RumbleOn Inc

NOTE 3 –REVENUE

Our revenue consists of sales of new and pre-owned powersports vehicles; sales of related finance and insurance products; sales of parts, service, accessories, and apparel; and transportation brokerage services.

New and Pre-owned Powersports Vehicles

The Company sells new and pre-owned powersports vehicles. The transaction price for a powersports vehicle sale is determined with the customer at the time of sale. Customers often trade in their own powersports vehicle to apply toward the purchase of a retail new or pre-owned powersports vehicle. The “trade-in” powersports vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific powersports vehicle, and applied as payment of the contract price for the purchased powersports vehicle.

When the Company sells a new or pre-owned powersports vehicle, transfer of control typically occurs at a point in time upon delivery of the vehicle to the customer, which is generally at the time of sale, as the customer is able to direct the use of and obtain substantially all benefits from the powersports vehicle at such time. Except on a very limited basis, the Company did not directly finance its customer’s purchases, and the Company does not directly finance leases for the customer. In many cases, the Company arranges third-party financing for the retail sale or lease of powersports vehicles to customers in exchange for a fee paid to the Company by a third-party financial institution. The Company receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-in-transit) within a short period of time following the sale.

Parts and Service

The Company sells powersports parts and vehicle services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties and extended service contracts, and collision-related repairs. The Company also sells powersports parts through wholesale and retail counter channels.

Each repair and maintenance service is a single performance obligation that includes both the parts and labor associated with the powersports vehicle service. Payment for each vehicle service work is typically due upon completion of the service, which is generally completed within a short period from contract inception. The transaction price for repair and maintenance services is based on the parts used, the number of labor hours applied, and standardized hourly labor rates. Revenue is recognized upon completion of the vehicle service work as the customer is not able to consume the benefits of repairs until the service is fully complete. The transaction price for wholesale and retail counter parts sales is determined at the time of sale based on the quantity and price of each product purchased. Payment is typically due at time of sale, or within a short period following the sale. Delivery method of wholesale and retail counter parts vary.

The Company generally considers control of wholesale and retail counter parts to transfer when the products are shipped, which typically occurs the same day as or within a few days of sale. The Company also offers customer loyalty points for parts and services for select franchises. The Company satisfies its performance obligations and recognizes revenue when the loyalty points are redeemed. Amounts deferred related to the customer loyalty programs are insignificant.

Finance and Insurance

The Company sells and receives commissions on the following types of finance and insurance products: extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, among others. The Company offers products that are sold and administered by independent third parties, including the powersports vehicle manufacturers’ captive finance subsidiaries.

Pursuant to the arrangements with these third-party providers, the Company sells the products on a commission basis. For the majority of finance and insurance product sales, the Company’s performance obligation is to arrange for the provision of goods and services by another party. The Company’s performance obligation is satisfied when this arrangement is made, which is when the finance and insurance product is delivered to the end customer, generally at the time of the vehicle sale. As agent, the Company recognizes revenue in the amount of any fee or commission to which it expects to be entitled, which is the net amount of consideration that it retains after paying the third-party provider the consideration received in exchange for the goods or services to be fulfilled by that party.

There are no significant judgments or estimates required in determining the satisfaction of the performance obligations or the transaction price allocated to the performance obligations. As revenue is recognized at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.

Vehicle Transportation Services

Vehicle transportation services revenue is generated primarily by transporting vehicles for dealers, distributors, or private party individuals from a point of origin to a designated destination through the Company’s subsidiary, Express. Express contracts with third party carriers to perform the transportation services. The transaction price is based on the consideration agreed upon with the customer. A performance obligation is created when the customer requests, and Express agrees, to transport the goods from origin to destination. These performance obligations are satisfied when the shipments move from origin to destination. The transportation brokerage agreements are fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these transporters are obligated to meet our fulfillment obligations and standards. Fulfillment obligations are short term, with transit days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and remit payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as risks and rewards of transportation of the vehicle are transferred to the owner during delivery. Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. As a result, revenue is recorded on a gross basis.

Disaggregation of Revenue

In the following table, revenue is disaggregated by major lines of goods and services, which depicts how the nature, amount, and uncertainty of our revenue and cash flows are affected by economic factors.

Revenue from contracts with customers consists of the following:

NOTE 4 –ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following as of December 31:

(1) Primarily amounts due from manufacturer for holdbacks, rebates, co-op advertising, warranty and supplies returns.

NOTE 5 –INVENTORY

Inventory, net of reserves, consisted of the following as of December 31:

New inventory costs are generally reduced by manufacturer holdbacks, incentives, floor plan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floor plan payables are reflective of the gross cost of the vehicle.

The Company relies on its floorplan vehicle financing credit lines (“Floorplan Lines”) to finance new and pre-owned powersports vehicle inventory at its retail locations. Inventory serves as collateral under floor plan notes payable borrowings. The inventory balance in its entirety also serves as collateral under the Oaktree Credit Facility and the Indenture. Refer to Note 9 for further detail.

