibit our ability to do business in those jurisdictions, increase our operating expenses and adversely affect our financial condition and results of operations.

With respect to our advertising, private plaintiffs, as well as federal, state and local regulatory and law enforcement authorities, continue to scrutinize advertising, sales, financing and insurance activities in the sale and leasing of pre-owned vehicles. If, as a result, other automotive retailers adopt more transparent, consumer-oriented business practices, it may be difficult for us to differentiate ourselves from other retailers.

The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory framework governing our operations is subject to continuous change.

Changes in government regulation affecting the communications industry could harm our prospects and operating results.

The Federal Communications Commission, or the FCC, has jurisdiction over the U.S. communications industry. Under current rules, the FCC regulates broadband Internet service providers as telecommunications service carriers under Title II of the Telecommunications Act and enforces net neutrality regulations that prohibit blocking, degrading or prioritizing certain types of internet traffic.

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On February 26, 2015, the FCC reclassified broadband Internet access services in the United States as a telecommunications service subject to some elements of common carrier regulation, including the obligation to provide service on just and reasonable terms, and adopted specific net neutrality rules prohibiting the blocking, throttling or “paid prioritization” of content or services. However, in May 2017, the FCC issued a notice of proposed rulemaking to roll back net neutrality rules and return to a “light touch” regulatory framework. Consistent with this notice, on December 14, 2017, the FCC once again classified broadband Internet access service as an unregulated information service and repealed the specific rules against blocking, throttling or “paid prioritization” of content or services. It retained a rule requiring Internet service providers to disclose their practices to consumers, entrepreneurs and the FCC. A number of parties have already stated they would appeal this order and it is possible Congress may adopt legislation restoring some net neutrality requirements.

The elimination of net neutrality rules and any changes to the rules could affect the market for broadband Internet access service in a way that affects our business. For example, any actions taken by Internet access providers to provide better Internet access to our competitors’ websites or limit the bandwidth and speed for the transmission of data from our websites, could adversely affect our business, operating results, and financial condition.

We are subject to environmental laws and may be subject to environmental liabilities that could have a material adverse effect on us in the future.

We are subject to various federal, state and local environmental laws and governmental regulations relating to the operation of our business, including those governing the handling, storage and disposal of hazardous substances such as motor oil, gasoline, solvents, lubricants, paints and other substances at our facilities. We face potentially significant costs relating to claims, penalties and remediation efforts in the event of non-compliance with existing and future laws and regulations. A failure by us to comply with environmental laws and regulations could have a material adverse effect on our business financial condition and results of operations.

Changes in the laws and regulations to which our business and industry is subject could have a material adverse effect on our business, sales, results of operations and financial condition.

Recent federal legislative and regulatory initiatives and reforms may result in an increase in expenses or a decrease in revenues, which could have a material adverse effect on our results of operations. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, regulates, among other things, the provision of consumer financing. The Dodd-Frank Act established the Consumer Financial Protection Bureau, or the CFPB, a consumer financial protection agency with broad regulatory powers. The CFPB is responsible for administering and enforcing laws and regulations related to consumer financial products and services, including our provision of vehicle financing and our receivables sale facilities. The evolving regulatory environment in the wake of the Dodd-Frank Act and the creation of the CFPB may increase the cost of regulatory compliance or result in changes to business practices that could have a material adverse effect on our results of operations.

The enactment of new laws and regulations or the interpretation of existing laws and regulations in an unfavorable way may affect the operation of our business, directly or indirectly, which could result in substantial regulatory compliance costs, civil or criminal penalties, including fines, adverse publicity, decreased revenues and increased expenses.

If we fail to comply with the Telephone Consumer Protection Act, or the TCPA, we may face significant damages, which could harm our business, financial condition, results of operations and cash flows.

We utilize telephone calls and intend to utilize text messaging as a means of responding to customer interest in purchasing, renting or subscribing for vehicles. We generate leads from our website by prompting potential customers to provide their phone numbers so that we may contact them in response to their interest in specific vehicles. We also intend to engage and pay third parties to provide us with leads. A portion of our revenue comes from sales that involve calls made by our internal call centers to these potential customers.

The TCPA, as interpreted and implemented by the FCC, imposes significant restrictions on utilization of telephone calls and text messages to residential and mobile telephone numbers as a means of communication, when the prior consent of the person being contacted has not been obtained. Violations of the TCPA may be enforced by the FCC or by individuals through litigation, including class actions and statutory penalties for TCPA violations ranging from $500 to $1,500 per violation, which is often interpreted to mean per phone call.

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While we intend to implement processes and procedures to comply with the TCPA, any failure by us or the third parties on which we rely for data to adhere to, or successfully implement, appropriate processes and procedures in response to existing or future regulations could result in legal and monetary liability, fines and penalties, or damage to our reputation in the marketplace, any of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, any changes to the TCPA or its interpretation that further restrict the way we contact and communicate with our potential customers or generate leads, or any governmental or private enforcement actions related thereto, could adversely affect our ability to attract customers and harm our business, financial condition, results of operations and cash flows.

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e-commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.

Though we seek at all times to be in full compliance with all such laws, we cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could damage our reputation and brand, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our website by consumers and result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations.

We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure to protect such information and data could damage our reputation and brand and harm our business and operating results.

We collect, process, store, share, disclose and use personal information and other data provided by consumers. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of such information. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Any failure or perceived failure to maintain the security of personal and other data that is provided to us by consumers and vendors could harm our reputation and brand and expose us to a risk of loss or litigation and possible liability, any of which could adversely affect our business and operating results.

Additionally, concerns about our practices with regard to the collection, use or disclosure of personal information or other privacy related matters, even if unfounded, could harm our business and operating results. There are numerous federal, state and local laws regarding privacy and the collection, processing, storing, sharing, disclosing, using and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with and may be inconsistent between jurisdictions or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties. We strive to comply with applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules, our practices, or new regulations that could be enacted. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which may include personally identifiable information or other customer data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others. This also could cause consumers and vendors to lose trust in us, which could have an adverse effect on our business.

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Additionally, if vendors, developers or other third parties that we work with violate applicable laws or our policies, such violations may also put consumer and vendor information at risk and could in turn harm our reputation, business and operating results.

A significant disruption in service on our website could damage our reputation and result in a loss of consumers, which could harm our business, brand, operating results and financial condition.

Our brand, reputation and ability to attract customers depend on the reliable performance of our website and the supporting systems, technology and infrastructure. We may experience significant interruptions with our systems in the future. Interruptions in these systems, whether due to system failures, programming or configuration errors, computer viruses, or physical or electronic break-ins, could affect the availability of our inventory on our website and prevent or inhibit the ability of customers to access our website. Problems with the reliability or security of our systems could harm our reputation, result in a loss of customers and result in additional costs.

We utilize cloud computing, or the practice of using shared processing resources at third party locations, to operate our website and e-commerce platform. We do not own or control the operation of these third party locations. These third party systems, software and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes, and similar events. The occurrence of any of these events could damage our systems and hardware or could cause them to fail.

Problems faced by our third party web hosting providers could adversely affect the experience of our customers. For example, our third party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by our third party web hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.

Any errors, defects, disruptions, or other performance or reliability problems with our network operations could interrupt our customers’ access to our inventory and our access to data that drives our inventory purchase operations as well as cause delays and additional expenses in arranging access to new facilities and services, any of which could harm our reputation, business, operating results and financial condition.

We rely on internal and external logistics to transport our vehicle inventory throughout the United States. Thus, we are subject to business risks and costs associated with the transportation industry. Many of these risks and costs are out of our control, and any of them could have a material adverse effect on our business, financial condition and results of operations.

We rely on a combination of internal and external logistics for third parties to transport vehicles from point of purchase to our facilities, and finally to the customers. As a result, we are exposed to risks associated with the transportation industry such as weather, traffic patterns, gasoline prices, recalls affecting our vehicle fleet, local and federal regulations, vehicular crashes, insufficient internal capacity, rising prices of external transportation vendors, fuel prices and taxes, license and registration fees, insurance premiums, self-insurance levels, difficulty in recruiting and retaining qualified drivers, disruption of our technology systems, and increasing equipment and operational costs. Failure to successfully manage our logistics and fulfillment process could cause a disruption in our inventory supply chain and distribution, which may adversely affect our operating results and financial condition.

Our failure to maintain a reputation of integrity and to otherwise maintain and enhance our brand could adversely affect our business, sales and results of operations.

Our business model is based on our ability to provide customers with a transparent and simplified solution to vehicle buying, renting and subscribing that we believe will save them time and money. If we fail to build and maintain a positive reputation, or if an event occurs that damages this reputation, it could adversely affect consumer demand and have a material adverse effect on our business, sales and results of operations. Even the perception of a decrease in the quality of our brand could negatively impact results.

