Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On March 12, 2021, the RumbleOn, Inc. (the “Company) entered into a Plan of Merger and Equity Purchase Agreement (the “RideNow Agreement”) to acquire RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group”). RideNow is a collection of franchised dealerships operating in the powersports industry. Collectively, the Group is referred to as the Acquired Companies in the Agreement. The Group is engaged in the sale of new and used motorcycles, all- terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of December 31, 2020, RideNow owned and operated more than 45 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.
The RideNow Agreement provides that the Company will acquire the Acquired Companies in exchange for (i) $400,400,000 in cash plus or minus any adjustments for net working capital and closing indebtedness, and (ii) shares of the Company's Class B Common Stock having a value of $175,000,000 (the “Closing Payment Shares”), valued equally, on a per share basis, based upon the lowest value of (A) $30.00; (B) the VWAP of the Company's Class B Common Stock for the twenty (20) trading days immediately preceding the Closing, and (C) the value on a per share basis paid for the Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock by any person which purchases Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock from the Company from the date of the RideNow Agreement until the Closing not including purchases of Class B Common Stock underlying currently outstanding options, warrants, convertible notes, or other derivative securities. Ten percent (10%) of the Closing Payment Shares will be escrowed at Closing and will be released pursuant to the terms of the RideNow Agreement. The Company will finance the cash consideration through a combination of approximately $280,000,000 of debt provided by the Initial Lender (as defined below) and through the issuance of new equity for the remainder thereof.
The following unaudited pro forma condensed combined financial statements are based on the Company’s audited historical consolidated financial statements and RideNow’s audited historical combined financial statements as adjusted to give effect to the Company’s acquisition of RideNow and the related financing transactions. The unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2020 gives effect to these transactions as if they occurred on December 31, 2020. The unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2020 give effect to these transactions as if they occurred on January 1, 2020.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s audited historical financial statements, which are included in the Company’s most recent Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 31, 2021, and RideNow’s audited historical financial statements included in this Form 8-K.
The unaudited pro forma combined financial information is provided for informational purpose only and is not intended to represent or be indicative of the consolidated results of operations or financial position that the Company would have reported had the RideNow transaction closed on the dates indicated and should not be taken as representative of our future consolidated results of operations or financial position.
The pro forma adjustments related to the RideNow Agreement are described in the notes to the unaudited pro forma combined financial information and principally include the following:
■
Pro forma adjustment to eliminate the RideNow assets, liabilities and owners’ equity not acquired.
■
Pro forma adjustment to record the equity and debt financing obtained in connection with the RideNow merger.
■
Proforma adjustment to record the merger of the Company and RideNow.
■
Proforma adjustments to record the record the estimated interest expense and other expenses resulting from the merger.
■
Record the estimated tax provision on the consolidated income before tax, as adjusted for the above pro forma adjustments.
The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed consolidated financial statements may be materially different from those reflected in the combined company’s consolidated financial statements subsequent to the merger. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or results of operations of the combined companies. Reclassifications and adjustments may be required if changes to RideNow’s financial presentation are needed to conform RideNow’s accounting policies to the accounting policies of RumbleOn.
These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the RideNow Agreement. These financial statements also do not include any integration costs the companies may incur related to the Transactions as part of combining the operations of the companies.