NOTE 6 –PROPERTY AND EQUIPMENT, NET

The following table summarizes property and equipment, net, as of December 31,

NOTE 7 –GOODWILL AND INTANGIBLE ASSETS

Balances for our goodwill and intangible assets as of December 31 were as follows:

(1) Attributed to the Company’s powersports reporting unit. Amount is net of accumulated impairment of $142.7 million in 2023 and $105.7 million in 2022.

The following is a summary of the changes in the carrying amount of goodwill by reporting unit over the past two years:

Annual Impairment Test

The Company elected to bypass the optional qualitative test and performed a quantitative impairment review as of October 1, 2023. The Company determined the carrying amount of the powersports reporting unit exceeded its fair value and recognized a $37.0 million non-cash franchise rights impairment charge and a $23.1 million non-cash goodwill impairment charge in the fourth quarter of 2023. The fair value of the vehicle transportation services reporting unit exceeded its carrying value and no impairment was recognized.

In 2022, we performed our impairment review as of October 1, 2022 that we further updated as of December 31, 2022, because we determined that certain factors in the fourth quarter had triggered an indicator of impairment. The aggregate results of our assessments in 2022 resulted in (i) noncash goodwill impairment charges of $26.0 million in the automotive reporting unit presented in discontinued operations and $218.6 million in the powersports reporting unit and (ii) a noncash franchise rights impairment charge of $105.7 million in the powersports reporting unit.

Our definite-lived intangible assets primarily related to non-compete agreements as of December 31, 2023. No triggering events or impairment of non-compete agreements were noted as of December 31, 2023.

Estimated remaining annual amortization expense related to other intangible assets ($ in millions):

NOTE 8 –ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

The following table summarizes accounts payable and other current liabilities as of December 31:

NOTE 9 –DEBT

Debt consisted of the following as of December 31:

(1) Interest rate at December 31, 2023 of 13.90%. Interest payments are required quarterly. Fair value of $266.1 million estimated using Level 3 inputs.

(2) Carrying value approximates fair value due to the nature of this debt. The fair value of debt where carrying value approximates fair value was determined using Level 3 inputs.

(3) Fair value of $38.5 million estimated using Level 3 inputs.

(4) Interest rate at December 31, 2023 was 12.8%. This debt was fully repaid on January 2, 2024.

As of December 31, 2023, principal payments on our term loan, finance lease, convertible senior 6.75% promissory notes, RumbleOn Finance line of credit and notes payable for leasehold improvements and other are due as follows ($ in millions):

(1) Represents principal payments for the finance lease, the minimum lease payments of which are disclosed in Note 10.

Term Loan Credit Agreement

The Company has a term loan credit agreement (as amended, the “Oaktree Credit Agreement”) among the Company, as borrower, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent. The Oaktree Credit Agreement provided for secured credit facilities in the form of a $280.0 million principal amount of initial term loans and $120.0 million in aggregate principal amount of delayed draw term loans (the “Delayed Draw Facility”), which were available to be drawn up to March 1, 2023. Warrants to purchase $40.0 million of shares of Class B Common Stock that we granted to Oaktree Capital Management, L.P. and its lender affiliates in consideration of the initial loan expired in April 2023.

Borrowings under the Oaktree Credit Agreement bear interest at a rate per annum equal, at the Company’s option, to either (a) SOFR with a floor of 1.00%, plus an applicable margin of 8.25%, or (b) a fluctuating adjusted base rate in effect from time to time, plus an applicable margin of 7.25%, provided that an additional 0.5% interest will accrue from the Amendment No. 5 Effective Date (as defined below) through June 30, 2024. At the Company’s option,1.0% of the regular interest and all of the additional 0.5% interest may be paid in kind. Interest expense was $53.6 million in 2023 and $42.2 million in 2022, which included amortization of debt discount and deferred issuance costs of $7.3 million and $6.4 million, respectively.

Obligations under the Oaktree Credit Agreement are secured by a first-priority lien on substantially all of the assets of the Company and its domestic wholly owned subsidiaries (the “Subsidiary Guarantors”), although certain assets of the Company and Subsidiary Guarantors are subject to a first-priority lien in favor of floor plan lenders, and such liens and priority are subject to certain other exceptions. The Subsidiary Guarantors also guarantee the obligations of the Company under the Oaktree Credit Agreement.

At June 30, 2023, the Company was not in compliance with certain leverage ratio financial covenants under the Oaktree Credit Agreement. On August 9, 2023 (the "Amendment No. 5 Effective Date"), the Company, the Subsidiary Guarantors, Oaktree, and the lenders party thereto executed Amendment No. 5 to the Oaktree Credit Agreement (the “Amendment No. 5”), pursuant to which, among other things: (i) all leverage ratio financial covenants under the Oaktree Credit Agreement were (a) eliminated and not tested for the quarters ending June 30, 2023 and September 30, 2023 and (b) made less restrictive for the quarters ending December 31, 2023, March 31, 2024, and June 30, 2024; (ii) additional performance covenants were added requiring the Company and its subsidiaries to use commercially reasonable best efforts to dispose of certain non-core real estate and monetize its consumer loan portfolios (with corresponding requirements to use the net proceeds of such sales to pay down the term loans under the Oaktree Credit Agreement); (iii) an additional performance covenant was added requiring the Company raise net cash proceeds of not less than $100 million from the issuance of common equity interests in the Company by December 1, 2023, which was subsequently revised to December 8, 2023, (with a corresponding requirement to use $50 million of such equity proceeds to pay down the term loans under the Oaktree Credit Agreement), and (iv) an additional performance covenant was added requiring the Company to issue warrants, exercisable for an anticipated aggregate of 1,212,121 shares at a price of $12.00 per share, in a form to be agreed upon, to the lenders. In connection with Amendment No. 5, the Company paid a $0.7 million fee in kind, which is included in interest expense. The warrants were issued on August 14, 2023. See Note 11 for additional information.