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Complaints or negative publicity about our business practices, marketing and advertising campaigns, compliance with applicable laws and regulations, the integrity of the data that we provide to users, data privacy and security issues, and other aspects of our business, especially on industry-specific blogs and social media websites, and irrespective of their validity, could diminish consumer confidence in our platform and adversely affect our brand. The growing use of social media increases the speed with which information and opinions can be shared and, thus, the speed with which reputation can be affected. If we fail to correct or mitigate misinformation or negative information, including information spread through social media or traditional media channels, about us, the vehicles we offer, our customer experience, or any aspect of our brand, it could have a material adverse effect on our business, sales and results of operations.

Our ability to grow our complementary product and service offerings may be limited, which could negatively impact our growth rate, revenues and financial performance.

If we introduce or expand additional product and service offerings for our platform, such as services or products involving other vehicles, sales of new vehicles, or vehicle trade-ins, we may incur losses or otherwise fail to enter these markets successfully. Our expansion into these markets would place us in competitive and regulatory environments with which we are unfamiliar and involve various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years, if at all. In attempting to establish new service or product offerings, we expect to incur significant expenses and face various other challenges, such as expanding our customer service personnel and management personnel to cover these markets and complying with complicated regulations that apply to these markets. In addition, we may not successfully demonstrate the value of these complementary products and services to consumers, and failure to do so would compromise our ability to successfully expand into these additional revenue streams. Any of these risks, if realized, could adversely affect our business and results of operations.

If we do not adequately address our customers’ shift to mobile device technology, operating results could be harmed and our growth could be negatively affected.

Our future success depends in part on our ability to provide adequate functionality for visitors who use mobile devices to shop for vehicles and the number of transactions with us that are completed by those users. The shift to mobile technology by our users may harm our business in the following ways:

•        consumers visiting our website from a mobile device may not accept mobile technology as a viable long-term platform to buy or sell a vehicle. This may occur for a number of reasons, including our ability to provide the same level of website functionality to a mobile device that we provide on a desktop computer, the actual or perceived lack of security of information on a mobile device and possible disruptions of service or connectivity;

•        we may not continue to innovate and introduce enhanced products that can be suitably conveyed on mobile platforms;

•        consumers using mobile devices may believe that our competitors offer superior products and features based in part on our inability to provide sufficient website functionality to convince a mobile device user to transact with us; or

•        regulations related to consumer finance disclosures, including the Truth in Lending Act, may be interpreted, in the context of mobile devices, in a manner which could expose us to legal liability in the event we are found to have violated applicable laws.

If we do not develop, upgrade and maintain suitable functionality for users who visit our website using a mobile device, our business and operating results could be harmed.

Our business is sensitive to conditions affecting automotive manufacturers, including manufacturer recalls.

Adverse conditions affecting one or more automotive manufacturers could have a material adverse effect on our sales and results of operations, which could impact the supply of vehicles. In addition, manufacturer recalls are a common occurrence that have accelerated in frequency and scope in recent years. Recalls and the increased regulatory scrutiny surrounding selling pre-owned vehicles with open safety recalls could (i) adversely affect pre-owned vehicle sales or

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valuations, (ii) cause us to temporarily remove vehicles from inventory, (iii) cause us to sell affected vehicles at a loss, (iv) force us to incur increased costs and (v) expose us to litigation and adverse publicity related to the sale of recalled vehicles, which could have a material adverse effect on our business, financial condition and results of operations.

The current geographic concentration where we provide services creates an exposure to local economies, regional downturns or severe weather or catastrophic occurrences that may materially adversely affect our financial condition and results of operations.

We currently conduct business through our corporate and fulfillment, rental and subscription center located in Plantation, Florida. We currently hold all of our inventory at our Plantation location. While we have insurance to cover certain losses on those vehicles, events such as theft, fire, flood, or hail could adversely impact our business. In addition, our business is currently more susceptible to regional conditions than the operations of more geographically diversified competitors, and we are vulnerable to economic downturns in those regions. Any unforeseen events or circumstances that negatively affect these areas could materially adversely affect our revenues and profitability. These factors include, among other things, changes in demographics and population. In addition, severe weather conditions, acts of God and other catastrophic occurrences in the area in which we operate or from which we obtain inventory may materially adversely affect our financial condition and results of operations. Such conditions may result in physical damage to our properties and loss of inventory. Any of these factors may disrupt our business and materially adversely affect our financial condition and result of operations. Furthermore, there can be no assurance that we will be able to successfully replicate our business model and achieve levels of success as we enter new geographic markets.

We may rely on agreements with third parties to finance our vehicle inventory purchases. If we fail to maintain adequate relationships with third parties to finance our vehicle inventory purchases, we may be unable to maintain sufficient inventory, which would adversely affect our business and results of operations.

We may rely on agreements with third party lenders to finance our vehicle inventory purchases. If we are unable to enter into agreements on favorable terms or at all, or if the agreements expire and are not renewed, our inventory supply may decline, resulting in fewer vehicles available for sale. New funding arrangements may be at higher interest rates or other less favorable terms. These financing risks, in addition to rising interest rates and changes in market conditions, if realized, could negatively impact our results of operations and financial condition.

Our business is affected by the availability of financing to its customers.

Many of our customers finance their vehicle purchases. Although consumer credit markets have improved, consumer credit market conditions continue to influence demand and may continue to do so. There continue to be fewer lenders, more stringent underwriting and loan approval criteria, and greater down payment requirements than in the past. If credit conditions or the credit worthiness of our customers worsen, and adversely affect the ability of consumers to finance potential purchases at acceptable terms and interest rates, it could result in a decrease in the sales of our products and have a material adverse effect on our business, financial condition and results of operations.

Failure to adequately protect our intellectual property, technology and confidential information could harm our business and operating results.

Our business depends on our intellectual property, technology and confidential information, the protection of which is crucial to the success of our business. We attempt to protect our intellectual property, technology and confidential information by requiring certain of our employees and consultants to enter into confidentiality agreements and certain third parties to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property or technology. Despite our efforts to protect our intellectual property, unauthorized parties may attempt to copy aspects of our website features, software and functionality or obtain and use information that we consider proprietary. Changes in the law or adverse court rulings may also negatively affect our ability to prevent others from using our technology.

We currently hold rights to the “lmpmotors.com,” “lmprentals.com” and “lmpsubscriptions.com” Internet domain names and various other related domain names. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that we believe are important for our business.

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We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employees or claims asserting ownership of what we regard as our own intellectual property.

Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while we intend to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property may not be self-executing or the assignment agreement may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property.

We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.

We may, from time to time, face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Patent and other intellectual property litigation may be protracted and expensive, the results are difficult to predict and may require us to stop offering some features, purchase licenses or modify our products and features while we develop non-infringing substitutes or may result in significant settlement costs.

Even if these matters that do not result in litigation are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results and our reputation.

Our platform utilizes open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

We use open source software in our platform and expect to use open source software in the future. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our platform. By the terms of certain open source licenses, if we combine our proprietary software with open source software in a certain manner, we could be required to release the source code of our proprietary software and to make our proprietary software available under open source licenses. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, or to re-engineer all or a portion of our technologies or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could negatively affect our business and operating results.

We rely on third party technology to complete critical business functions. If that technology fails to adequately serve our needs and we cannot find alternatives, it may negatively impact our operating results.

We rely on third party technology for certain of our critical business functions, including vehicle telemetry, network infrastructure for hosting the website and inventory data, software libraries and development environments and tools, services that allow customers to digitally sign contracts, and customer service call center management software. If these technologies fail or we cannot maintain our relationships with the technology providers and we cannot find suitable alternatives, our financial condition and operation results may be adversely affected.

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The obligations associated with being a public company will require significant resources and management attention, and we will incur increased costs as a result of becoming a public company.

As a public company, we will face increased legal, accounting, administrative and other costs and expenses that we have not incurred as a private company, and we expect to incur additional costs related to operating as a public company. After the completion of this offering, we will be subject to the reporting requirements of the Exchange Act, which requires that we file annual, quarterly and current reports with respect to our business and financial condition, and proxy and other information statements, as well as the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act and the Public Company Accounting Oversight Board, or the PCAOB, and the listing requirements of Nasdaq (if our common stock is approved for listing), each of which imposes additional reporting and other obligations on public companies. As a public company, we will be required to, among other things:

•        prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance with the federal securities laws and rules and Nasdaq rules;

•        expand the roles and duties of our board of directors and committees thereof and management;

•        hire additional financial and accounting personnel and other experienced accounting and finance staff with the expertise to address complex accounting matters applicable to public companies;

•        institute more comprehensive financial reporting and disclosure compliance procedures;

•        involve and retain, to a greater degree, outside counsel and accountants to assist us with the activities listed above;

•        build and maintain an investor relations function;

•        establish new internal policies, including those relating to trading in our securities and disclosure controls and procedures;

•        comply with the initial listing and maintenance requirements of Nasdaq; and

•        comply with the Sarbanes-Oxley Act.

