NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - Nature of Operations and Principles of Consolidation
Business
Activity
LMP
Motors.com, LLC (“LMP Motors”) is engaged in the buying and selling of vehicles in the automotive industry and operates
in the state of Florida. LMP Motors is a limited liability company and was organized in the state of Delaware.
601
NSR, LLC (“NSR”) was formed to enter into future potential strategic acquisitions and is currently inactive. NSR
is a limited liability company and was organized in the state of Delaware.
LMP
Finance, LLC (“LMP Finance”) is engaged in the purchasing and subscribing of vehicles. LMP Finance operates in the
state of Florida. LMP Finance is a limited liability company and was organized in the state of Delaware.
LMP
Automotive Holdings, LLC (“LMP Automotive”) was formed to acquire the assets from LMP Motors.com LLC, LMP Finance,
LLC, and other subsidiary companies. LMP Automotive operates in the state of Florida. LMP Automotive is a limited liability company
and was organized in the state of Delaware.
LMP
Automotive Holdings, Inc. (“Automotive”) is a holding company incorporated in the state of Delaware on December 15,
2017. On December 15, 2017, the common ownership contributed 100% of its interest in LMP Motors, NSR, LMP Finance and LMP Automotive
to Automotive.
Principles
of Consolidation
These
condensed consolidated financial statements include the amounts of Automotive and its wholly owned subsidiaries, LMP Motors, NSR,
LMP Finance, and LMP Automotive, collectively referred to as the “Company.” All significant intercompany balances
and transactions are eliminated in the consolidation.
Note
2 - Summary of Significant Accounting Policies
Liquidity
The
Company has sustained net losses and has an accumulated deficit of approximately $12.9 million as of September 30, 2020. Management
plans to make strategic acquisitions of new and pre-owned automobile dealerships to expedite the Company’s growth and to
produce positive margins. The Company completed an initial public offering (“IPO”) in December 2019 and a secondary
public offering in February 2020 to help facilitate business growth and execute management’s plans to become profitable
through acquisitions. Through these two public offerings, the Company received net proceeds of approximately $27.8 million.
Management
plans to continue to obtain funding through 2020 for vehicle purchases and dealership acquisitions.
Basis
of Presentation
The accompanying condensed consolidated
financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures, which are included in
annual financial statements, have been omitted pursuant to these rules and regulations.
Although these interim condensed
consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 are unaudited, in the opinion
of management, such statements include all adjustments (consisting of normal recurring entries) and disclosure necessary to present
fairly the Company’s financial position, results of operations and cash flows for the periods presented. The results for
the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending
December 31, 2020 or for any future period. For more complete information, these unaudited condensed consolidated financial statements
should be read in conjunction with the audited financial statements for the year ended December 31, 2019.
Use
of Estimates
The
preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Accounts
Receivable
The
Company carries its accounts receivable at cost. Accounts receivable are due upon receipt. Management has determined that no allowance
for uncollectible accounts for accounts receivable is necessary as of September 30, 2020 and December 31, 2019. Such estimates
are based on management’s assessments of the creditworthiness of its customers, the aged basis of its receivables, as well
as current economic conditions and historical information.
Inventory
The
Company’s inventory consists of automobiles. Inventories are valued at the lower of cost or market, with cost determined
by specific identification and with market defined as net realizable value. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories
as of September 30, 2020 and December 31, 2019 are recorded based on perpetual inventory records.
The
Company launched its subscription and rental business in 2018, at which time it started to depreciate the corresponding fleet
inventory using a monthly rate of 1% of initial cost. Fleet vehicle depreciation was $171,719 and $534,691, respectively, for
the three and nine months ended September 30, 2020, and $225,606 and $741,761, respectively, for the three and nine months ended
September 30, 2019.
Company
management periodically reviews its inventories to determine whether any inventories have declined in value. The Company wrote
down approximately $0 and $49,000 of inventory to its net realizable value during the nine months ended September 30, 2020 and
year ended December 31, 2019, respectively.
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Automotive Inventory
|
|
$
|
9,768,280
|
|
|
$
|
10,907,755
|
|
Inventory Impairment
|
|
|
-
|
|
|
|
(49,180
|
)
|
Inventory Accumulated Depreciation
|
|
|
(611,426
|
)
|
|
|
(822,672
|
)
|
Total Automotive Inventory, net
|
|
$
|
9,156,854
|
|
|
$
|
10,035,903
|
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Automotive Inventory- Fleet, net
|
|
$
|
4,757,830
|
|
|
$
|
9,083,469
|
|
Automotive Inventory- Available for Sale, net
|
|
|
4,399,024
|
|
|
|
952,434
|
|
Total Automotive Inventory, net
|
|
$
|
9,156,854
|
|
|
$
|
10,035,903
|
|
Property,
Equipment and Leasehold Improvements
Property,
equipment, and leasehold improvements are stated at cost. The costs of additions and betterments are capitalized and expenditures
for repairs and maintenance are expensed in the period incurred. When items included in property and equipment are sold or retired,
the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in selling, general
and administrative expenses.
