Business Context and Reporting Period
This Form 8-K, filed on October 31, 2018, reports material events for RumbleOn, Inc. (the "Company") occurring between October 25 and October 30, 2018. The filing details the completion of two strategic acquisitions, a private placement of equity, and significant amendments to the Company's debt facilities.
Key Financial Metrics and Transactions
- Acquisition Consideration:
- Wholesale, LLC: $12,000,000 in cash (subject to adjustments) plus 1,317,329 shares of Series B Non-Voting Convertible Preferred Stock.
- Wholesale Express, LLC: $4,000,000 in cash (subject to adjustments).
- Equity Financing (Private Placement): Sold 3,030,000 shares of Class B Common Stock for gross proceeds of approximately $21.6 million.
- Price: $7.10 per share for non-affiliates; $8.10 per share for participating directors.
- Placement Agent Fee: 6.5% of gross proceeds.
- Debt Financing:
- Hercules Capital (Tranche II Advance): $5,000,000 funded. Maturity: October 1, 2021. Initial Interest Rate: 11.00% (variable thereafter based on Prime + 5.75% or 10.25% floor).
- NextGear Floorplan Credit Line: Initial availability of $63,000,000. Decreases to $55,000,000 after February 28, 2019, and to $0 after October 31, 2019. Initial Interest Rate: 5.25% (variable).
- Warrant Issuance: Issued warrant to Hercules Capital to purchase 20,950 shares of Class B Common Stock at $7.16 per share, exercisable immediately through October 30, 2023.
Material Changes and Capital Structure
The Company's capital structure changed significantly through the issuance of new equity and debt. The Company created a new class of equity, Series B Non-Voting Convertible Preferred Stock, with 2,500,000 shares authorized. 1,317,329 shares were issued to the sellers of Wholesale, LLC. These shares are convertible on a one-for-one basis into Class B Common Stock and will automatically convert 21 days after the mailing of a definitive information statement to stockholders.
Additionally, 681,481 shares of the Series B Preferred (Escrow Shares) were placed in escrow for 12 months to secure representations and warranties from the sellers.
Use of Proceeds
Net proceeds from the Private Placement and the $5,000,000 Tranche II Advance were used to partially fund the cash consideration for the Wholesale and Express Express acquisitions. The balance is designated for working capital purposes.
Guidance, Risks, and Contingencies
- Registration Obligations: The Company agreed to file resale registration statements for the Private Placement Shares, Conversion Shares, and Warrant shares within specific deadlines (30 to 90 days post-issuance). Failure to do so triggers liquidated damages payments to investors.
- Lock-Up Agreements: Directors and executive officers agreed to a 90-day lock-up period from the Closing Date, restricting the sale or transfer of Company common stock.
- Debt Covenants and Security:
- The Hercules loan is secured by a first lien on most Borrower assets and a second lien on Wholesale assets.
- The NextGear Credit Line is secured by a first lien on all of Wholesale's assets and requires a cash collateral reserve of at least $5,500,000.
- Both debt agreements contain standard events of default allowing for immediate acceleration of liabilities.
- Financial Statements: The filing notes that financial statements of the acquired businesses and pro forma financial information are not included in this report and will be filed by amendment within 71 days.
Investor Verification Checklist
- Verify the final purchase price of the acquisitions after customary post-closing adjustments.
- Confirm the effective date of the resale registration statements for the Private Placement and Conversion Shares to assess liquidity for new shareholders.
- Review the upcoming 10-Q or 10-K for the pro forma financial impact of the acquisitions and the new debt load.
- Monitor the utilization of the NextGear Floorplan Credit Line and the required $5.5 million cash collateral reserve.
- Check for the filing of the definitive information statement regarding the conversion of Series B Preferred Stock into Class B Common Stock.