We expect these rules and regulations, and any future changes in laws, regulations and standards relating to corporate governance and public disclosure, which have created uncertainty for public companies, to increase legal and financial compliance costs and make some activities more time consuming and costly. These laws, regulations and standards are subject to varying interpretations, in many cases, due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our investment in compliance with existing and evolving regulatory requirements will result in increased administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities, which could have a material adverse effect on our business, financial condition and results of operations.

We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These increased costs may require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives.

We may be subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, they could have a material adverse effect on our business, results of operations and financial condition.

We may be subject to various litigation matters from time to time, which could have a material adverse effect on our business, results of operations and financial condition. Claims arising out of actual or alleged violations of law could be asserted against us by individuals, either individually or through class actions, by governmental entities in civil or criminal investigations, and proceedings or by other entities. These claims could be asserted under a variety of laws, including but not limited to consumer finance laws, consumer protection laws, intellectual property laws, privacy laws, labor and employment laws, securities laws and employee benefit laws. These actions could expose us to adverse

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publicity and to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business.

Certain payments made by the Company in 2018 could be construed by a regulator as transaction-based compensation to an unregistered broker dealer.

The SEC could characterize certain payments made by us to consultants as compensation to unregistered broker dealers based on investment proceeds. In the event such payments are characterized as such, we may need to remediate with certain investors introduced to us by any such consultant(s), which investors hold less than five percent of the shares of our common stock outstanding prior to this offering and less than one percent of our common shares following this offering, assuming the offering is consummated on the terms set forth in this prospectus. Such remediation may include offering the affected investors the right to rescind their investment in us. Any of these actions could expose us to liability which may have an adverse effect on our reputation, operating results and financial condition. We estimate the maximum amount of any such remediation costs would be $771,102 plus accrued interest.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.

We are subject to income taxes in the United States, and our tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

•        changes in the valuation of our deferred tax assets and liabilities;

•        expected timing and amount of the release of any tax valuation allowances; or

•        changes in tax laws, regulations or interpretations thereof.

In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.

The wording, interpretation and enforcement of existing and future sales, use and excise tax laws by state and local governments could impact sales and income from operations.

We are subject to state and local sales, use and excise tax laws of those states and localities in which we have a sufficient tax nexus. As we expand our operations we will likely be subject to more taxing jurisdictions. In that regard, the wording, interpretation and enforcement of those tax laws by such state or local governments could negatively impact our income and sales in such jurisdictions. Because a state or locality’s wording, interpretation or enforcement of its tax laws may change over time, such as through new legislation, the issuance of new rules, regulations or by court or administrative decisions, or merely from new administrative or audit policies or positions, it cannot be predicted whether or to what extent these changes will be negative to our operations and sales in any such jurisdiction.

An increasing number of states and foreign jurisdictions have considered or adopted laws or administrative practices, with or without notice, that impose new taxes on all or a portion of gross revenue or other similar amounts or impose additional obligations on remote sellers and online marketplaces to collect transaction taxes such as sales, consumption, value added, or similar taxes. In June 2018, the U.S. Supreme Court in South Dakota v. Wayfair, Inc. et al. held that states can require remote sellers to collect state and local sales taxes, which, given the scope of our anticipated operations, could increase the complexity and risks for us to comply with such laws. We may not have sufficient lead time to build systems and processes to collect these taxes properly, or at all. Failure to comply with such laws or administrative practices, or a successful assertion by such states or foreign jurisdictions requiring us to collect taxes where we do not, could result in substantial tax liabilities and could have a material adverse effect on our business, financial condition, operating results and prospects.

We are also subject to U.S. (federal and state) and foreign laws, regulations and administrative practices that require us to collect information from our customers, vendors merchants, and other third parties for tax reporting purposes and report such information to various government agencies. The scope of such requirements continues to expand, requiring us to develop and implement new compliance systems. Failure to comply with such laws and regulations could result in significant penalties and could have a material adverse effect on our business, financial condition, operating results and prospects.

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Risks Related to This Offering and Ownership of our Common Stock

There has been no public market for our common stock prior to this offering, and an active market in which investors can resell their shares of our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which an active market for our common stock will develop or be sustained after this offering, or how the development of such a market might affect the market price of our common stock. The initial offering price of our shares in this offering has been agreed to between us and the underwriters based on a number of factors, including market conditions in effect around the time of this offering, and it may not be in any way indicative of the price at which the shares our common stock will trade following the completion of this offering. Investors may not be able to resell their shares of our common stock at or above the initial offering price.

Our founder, Chief Executive Officer, President, and Chairman of the board of directors, Samer Tawfik, beneficially owns a majority of our outstanding common stock. As a result, he has substantial voting power in all matters submitted to our stockholders.

Our founder, Chief Executive Officer, President, and Chairman of the board of directors, Samer Tawfik, beneficially owns approximately 41.66% of our outstanding common stock prior to this offering, and will own approximately 30.89% of our outstanding common stock following this offering, assuming he does not purchase any shares in this offering. However, Mr. Tawfik has indicated an interest in purchasing $1,375,000 of additional shares of common stock in this offering, and up to an additional $1,375,000 of shares of common stock in connection with an exercise of the underwriters’ over-allotment option, for a total indication of up to $2,750,000, although indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to not sell shares to Mr. Tawfik, or Mr. Tawfik could determine not to purchase shares in this offering. In any case, he has substantial voting power in all matters submitted to our stockholders for approval including:

•        election of our board of directors;

•        removal of any of our directors;

•        any amendments to our certificate of incorporation or our Bylaws; and

•        adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.

In addition, Mr. Tawfik’s beneficial stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

Our management has broad discretion as to the use of the net proceeds from this offering.

Our management will have broad discretion in the application of the net proceeds. Accordingly, you will have to rely upon the judgment of our management with respect to the use of these proceeds. Our management may spend a portion or all of the net proceeds from this offering in ways that holders of our common stock may not desire or that may not yield a significant return or any return at all. Our management not applying these funds effectively could harm our business. Pending their use, we may also invest the net proceeds from this offering in a manner that does not produce income or that loses value. Please see “Use of Proceeds” below for more information.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our Company more difficult, and limit attempts by our stockholders to replace or remove our current management.

Provisions in our Certificate of Incorporation and Bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our Certificate of Incorporation and Bylaws include provisions that:

•        permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships by the affirmative vote of a majority of the directors or stockholders holding at least 66⅔% of the issued and outstanding shares of common stock;

•        provide that directors may only be removed by the majority of the shares of voting stock then outstanding;

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•        require a two-thirds majority of all directors who constitute the board of directors or a 75% majority voting of all holders of common stock to adopt, amend or repeal any and all provisions of our Bylaws;

•        provide different term limits to the directors of the Company according to their classification;

•        require 66⅔% of the voting power of all then-outstanding shares of capital stock of the Company entitled to vote generally in election of directors to amend, alter or repeal, or adopt any provision inconsistent with certain sections of our Certificate of Incorporation;

•        eliminate the ability of our stockholders to call special meetings of stockholders; and

•        establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or Section 203. Section 203 generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15% stockholder unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies.

The market price of our common stock may fluctuate, and you could lose all or part of your investment.

The price of our common stock may decline below the initial offering price our common stock following this offering. The stock market in general, and the market price of our common stock, will likely be subject to fluctuation, whether due to, or irrespective of, our operating results, financial condition and prospects.

Our financial performance, our industry’s overall performance, changing consumer preferences, technologies, government regulatory action, tax laws and market conditions in general could have a significant negative impact on the future market price of our common stock. Some of the other factors that could negatively affect our share price or result in fluctuations in our share price include:

•        actual or anticipated variations in our periodic operating results;

•        increases in market interest rates that lead investors of our common stock to demand a higher investment return;

•        changes in earnings estimates;

•        changes in market valuations of similar companies;

•        actions or announcements by our competitors;

•        adverse market reaction to any increased indebtedness we may incur in the future;

•        additions or departures of key personnel;

•        actions by stockholders;

•        speculation in the media, online forums, or investment community; and

•        our intentions and ability to list our common stock on Nasdaq and our subsequent ability to maintain such listing.

Upon the completion of this offering, we will become a public reporting company under the Exchange Act, and thereafter publicly report on an ongoing basis as an “emerging growth company” under the reporting rules set forth under the Exchange Act.