The elimination of the June 30, 2023 leverage ratio financial covenants was made effective as of June 30, 2023, and the lenders agreed in Amendment No. 5 that no event of default existed from such leverage ratio financial covenants as of such date. Based on the amended terms of the Oaktree Credit Agreement, the Company believes that it will be in compliance with all covenants under the Oaktree Credit Agreement for the 12-month period from the issuance of these financial statements. The

Company was in compliance with all financial and non-financial covenants with the Oaktree Credit Agreement at December 31, 2023 and has classified obligations under the Oaktree Credit Agreement as a non-current liability.

Vehicle Floor Plan Notes Payable

Vehicle floor plan notes payable are classified as current liabilities. Floor plan notes payable (trade) reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, pre-owned powersports vehicle inventory with corresponding manufacturers' captive finance subsidiaries (“trade lenders”). Floor plan notes payable (non-trade) represents amounts borrowed to finance the purchase of specific new and pre-owned powersports vehicle inventories with non-trade lenders. Changes in vehicle floor plan notes payable (trade) are reported as operating cash flows, and changes in floor plan notes payable (non-trade) are reported as financing cash flows in the accompanying Consolidated Statements of Cash Flows. Inventory serves as collateral under vehicle floor plan notes payable borrowings.

New inventory costs are generally reduced by manufacturer holdbacks, incentives, floor plan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floor plan payables are reflective of the gross cost of the powersports vehicle. The vehicle floor plan payables will generally also be higher than the inventory cost due to the timing of the sale of a vehicle and payment of the related liability. Vehicle floor plan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within a few business days after the related vehicles are sold. Vehicle floor plan facilities are primarily collateralized by vehicle inventories and related receivables.

New vehicle floor plan facilities generally utilize SOFR or ADB (Average Daily Balance)-based interest rates and generally ranged between 8% and 18% as of December 31, 2023. Pre-owned vehicle floor plan facilities are based on prime or SOFR and ranged between 7.3% and 8.5% as of December 31, 2023. The aggregate capacity to finance our inventory under the new and pre-owned vehicle floor plan facilities as of December 31, 2023 was $449.5 million, of which $291.3 million was used.

On October 26, 2022, the Company entered into a Floorplan Line with J.P. Morgan (the “J.P. Morgan Credit Line”) that terminates October 25, 2024. Advances under the J.P. Morgan Credit Line are limited to $47.5 million as of December 31, 2023. Interest expense on the J.P. Morgan Credit Line was $1.7 million in 2023 and $0.1 million in 2022.

Finance Lease Obligation

On September 8, 2023, certain subsidiaries of the Company (collectively, the “Tenant”) and a third party, as the landlord entered into a sale and leaseback transaction related toeight of the Company's owned real estate locations, which generated net cash proceeds of $48.2 million. The transaction, however, did not transfer control of the properties to the landlord. As a result, the Company accounted for this transaction as a failed sale-leaseback transaction, in which the assets remain on the financial statements and a financing liability was recorded for the proceeds from the sale. The Company incurred $1.8 million in transaction costs related to the sale-leaseback, which are therefore considered debt issuance costs and will be amortized as interest expense over the expected life of the lease.

The resulting Lease Agreement is considered a triple net lease, which requires the Tenant to pay substantially all costs associated with the properties, and has a contractual term of 15 years, with five separate renewal options at the Company's option. The renewal terms are effective to all, but not less than all, of the property subject to the Lease Agreement. The Company has assumed an expected lease life of 40 years to include all renewals. The initial annual rent under the Lease Agreement is $3.7 million, and the lease provides for rent increasing annually by the lesser oftwo times the Consumer Price Index or 2% during the initial term and all option periods.

The Company imputed the interest rate on the lease based upon the contractual minimum payments and the proceeds from the sale. Based on this, the Company has determined the effective interest rate on the debt to be 9.0%. See Note 10 for additional disclosures related to this deemed finance lease.