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Balance Sheet
as of December 31, 2020
(Unaudited)
| | | | | | |
| ASSETS | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $1,466,831 | $3,905,686 | $70,392,514 | A | $75,765,031 |
| Restricted cash | 2,049,056 | - | | | 2,049,056 |
| Accounts receivable, net | 9,407,960 | 105,295,826 | (84,478,128) | B | 30,225,658 |
| Inventory | 21,360,441 | 109,749,521 | | | 131,109,962 |
| Other current assets | 3,446,225 | 1,625,109 | | | 5,071,334 |
| Total current assets | 37,730,513 | 220,576,142 | (14,085,614) | | 244,221,041 |
| | | | | | |
| Property and equipment - net | 6,521,446 | 23,705,230 | | | 30,226,676 |
| Right of use assets | 5,689,637 | 71,280,471 | | | 76,970,108 |
| Other indefinite lived intangible assets | - | - | 194,483,527 | C | 194,483,527 |
| Goodwill | 26,886,563 | 55,294,222 | 347,985,099 | C | 430,165,884 |
| Other assets | 151,076 | 1,553,183 | (1,264,424) | D | 439,835 |
| Total assets | $76,979,235 | $372,409,248 | $527,118,588 | | $976,507,071 |
| | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | |
| | | | | | |
| Current liabilities: | | | | | |
| Accounts payable and accrued liabilities | $12,563,300 | $64,421,687 | $(23,352,582) | E | $53,632,405 |
| Lease liabilities-current portion | 1,630,002 | 19,815,301 | | | 21,445,303 |
| Notes payable-floor plan | 17,811,626 | 68,533,679 | | | 86,345,305 |
| Current portion of long-term debt | 3,439,527 | 8,597,444 | |
| 12,036,971 |
| Total current liabilities | 35,444,455 | 161,368,111 | (23,352,582) | | 173,459,984 |
| | | | | | |
| Long term liabilities: | | | | | |
| Long-term debt | 4,691,181 | 24,816,133 | 235,926,821 | F | 265,434,135 |
| Convertible debt, net | 27,166,019 | - | | | 27,166,019 |
| Derivative liabilities | 16,694 | - | | | 16,694 |
| Lease liabilities-long-term portion | 4,370,154 | 72,024,876 | | | 76,395,030 |
| Other long-term liabilities | 720,067 | 4,779,112 | | | 5,499,179 |
| Total long-term liabilities | 36,964,115 | 101,620,121 | 235,926,821 | | 374,511,057 |
| | | | | | |
| Total liabilities | 72,408,570 | 262,988,232 | 212,574,239 | | 547,971,041 |
| | | | | | |
| Stockholders' equity: | | | | | |
| Class B Preferred stock | - | - | | | - |
| Class A stock | 50 | - | | | 50 |
| Class B Stock | 2,192 | - | 10,717 | G | 12,909 |
| Owners’ equity | - | 109,421,016 | (109,421,016) | H | - |
| Additional paid in capital | 108,949,204 | - | 423,954,648 | G | 532,903,852 |
| Accumulated deficit | (104,380,781) | - | | | (104,380,781) |
| Total stockholders' equity | 4,570,665 | 109,421,016 | 314,544,349 | | 428,536,030 |
| Total liabilities and stockholders' equity | $76,979,235 | $372,409,248 | $527,118,588 | | $976,507,071 |
See Accompanying Notes to Pro Forma Financial Statements.
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
(Unaudited)
| | | | | | |
| Revenue: | | | | | |
| Vehicle sales | | | | | |
| Powersports | $46,653,668 | $662,149,234 | | | $708,802,902 |
| Automotive | 337,084,959 | - | | | 337,084,959 |
| Transportation and vehicle logistics | 31,816,157 | - | | | 31,816,157 |
| Parts and other revenue | 872,459 | 236,741,164 | | | 237,613,623 |
| Total Revenue | 416,427,243 | 898,890,398 | | | 1,315,317,641 |
| | | | | | |
| Cost of revenue | | | | | |
| Powersports | 40,060,571 | 551,652,098 | | | 591,712,669 |
| Automotive | 308,800,631 | - | | | 308,800,631 |
| Transportation and vehicle logistics | 24,200,229 | - | | | 24,200,229 |
| Other cost of sales and revenue | - | 91,017,529 | | | 91,017,529 |
| Cost of revenue before impairment loss | 373,061,431 | 642,669,627 | | | 1,015,731,058 |
| Impairment loss on automotive inventory | 11,738,413 | - | | | 11,738,413 |
| Total cost of revenue | 384,799,844 | 642,669,627 | | | 1,027,469,471 |
| | | | | | |
| Gross profit | 31,627,399 | 256,220,771 | | | 287,848,170 |
| | | | | | |
| Selling, general and administrative | 53,659,348 | 154,520,040 | 2,393,673 | I | 210,573,061 |
| Insurance recovery proceeds | (5,615,268) | - | | | (5,615,268) |
| Depreciation and amortization | 2,142,939 | 4,087,914 | | | 6,230,853 |
| | | | | | |
| Operating income (loss) | (18,559,620) | 97,612,817 | (2,393,673) | | 76,659,524 |
| | | | | | |
| Interest expense | (6,638,325) | (6,956,809) | (31,402,906) | J | (44,998,040) |
| Other income | 198,970 | 1,967,068 | | | 2,166,038 |
| | | | | | |
| Net income (loss) before provision for income taxes | $(24,998,975) | $92,623,076 | (33,796,579) | | 33,827,522 |