Vehicles
and equipment are depreciated utilizing the straight-line method over the estimated useful lives of the respective assets as follows:
Vehicles
|
|
|
5 years
|
|
Furniture and fixtures
|
|
|
10 years
|
|
Equipment
|
|
|
7 years
|
|
Leasehold
improvements are amortized over the shorter of the remaining term of the lease or the useful life of the improvement utilizing
the straight-line method.
Intangible
Assets
Intangible
assets are stated at their historical cost and amortized on a straight-line basis over their expected useful lives.
Long-lived
Assets
The
Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and
future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow
of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value
of the asset exceeds the expected future cash flows. There were no deemed impairments of long-lived assets as of September 30,
2020 and December 31, 2019.
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier
fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:
Level
1 - Valuations based on quoted prices for identical assets and liabilities in active markets.
Level
2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets
or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data.
Level
3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available
assumptions made by other market participants. These valuations require significant judgment.
As
of September 30, 2020, and December 31, 2019, the fair value of these financial instruments, including cash, accounts receivable,
net investment in sales-type leases, and accounts payable, approximated book value due to the short maturity of these instruments.
Vehicle financing and notes payable and related party notes payable approximate fair value due to market interest rates.
Share-Based
Compensation
The
Company recognizes the cost of employee services received in exchange for awards of stock options, based on the fair value of
those awards at the date of grant over the requisite service period, which generally is the vesting period of the award. The Company
uses the Black-Scholes option pricing model to determine the fair value of stock option awards.
Share-based
compensation plans, related expenses, and assumptions used in the Black-Scholes option pricing model are more fully described
in Note 15.
Revenue
Recognition
The
Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 prescribes
a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3) determine the transaction
price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) performance obligations
are satisfied.
Used
Vehicle Sales Revenue
The
Company’s business consists of retail and wholesale sales of used vehicles to customers. Sales are based on a physical showroom
and efficient online showrooms on the Company’s websites. The Company offers a home delivery service so that it delivers
the car to the place agreed upon with the client. The Company also sells used vehicles in auctions.
The
Company recognizes revenue when it satisfies a performance obligation by transferring control of a vehicle to a customer. The
prices of the vehicles are stated in its contracts at stand-alone selling prices, which are agreed upon with its customer prior
to delivery. The Company satisfies its performance obligation for used vehicle sales upon delivery when the transfer of title,
risks and rewards of ownership and control pass to the customer. The Company recognizes revenue at the agreed-upon price stated
in the contract, including any delivery charges. In addition, any noncash consideration received from a customer (i.e., trade-in
vehicles) is recognized at fair value. Customer payment is received, or third-party financing is confirmed prior to vehicle transfer.
The
Company leases vehicles to third parties that are accounted for in accordance with FASB ASC 842, Leases. These leases generally
have lease terms less than one year in duration. The accounting for investments in leases and leased vehicles is different depending
on the type of lease. Each lease is classified as either a direct-financing lease, sales-type lease, or operating lease, as appropriate.
The Company classifies leases as sales-type leases, where the present value of the sum of the lease payments and guaranteed residual
value exceeds the Company’s investment in the leased vehicle.
Revenue
on direct financing and sales-type leases is recognized at the inception of the lease and the related interest income is recognized
over the term of the lease using the effective interest method. Revenues on the sales of vehicles at the end of a lease are recognized
at the inception of the lease, and any net gain or loss on sales of such vehicles is presented within Vehicle Sales Revenues and
Vehicle Sales Cost of Revenues in the condensed consolidated statements of operations. Interest income is derived from the discounted
cash flows of the lease payments. Investments in sales-type leases are comprised of the minimum lease payments receivable and
guaranteed residual at their present value.
The
Company collects sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes
are accounted for on a net basis and are not included in sales or cost of sales.
Subscription
Revenue
The
Company offers a vehicle subscription plan where a customer will pay a monthly fee in exchange for access to a vehicle.
The Company’s subscriptions include monthly swaps, scheduled maintenance and upkeep, license, and registration and in most
cases roadside assistance. Customers have the flexibility to up-or-downgrade a vehicle monthly, with the vehicle payment adjusted
accordingly. There is an activation payment at subscription inception that varies based upon the monthly payment of the
selected vehicle. Monthly vehicle payments are dependent upon the vehicle selected by the customer. Due to the nature of
the subscription contract, where the subscriber can swap out the vehicle in the contract and the performance obligation is completed
and recognized each month, the revenues earned under these contracts are recognized in accordance with ASC 606.