Upon the completion of this offering, we will become a public reporting company under the Exchange Act. We may elect to publicly report on an ongoing basis as an “emerging growth company” under the reporting rules set forth under

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the Exchange Act. For so long as we remain an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not emerging growth companies which may make our common stock less attractive to investors, including but not limited to:

•        not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act;

•        taking advantage of extensions of time to comply with certain new or revised financial accounting standards;

•        being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

•        being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an emerging growth company for up to five years; although, we would cease to be an emerging growth company if we have more than $1.07 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period.

Accordingly, for so long as we report as an emerging growth company, we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies,” and our stockholders could receive less information than they might expect to receive from more mature public companies.

You will experience immediate and substantial dilution as a result of this offering.

As of September 30, 2019, our net tangible book value was approximately $4,400,000, or $0.73 per share. Since the effective price per share of our common stock being offered in this offering is substantially higher than the net tangible book value per share of our common stock, you will suffer substantial dilution with respect to the net tangible book value of the common stock you purchase in this offering. Based on the assumed public offering price of $5.50 per share of common stock being sold in this offering, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus, and our net tangible book value per share as of September 30, 2019, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $3.68 per share (or $3.55 per share if the underwriters exercise the over-allotment option in full) with respect to the net tangible book value of the common stock. See the section titled “Dilution” for a more detailed discussion of the dilution you will incur if you purchase securities in this offering.

We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer a non-accelerated filer or no longer an emerging growth company if we take advantage of the exemptions available to us through the JOBS Act.

We are in the very early stages of the costly and challenging process of compiling the system and process documentation necessary to perform the evaluation needed to comply with Section 404. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and

26

improvement process for internal control over financial reporting. As we transition to the requirements of reporting as a public company, we may need to add additional finance staff. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price.

We may not be able to satisfy listing requirements of Nasdaq or obtain or maintain a listing of our common stock on Nasdaq.

If our common stock is listed on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. If we violate Nasdaq listing requirements, our common stock may be delisted. If we fail to meet any of Nasdaq’s listing standards, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment.

We do not expect to declare or pay dividends in the foreseeable future.

We do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore, holders of our common stock will not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.

The preparation of our financial statements involves the use of estimates, judgments and assumptions, and our financial statements may be materially affected if such estimates, judgments or assumptions prove to be inaccurate.

Financial statements prepared in accordance with accounting principles generally accepted in the United States of America typically require the use of estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments, and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management’s judgment include, but are not limited to, determining the fair value of assets and the timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if our estimates were to prove to be wrong, we would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges or changes could harm our business, including our financial condition and results of operations and the price of our securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our financial statements and our business.

If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could be negatively affected.

Any trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our common stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price and market trading volume of our common stock could be negatively affected.

27

Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or, together, our securities, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our common stock to decline and would result in the dilution of your holdings.

Future issuances of our securities, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations of lock-up agreements, on the price of our common stock. In all events, future issuances of our common stock would result in the dilution of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties will sell their securities when the lock-ups expire, could adversely affect the market price of our common stock. In connection with this offering, the Company will enter into a lock-up agreement that prevents it, subject to certain exceptions, from offering additional shares of capital stock of the Company for up to one hundred and eighty (180) days after the date of this prospectus, as further described in the section titled “Underwriting.” In addition to any adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, at any time and without notice. If the restrictions under the lock-up agreements are waived, our common stock may become available for resale, subject to applicable law, including without notice, which could reduce the market price for our common stock.

Future issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock.

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our common stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our common stock.

If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

28

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

You should not place undue reliance on forward-looking statements. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could materially differ from those projected in, or implied by, the forward-looking statements due to a variety of factors, including, but not limited to:

•        our dependence upon external sources for the financing of our operations ;

•        our ability to effectively execute our business plan;

•        our ability to maintain and grow our reputation and to achieve and maintain the market acceptance of our services and platform;

•        our ability to manage the growth of our operations over time;

•        our ability to maintain adequate protection of our intellectual property and to avoid violation of the intellectual property rights of others;

•        our ability to maintain relationships with existing customers and automobile suppliers, and develop relationships; and

•        our ability to compete and succeed in a highly competitive and evolving industry.

Although the forward-looking statements in this prospectus are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to re-issue this prospectus or otherwise make public statements updating our forward-looking statements.

Due to rounding, numbers presented throughout this prospectus may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

29

INDUSTRY AND MARKET DATA

Certain market and industry data included in this prospectus, including data concerning the automobile market, is derived from information provided by third-party market research firms, third-party financial or analytics firms, or public sources that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications and third-party forecasts in conjunction with our assumptions about our markets. We have not independently verified such third-party information. The market data used in this prospectus involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Certain data are also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on market data currently available to us. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus. Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.

30

USE OF PROCEEDS

After deducting the estimated underwriters’ commissions and offering expenses payable by us, we expect to receive net proceeds of approximately $10,400,000 from this offering (or approximately $12,004,249 if the underwriters exercise the over-allotment option in full), based on an assumed public offering price of $5.50 per share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus. We intend to use these net proceeds for our strategic acquisitions, to build our vehicle inventory, for working capital and other general corporate purposes.

Each $1.00 increase or decrease in the assumed initial public offering price of $5.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds that we receive from this offering by approximately $1,923,636, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1,000,000 shares of common stock offered by us in this offering would increase or decrease the net proceeds that we receive from this offering by approximately $5,060,000, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

The precise amounts that we will devote to each of the foregoing items, and the timing of expenditures, will vary depending on numerous factors.

The following table sets forth a breakdown of our estimated use of our net proceeds as we currently expect to use them.

 

Amount

Strategic acquisitions

 

$

2,080,000

Vehicle inventory

 

$

2,459,600

Working capital

 

$

5,860,400

Total use of proceeds

 

$

10,400,000

In the event that the underwriters exercise the over-allotment option, we intend to use such net proceeds (up to $12,004,249) for our strategic acquisitions, to build our vehicle inventory, for working capital and other general corporate purposes.

The expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve and change. The amounts and timing of our actual expenditures, specifically with respect to working capital, may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

31

DIVIDEND POLICY

Since our inception, we have not paid any dividends on our common stock, and we currently expect that, for the foreseeable future, all earnings (if any) will be retained for the development of our business and no dividends will be declared or paid. In the future, our board of directors may decide, at its discretion, whether dividends may be declared and paid, taking into consideration, among other things, our earnings (if any), operating results, financial condition and capital requirements, general business conditions and other pertinent facts.

32

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2019:

•        on an actual basis;

•        on a pro forma basis to reflect the sale of 2,090,909 shares by us in this offering at an assumed price to the public of $5.50 per share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus, resulting in net proceeds to us of $10,400,000 after deducting (i) Underwriter commissions of $805,000 and (ii) our estimated other offering expenses of $295,000; and

•        on a pro forma basis to reflect the sale of 2,404,545 shares by us in this offering, assuming the underwriters elect to exercise the over-allotment option in full, at an assumed price to the public of $5.50 per share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus, resulting in net proceeds to us of $12,004,249 after deducting (i) Underwriter commissions of $925,750 and (ii) our estimated other offering expenses of $295,000.

The pro forma information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the initial public offering price of our common stock and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Offering (2,090,909 Shares)

 

Actual(1)

 

Pro Forma
Offering
Amount
(Unaudited)(2)

 

Pro Forma
Offering
Amount
including
Over-
Allotment(2)

Cash and Cash Equivalents

 

$

2,073,672

 

 

$

12,473,672

 

 

$

14,077,921

 

Stockholders (deficit) equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock, $0.00001 par value per share, 100,000,000 shares authorized(1)

 

$

61

 

 

$

81

 

 

$

84

 

Additional Paid-in Capital

 

$

16,366,270

 

 

$

25,507,934

 

 

$

27,112,180

 

Treasury Stock

 

$

(658,350

)

 

$

(658,350

)

 

$

(658,350

)

Accumulated deficit

 

$

(10,028,163

)

 

$

(10,028,163

)

 

$

(10,028,163

)

Total Stockholders’ Equity

 

$

5,679,818

 

 

$

14,821,502

 

 

$

16,425,751

 

Total Capitalization

 

$

5,679,818

 

 

$

14,821,502

 

 

$

16,425,751

 

____________

(1)      6,001,639 shares of common stock issued and outstanding actual as of September 30, 2019.

(2)      The outstanding number of shares of common stock after the completion of the offering was derived from 6,001,639 shares of common stock outstanding as of November 18, 2019 plus the offering share amounts.