| | | | | | |
| Income tax expense | - | - | (8,456,880) | K | (8,456,880) |
| | | | | | |
| Net income (loss) | $(24,998,975) | $92,623,076 | $(42,253,459) | | $25,370,642 |
| | | | | | |
| Weighted average number of common shares outstanding – basic | 2,184,441 | | | | 10,851,570 |
| | | | | | |
| Net income (loss) per share – basic | $(11.44) | | | | $2.34 |
| | | | | | |
| Weighted average number of common shares outstanding – basic and fully diluted | 2,184,441 | | | | 10,991,564 |
| | | | | | |
| Net income (loss) per share – fully diluted | $(11.44) | | | | $2.31 |
See Accompanying Notes to Pro Forma Financial Statements.
RumbleOn Inc. and Subsidiaries
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
Note 1 – Basis of Presentation
The audited historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of RideNow’s assets acquired and liabilities assumed and conformed the accounting policies of RideNow to its own accounting policies.
The unaudited pro forma condensed combined financial statements are based on our audited historical consolidated financial statements and RideNow’s audited historical combined financial statements as adjusted to give effect to the Company’s acquisition of RideNow and the related financing transactions. The Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2020 gives effect to these transactions as if they occurred on December 31, 2020. The Unaudited Pro Forma Condensed Combined Statements of Operations for the twelve months ended December 31, 2020 give effect to these transactions as if they occurred on January 1, 2020.
The allocation of the purchase price used in the unaudited pro forma financial statements is based upon a preliminary valuation by management. The final estimate of the fair values of the assets and liabilities will be determined with the assistance of a third-party valuation firm. The Company’s preliminary estimates and assumptions are subject to materially change upon the finalization of internal studies and third-party valuations of assets, including investments, property and equipment, intangible assets including goodwill, and certain liabilities.
The Unaudited Pro Forma Condensed Combined Financial Statements are provided for informational purpose only and is not necessarily indicative of what the combined company’s financial position and results of operations would have actually been had the Transactions been completed on the dates used to prepare these pro forma financial statements. The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed combined financial statements may be materially different from those reflected in the combined company’s consolidated financial statements subsequent to the Transactions. In addition, the Unaudited Pro Forma Condensed Combined Financial Statements do not purport to project the future financial position or results of operations of the combined companies. Reclassifications and adjustments may be required if changes to RumbleOn’s financial presentation are needed to conform RumbleOn’s accounting policies to the accounting policies of the RideNow.
These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the Transactions. These financial statements also do not include any integration costs the companies may incur related to the Transactions as part of combining the operations of the companies.
Note 2 – Summary of Significant Accounting Policies
The unaudited pro forma condensed combined financial statements have been prepared in a manner consistent with the accounting policies adopted by the Company. The accounting policies followed for financial reporting on a pro forma basis are the same as those disclosed in the 2020 Annual Report on Form 10-K and for RideNow, the accounting policies followed for financial reporting on a pro forma basis are the same as those disclosed in the audited financial statements included in this Form 8-K . The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies among the Company and RideNow. The Company is reviewing the accounting policies of RideNow to ensure conformity of such accounting policies to those of the Company and, as a result of that review, the Company may identify differences among the accounting policies of the two companies, that when confirmed, could have a material impact on the consolidated financial statements. However, at this time, the Company is not aware of any difference that would have a material impact on the unaudited pro forma condensed combined financial statements.