The
Company recognizes revenue when it satisfies a performance obligation by transferring control of a vehicle to a customer under
a subscription contract. The prices of the vehicles are stated in its contracts at stand-alone subscription prices, which are
agreed upon with the customer prior to delivery. The Company satisfies its performance obligation for monthly subscription payments
upon delivery to the customer and in each subsequent month the customer retains possession of the vehicle. The Company recognizes
revenue at the agreed-upon price stated in the contract in the month earned.
The
Company also receives a one-time, non-refundable payment as an activation fee to its vehicle subscription program. This fee is
deferred and amortized to income monthly over the term of the subscription, as the performance obligation (providing a vehicle
for the customer) is completed over the term of the subscription.
Customer
payment has been received prior to initial vehicle transfer and on each monthly recurring anniversary date.
The
Company collects sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes
are accounted for on a net basis and are not included in sales or cost of sales.
Rental
Revenue
The
Company accounts for revenue earned from vehicle rentals and rental related activities wherein an identified asset is transferred
to the customer and the customer has the ability to control that asset under FASB ASC 842, Leases. Revenue from operating
leases is recognized ratably on a straight-line basis over the term of the agreement.
Performance
obligations associated with rental related activities, such as charges to the customer for the fueling of vehicles and value-added
services such as loss damage waivers, navigation units, and other ancillary and optional products, are also satisfied over the
rental period.
Payments
are due from customers at the time of reservation. Additional charges incurred by the customers are collected at the time of vehicle
return. The Company collects sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale.
These taxes are accounted for on a net basis and are not included in sales or cost of sales.
Income
Taxes
Income
tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income
for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference
is expected to reverse. The effect of a change in the tax rate on the deferred tax assets and liabilities is recognized in income
in the period that includes the enactment date. The Company establishes a valuation allowance when necessary to reduce its deferred
tax assets to an amount that is expected to be realized.
Advertising
The
Company expenses advertising and marketing costs in the period incurred. Advertising expense was approximately $6,400 and $25,600,
respectively, for the three and nine months ended September 30, 2020, and approximately $13,700 and $95,600, respectively, for
the three and nine months ended September 30, 2019.
Leases
The
Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”) using
the modified retrospective adoption method with an effective date of January 1, 2019. The condensed consolidated financial
statements for the nine months ended September 30, 2020 and the year ended December 31, 2020 are presented under the new standard.
This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present
value of the lease payments.
Under
Topic 842, the Company applied a dual approach to all leases whereby the Company is a lessee and classifies
leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed
purchase by the Company. Lease classification is evaluated at the inception of the lease agreement. Regardless of classification,
the Company records a right-of-use asset and a lease liability for all leases with a term greater than 12 months. The
lease for the premises occupied in Plantation, Florida (the “Plantation lease”), was classified as an operating
lease as of March 31, 2019. Operating lease expense is recognized on a straight-line basis over the term of the lease.
The
adoption of the new lease standard had a significant impact on the condensed consolidated balance sheets, resulting in the
recognition of $1.4 million of right-of-use assets, $0.3 million of current lease liabilities, and $1.1 million
of long-term lease liabilities in the first quarter of 2019. In addition, the Company recognized an approximate $17,000
cumulative effect adjustment to accumulated deficit on the condensed consolidated statements of shareholders’ equity related to the unamortized
deferred lease costs incurred in prior periods which do not meet the definition of initial direct costs under Topic 842.
The adoption of Topic 842 did not have a significant impact on the lease classification or a material impact on the condensed
consolidated statements of operations and liquidity.
In
July 2020, the Company purchased the leased property in Plantation, Florida. The Company derecognized the right-of-use asset and
operating lease liability by recording the net liability of $32,162 as a reduction of expense in the unaudited condensed consolidated
statement of operations.
In
September 2020, the Company entered into a new lease for premises in Fort Lauderdale, Florida (the “Fort Lauderdale lease”).
The 34-month lease resulted in the recognition of an approximately $476,000 right-of-use asset and operating lease liability.
The
components of the right-of-use asset and lease liabilities as of September 30, 2020 (Fort Lauderdale lease) and December
31, 2019 (Plantation lease) are as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Operating lease right-of-use asset
|
|
$
|
463,625
|
|
|
$
|
1,100,271
|
|
Operating lease liability, current portion
|
|
$
|
168,591
|
|
|
$
|
335,338
|
|
Operating lease liability, net of current portion
|
|
$
|
295,034
|
|
|
$
|
795,147
|
|
Operating
Leases
During
2018, the Company entered into a lease with an entity related through common ownership for its facilities in Plantation,
Florida. The five-year, triple-net lease provides for monthly payments of $28,500 plus CAM and sales taxes, with annual
escalations of three percent (3%). The Company has an option to extend the lease for an additional five-year term, with
annual escalations of three percent (3%). The option to extend the lease is not recognized in the right-of-use asset or
operating lease liability. During July 2020, the Company purchased the facilities.