Convertible Senior 6.75% Promissory Notes

The outstanding convertible promissory notes, net of unamortized debt discount and issue costs as of December 31 are summarized as follows:

The convertible senior notes (the “Notes”) are outstanding pursuant to an Indenture (the “Indenture”), by and between the Company and Wilmington Trust, National Association as the Trustee and collateral agent for the Trustee and the holders of the Notes (in such capacity, the “Indenture Collateral Agent”). The Indenture appoints the Indenture Collateral Agent as collateral agent for the Trustee and the holders of the Notes and authorizes the Indenture Collateral Agent to enter into, and the Indenture Collateral Agent become party to: (a) a Guaranty from the Subsidiary Guarantors in favor of the Indenture Collateral Agent in a form similar to that in favor of the Administrative Agent, guaranteeing to the Indenture Collateral Agent the obligations of the Company under the Indenture and Notes (the “Indenture Guaranty”), (b) a Security Agreement from the Company and the Subsidiary Guarantors in favor of the Indenture Collateral Agent in a form similar to that in favor of the Administrative Agent, securing the obligations of the Company under the Indenture and of the Subsidiary Guarantors under the Indenture Guaranty, and (c) a First Lien Intercreditor Agreement establishing the lien priority between the Administrative Agent and the Indenture Collateral Agent as to the collateral provided by the Company and the Subsidiary Guarantors and appointing the Administrative Agent as controlling collateral agent under certain circumstances with regard to the collateral and other creditors. The security interests in favor of the Indenture Collateral Agent cover the same collateral and are of the same priority as the security interests in favor of the Administrative Agent. The Indenture includes customary representations, warranties and covenants by the Company and customary closing conditions. The Notes bear interest at 6.75% per annum, payable semiannually on January 1 and July 1 of each year. The Notes may bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting obligations under the Indenture. The Notes mature on January 1, 2025, unless earlier converted, redeemed or repurchased pursuant to their terms. Contractual interest expense for these notes was $2.6 million in both 2023 and 2022, and amortization of debt discount and issuance costs totaled $3.1 million in 2023 and $2.6 million in 2022.

The initial conversion rate of the Notes was 25 shares of Class B Common Stock per $1,000 principal amount of Notes (after giving effect to the Company’s reverse stock split that occurred on May 18, 2020), which is equal to an initial conversion price of $40.00 per share. As of December 31, 2023, the conversion rate of the Notes was 33.5568 shares per $1,000 principal amount of Notes, which is equal to a conversion price of $29.80 per share. The conversion rate is subject to adjustment in certain events as set forth in the Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Before July 1, 2024, the Notes are convertible only under circumstances as described in the Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental change adjustment will result in a conversion rate greater than 62 shares per $1,000 in principal amount.

The Indenture contains a “blocker provision” which provides that no holder (other than the depository with respect to the Notes) or beneficial owner of a Note shall have the right to receive shares of the Class B Common Stock upon conversion to the extent that, following receipt of such shares, such holder or beneficial owner would be the beneficial owner of more than 4.99% of the outstanding shares of the Class B Common Stock.

The Notes are subject to events of default typical for this type of instrument. If an event of default, other than an event of default in connection with certain events of bankruptcy, insolvency or reorganization of the Company or any significant subsidiary (in which case no notice of acceleration is required), occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Company and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Notes then outstanding to be due and payable. The Notes also contain conversion features related to certain events, which include liquidation or dissolution, as well as fundamental changes to the structure or ownership of the Company.

The Company may redeem for cash all or any portion of the Notes, at its option, if the last reported sale price of the Class B Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

The Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company (including trade payables). We bifurcate the liability and equity components of the Notes. The initial carrying amount of the liability component was $25.3 million and represented the present value of the cash flows of the Notes using an implied discount rate of 18.7%, which was a yield applicable to similar debt instruments that did not have the conversion feature. After allocation of the initial proceeds to the liability components, the remaining amount was allocated to the equity component and recorded as additional paid in capital. The Company recorded $13.5 million in total debt discount and issuance costs related to the Notes. The Company allocated costs related to the issuance of the Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The Company further valued a derivative liability in connection with the interest make-whole provision on the issuance date based on a lattice model. This amount was recorded as a debt discount and is amortized to interest expense over the term of the Notes using the effective interest rate. The derivative liability is remeasured at each reporting date, and any change in fair value is included in other income (expense) in the Consolidated Statements of Operations. The value of the derivative liability as of both December 31, 2023 and December 31, 2022 was less than $0.1 million.

RumbleOn Finance Line of Credit

In February 2022, RumbleOn Finance and an indirect subsidiary of RumbleOn entered into a consumer finance facility (“ROF Facility”) primarily to provide up to $25.0 million for ROF’s use in underwriting consumer loans. All loans under this agreement were secured by certain collateral, including the consumer finance loans purchased by the ROF Facility. We provided customary representations and covenants under the agreements which included financial covenants and collateral performance covenants. Loans in the ROF Facility were subject to certain eligibility criteria, concentration limits and reserves. Beginning January 31, 2023, our finance company did not meet the interest rate spread requirement set forth in the ROF Facility as a result of increased interest rates and limited growth of our consumer finance business. The lender never requested repayment of the principal balance due under this facility; however, we made the decision to sell the loan portfolio held at ROF and pay off the outstanding balance.