RumbleOn and RideNow have recorded leases in accordance with ASC 842. In the pro forma combined balance sheet theses lease are reported as a single amount for short-term and long-term lease liabilities. The following table provides the segregation of these leases between operating leases and financing leases for the audited historical financial statements for RumbleOn and RideNow.
| | | |
| Lease liabilities – current portion | | |
| Operating leases | $1,630,002 | $15,755,805 |
| Financing leases | - | 4,059,496 |
| Total lease liabilities – current portion | $1,630,002 | $19,815,301 |
| | | |
| Lease liabilities – long-term portion | | |
| Operating leases | $4,370,154 | $57,473,929 |
| Financing leases | - | 14,550,947 |
| Total lease liabilities – long-term portion | $4,370,154 | $72,024,876 |
RideNow has notes receivable due from a related party, which is included in other assets in the pro forma combined balance sheet. In addition, RideNow has certain payables due from related parties and are included in the current and long-term portions of long-term debt in the pro forma combined balance sheet. The following table is provided to segregate these amounts before being combined in the balance sheet.
| | | |
| Other assets | | |
| Notes receivable – related party | $- | $1,264,425 |
| Other non-current assets | 151,076 | 288,758 |
| Total other assets | $151,076 | $1,553,183 |
| | | |
| | | |
| Current portion of long-term debt | | |
| Notes payable-related parties | $ - | $504,000 |
| Notes payable – other | 3,439,527 | 8,093,444 |
| Total current portion of long-term debt | $3,439,527 | $8,597,444 |
| | | |
| Long-term debt | | |
| Notes payable – related parties | $ - | $6,907,322 |
| Notes payable – PPP Loans | - | 16,923,759 |
| Notes payable – other | 4,691,181 | 985,052 |
| | $4,691,181 | $24,816,133 |
RideNow Sweep Account
RideNow is a participant in a Cash Sweep Account arrangement with a bank and its affiliates. The Cash Sweep Account combines the cash balances of all the participating affiliates and invests excess cash on a daily basis. Interest is paid to each participant based on the average cash balance in the Cash Sweep account over the course of the year. Any participant that develops an overdraft cash balance is charged interest. For the years ended December 31, 2020 and 2019, the Cash Sweep Account was earning interest at 1.10% and 3.11%, respectively, and for overdraft balances, the interest charged was 3.25% and 3.50%, respectively. In the audited financial statements for the year ended December 31, 2020, members of the Group with positive sweep balances reported those balances as related party receivables, whereas members of the Group with negative sweep balances reported those balances as related party payables. The following table provides a summary of these balances as of December 31, 2020:
| Cash Sweep Accounts: | |
| Related party receivable | $84,478,128 |
| Related party payable | (27,956,598) |
| Net Cash Sweep Account Balance | $56,521,530 |
| | |
For purposes of the Unaudited Condensed Combined Balance Sheet as of December 31,2020, the proforma adjustment below to record the preliminary allocation of the purchase price includes a reclassification of these related party balances to cash as a management contemplates that balances in the sweep account on the date of closing will be transferred to a Company account.
Note 3 – Financing Transactions
Senior Secured Term Loan
The Company is financing $280,000,000 of the cash consideration pursuant to the RideNow Agreement by the issuance of a new Senior Secured Term Loan. At the option of the Company, the interest rate on the new loan will be (a) Adjusted LIBOR (as defined in the Commitment Letter) plus 8.25%, of which (i) Adjusted LIBOR plus 7.25% shall be paid in cash and (ii) 1.00% shall be payable in kind or (b) ABR (as defined in the Commitment Letter) plus 7.25%, of which (i) ABR plus 6.25% shall be paid in cash and (ii) 1.00% shall be payable in kind. The Credit Facility shall mature on the fifth anniversary of the Closing date of the RideNow Transaction (subject to extension with the consent of only the extending lender). For purposes of these pro forma condensed combined financial statements, we have used an interest rate of 8.45%.