Each $1.00 increase (decrease) in the assumed offering price per share of $5.50, assuming no change in the number of shares to be sold, would increase (decrease) the net proceeds that we receive in this offering and each of total stockholders’ equity and total capitalization by approximately $1,923,636 (or $2,215,318 if the underwriters exercise the over-allotment option in full), after deducting (i) estimated underwriter commissions and (ii) offering expenses, in each case, payable by us. Similarly, an increase (decrease) of one million shares of our common stock offered by us in this offering, assuming no change in the offering price, would increase (decrease) the new proceeds that we receive in this offering and each of total stockholders’ equity and total capitalization by approximately $5,060,000, after deducting (i) estimated underwriter commissions and (ii) offering expenses, in each case, payable by us.

33

The table above excludes the following shares:

•        1,500,000 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan;

•        380,500 shares of common stock issuable upon the exercise of options (of which 237,584 have vested) at a weighted average exercise price of $4.27 as of September 30, 2019;

•        Up to 313,636 shares of common stock issuable upon exercise of the representative’s warrants in connection with this offering; and

•        Approximately 44,360 shares of common stock that may be issued by us upon conversion of the 6-month notes (assuming no interest is paid on the 6-month notes) as of September 30, 2019.

34

DILUTION

Dilution in net tangible book value per share to new investors is the amount by which the offering price paid by the purchasers of the shares of our common stock sold in this offering exceeds the pro forma net tangible book value per share of common stock after this offering. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date.

The net tangible book value of our common stock as of September 30, 2019 was approximately $4.4 million, or approximately $0.73 per share.

Pro forma as adjusted net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering. Investors participating in this offering will incur immediate, substantial dilution. After giving effect to our sale of 2,090,909 shares of our common stock in this offering at an assumed initial public offering price of $5.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2019 would have been approximately $14.8 million or approximately $1.82 per share. This amount represents an immediate increase in pro forma net tangible book value of $1.09 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $3.68 per share to purchasers of our common stock in this offering, as illustrated in the following table.

The following table illustrates the estimated dilution on a per Share basis:

Assumed initial public offering price per Share

 

$

5.50

 

Net tangible book value per Share as of September 30, 2019

 

$

0.73

 

Increase in net tangible book value per Share after this offering

 

$

1.09

 

Pro forma net tangible book value per Share after this offering

 

$

1.82

 

Dilution in net tangible book value per Share to new investors

 

$

(3.68

)

If the underwriters’ option to purchase additional shares of our common stock from us is exercised in full, the pro forma as adjusted net tangible book value per share of our common stock, as adjusted to give effect to this offering, would be $1.95 per share, and the dilution in pro forma net tangible book value per share to new investors purchasing shares of common stock in this offering would be $3.55 per share.

The following table sets forth, assuming the sale of 2,090,909 shares of our common stock in this offering, as of September 30, 2019, the total number of shares of common stock previously issued and sold to existing investors, the total consideration paid for the foregoing and the average price per share of common stock, before deducting estimated underwriter commissions, offering expenses and the repayment of the amount outstanding under the revolving credit facility, in each case payable by us. As the table shows, new investors purchasing shares of our common stock in this offering may in certain circumstances pay an average price per Share substantially higher than the average price per share paid by our existing stockholders.

September 30, 2019

 

Number of
Shares

 

Purchased
Percentage

 

Total
Consideration
Amount

 

Total
Consideration
Percent

 

Average
Price Per
Share

Existing Stockholders

 

6,001,639

 

74.2

%

 

$

15,664,278

 

57.7

%

 

$

2.61

New Investors

 

2,090,909

 

25.8

%

 

$

11,500,000

 

42.3

%

 

$

5.50

Total:

 

8,092,548

 

100.0

%

 

$

27,164,277

 

100.0

%

 

 

 

A $1.00 increase (decrease) in the assumed public offering price of $5.50 per share assuming the number of shares of our common stock offered by us remains the same and after deducting estimated underwriter commissions and offering expenses payable by us would increase (decrease) our pro forma net tangible book value (deficit), as adjusted to give effect to this offering, to $2.06 per share ($2.21, if the underwriters exercise the over-allotment option in full). A $1.00 increase in the assumed public offering price of $5.50 per share would increase the dilution to new investors by $0.76 per share ($0.74, if the underwriters exercise the over-allotment option in full).

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Similarly, an increase (decrease) of one million shares of our common stock offered by us assuming the public offering price of $5.50 per share remains the same and after deducting estimated underwriter commissions and offering expenses payable by us would increase (decrease) our pro forma net tangible book value (deficit), as adjusted to give effect to this offering, to $2.18 per share ($2.28, if the underwriters exercise the over-allotment option in full). In addition, a 1 million share increase would decrease the dilution to new investors by $0.36 per share. ($0.33, if the underwriters exercise the over-allotment option in full).

The tables above exclude the following shares:

•        1,500,000 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan;

•        380,500 shares of common stock issuable upon the exercise of options (of which 237,584 have vested) at a weighted average exercise price of $4.27 as of September 30, 2019;

•        Up to 313,636 shares of common stock issuable upon exercise of the representative’s warrants in connection with this offering; and

•        Approximately 44,360 shares of common stock that may be issued by us upon conversion of the 6-month notes (assuming no interest is paid on the 6-month notes) as of September 30, 2019.

36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements”.

Overview

LMP Automotive Holdings, Inc., through its subsidiaries, currently offers our customers the opportunity to buy, sell, rent, and subscribe for, and obtain financing for automobiles both online and in person.

We describe our business model as “Buy, Rent or Subscribe, Sell and Repeat.” This means that we “Buy” pre-owned automobiles primarily through auctions or directly from other automobile dealers, and new automobiles from manufacturers and manufacturer distributors at fleet rates. We “Rent or Subscribe” by either renting automobiles to our customers or allowing them to enter into our subscription plan for automobiles in which customers have use of an automobile for a minimum of thirty (30) days. We “Sell” our inventory, including automobiles previously included in our rental and subscription programs, to customers as well, and then we hope to “Repeat” the whole process.

Recent Developments

Reorganization

The Company was incorporated under the laws of Delaware in December 2017. Samer Tawfik, our founder, Chairman, President and Chief Executive Officer, contributed one hundred percent (100%) of the equity interests in each of LMP Motors.com, LLC and LMP Finance, LLC into the Company in December 2017, and in January 2018, 601 NSR, LLC and LMP Automotive Holdings, LLC made the Company their sole member. As a result of the reorganization, the Company now owns one hundred percent (100%) of the equity in each of these four entities. LMP Motors.com, LLC currently operates our automobile sales business. LMP Finance, LLC currently operates our rental and subscription business. 601 NSR, LLC and LMP Automotive Holdings, LLC were formed to enter into future potential strategic acquisitions, but are currently inactive. As a result of the reorganization, Mr. Tawfik received 15,750,000 shares of common stock and ST RXR Investments, Inc., a company wholly owned and controlled by Mr. Tawfik, received 5,250,000 shares of common stock.

Private Placement Offerings

In February 2018, we completed a private placement offering, pursuant to which we sold 2,858,030 shares of our common stock, at a purchase price of $3.33 per share, for an aggregate purchase price of $9,517,239.

From June 2018 through October 2018, we sold an aggregate of 787,264 shares of our common stock, in a private placement offering, at a purchase price of $4.75 per share, for an aggregate purchase price of $3,739,505.

During the second and third quarters of 2018, we issued the 6-month notes in an aggregate principal amount of $1,448,965, pursuant to a private placement offering. The 6-month notes bear interest at 4% per annum and mature six (6) months from the date of issuance, at which time the principal and any accrued but unpaid interest shall be due and payable. The holders of the 6-month notes may, at any time prior to the maturity date, convert the 6-month notes (and accrued interest) into shares of our common stock by dividing (a) the outstanding principal balance and unpaid accrued interest under the applicable 6-month note on the date of conversion by (b) $4.75 (subject to adjustment as provided in the 6-month notes). Based on the terms of the conversion rights, we did not recognize a beneficial conversion discount.

During the fourth quarter of 2018, we repaid one of the 6-month notes in the principal amount of approximately $285,015, leaving a balance on the remaining 6-month notes of approximately $1,164,000, plus accrued interest, at December 31, 2018.

37

During the six months ended June 30, 2019, we repaid eight of the 6-month notes in the principal amount of $962,000, leaving a balance of $201,950, plus accrued interest.

During the second quarter of 2019, we extended certain of the 6-month notes that became due. Two of the 6-month notes in the amount of approximately $45,000 were extended to August 14, 2019, two in the amount of approximately $135,950 were extended to September 17, 2019, and another one in the amount of approximately $21,000 was extended to December 15, 2019.

The total outstanding principal balance on the remaining 6-month notes as of September 30, 2019 was $201,950, plus accrued interest.