During
September 2020, the Company entered into a lease with an unrelated entity for office space in Fort Lauderdale, Florida. The 34-month
lease provides for monthly payments of $16,113 plus operating costs and sales taxes.
Discount
Rate
When
available, the Company uses the rate implicit in the lease or a borrowing rate based on similar debt to discount lease payments
to present value. However, the lease generally does not provide a readily determinable implicit rate, and the Company’s
existing debt does not have similar terms. Therefore, the Company used the 5-year Treasury constant maturity at the lease commencement
date to discount lease payments on the Plantation lease. On the new Fort Lauderdale lease, the Company used a discount rate commensurate
with other debt held by the Company on the effective date of the lease contract.
Lease
Cost
Operating
lease cost related to right-of-use asset on the Plantation lease was approximately ($32,135) and $168,500, respectively, for the
three and nine months ended September 30, 2020, and approximately $96,700 and $290,000, respectively, for the three and nine months
ended September 30, 2019. The weighted average discount rate was 2.63%.
Operating
lease cost related to right-of-use asset on the Fort Lauderdale lease was approximately $14,700 for the three months ended September
30, 2020. The weighted average remaining term on the lease is 2.67 years. The weighted average discount rate was 3%.
Recently
Issued Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses of Financial Instruments, which changes the methodology for measuring credit losses on financial instruments and the
timing of when such losses are recorded. This guidance was to be effective for reporting periods beginning after December
15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments –
Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred
the effective dates for the Company, as a smaller reporting company, until fiscal year 2023. The Company currently plans to adopt
the guidance at the beginning of fiscal 2023. The Company is continuing to assess the impact of the standard on its consolidated
financial statements.
Note
3 - Global Pandemic
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain
of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community
as the virus spreads globally beyond the point of origin. On March 20, 2020, the WHO classified the COVID-19 outbreak as a pandemic,
based on the rapid increase in exposure globally.
The full impact of the COVID-19
outbreak continues to evolve as of the date of these condensed consolidated financial statements. As such, it is uncertain as to
the full magnitude that the pandemic will have on the Company’s consolidated financial condition, liquidity, and future results
of operations. Management is actively monitoring the impact of the global situation on its consolidated financial condition, liquidity,
operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to
curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial
condition, or liquidity for fiscal year 2020. To curb the financial impacts of the outbreak, the Company initially reduced the
total compensation to a maximum of $120,000 per employee for all current employees, effective beginning in May 2020. The Company
also reduced the headcount of all nonessential employees, implemented cost cuts, and canceled certain new vehicle orders to accommodate
the then-current demand. The Company has since resumed normal salaries, hiring practices, and vehicle purchases.
Note
4 - Asset Purchase Agreements
On
February 19, 2020, the Company consummated an Asset Purchase Agreement whereby the Company purchased $4.2 million of assets, including
vehicles ($2.87 million) and a perpetual, non-exclusive license for leasing software ($1.35 million). The vehicles were financed
by two different lenders, and the Company paid approximately $526,000 in cash and issued 33,183 shares of common stock at $14.69
per share (closing price of its common stock on February 19, 2020) for the remainder of the purchase consideration.
The
non-exclusive perpetual software license is for a vehicle subscription service app for upcoming launch in the Apple App and Google
Play stores. The license value of $1.35 million is being amortized over its estimated economic useful life of three (3) years.
The
vehicle acquisition was financed in part by two credit lines. The first line from Sutton Leasing funded the purchase of 30 vehicles
for $2.4 million at the floating LIBOR rate on the date of the advance, plus 2.80%, or 4.55% interest on the date of the advance,
with terms ranging from 24 to 36 months. The second line from The Bancorp Bank was a credit line for funding advances up to $850,000
at the Prime Rate per the Wall Street Journal on the date of the advance plus 2%, but not less than 4% on advances on 48-month
terms. The Company used approximately $818,400 at 6.5% interest for the purchase of 13 vehicles, with terms ranging from 32 to
41 months.
On July 13, 2020, the Company
entered into an Asset Purchase Agreement to purchase a 75% interest in certain assets and assume certain liabilities held by a
dealership in Newnan, Georgia for $27.0 million in cash, which will be accounted for as a business combination. The acquisition
has not yet been consummated.