On December 29, 2023, we sold the loan portfolio held at RumbleOn Finance for $17.0 million, and the outstanding balance of the loan was repaid on January 2, 2024 from the cash proceeds received. The ROF loan amount is included in the current portion of long-term debt in the accompanying Condensed Consolidated Balance Sheet at December 31, 2023. The net cash proceeds the Company received on January 2, 2024 when the sale of the loan portfolio settled was $3.0 million after the satisfaction of secured indebtedness, expenses, commissions, and fees. These proceeds, together with working capital in RumbleOn Finance, were used to repay $11.2 million of outstanding indebtedness under the Oaktree Credit Agreement.

NOTE 10 –LEASES

Supplemental information related to leases and balance sheet classification as of December 31 was as follows ($ in millions):

The weighted-average remaining lease term and discount rate for our operating and financing leases as of December 31 for the corresponding year were as follows:

The following table provides information related to the lease costs of finance and operating leases ($ in millions):

The Company has related party operating leases for 24 properties. The following table provides information related to the portion of operating lease assets and liabilities which are attributable to related party leases at December 31 ($ in millions):

Supplemental cash flow information related to leases was as follows:

The following table summarizes the future minimum payments for leases as of December 31, 2023:

(1) Finance lease liability is recorded in long-term debt. See Note 9.

NOTE 11 –STOCKHOLDERS' EQUITY

Stock-Based Compensation

The Company has a shareholder-approved stock incentive plan (as amended, the “Plan”) allowing for the issuance of restricted stock units (“RSUs”), stock options (“Options”), performance units, and other equity awards (collectively “Awards”). As of December 31, 2023, the number of shares authorized for issuance under the Plan was 3,291,461 shares of Class B common stock and there were 1,030,940 shares available for future issuance under the Plan. RSU and Option awards generally vest based on continued service by the recipient of the Award to the Company over a period of up tothree years.

The following table reflects stock-based compensation expense:

As of December 31, 2023, unamortized stock-based compensation expense and the related weighted-average period over which it is expected to be recognized is presented in the table below.

Restricted Stock Units

RSU activity and the corresponding weighted-average grant-date fair value per share during 2023 and 2022 were as follows:

Stock Options

Stock options allow recipients to purchase shares of Class B common stock at a fixed exercise price. The fixed exercise price is equal to the price of a share of Class B common stock at the time of grant. The options generally expire 10 years after the grant date.

In connection with his appointment as Chief Executive Officer, the Company granted Michael W. Kennedy an award of performance-based stock options on December 13, 2023 to purchase 825,000 shares (“Performance Options”) of the Company’s Class B common stock, which will vest in installments over a maximum period offive years starting on the grant date, subject to meeting certain stock performance thresholds ranging from $12.00 to $40.00 for a period of 30 days and Mr. Kennedy’s continued service with the Company through each such vesting date. The award was granted as an inducement to Mr. Kennedy’s entry into employment and was approved by the Compensation Committee of the Company’s Board of Directors, in accordance with Nasdaq Listing Rule 5635(c)(4). The award was granted outside of the Plan, as amended.

The fair value of the Performance Options was determined using a Monte Carlo model and the following assumptions:

The following is a summary of the stock options activity for the Company for the past two years:

Rights Offering

The Company commenced a $100.0 million rights offering on November 13, 2023 that expired on December 5, 2023, as extended by the Company. To effect this rights offering, the Company’s existing shareholders were granted a dividend of subscription rights to purchase a designated number of shares of Class B common stock at a price of $5.50. Pursuant to the terms of a standby purchase agreement with related parties Mark Tkach, William Coulter, and Stone House Capital Management, LLC, a Delaware limited liability company (“Stone House”) and collectively, the “Standby Purchasers”, the Standby Purchasers acquired $18.9 million of Class B common stock that had not been purchased by other existing shareholders. Net proceeds after expenses incurred to effect the rights offering were $98.4 million, of which the Company used $50.0 million to pay down a portion of the outstanding term loan indebtedness under the Oaktree Credit Agreement. The transaction resulted in the issuance of 18.2 million new shares of Class B common stock.

Common Stock Warrants

In connection with entering into Amendment No. 5 (as defined in Note 9), on August 14, 2023 the Company issued warrants to Oaktree and the lenders to purchase up to 1,212,121 shares of Class B common stock at an exercise price of $12.00. Such warrants are exercisable for up tofive years following the date of issuance.

The following table summarizes warrant activity in 2023 and 2022:

(1) The warrants outstanding in 2022 had a weighted-average exercise price of $34.22 and expired at various times during 2023.

(2) Warrants were granted in 2023 with an exercise price of $12.00, which was adjusted in accordance with the terms of the grant subsequent to the Rights Offering. The exercise price attributable to the Warrants outstanding at December 31, 2023 was $11.25.

The warrants are classified as equity, and the fair value of the warrants was determined at issuance date using the Black-Scholes option pricing model with the following assumptions:

Preferred Stock

The Company has authorized 10 million shares of $0.001 par value preferred stock, with none issued or outstanding as of December 31, 2023 or 2022.