In connection with the private placement offerings, each of the investors executed a stockholders’ agreement. The stockholders’ agreement contains, among other things, certain restrictions on the ability of such investors to freely transfer shares of our common stock, as well as customary drag-along rights and tag-along rights, and such agreement terminates upon the consummation of this offering. In connection with this offering, we are soliciting lock-up agreements from all of our current shareholders whereby they will agree, for a period of 180 days after the date of this prospectus, not to directly or indirectly:

•        offer, pledge, assign, encumber, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; or

•        enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our securities, whether any such transaction is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise; or

•        sell, agree to sell, offer or sell, solicit offers to purchase, grant any call option, warrant or other right to purchase, purchase any put option or other right to sell, pledge, borrow or otherwise dispose of our securities; or

•        establish or increase any “put equivalent position” or liquidate or decrease any “call equivalent position” (in each case within the meaning of Section 16 of the Exchange Act) with respect to any of our securities;

•        make any demand for or exercise any right with respect to, the registration of any of our securities; or

•        otherwise enter into any swap, derivative or other transaction or arrangement that transfers to another, in whole or in part, any economic consequence of ownership of securities, whether or not such transaction is to be settled by delivery of our securities, other securities, cash or other consideration; or

•        publicly announce an intention to do any of the foregoing.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Revenue Recognition

Used Vehicle Sales Revenue

Our business consists of retail and wholesale sales of used vehicles and integrated services to customers. Sales are originated in-person, telephonically or via our website. We offer a home delivery service so that the Company delivers the vehicle to the place agreed with the client. We also sell used vehicles in auctions.

We recognize revenue when we satisfy a performance obligation by transferring control of a vehicle to a customer. The prices of the vehicles are stated in our contracts at stand-alone selling prices which are agreed upon with our customer

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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 price stated in the contract, including any delivery charges. In addition, any noncash consideration received from a customer (i.e., trade-in vehicles) are recognized at fair value. Customer payment has been received or 3rd-party financing has been confirmed prior to vehicle transfer. We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes are accounted for on a net basis and are not included in sales or cost of sales.

Subscription Revenue

We offer a vehicle subscription plan where a customer will pay a monthly fee in exchange for access to a vehicle. Our subscriptions include monthly swaps, scheduled maintenance and upkeep, license and registration and in most cases roadside assistance. Customers have the flexibility to up-or-downgrade a vehicle monthly, with the vehicle payment adjusted accordingly. There is an activation payment at subscription inception that varies based upon the monthly payment of the selected vehicle. Monthly vehicle payments are dependent upon the vehicle selected by the customer.

We recognize revenue when we satisfy a performance obligation by transferring control of a vehicle to a customer under a subscription contract. The prices of the vehicles are stated in our contracts at stand-alone subscription prices, which are agreed upon with the customer prior to delivery. We satisfy our performance obligation for monthly subscription payments upon delivery to the customer and in each subsequent month the customer retains possession of the vehicle. We recognize revenue at the agreed-upon price stated in the contract in the month earned.

We also receive a one-time, non-refundable payment as an activation fee to our vehicle subscription program. This fee is deferred and amortized to income monthly over the term of the subscription.

Customer payment has been received prior to initial vehicle transfer and on each monthly recurring anniversary date. We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes are accounted for on a net basis and are not included in sales or cost of sales.

Rental Revenue

We recognize vehicle rental income over the period the vehicle is rented. Performance obligations associated with vehicle rental transactions are satisfied over the rental period. Rental periods are short term in nature. Performance obligations associated with rental related activities, such as charges to the customer for the fueling of vehicles and value-added services such as loss damage waivers, navigation units, and other ancillary products, are also satisfied over the rental period.

Payments are due from customers at the time of reservation. Additional charges incurred by the customers are collected at the time of vehicle return. We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes are accounted for on a net basis and are not included in sales or cost of sales.

Accounts Receivable

We carry our accounts receivable at cost. The terms of our accounts receivable require payment upon receipt. We establish an allowance based on our management’s assessment of the creditworthiness of the customers, the aged basis of the receivables, as well as current economic conditions and historical information. Management has determined that no allowance for uncollectible accounts for accounts receivable were necessary at September 30, 2019 or December 31, 2018.

Stock-Based Compensation

We recognize the cost of services received in exchange for awards of stock options in accordance with ASC 718 “Stock Compensation”, based on the fair value of those awards at the date of grant over the requisite service period, which generally is the vesting period of the award. We use the Black-Scholes option pricing model to determine the fair value of stock option awards.

Income Taxes

We account for income taxes under ASC 740 “Income Taxes” which codified SFAS 109, “Accounting for Income Taxes” and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of the Financial Accounting

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Standards Board (“FASB”) Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations.

Per Share Information

We compute net loss per share accordance with FASB ASC 205 “Earnings per Share.” FASB ASC 205 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement.

Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.

Fair Value of Financial Instruments

Our financial instruments consist of cash, prepaid expenses, payables, accrued expenses and notes payable. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. We consider the carrying values of our financial instruments in the consolidated financial statements to approximate fair value, due to their short-term nature.

Inventory

Our inventory consists of automobiles, which are valued at the lower of cost or market, with cost determined by specific identification and with market defined as net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories at September 30, 2019 and December 31, 2018 are recorded based on perpetual inventory records.

We periodically review our automobile inventory to determine whether any inventories have become obsolete or have declined in value, and record a charge to operations for known and estimated inventory obsolescence.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets, ranging from 5 to 7 years.

Valuation of Long-Lived Assets

We periodically evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

Leases

We adopted ASU No. 2016-02, Leases (“Topic 842”) using the modified retrospective adoption method with an effective date of January 1, 2019. This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. The adoption of the new lease standard had a significant impact on our Consolidated Balance Sheets but did not have a significant impact on our lease classification or a material impact on our Consolidated Statements of Operations and liquidity.

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In order to calculate our lease liability, we make certain assumptions related to lease term and discount rate. For lease terms, we evaluate renewal options. When available, we use the rate implicit in the lease to discount lease payments to present value. However, our lease does not provide a readily determinable implicit rate. Therefore, we estimate the rate to discount lease payments based on the 5-year Treasury constant maturity rate on the date of the commencement of the lease.

Results of Operations

Comparison of the Nine Months Ended September 30, 2019 and 2018

Revenues and Costs of Revenues

We generated total revenues of $7,826,114 for the nine month period ended September 30, 2019, including rental and subscription revenue of $328,836 and $930,669, respectively, as compared with total revenues of $10,847,981, including rental and subscription revenue of $265,513 and $113,442, respectively, during the comparative nine month period ended September 30, 2018, a decrease of $3,021,867. The decrease mainly was due to the decrease in our vehicle sales, offset by increases in our subscription and rental segments of the business.

Costs of revenues were $8,221,014 for the nine months ended September 30, 2019, including subscription and rental costs of $994,381, resulting in a negative gross margin of $394,900. Costs of revenues were $11,771,382 for the nine months ended September 30, 2018, including subscription and rental costs of $453,604, resulting in a negative gross margin of $923,401. This resulted in an decrease in cost of revenues over the nine month period of $3,550,368 and resulted in a decrease in negative gross margin of $528,501. The decrease in cost of revenues is mainly due to the decrease in our vehicle sales, offset by increases in our subscription and rental segments of the business. We have sustained negative gross margins mainly due to the vehicle depreciation and sales of vehicles at losses in order to generate immediate cash to fund the payments on the convertible notes, our common stock repurchases, and to fund monthly overhead costs. However, the gross margin percentage has increased from a negative 9% for the nine months ended September 30, 2018 to a negative 5% for the nine months ended September 30, 2019.

Selling, General and Administrative Expenses

We incurred SG&A expenses of $2,041,159 during the nine months ended September 30, 2019, an increase of $148,246 as compared with $1,892,913 incurred during the nine months ended September 30, 2018. The increase is related to the overall increases in the rental & subscription segments of the business in 2019 compared to minimal operations in the nine months ending September 30, 2018.

Acquisition, Consulting, and Legal Expenses

We incurred acquisition, consulting, and legal expenses of $861,156 during the nine months ended September 30, 2019, as compared to $289,949 during the nine months ended September 30, 2018, an increase of $571,207. The increase during 2019 is mainly due to the increased use of outside consultants and legal fees in anticipation of our initial public offering.

Net Losses

We sustained net losses of $3,457,656 and $3,587,855 for the nine months ended September 30, 2019 and 2018, respectively, for the reasons described above.

Plan of Operations

Our operations have been limited to date. We recently submitted an Form S-1 Registration Statement with the SEC for an initial public offering to raise between $16,000,000 and $18,000,000. Our plan of operations following the offering is to use the net proceeds from the offering for our strategic acquisitions, to build our vehicle inventory, for working capital and other general corporate purposes.