On
August 28, 2020 the Company entered into an Asset Purchase Agreement (the “WV APA”) to acquire an 85% interest in
certain assets held by three dealerships in West Virginia for $12 million in cash. In connection with the WV APA, the Company
has agreed to acquire certain of the dealership’s real properties at values yet to be determined. The acquisition has
not yet been consummated.
Also on August 28, 2020, the
Company entered into an Asset Purchase Agreement the (“TN APA”) to acquire certain assets held by a dealership in Tennessee
for $2.5 million in cash. In connection with the TN APA, the Company has agreed to acquire the dealership’s real property
for $5.4 million. The acquisition has not yet closed.
Note 5 – Proposed Business Combination
During the three months ended
September 30, 2020, the Company entered into several agreements to acquire a controlling interest in certain dealerships as more
fully described below.
On September 3, 2020, the Company
entered into a Dealership Asset Purchase Agreement (“DAPA”) to acquire certain assets of a Southwest Florida dealership
for $36.0 million. In connection with the DAPA, the Company has agreed to acquire the dealership’s real property for $33.1
million. The acquisition has not yet been consummated.
As
part of the pending dealership acquisitions initiated during the third quarter, the Company paid deposits totaling $4,250,000.
The deposits are considered current assets as the acquisitions are expected to be completed within the year.
On October 9, 2020, the Company
entered into a Membership Interest Purchase Agreement (“MIPA”) to acquire a 70% interest in a group of dealership franchises
and related businesses in New York for a total purchase price of $425.6 million, paid in cash and a note, which will be accounted
for as a business combination. The acquisition has not yet been consummated.
Note
6 - Concentration of Credit Risk
The
Company maintains its cash balances in one financial institution which is insured by the Federal Deposit Insurance Corporation
(“FDIC”) for up to $250,000 per institution. From time to time, its balances may exceed these limits.
Note
7 - Property, Equipment and Leasehold Improvements
Property,
equipment and leasehold improvements, net is summarized as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Building
|
|
$
|
3,164,300
|
|
|
$
|
-
|
|
Land
|
|
|
435,700
|
|
|
|
-
|
|
Vehicles
|
|
|
6,822
|
|
|
|
28,730
|
|
Furniture, fixtures, and equipment
|
|
|
392,262
|
|
|
|
301,417
|
|
Leasehold improvements
|
|
|
298,082
|
|
|
|
288,738
|
|
|
|
|
4,297,166
|
|
|
|
618,885
|
|
Less: Accumulated depreciation and amortization
|
|
|
(181,680
|
)
|
|
|
(109,530
|
)
|
|
|
$
|
4,115,486
|
|
|
$
|
509,355
|
|
Depreciation
and amortization expense related to vehicles, equipment, and leasehold improvements amounted to $39,625 and $82,790, respectively,
for the three and nine months ended September 30, 2020, and $13,861 and $49,270, respectively, for the three and nine months ended
September 30, 2019.
On
July 8, 2020, the Company purchased the building where its headquarters were located in Plantation, Florida, from its landlord,
ST RXR Investments, LLC, a related party owned by the Company’s President and Chief Executive Officer, for $3.6 million
in cash.
Note
8 - Intangible Assets
Intangible
assets, net, are summarized as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Software license
|
|
$
|
1,350,000
|
|
|
$
|
-
|
|
Website design and other intangibles
|
|
|
189,234
|
|
|
|
99,776
|
|
|
|
|
1,539,234
|
|
|
|
99,776
|
|
Less: Accumulated depreciation and amortization
|
|
|
(339,115
|
)
|
|
|
(30,449
|
)
|
|
|
$
|
1,200,119
|
|
|
$
|
69,327
|
|
Amortization
expense amounted to $127,478 and $308,666, respectively, for the three and nine months ended September 30, 2020, and $10,135 and
$19,989, respectively, for the three and nine months ended September 30, 2019.
As
of September 30, 2020, future amortization of intangible assets was as follows:
Years ending December 31,
|
|
|
|
2020 (three months)
|
|
$
|
125,712
|
|
2021
|
|
|
497,819
|
|
2022
|
|
|
478,412
|
|
2023
|
|
|
89,254
|
|
2024
|
|
|
8,922
|
|
|
|
$
|
1,200,119
|
|
Note
9 – Investment in Leasing Operations
Investment
in leasing operations consists of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Sales-type leases:
|
|
|
|
|
|
|
Minimum lease payments receivable
|
|
$
|
3,493,378
|
|
|
$
|
157,542
|
|
Unearned income
|
|
|
(1,686,348
|
)
|
|
|
(47,114
|
)
|
Guaranteed residual value of vehicles
|
|
|
11,487,411
|
|
|
|
690,333
|
|
Total investment in leasing operations
|
|
$
|
13,294,441
|
|
|
$
|
800,761
|
|
As
of September 30, 2020 and December 31, 2019, the total investment in sales-type leases is classified as short-term as all leases
are due within one year of the balance sheet date.