NOTE 12 –SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

NOTE 13 –INCOME TAXES

The components of the income tax provision (benefit) from continuing operations were as follows:

Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows:

A reconciliation of the statutory U.S. Federal income tax rate of 21% to our effective income tax rate follows:

In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. In estimating future taxable income, the Company relies upon assumptions and estimates about future activities, including the amount of future federal and state pretax operating income that the Company will generate; the reversal of temporary differences; and the implementation of feasible and prudent tax planning strategies.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. As of December 31, 2023, management has evaluated the realizability of the Company’s deferred tax assets and recorded a valuation allowance against the Company’s federal and state deferred tax assets, as it is more likely than not that the deferred tax assets will not be realized based on the evidence evaluated.

The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. In estimating future taxable income, the Company relies upon assumptions and estimates about future activities, including the amount of future federal and state pretax operating income that the Company will generate; the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. Accordingly, a valuation allowance of $93.6 million has been established against the Company’s deferred tax assets. Management reevaluates the positive and negative evidence each period.

As of December 31, 2023 and 2022, the Company has federal net operating loss carryforwards of $112.4 million and $73.2 million, all of which were generated in years ending after December 31, 2017 and can be carried forward indefinitely. As of December 31, 2023, the Company had state net operating loss carryforwards of $64.8 million, a portion of which begin to expire in 2029. As a result of various ownership changes, the Company’s federal and state net operating losses are subject to limitations under Internal Revenue Code (“IRC”) Section 382. Pursuant to the Company’s Section 382 analysis, the net operating losses generated prior to 2017 were determined to be not realizable as they arose from a different trade or business and were written off as part of the Company’s income tax expense for 2022.

The Company does not have unrecognized tax benefits related to uncertain tax positions. The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception. Based on the statutes of limitations in the applicable jurisdictions in which the Company operates, tax years 2018 through 2022 remain open to examination by the U.S. federal and state taxing jurisdictions, as carryforward attributes generated in prior years may still be adjusted upon examination by the Internal Revenue Service (“IRS”) or state tax authorities if they have or will be used in a future period. The Company files income tax returns in the U.S. federal and various state jurisdictions. There are currently no federal or state audits in progress for any tax years.

NOTE 14 –LOSS PER SHARE

For purposes of the loss per share calculation for 2023,394,161 unvested RSUs,825,000 Performance Options,801 stock options, Oaktree Warrants to purchase 1,212,121 shares of Class B common stock, and 1,302,004 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect was antidilutive. In addition, the common stock warrants discussed in Note 11 that expired during the year were antidilutive and excluded from the loss per share calculation for the entire year.

For purposes of the loss per share calculation for 2022,588,948 unvested RSUs,2,380 stock options, warrants to purchase 1,212,121 shares of Class B Common Stock, other warrants to purchase 16,531 shares of Class B Common Stock and 982,107 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but were excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect was antidilutive.

NOTE 15 –SUPPLEMENTAL CASH FLOW INFORMATION

The following table includes supplemental cash flow information, including noncash investing and financing activity:

For supplemental cash flow information related to leases, see Note 10.

The following table provides a reconciliation of cash and restricted cash as of December 31 reported within the accompanying consolidated balance sheets that sum to the amounts shown in the accompanying consolidated statements of cash flows:

(1)Amounts included in restricted cash are primarily comprised of the deposits required under the Company’s various floorplan lines of credit and the RumbleOn Finance line of credit before it was repaid in January 2024.

(2)At the beginning of 2022, cash of discontinued operations was $2.5 million.

NOTE 16 –FAIR VALUE MEASUREMENTS

Fair Value of Measurements Using Level 3 Inputs on a Non-recurring Basis

In connection with the Company’s 2023 annual goodwill and indefinite-lived intangible assets impairment assessment, the Company recognized non-cash impairment charges of $23.1 million and $37.0 million to reduce the carrying values of goodwill and franchise rights, respectively, to their fair values, in the Powersports reporting unit.

In 2022, the Company recognized non-cash impairment charges of $218.6 million and $105.7 million to reduce the carrying value of the goodwill and franchise rights, respectively, to their fair values, in the Powersports reporting unit and $26.0 million to write off the goodwill in the now discontinued automotive business.

In addition, assets acquired and liabilities assumed in business combinations were recorded at their fair values as of the acquisition date.

NOTE 17 –RELATED PARTY TRANSACTIONS

Backstop Purchase

On December 8, 2023, under the terms of the Standby Purchase Agreement dated as of August 8, 2023, as amended (the “Purchase Agreement”), among the Company, Mark Tkach (“Tkach”), William Coulter (“Coulter”) and Stone House Capital Management, LLC, a Delaware limited liability company d/b/a Stone House Partners (“Stone House” and, collectively with Tkach and Coulter, the “Standby Purchasers”), the Company issued and sold to the Standby Purchasers 3,443,289 shares of Class B common stock at an exercise price of $5.50 per share (the “Backstop Securities”) for an aggregate purchase price of approximately $18.9 million (the “Backstop Purchase”). The Backstop Securities represent the shares of the Company’s Class B common stock that remained unsubscribed for by the shareholders of the Company as of the expiration of the subscription period of the Company’s rights offering. Coulter and Tkach are directors and former executive officers of the Company. Subject to the terms and conditions of the Purchase Agreement, the Company agreed to provide Stone House with the right to designate one nominee to the Board of Directors of the Company not later than 60 days after the date of the Purchase Agreement. Mark Cohen, managing member of Stone House, was appointed as a director pursuant to the board nomination right granted to Stone House under the Purchase Agreement.