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Liquidity and Capital Resources

Cash Flow Activities

Cash increased $1,649,520 from $424,152 at December 31, 2018 to $2,073,672 at September 30, 2019, and increased $1,082,431 from $217,360 at December 31, 2017 to $1,299,792 at September 30, 2018, due to the following reasons:

Operating Activities

We generated $125,538 in cash flows from operating activities during the nine months ended September 30, 2019, as compared to $12,408,283 of cash used during the nine months ended September 30, 2018. Although we incurred net losses of $3,457,656 and $3,587,855 during the nine month periods ended September 30, 2019 and 2018, respectively, the change was primarily due to a decrease in inventory of $2,668,723 during 2019, offsetting the net loss, as compared to an increase in inventory of $9,786,935 in 2018, resulting in net cash used during the period.

Investing Activities

We used $103,030 and $453,980 of cash flows in investing activities during the nine months ended September 30, 2019 and 2018, respectively. We continue to purchase new property and equipment and capitalize software development costs as part of our business plan to grow the company.

Financing Activities

We generated $1,627,012 of cash flows in financing activities during the nine months ended September 30, 2019, as compared to $13,944,694 generated during the nine months ended September 30, 2018. During 2019, we borrowed $3,200,000 on our line of credit (offset by $1,949,000 repayments to our line of credit and certain convertible notes), we borrowed approximately $1,326,000 on a vehicle floorplan facility and notes and repurchased stock for $678,780, whereas during the same period in 2018, we received cash of $13,256,534 from the issuance of stock and $1,448,965 from the issuance of convertible notes.

Use of Cash and Cash Requirements

During the fourth quarter of 2018 and in the first quarter of 2019, we sold certain fleet vehicles to make payments on convertible notes and fund our common stock repurchases, as well as to fund our monthly recurring overhead.

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017

Revenues

We generated revenues of $16,610,786 for the year ended December 31, 2018 from the sales of pre-owned vehicles from our website and Plantation, Florida location, in addition to rental and subscription revenue, as compared with revenues of $3,759,031, during the comparative year ended December 31, 2017, an increase of $11,955,480. The increase was mainly due to our ability to fulfill more transactions that come from greater brand acceptance of our platform due to continuing expenditures in marketing and sales. Revenues in 2018 include $539,952 from our rental program and $356,323 from our subscription program, which commenced in 2018.

Costs of revenues were $18,567,775 for the year ended December 31, 2018, resulting in a negative gross margin of $1,956,989. These costs included $889,388 of costs of revenues for rental revenues and subscription fees in 2018. Costs of revenues for the comparative year ended December 31, 2017 were $3,994,079, resulting in a negative gross margin of $235,048 due to test marketing and incentive pricing.

Selling, General and Administrative Expenses

We incurred SG&A expenses of $3,278,051 during the year ended December 31, 2018, an increase of $2,163,942 as compared with the amount incurred during the year ended December 31, 2017 of $1,114,109. The increase in SG&A expenses is a result of increases in payroll and other administrative costs to support our increase in revenues and overall business activity during 2018.

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Depreciation

We incurred depreciation expenses of $45,505 during the year ended December 31, 2018, as compared to $29,291 during the year ended December 31, 2017, an increase of $16,214. This increase is due to the purchase of significant fixed assets during the year, especially in furniture and leasehold improvements as we moved locations in March, 2018 and performed remodels for both the Plantation, FL and the Miami Beach, FL locations.

Net Losses

We sustained net losses of $6,490,293 and $1,423,662 for the years ended December 31, 2018 and 2017, respectively, for the reasons described above.

Liquidity and Capital Resources

Cash Flow Activities

As of December 31, 2018, we had an accumulated deficit of $6,552,886. We have incurred net losses since inception, and have funded operations primarily through sales of our common stock, issuance of debt and a related party line of credit. As of December 31, 2018 we had $424,152 in cash.

The following table sets forth the primary sources and uses of cash for the years ended December 31, 2018 and 2017:

 

Years Ended
December 31,

   

2018

 

2017

Net cash used in operating activities

 

$

(13,472,142

)

 

$

(4,617,347

)

Net cash used in investing activities

 

 

(437,957

)

 

 

(214,950

)

Net cash provided by financing activities

 

 

14,116,891

 

 

 

4,728,755

 

Net increase (decrease) in cash

 

 

206,792

 

 

 

(103,452

)

Operating Activities

Net cash used in operating activities was $13,472,142 as compared to $4,617,347 for the years ended December 31, 2018 and 2017, respectively. The $8,854,795 increase in net cash used in operating activities was primarily due to an increase in purchases of vehicles in inventory and a larger net loss for the year ended December 31, 2018, as compared to December 31, 2017.

Investing Activities

Net cash used in investing activities was $437,957 as compared to $214,950 for the years ended December 31, 2018 and 2017, respectively. The $223,007 increase in net cash used in investing activities was due to larger purchases of property and equipment in 2018, two location remodels and purchases of software included in intangible assets.

Financing Activities

Net cash provided by financing activities was $14,116,891 as compared to $4,728,755 for the years ended December 31, 2018 and 2017, respectively. The $9,388,136 increase in net cash provided by financing activities was primarily due to cash received from the issuance of common stock of $13,256,534 during the year ended December 31, 2018, as compared to cash contributed from shareholders of $3,637,255 during the year ended December 31, 2017. In 2018 the Company also issued $1,448,965 in 6 month, 4% convertible notes.

Consolidation of Operations

In 2019 we discontinued our Miami Beach, FL rental operations and consolidated these operations with our Plantation, FL operation. As a result, two leases that approximated $415,000 per year were terminated and we reduced staff by eight employees whose salaries approximated $356,000 in an effort to reduce overhead expenses.

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Sources of Capital

From inception to December 31, 2017 we have funded our activities through capital contributions from Mr. Tawfik and issuances of notes payable to related parties.

We currently do not have any firm commitments by third parties to provide long-term funding.

In January 2018, we entered into a $1,500,000 revolving line of credit (the “Revolving Credit Facility”) with ST RXR, which is owned and controlled by our founder, Chairman, President and Chief Executive Officer, pursuant to a Revolving Line of Credit Agreement (the “LOC Agreement”). In September 2019 the LOC Agreement was amended and the line of credit was increased to $4,000,000. At September 30, 2019, approximately $4,000,000 was outstanding under the Revolving Credit Facility. The LOC Agreement expires on the earlier of written demand or May 21, 2020, as defined in the agreement.

From January 1 through September 30, 2018, we received an aggregate of $14,705,499 through the (i) issuances of the 6-Month Notes payable in the principal amount of $1,448,965, (ii) issue and sale of an aggregate of $9,517,239 of our Common Stock, at a purchase price of $3.33 per share, and (iii) issue and sale of an aggregate of $3,739,294 of our Common Stock, at a purchase price of $4.75 per share, each pursuant to a private placement offering to accredited investors.

During the first and second quarters of 2019, the Company purchased an aggregate of 138,600 shares of its Common Stock from four (4) shareholders at an aggregate price of $4.75 per share, or $658,350. These shares are currently held in treasury. During the quarter ended September 30, 2019, the Company’s CEO retired 18,500,000 beneficially owned common shares of stock for no value. In addition, four non-accredited investors were refunded a total of $20,430, which cancelled 5,055 shares. Total outstanding common shares after the share retirement and refunds was 6,001,639.

During the fourth quarter of 2018, the Company repaid one of the 6-Month Notes in the principal amount of approximately $285,015, leaving a balance of approximately $1,164,000, plus accrued interest, at December 31, 2018. During the nine months ended September 30, 2019, the Company repaid eight of the 6-Month Notes in the principal amount of $962,000, leaving a balance of $201,950, plus accrued interest. During the second and third quarters of 2019, the Company extended three of the 6-Month Notes in the aggregate amount of approximately $45,000 to November 14, 2019, and four of the 6-Month Notes in the aggregate amount of approximately $156,950 to December 15, 2019.

We believe short-term liquidity and short-term capital resources will cover cash needs in the future. When combined with expense reductions through consolidation of our operations, as previously discussed, cash on hand, increasing inventory through borrowings on vehicle financing and/or our line of credit and revenues will be sufficient to cover out day-to-day operating expenses and material commitments over the next 12 months.

Contractual Commitments

Commitments to Purchase Vehicles

In 2018, we have entered into a letter agreement with an importer of new BMW and MINI automobiles which has expired and the remaining balance for vehicles to be delivered is approximately $530,000 as of September 30, 2019.