The
assets held under the investment are leased to nine customers. A certain residual value of the vehicles is guaranteed by these
customers, whether those customers ultimately purchase the vehicle at the end of the lease term or not.
Leasing
income as included in Revenues on the consolidated condensed statements of operations consists of the following:
|
|
Three Months Ended
|
|
|
Nine months Ended
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
Interest income on sales-type leases
|
|
$
|
197,210
|
|
|
$
|
-
|
|
|
$
|
360,383
|
|
|
$
|
-
|
|
Selling profit at commencement of sales-type lease
|
|
|
591,762
|
|
|
|
-
|
|
|
|
1,391,820
|
|
|
|
-
|
|
Operating lease income
|
|
|
-
|
|
|
|
43,858
|
|
|
|
14,591
|
|
|
|
328,836
|
|
Leasing income
|
|
$
|
788,972
|
|
|
$
|
43,858
|
|
|
$
|
1,766,794
|
|
|
$
|
328,836
|
|
Note
10 - Related Party Transactions
During
2018, the Company entered into a non-interest-bearing revolving line of credit agreement with an entity related to the majority
shareholder (credit limit is $4.0 million). Amounts drawn on the line of credit become due and payable on the earlier of written
demand by the lender or May 21, 2020, as defined in the agreement. The line of credit was paid in full in December 2019.
During
2018, the Company entered into a lease with an entity related through common ownership for its facilities in Plantation,
Florida. The five-year, triple-net lease provided for monthly payments of $28,500 plus CAM and sales taxes, with annual
escalations of three percent (3%). The Company had an option to extend the lease for an additional five-year term, with
annual escalations of three percent (3%). The option to extend the lease was not recognized in the right-of-use asset or
operating lease liability.
On July 8, 2020, the Company
terminated the lease and purchased the land and building where its headquarters are located in Plantation, Florida, from its landlord,
ST RXR Investments, LLC, a related party owned by the Company’s President and Chief Executive Officer, for $3.6 million in
cash. The land and building was valued based upon a third party appraisal.
The
Company leases vehicles under its subscription and sales-type programs to certain officers and directors under 6-month contracts.
Total payments made by officers and directors for the vehicle leases amounted to $2,097 and $86,556 for the three- and nine-month
period ended September 30, 2020.
Note
11 - Accounts Payable and Other Current Liabilities
Accounts
payable and other current liabilities are summarized as follows:
Accounts
Payable:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Accounts Payable
|
|
$
|
121,513
|
|
|
$
|
68,033
|
|
Credit Card Payable
|
|
|
42,860
|
|
|
|
44,807
|
|
Total Accounts Payable
|
|
$
|
164,373
|
|
|
$
|
112,840
|
|
Other
Current Liabilities:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Accrued Payroll
|
|
$
|
76,958
|
|
|
$
|
157,174
|
|
Customer Deposits on Hand
|
|
|
102,786
|
|
|
|
163,774
|
|
Subscription Deferred Activation Fees
|
|
|
81,004
|
|
|
|
145,986
|
|
Property Tax Accrual
|
|
|
56,733
|
|
|
|
61,577
|
|
Sales & Other Taxes Payable
|
|
|
54,544
|
|
|
|
42,483
|
|
Other Accruals
|
|
|
334,208
|
|
|
|
82,069
|
|
Total Other Current Liabilities
|
|
$
|
706,233
|
|
|
$
|
653,063
|
|
Note
12 - Lease Commitments
The
annual minimum lease payments, including fixed rate escalations, on the Company’s operating lease liability with an unrelated
party in Fort Lauderdale, Florida as of September 30, 2020 are as follows:
Years Ending December
31:
|
|
|
|
2020 (three months)
|
|
$
|
16,113
|
|
2021
|
|
|
193,359
|
|
2022
|
|
|
193,358
|
|
2023
|
|
|
82,629
|
|
Total minimum lease payments
|
|
|
485,459
|
|
Less: amount representing interest
|
|
|
(21,834
|
)
|
Present value of future payments
|
|
|
463,625
|
|
Less: current obligations
|
|
|
(168,591
|
)
|
Long-term obligations
|
|
$
|
295,034
|
|
Operating
Leases
During
2019, the Company entered into an agreement for the right to use certain parking spaces in Oakland Park, Florida. The month-to-month
agreement calls for monthly rent of $5,000 per month, plus sales tax.
Rent
expense charged to operations, inclusive of CAM and taxes, was $36,847 and $307,721, respectively, for the three and nine months
ended September 30, 2020, and $98,908 and $400,032, respectively, for the three and nine months ended September 30, 2019.