RMBL Equity Raise
To finance the balance of the cash consideration, the Company intends to raise $170,000,000 in new equity, not inclusive of any overallotment option that may be granted. To estimate the fair value of this equity, a per share price of $43.00 was used which results in the issuance of 3,953,488 shares. This price represents the per has price of the Company’s stock as of the close of business on April 2, 2020.
Transaction Costs
For purposes of these pro forma financial statements, the Company has estimated that the total transaction costs for these financing transactions will be $19,225,000 for the debt financing and $11,900,000 for the equity raise. In addition, as discussed below, the Company has issued a warrant to Oaktree for which we have estimated a preliminary value of $15,032,046. Legal and other professional fees and expenses are estimated to be approximately $4,790,000, are non-recurring, and have not been recorded as a pro forma adjustment to the Pro Forma Condensed Combined Statement of Operations.
Warrant
In connection with the Commitment Letter, in lieu of a commitment fee, the Company has agreed to issue to Oaktree a warrant to purchase a number of shares of Class B Common Stock at an exercise price per share to be determined either at Closing or at termination of the Commitment Letter (“Warrant”). If issued at Closing, the Warrant will be for that number of shares equal to $40,000,000 divided by the lowest price per share at which equity is issued in connection with financing the RideNow Transaction, which price shall also be the exercise price. If issued in connection with a termination of the Commitment Letter, the Warrant will be issued to purchase that number of shares equal to five percent (5%) of the Company’s fully diluted market capitalization at the close of business on the day after a termination of the Commitment Letter is publicly announced divided by the weighted average price of the Company's Class B Common Stock for the five days immediately preceding such date, which price shall also be the exercise price. The Warrant is immediately exercisable upon the Closing and expires eighteen (18) months after the Closing or termination of the Commitment Letter.
Using the stock price of $43.00 as of April 2, 2021, the number of warrants issued is 930,232. The preliminary fair value of the warrant has been estimated to be $15,032,046 and it is reflected in the accompanying pro form combined financial statements as debt discount. The preliminary estimated fair value was determined using the Black-Scholes method.
Note 4 - Purchase Price Allocation
On March 12, 2021, the Company entered into a Plan of Merger and Equity Purchase Agreement (the “RideNow Agreement”) to acquire RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group”). RideNow is a collection of franchised dealerships operating in the powersports industry. Collectively, the Group are referred to as the Acquired Companies in the Agreement. The Group is engaged in the sale of new and used motorcycles, all- terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of December 31, 2020, RideNow owned and operated more than 45 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.
The RideNow Agreement provides that the Company will acquire the Acquired Companies in exchange for (i) $400,400,000 in cash plus or minus any adjustments for net working capital and closing indebtedness, and (ii) shares of the Company's Class B Common Stock having a value of $175,000,000 (the “Closing Payment Shares”), valued equally, on a per share basis, based upon the lowest value of (A) $30.00; (B) the VWAP of the Company's Class B Common Stock for the twenty (20) trading days immediately preceding the Closing, and (C) the value on a per share basis paid for the Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock by any person which purchases Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock from the Company from the date of the RideNow Agreement until the Closing not including purchases of Class B Common Stock underlying currently outstanding options, warrants, convertible notes, or other derivative securities. Ten percent (10%) of the Closing Payment Shares will be escrowed at Closing and will be released pursuant to the terms of the RideNow Agreement. The Company will finance the cash consideration through a combination of approximately $280,000,000 of debt provided by the Initial Lender (as defined below) and through the issuance of new equity for the remainder thereof.
