RumbleON, Inc. (formerly Smart Server, Inc.) — FY 2016 Form 10-K
Entity note: The filing identifies the registrant as RumbleON, Inc.; it does not identify the company as Ridenow Group, Inc. The fiscal year ended December 31, 2016. This is an annual report, not standalone fourth-quarter results.
Business context and reporting period
RumbleON was a pre-revenue development-stage company pursuing an online marketplace for buying, selling, trading and financing used recreation vehicles, initially focusing on large motorcycles. Until the 2017 acquisition described below, the registrant had been a public shell with no operating business in 2016. It reported two full-time employees at year-end.
Financial results, liquidity and debt
- RumbleON standalone: No revenue in 2016. Operating expenses were $213,393; interest expense was $11,698; net loss was $224,578, or $0.04 per share. The prior-period comparison is not directly comparable: the company changed its fiscal year-end, and the filing presents both a December 2015 month and a year ended November 2015.
- Cash flows: Operating cash used was $19,976; investing cash used was $45,515, primarily for domain names; financing provided $1,412,358, mainly from equity issuance and related-party borrowing. Cash at December 31 was $1,350,580.
- Balance sheet: Total assets were $1,397,762 and total liabilities were $304,321, including $219,101 of current liabilities. The related-party convertible note had $197,358 principal outstanding, plus accrued interest; its reported carrying value was reduced by a substantial debt discount. No meaningful operating margin or profitability existed.
- Funding risk: Management said available year-end cash alone would not support operations for the next 12 months. The auditor’s report highlighted substantial doubt about the company’s ability to continue as a going concern, dependent on further financing and eventual significant operating revenue.
- NextGen, separately audited: For 2016, the acquired business reported revenue of $138,141, operating loss of $1,780,420 and net loss of $1,779,776. Operating cash used was $1,111,190 and investing cash used for software was $341,919; year-end cash was $46,891. These are NextGen historical results, not RumbleON’s 2016 consolidated results.
Material changes and subsequent events
- On February 8, 2017, RumbleON completed its acquisition of substantially all of NextGen’s assets, including its dealer software platform, for approximately $750,000 cash, 1,523,809 shares and a $1,333,333 subordinated secured note. The note matures in three years and bears 6.5% interest initially, increasing to 8.5% after year two.
- Illustrative unaudited pro forma figures for the acquisition show 2016 combined revenue of $138,141 and net loss of approximately $2.06 million. Pro forma combined cash was $600,580 and total assets were $5.40 million. The filing cautions that purchase-price allocations are preliminary and these figures are not predictive; estimated transaction costs of approximately $175,000 were excluded.
- The company changed its name from Smart Server to RumbleON and established Class A and Class B common stock in February 2017. Class A shares carry 10 votes each; Class B shares carry one. The filing reports concentrated insider voting control of roughly 91% or more, depending on the calculation presented.
- The November 2016 private placement raised $1.35 million. The filing also describes a subsequent acceleration of additional investor funding involving shares and a note; confirm the final terms and funding in later filings.
Outlook, commentary and principal risks
Management intended to implement the acquired platform and develop a dealer-partner-based, relatively capital-light marketplace. It expected to begin generating revenue but gave no quantified revenue, earnings or cash-flow guidance and provided no assurance of results. The business model was unproven and the company had no operating history in its planned marketplace.
- Key risks include the going-concern uncertainty, ongoing cash burn and reliance on additional debt or equity financing, which could dilute shareholders.
- Execution depends on integrating the NextGen platform, building customer demand and dealer relationships, and maintaining third-party data, technology, financing and service-provider relationships.
- Competition, seasonality and weather, used-vehicle pricing and supply, regulatory requirements for vehicle sales and advertising, and privacy and cybersecurity exposures could impede growth.
- The stock traded over the counter, had extremely limited trading activity and was subject to penny-stock restrictions. Dual-class voting and substantial insider control limit other shareholders’ influence.
- The NextGen acquisition and related arrangements include secured acquisition debt, consulting and development-service agreements, and related-party relationships. The filing reports no material legal proceedings.
Important facts for investors to verify
- Whether RumbleON obtained sufficient financing and maintained liquidity after the acquisition; compare actual cash flows and obligations with the going-concern warning.
- Actual post-acquisition revenue, losses, margins and cash burn, keeping NextGen’s standalone historical results distinct from RumbleON’s pre-acquisition results and unaudited pro forma data.
- Final purchase-price allocation, acquired software and intangible-asset valuations, integration costs, and the terms and servicing of the $1.33 million secured note.
- Whether the marketplace and dealer network became operational as planned, and whether customer and transaction growth produced sustainable revenue.
- Subsequent financing, share issuance, dilution, resale registration and the effects of Class A voting control on governance.