Note
13 - Vehicle Financing and Notes Payable
In
2019, Mercedes-Benz Financial approved a $3.5 million financing facility for the Company’s subscription and rental fleet
inventory purchases. During 2019, the Company purchased vehicles totaling approximately $2.4 million under various Note and Security
Agreements with 10% cash down payments and the remaining $2.16 million financed over 36 months at an interest rate of 4.89%.
During
the nine months ended September 30, 2020, Mercedes-Benz Financial increased the approval amount from $3.5 million to $10
million. During the first quarter of 2020, the Company financed vehicles previously purchased totaling approximately $802,000
under a Note and Security Agreement with no cash down payment and financed over 36 months at an interest rate of 4.09%.
During the second quarter of 2020, the Company financed vehicles previously purchased totaling approximately $2.3 million
under two new Note and Security Agreements with 10% cash down payment and financed over 36 months at interest rates ranging
from 3.99% to 4.15%. During the third quarter of 2020, the Company financed vehicles totaling approximately $415,500 under a
new Note and Security Agreement with 10% cash down payment and financed over 36 months at an interest rate of 4.15%. As of
September 30, 2020 and December 31, 2019, the outstanding principal and accrued interest balance on the notes was
approximately $2,455,300 and $2,104,000, respectively.
In
February 2020, the Company entered into an Asset Purchase Agreement (see Note 4), which was financed in part by two credit lines.
|
●
|
The
first line from Sutton Leasing was for $2.4 million at the floating LIBOR rate on the
date of the advance, plus 2.80%, or 4.55% interest on the date of the advance, with terms
ranging from 24 to 36 months. The outstanding balance on the Sutton line was approximately
$772,900 as of September 30, 2020.
|
|
●
|
The
second line from The Bancorp Bank is a credit line for funding advances up to $850,000
at the Prime Rate per the Wall Street Journal on the date of the advance plus 2%, but
not less than 4% on advances on 48-month terms. The Company used approximately $818,400
at 6.5% interest to purchase vehicles, with terms ranging from 32 to 41 months. The outstanding
balance on the Bancorp line was approximately $343,900 as of September 30, 2020.
|
In
2019, NextGear Capital approved a $250,000 vehicle floorplan line with an interest rate of 10% and principal payments due at 60
and 90 days and final payoff due at 120 days or upon vehicle sale. The outstanding principal and accrued interest balance was
approximately $60,000 as of December 31, 2019. The balance was paid off during the first quarter of 2020
In
total, the Company had an outstanding principal and accrued interest balance amounting to approximately $3,572,100 and $2,164,000
as of September 30, 2020 and December 31, 2019, respectively.
The
outstanding principal and accrued interest balances were allocated between its current (due over the next twelve months) and noncurrent
(due after the next twelve months) components.
Note
14 - Contingencies
The
Company is subject to asserted claims and liabilities that arise in the ordinary course of business. The Company maintains third-party
insurance to mitigate potential losses from these actions. In the opinion of management, the amount of the ultimate liability
with respect to these actions will not materially affect the Company’s financial position or results of operations.
On
February 10, 2020, a partial summary judgment was granted for the plaintiff for alleged breach of its license agreement to use
garage parking spaces in Miami Beach, Florida, which the Company terminated in April 2019. The current asserted losses by the
plaintiff total approximately $224,250, with a potential maximum exposure under the terminated agreement of approximately $580,450.
The judge has ordered the parties to further mediate the dispute, and the Company is appealing the summary judgment. During the
second quarter of 2020, the Company posted a bond with the court to continue mediation of this matter.
Note
15 - Equity
In
February 2020, the Company completed a secondary public offering, selling 1,200,000 shares of common stock at an offering price
of $16.00 per share, and warrants to purchase shares of common stock. Aggregate gross proceeds from the offering were approximately
$19.2 million, and net proceeds received after underwriting fees and offering expenses were approximately $17.3 million.
In
February 2020, as part of its Asset Purchase Agreement, the Company issued 33,183 shares of common stock valued at a price of
$14.69 per share, the closing price on the date of the transaction, or $487,454.
In
May 2020, the Company offered to rescind the purchase of certain shares of Company stock, including shares converted from debt
in 2018 and 2019. The Company estimates that the maximum amount of costs related to the rescission offer will be approximately
$1.6 million, plus accrued interest. In July 2020, the Company paid approximately $163,000 to investors who accepted the offer,
including approximately $100,000 recorded as Treasury Stock for the repurchase of 21,053 shares of Common Stock, and approximately
$63,000 recorded as interest, based on a price per share of $4.75. All other offers have since expired.
In September 2020, the Company
issued 75,000 shares of common stock in exchange for $249,750 in connection with the exercise of an option with an exercise price
of $3.33 per share granted to an investor.