The following table summarizes the preliminary allocation of the purchase price based on the estimated fair value of the acquired assets and assumed liabilities as of December 31, 2020:
| Purchase price consideration | |
| Cash | $400,400,000 |
| 250,833,319 |
| Total purchase price consideration | $651,233,319 |
| | |
| Estimated fair value of assets: | |
| Cash | $55,823,199 |
| Contracts in transit | 10,736,791 |
| Accounts receivable | 10,080,908 |
| Inventory | 109,749,521 |
| Prepaid expenses | 1,625,109 |
| Right-of-use assets | 71,280,471 |
| Property & equipment | 23,705,230 |
| Other Assets | 288,758 |
| | 283,289,987 |
| | |
| Estimated fair value of liabilities assumed: | |
| Accounts payable, accrued expenses and other current liabilities | 49,666,549 |
| Notes payable - floor plan | 68,533,679 |
| Lease liabilities | 91,840,177 |
| Long-term debt | 15,000,000 |
| Other long-term liabilities | 4,779,111 |
| | 229,819,516 |
| | |
| Net tangible assets | 53,470,471 |
| Intangible assets | 194,483,527 |
| Goodwill | 403,279,321 |
| | |
| Total consideration | $651,233,319 |
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statement of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, technology, franchise rights and customer relationships as well as goodwill and (3) other changes to assets and liabilities.
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statement of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. For purposes of the pro forma condensed combined financial statements, for inventory, property and equipment, leases and other assets and liabilities the Company used the carrying value as reported its audited historical financial statement as reported in its Annual Report on Form 10K for the year ended December 31, 2020, and as reported in the audited historical financial statements for RideNow that have been included in this 8-K. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.
In accordance with the RideNow Agreement, as discussed above, the purchase price includes a $400,400,000 in cash plus $175,000,000 in stock. For purposes of these pro forma combined financial statements, the number of shares to be issued was determined based on a price of $30 per share as required under the RideNow Agreement which results in the issuance of 5,833,333 shares of the Company’s Class B stock. The fair value of the shares issued was determined based on a per share price of $43.00, which is the price of the RumbleOn stock as of the close of business on April 2, 2020. The following table reflects the impact of a 10% increase or decrease in the per share price on the estimated fair value of the purchase price and goodwill:
| | | |
| As presented in the pro forma combined results | $651,233,319 | $403,279,321 |
| 10% increase in common stock price | $676,316,651 | $428,362,653 |
| 10% decrease in common stock price | $626,149,987 | $378,195,989 |
Note 5 - Pro Forma Adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
A.
This adjustment records the net increase in cash resulting from the merger as follows:
| Net proceeds from issuance of debt | 260,775,000 |
Net proceeds from issuance of Class B stock | 158,100,000 |
| Total net proceeds from financing transactions | 418,875,000 |
| Less cash consideration paid to Sellers | (400,400,000) |
| Net cash received from sweep account on the Closing Date | $56,521,530 |
| Less 50% of Net Working Capital Adjustment due Seller on Date of Closing | (4,604,016) |
| Net increase in cash | 70,392,514 |
B.
This adjustment records the reclassification of the positive cash balances from the sweep account.
C.
As part of the preliminary valuation analysis, the Company identified Franchise Rights as a separately identifiable intangible asset. The fair value of this intangible asset $194,483,527 was determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. Since all the information required to perform a detail valuation analysis of RideNow’s intangible assets could not be obtained as of the date of this filing, for purposes of these unaudited pro forma condensed combined financial statements, the Company used certain assumptions based on publicly available transactions data for the industry. Based on our research and discussions with RideNow management we have concluded that the Franchise Rights intangible asset has an indefinite life and therefore we have not made any adjustment in the pro forma condensed combined statement of operations for amortization.
In addition, this adjustment reflects the recognition of goodwill of $403,279,321, less the removal of $55,294,222 of goodwill reflected on the audited historical balance sheet of RideNow as of December 31, 2020.
D.
This adjustment reflects the elimination of notes receivable related party that are expected to be paid off prior to closing.
E.
This adjustment includes the payable for 50% of the Net Working Capital adjustment of $4,604,016, less the reclassification of the negative cash balances of $27,956,598 from the sweep account.
F.
As described in Note 3 above, this adjustment records the new debt, less debt discount and less elimination as follows:
| Balance of new Senior Term Loan | $280,000,000 |
| Less deferred financing fees | (19,225,000) |
| Less debt discount | (15,032,046) |
Less removal of debt not assumed due to the $15 million cap | (9,816,133) |
| Net adjustment | $235,926,821 |
G.