Pursuant to the Purchase Agreement, the Company agreed to reimburse the Standby Purchasers for the reasonable out-of-pocket costs and expenses incurred by them in connection with the negotiation, execution and delivery of the Purchase Agreement and the transactions contemplated thereby, including reasonable and documented fees and disbursements of counsel to each Standby Purchaser. The Company did not pay or give, directly or indirectly, any commission or other remuneration, including underwriting discounts and commissions, in connection with the issuance of the Backstop Securities.

Proxy Settlement Agreement and Related Transactions

In 2023, certain disputes arose between Tkach and Coulter, on the one hand, who are holders of greater than 5% of our outstanding common stock, and the Company and the then serving members of the Company’s management, on the other hand, which led Tkach and Coulter to submit a notice of intent to make nominations and submit proposals for consideration at our 2023 annual stockholder meeting (the “2023 Annual Meeting”). On June 15, 2023, the Company reached a binding settlement agreement with Coulter and Tkach relating to the matters in dispute, which was reflected in a binding term sheet (the “Term Sheet”). Pursuant to the Term Sheet, the Company agreed to take certain corporate governance actions, including selecting Tkach as a director and naming Coulter as a Board observer until the 2023 Annual Meeting, and nominating Coulter for election as a director at the 2023 Annual Meeting, and, for a period of 90 days following execution of the Term Sheet (the “Standstill Agreement Period”), Coulter and Tkach agreed to vote as recommended by the Board at any annual meeting or special meeting of the Company’s stockholders, and to refrain from calling any special meetings of the Company’s stockholders, granting or soliciting proxies (other than to named proxies included in the Company’s proxy card for any stockholder meeting), or making any nominations or proposals at any annual or special meetings of stockholders. The Company also agreed to reimburse the reasonable, documented, out of pocket advisor fees and expenses incurred by Coulter and Tkach in connection with their proxy contest, which were estimated to be $2.5 million.

On June 30, 2023, the Company entered into a Cooperation Agreement with Coulter and Tkach, formalizing the parties’ agreements under the Term Sheet. Following Tkach’s initial term on the Board, the Cooperation Agreement provided for an appointment as a Board observer until such time as he was appointed as a director. Pursuant to the Cooperation

Agreement, Coulter and Tkach have unrestricted access to attend and participate in any meetings of the Board or any committee thereof held while an observer to the Board. Substantially all of the terms of the Term Sheet and the Cooperation Agreement have been implemented, and the Company is not aware of any actions remain to be taken that are likely to lead to a material dispute among the parties as to the performance of their respective obligations thereunder.

Leases

The Company leases 24 properties consisting of dealerships and offices from related parties. Each related party lease is with a wholly owned subsidiary of the Company as the tenant and an entity controlled by Coulter and/or Tkach, as the landlord. The initial aggregate base rent payment for all 24 leases was approximately $1.2 million per month. Each lease commenced a 20-year term on September 1, 2021 and contains an annual 2% increase on base rent. See Note 10 for the right-of-use assets and liabilities associated with the related party leases.

In 2024, an additional related-party operating lease with a 20-year term was entered into for a property in Tallahassee, Florida, with initial annual base rate payments totaling approximately $0.4 million that increase 2% per year. This lease contains a purchase option.

Employment of Immediate Family Members

Coulter hadone immediate family member who was employed by the Company until August 30, 2022 who received gross pay of $0.3 million, including the income from vested RSUs under the Plan during 2022. No payments were made in 2023.

Tkach hasthree immediate family members that were, or continue to be, employed by the Company. One of these family members was employed by the Company until February 21, 2022 and received aggregate gross pay of $0.1 million in 2022 and nothing in 2023. The second family member received aggregate gross pay of $0.5 million in 2023 and $0.4 million in 2022, including the income from vested RSUs under the Plan. The third family member received aggregate gross pay of $0.2 million in 2023 and $0.2 million in 2022.

Payments to Coulter Management Group LLLP

The Company remitted $0.1 million in 2023 and $0.3 million in 2022 to Coulter Management Group LLLP, an entity owned by Coulter. These payments were made to cover certain proportionate costs of the Company, including health plan and IT contract expenses that were shared among Coulter Management and the RideNow entities for a period of time after the acquisition.

Bidpath Software License

On January 19, 2022, the Audit Committee approved, and the Company entered intotwo agreements with Bidpath Incorporated, a company owned by Adam Alexander, a former director of the Company, that provided the Company with (i) a perpetual, non-exclusive license to the then-current source code, as well as all future source code, of foundational technology for our inventory management platform, and (ii) support and maintenance services, all of which remained in development prior to Company’s termination of the contract effective August 31, 2023, pursuant to the contract’s terms.

The Company madeno payments for the licenses in 2023 and paid $3.6 million in 2022. The Company paid Bidpath for support and maintenance services totaling $0.2 million in 2023 and $0.4 million in 2022. Upon termination of the contract, we recorded a $2.6 million impairment for the remaining amount of capitalized costs.