In the second quarter of 2019, Mercedes-Benz Financial approved $3.5 million for our subscription and rental fleet inventory purchases. In September 2019 we purchased vehicles totaling approximately $1,250,000 under a Note and Security Agreement with 10% cash down payment and the remaining $1,130,000 financed over 36 months at an interest rate of 4.89%.

In the third quarter of 2019, NextGear Capital approved a $250,000 vehicle floorplan line. As of September 30, 2019 the outstanding principal balance was $194,965.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).

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BUSINESS

Our Mission

Our goal is to provide an e-commerce and facilities-based retail platform for consumers who desire to buy, sell, rent, subscribe for or finance pre-owned and new automobiles. We seek to provide our customers with a simple, convenient, transparent and pleasant retail experience. In addition to our current operations launched in 2017, we intend to seek strategic acquisitions of pre-owned and new automobile dealerships and car rental companies in order to facilitate efficient growth.

Our Current Business

LMP Automotive Holdings, Inc., through its wholly owned subsidiaries, currently offers our customers the opportunity to buy, sell, rent and subscribe for, and obtain financing for automobiles both online and in person.

We describe our business model as “Buy, Rent or Subscribe, Sell and Repeat.” This means that we “Buy” pre-owned automobiles primarily through auctions or directly from other automobile dealers, and new automobiles from manufacturers and manufacturer distributors at fleet rates. We “Rent or Subscribe” by either renting automobiles to our customers or allowing them to enter into our subscription plan for automobiles in which customers have use of an automobile for a minimum of thirty (30) days. We “Sell” our inventory, including automobiles previously included in our rental and subscription programs, to customers as well, and then we hope to “Repeat” the whole process.

We believe we offer a stress-free and user-friendly experience, either directly or through arrangements with third parties, that enables consumers to efficiently:

 

Browse and purchase a vehicle

 

 

Subscribe for a vehicle(s)

 

Rent a vehicle

 

 

Sell or trade-in vehicles

 

Obtain pre-approval for financing (through third parties)

 

 

Buy extended warranties (through third parties)

 

Schedule deliveries and pick-ups (typically through third parties)

       

Our platform is designed to streamline the automobile transaction value chain by digitizing a substantial part of the sales and transaction process. We believe this will enhance the consumer experience by creating operational efficiencies designed to improve our financial and business performance. We also intend to centralize sales, title, tag, finance, insurance and logistics operations in order to create additional financial and operational benefits, as well as a positive consumer experience. We believe that bringing more of the vehicle shopping and transaction experience online will provide consumers with a broader range of purchase, rental and subscription options while eliminating time spent in negotiation and haggling.

We commenced our operations in the first quarter of 2017. Currently we only offer sales of pre-owned automobiles, and rentals and subscriptions for both pre-owned and new automobiles. As of July 24, 2019, our inventory consisted of 215 automobiles in total. Of those, 128 were subscribed and in use by customers, 20 were out on rent in use by customers, 40 were on premise and available for subscription and rental consumers and 27 were held for sale on premise. Our current facility is approximately 8,771 square feet on 1.25 acres of land. Our facility contains storage for ten vehicles on the interior and up to 90 on the exterior. We believe over 90% of our fleet will be rented and subscribed and in use by customers and we can facilitate over 1,000 subscribers using our current facility.

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The Company was incorporated under the laws of Delaware in December 2017. Samer Tawfik, our founder, Chairman, President and Chief Executive Officer, contributed one hundred percent (100%) of the equity interests in each of LMP Motors.com, LLC and LMP Finance, LLC into the Company in December 2017, and in January 2018, 601 NSR, LLC and LMP Automotive Holdings, LLC made the Company their sole member. As a result of the reorganization, the Company now owns 100% of the equity in each of these four entities. LMP Motors.com, LLC currently operates our automobile sales business. LMP Finance, LLC currently operates our rental and subscription business. 601 NSR, LLC and LMP Automotive Holdings, LLC were formed to enter into future potential strategic acquisitions, but are currently inactive.

Industry Overview

We believe that the following are the current key drivers of growth for the automobile industry:

•        Economic Drivers.    Consumer confidence and employment are currently at a 17-year high1, which we believe will lead to continued growth in consumer spending, including increased spending on automobiles.

•        Emerging Technologies and Disruptive Business Models.    We believe the U.S. automobile industry is rapidly evolving through the adoption of new technologies and disruptive business models, which we believe is driven primarily by consumer expectations and demands for a better purchasing experience.

•        Off-Lease Vehicles.    The number of off-lease vehicles has grown from 2.0 million in 2014 to 3.4 million in 20183. We believe that the off-lease vehicle market can provide a steady supply of high-quality automobiles that will offer consumers a viable alternative to the new-vehicle market. We expect that this will result in increased competition with the new vehicle market.

•        Subscription Market.    We believe the subscription model has been widely adopted in several different sectors, such as consumer goods, streaming media and data cloud services. Driven by consumer demand, the automobile industry has begun adopting a subscription model as an alternative to ownership and leasing. Although we believe that vehicle ownership will continue to dominate the industry, we expect that the auto subscription segment will grow steadily.

•        Pre-Owned Automobile Sales Market.    America’s automobile industry is one of the most powerful engines driving the U.S. economy4. According to the Cox Automotive 2018 Used Car Market Report & Outlook, in 2018, approximately 39.5 million pre-owned vehicles are expected to be sold, up from 39.3 million pre-owned vehicles sold in 2017, with an average price, according to Edmund.com, of approximately $19,500. New vehicle sales fell by approximately 2% from 2017.

   

____________

1        Bloomberg “U.S. Consumer Confidence Is at 17-Year High”, February 27, 2018

3        Edmunds Used Car Report 2018

4        Auto Alliance https://autoalliance.org/economy/

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Source: Edmunds.com

The pre-owned automobile retail industry is highly fragmented. Currently, there are approximately 43,000 used automotive dealerships in the U.S., with the largest dealer comprising approximately 1.7% of the market in the United States2. The top 100 pre-owned auto dealers collectively account for approximately 7.0% of the U.S. market according to Edmunds.com and Automotive News.

We believe that the traditional pre-owned auto dealership model is cost intensive, operationally challenging and difficult to scale. In general, providing full service to a customer requires inspection, repair, reconditioning and showroom facilities, as well as inventory sourcing and financing capabilities, substantially all of which are done at each dealership location. All of these services require a substantial initial investment.

Historically, consumers would research and shop for automobiles using a combination of print and broadcast media, or by visiting local dealerships. However, we believe this paradigm is shifting, as consumers are now increasingly relying on the Internet to research automobiles, compare pricing and financing options, estimate trade-in values, and even complete transactions. According to the 2018 Cox Automotive Car Buyer Journey, today’s average vehicle buyer spends 60% of their time online researching and shopping for an automobile, or almost nine hours.

We believe that consumers have also become comfortable conducting their retail purchases of higher-priced products such as consumer electronics and home furnishings through the Internet. According to the U.S. Census Bureau, 10.5% of total retail sales in the U.S. in the fourth quarter of 2017 were completed online. We believe that similar trends are emerging in the automobile industry, as consumers are interested in e-commerce solutions for their pre-owned automobile purchasing needs. According to Capgemini’s 2017 Cars Online Trend Study, 80% of U.S. vehicle buyers would consider completing their entire automobile purchase online if given the opportunity.

Traditionally, the process of purchasing an automobile has been lengthy and involved. On average, consumers spend three hours in the dealership to purchase a vehicle, with more than half of that time spent negotiating and completing paperwork. Through our e-commerce and facilities based platform, we believe that we broaden the consumer’s access to the pre-owned automobile market, boost transaction efficiency, more effectively facilitate supply and demand matching, and modernize traditional transaction processes.

____________

2        Carvana 2018 Annual Report Form 10-K & Introduction to Carvana March 2019

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We believe automobile-related companies that operate through an Internet-based business model are demonstrating significant growth.

Source: Public filings.

Our Solution

Our hybrid business model combines an e-commerce platform for those wishing to purchase online with the option for a traditional in-person transaction at our physical location. We intend to eventually carry significant inventory at multiple locations throughout the United States, expanding the selection available to consumers. We also offer multiple alternatives for automobile acquisition, including sale (with or without financing), rental and subscription. Management is not aware of any other company currently offering this unique suite of options for consumers. Currently, we operate from one location in Plantation, Florida. We believe that by providing these alternatives, we can be more attractive to potential customers and compete favorably in the marketplace.

We are able to effect sales nationwide, subject to local regulation, whereas existing non-Internet based automotive dealers are generally limited to their local region. Through our platform, either directly or through third parties, consumers can research and identify an automobile, obtain financing and warranty coverage, purchase, rent or subscribe for an automobile, and schedule and arrange for delivery or pick-up, all from their desktop or mobile device or in person at our location.