This adjustment records the net proceeds received from the equity raised to finance payment of the cash consideration of $158,100,000 plus this issuance of warrants with a fair value of $15,032,036 plus the issuance of 5,833,333 shares of Class B stock to the sellers as the equity portion of the purchase consideration, valued at $250,833,319 based on a per share price of $43.00 which was the per share price of the Company’s stock as of the close of business on April 2, 2020.
H.
This adjustment eliminates RideNow’s Owners’ Equity as reported in the audited historical financial statements.
I.
Pursuant to the RideNow Agreement, the Company is adopting an Equity Incentive Plan and as disclosed in a Schedule to the RideNow Agreement rewarding 278,334 of restrictive stock units (RSUs) to employees of RideNow. Based on the stock price of $43 per share, these units have a fair value of $11,968,362. The pro forma adjustment recognizes 20% ($2,393,673) of these awards being recognized as share-based compensation in the Unaudited Condensed Combined Statement of Operations for the year ended December 31, 2020. This estimate used the same vesting schedule used by the Company as disclosed in its audited financial statements for the year ended December 31, 2020 as reported on Form 10-K.
J.
This pro forma adjustment records the estimated interest expense as follows:
| Contract interest on the new Senior Term Loan | $24,592,544 |
| Amortization of debt discount (Note 1) | 6,180,362 |
| Amortization of deferred financing costs (Note 1) | 720,000 |
| Less interest expense reported by RideNow for debt that won’t be assumed | (90,000) |
| Total interest expense adjustment | $31,402,906 |
Note (1) Amortization of debt discounts is assumed using an effective interest method using an interest rate of 11.25%. Deferred finance costs are amortized on a straight-line basis over the term of the loan (five years).
K.
This pro forma adjustment reflects the estimated tax provision that may be required based on an estimated blended federal and state statutory tax rate of 25%.
| Income before tax | $33,827,522 |
| Effective tax rate | 25% |
| Provision for taxes | $8,456,880 |
Note 6 – Combined Adjusted EBITDA Before Pro Forma Adjustments
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to U.S. GAAP.
Combined Adjusted EBITDA Before Pro Forma Adjustments is defined as net income adjusted to add back interest expense including debt extinguishment and depreciation and amortization, and certain charges and expenses, such as goodwill impairment, impairment loss on automotive inventory, impairment loss on plant & equipment, insurance recovery proceeds, non-cash stock-based compensation, change in derivative liability, litigation expenses, severance, new business development and other non-recurring costs, as these charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results, because it excludes, among other things, certain results of decisions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure and capital investments.
The following tables reconcile Combined Adjusted EBITDA Before Pro Forma Adjustments to net income based on the Company’s audited Consolidated Statement of Operations for the year ended December 31, 2020 and RideNow’s audited Combined Statements of Operations for the year ended December 31, 2020, as reported in this Form 8-K:
| | | | Combined (Before Pro Forma Adjustments) |
| Net income | $(24,998,975) | $92,623,076 | $67,624,101 |
| | | | |
| Add back: | | | |
| Interest expense (including debt extinguishment) | 6,450,161 | 6,956,809 | 13,406,970 |
| Depreciation and amortization | 2,142,939 | 4,087,914 | 6,230,853 |
| Interest income and miscellaneous income | - | (1,967,068) | (1,967,068) |
| EBITDA | (16,405,875) | 101,700,731 | 85,294,856 |
| Adjustments | | | |
| Impairment loss on automotive inventory | 11,738,413 | - | 11,738,413 |
| Impairment loss on plant & equipment | 177,626 | - | 177,626 |
| Insurance recovery proceeds | (5,615,268) | - | (5,615,268) |
| Non-cash stock-based compensation | 2,978,236 | - | 2,978,236 |
| Change in derivative liability | (10,806) | - | (10,806) |
| Litigation expenses | 1,295,717 | - | 1,295,717 |
| Other Non-recurring costs | 51,387 | - | 51,387 |
| Adjusted EBITDA | $(5,790,570) | $101,700,731 | $95,910,161 |