In September 2020, the Company
issued 7,427 shares of common stock in connection with the cashless exercise of 10,695 underwriter warrants with exercise prices
of $6.25 per share. The underwriter warrants were granted in connection with the Company’s IPO.
Note
16 - Stock Options
As
of September 30, 2020 and 2019, the Company had $305,150 and $265,914, respectively, of unrecognized compensation costs related
to stock options outstanding, which will be recognized through 2024. The Company recognizes forfeitures as they occur. Share-based
compensation expense was $27,595 and $72,081, respectively, for the three and nine months ended September 30, 2020, and $30,137
and $79,778, respectively, for the three and nine months ended September 30, 2019. The total amount recorded in “Additional
paid-in capital” related to stock options as of September 30, 2020 was approximately $632,000. The weighted average remaining
contractual term for the outstanding options as of September 30, 2020 and December 31, 2019 is 2.46 and 3.54 years, respectively.
Stock
option activity for the nine months ended September 30, 2020 and year ended December 31, 2019 are as follows:
|
|
Number of Shares
|
|
|
Weighted Avg. Exercise Price
|
|
Outstanding as of December 31, 2018
|
|
|
511,000
|
|
|
$
|
3.82
|
|
Options granted
|
|
|
112,500
|
|
|
|
7.01
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
Options forfeited or expired
|
|
|
(279,000
|
)
|
|
|
-
|
|
Outstanding as of December 31, 2019
|
|
|
344,500
|
|
|
$
|
4.57
|
|
Options granted
|
|
|
105,000
|
|
|
|
8.15
|
|
Options exercised
|
|
|
(75,000
|
)
|
|
|
3.33
|
|
Options forfeited or expired
|
|
|
(56,000
|
)
|
|
|
6.00
|
|
Outstanding as of September 30, 2020
|
|
|
318,500
|
|
|
$
|
5.12
|
|
Vested as of September 30, 2020
|
|
|
188,507
|
|
|
$
|
3.96
|
|
Expected to vest as of September 30, 2020
|
|
|
129,993
|
|
|
$
|
6.81
|
|
Note
17 - Purchase Warrants
Common
stock purchase warrant activity for the nine months ended September 30, 2020 and year ended December 31, 2019 are as follows:
|
|
Number of Warrants
|
|
|
Weighted Avg. Exercise Price
|
|
Outstanding as of December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Issued
|
|
|
115,000
|
|
|
|
6.25
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2019
|
|
|
115,000
|
|
|
$
|
6.25
|
|
Issued
|
|
|
36,000
|
|
|
|
20.00
|
|
Cancelled
|
|
|
(3,268
|
)
|
|
|
-
|
|
Exercised
|
|
|
(7,427
|
)
|
|
|
-
|
|
Outstanding as of September 30, 2020
|
|
|
140,305
|
|
|
$
|
9.53
|
|
In
connection with the Company’s IPO, the Company granted warrants to purchase 115,000 shares of its Common Stock at $6.25
per share to its underwriters.
In
February 2020, in connection with its second public offering, the Company granted warrants to purchase 36,000 shares of its Common
Stock at $20.00 per share to its underwriters.
In
September 2020, certain warrants were exercised in a cashless conversion for 7,427 shares of Common Stock, and 3,268 warrants
to purchase Common Stock were cancelled in connection with the cashless conversion.
Note
18 - Net Loss per Share Attributable to Common Shareholders
The
basic and diluted net loss per common share was the same for each period presented as the Company’s potentially dilutive
shares would be antidilutive. The weighted average shares of Common Stock outstanding were 9,920,440 and 9,724,385, respectively,
for the three and nine months ended September 30, 2020, and 10,922,820 and 19,925,558, respectively, for the three and nine months
ended September 30, 2019.
Note
19 - Subsequent Events
On October 1, 2020, the Company issued options
to purchase 8,000 shares of Common Stock at a strike price of $30 per share.
On November 2, 2020, the Company
issued options to purchase 5,000 shares of Common Stock at a strike price of $23.15 per share.
On October 9, 2020, the
Company entered into a Membership Interest Purchase Agreement (“MIPA”) to acquire a 70% interest in a group of
dealership franchises and related businesses in New York for a total purchase price of $425.6 million, paid in cash and a
Note, which will be accounted for as a business combination. The acquisition has not yet been consummated.
On November 3, 2020, LMP Finance,
LLC, a Delaware limited liability corporation, a subsidiary of the Company, entered into a letter agreement with LTO Holdings,
LLC (“LTO”), pursuant to which LTO agreed to exclusively lease and/or subscribe for new vehicles from the Company
for a period of two years following the date of the letter agreement in an amount of at least $24,000,000.