Ready Team Grow, LLC

The Company paid $0.1 million in 2023 and $0.2 million in 2022 to Ready Team Grow, LLC for employee recruiting services. This entity is owned by the domestic partner of the Company’s former CEO, Marshall Chesrown. The Company’s use of the entity ended in 2023.

Promissory Notes

In connection with the acquisition of RideNow in 2021, the Company assumedtwo promissory notes of $2.2 million as of the acquisition date due to entities controlled by Coulter and/or Tkach. Amounts due under thesetwo promissory notes had been paid in full as of December 31, 2022.

Payments to RideNow Management, LLLP

On June 27, 2022, the Company repaid a loan of $0.7 million to RideNow Management LLLP, an entity owned equally by Coulter and Tkach.

RideNow Reinsurance Products

The Company sells extended service contracts, prepaid maintenance, GAP insurance, theft protection and tire and wheel products on vehicles sold to customers. Affiliate reinsurance companies previously controlled by and owned primarily by directors who were formerly executive officers of the Company participated in the profits of these products sold through the RideNow locations. The Company paid approximately $0.1 million to these affiliated companies during 2022. The related party relationship ended February 1, 2022.

NOTE 18 -SEGMENT REPORTING

Business segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Our operations are organized by management into operating segments by line of business. Subsequent to the disposal of the automotive reportable segment, we have determined that we havetwo reportable segments as defined in GAAP for segment reporting: powersports and vehicle transportation services. Our powersports segment consists of the sale and distribution of new and pre-owned vehicles, principally consisting of motorcycles and other powersports vehicles. Our vehicle transportation services segment provides nationwide transportation brokerage services between dealerships and auctions. Our vehicle transportation services reportable segment has been determined to representone operating segment and reporting unit. The accounting policies of the segments are the same and are described in Note 1.

The following table summarizes revenue, operating income (loss) from continuing operations, depreciation and amortization, and interest expense which are the measures by which management allocates resources to its continuing segments to each of our reportable segments.

(1) Primarily revenue from the automotive segment, which is reported as discontinued operations.

Total assets by operating segment as of December 31 were as follows:

(1)Related to the acquisitions of Wholesale, Inc. and Express, RideNow, and Freedom Powersports, and receivables and other balances for intercompany activities.

NOTE 19 -DISCONTINUED OPERATIONS

In the fourth quarter of 2022, the Company announced plans to wind down its automotive business. As of June 30, 2023, the Company had completed all substantial activities pertaining to the wind down of its automotive business, which represented a strategic shift having a major effect on our operations and financial results.

We have reclassified all direct revenues, costs, and expenses related to commercial operations of the wholesale automotive business, within loss from discontinued operations in the Consolidated Statements of Operations for all periods presented. We have not allocated any amounts for shared general and administrative operating support expenses to discontinued operations. While ASC 205-20 does not explicitly require assets and liabilities of a discontinued operation to be separately presented in prior periods when the disposal is other than by sale, we have presented related assets and liabilities as assets and liabilities of discontinued operations in our Consolidated Balance Sheets.

Discontinued operations consisted of the following:

The following table presents the carrying amounts of the assets and liabilities of discontinued operations, all of which were current, as of December 31:

NOTE 20 –COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, as of December 31, 2023 the Company does not believe that the ultimate resolution of any legal actions, either individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, liquidity, and capital resources.

Future litigation may be necessary to defend the Company by determining the scope, enforceability and validity of third-party proprietary rights or to establish its own proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

As previously disclosed, the Company is conducting an investigation of certain allegations surrounding Marshall Chesrown’s use of Company resources. The investigation remains ongoing and as of the date of this filing, the Company has made no final determination as to what action to take. On July 7, 2023, Mr. Chesrown provided the Board a letter of resignation (the “Resignation Letter”) describing Mr. Chesrown’s disagreement with several recent corporate governance, disclosure and other actions taken by the Company, the Board and certain of its members, and indicated his intent to pursue legal claims. The Company disagrees with the characterization of the allegations and assertions described in the Resignation Letter. The Company and Mr. Chesrown conducted a pre-suit mediation in October 2023, as required in his employment agreement, but did not resolve the matter. On March 13, 2024, Mr. Chesrown filed suit against the Company in Delaware Superior Court for the claims asserted in his Resignation Letter. Mr. Chesrown is seeking a declaratory judgment that he resigned with good reason, termination compensation damages in the amount of $7.5 million, general and reputational damages in the amount of $50 million, punitive damages, attorney's fees and litigation costs. We intend to defend these claims vigorously; however, we can provide no assurance regarding the outcome of this matter.

During the year ended December 31, 2022, the Company incurred $8.4 million in charges for a settlement reached with former minority shareholders of RideNow. The charges were expensed as incurred and are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.

Letters of Credit

We issue letters of credit to secure the Company’s various financial obligations, including floorplan financing arrangements and insurance policy deductibles and other claims. The total amount of outstanding letters of credit was $10.6 million. We do not believe that it is probable that any outstanding letters of credit will be drawn upon.